Technology, Standardization, and Purchase Order Processing

Spend Matters welcomes a new guest post from Becky Partida of APQC.

The use of scorecards, dashboards, and business reviews in the procurement function has many organizations looking for measures that provide insight into areas for improvement. APQC recently released a report titled Blueprint for Success: Procurement (Second Edition), looking at key measures for operational aspects of procurement. Using cross-industry data from APQC’s Open Standards Benchmarking in procurement, the report provides insight on how organizations perform on these measures and the steps organizations can take to improve their performance. One of the measures featured in the report is the total number of purchase orders processed per procurement full-time equivalent employee (FTE).

APQC’s data shows that high-performing organizations process over 1,300 more purchase orders per FTE than low-performing organizations, as the figure below illustrates. The number of purchase orders processed per procurement FTE is a good proxy for internal procurement efficiency. The more purchase orders a procurement professional can manage, the fewer people (and headcount dollars) are needed to complete purchase order processing. This presents an opportunity for lower-performing organizations to improve organizational efficiency and reduce personnel costs associated with this activity. By being more efficient, organizations can direct employee efforts to more valuable activities.

APQC_Figure 1
Among top-performing organizations, those that have invested in e-procurement or e-sourcing process on average 1,923 purchase orders per FTE, whereas organizations that have not invested in such systems process 1,450 purchase orders per FTE. Among bottom performing organizations, the difference is less stark but still significant: those with an e-procurement or e-sourcing system process 450 purchase orders per FTE, and those without such systems process only 238.Processing purchase orders has traditionally been a labor-intensive process. As such, many organizations have turned to technology such as e-procurement systems to automate tasks and increase the amount of work employees can complete. Some of these organizations use e-procurement to buy both direct and indirect materials so they can leverage volume discounts, consolidate buying, and further decrease costs related to human labor.

Another key driver for increasing the number of purchase orders processed is to standardize processes across the entire purchasing function. This does not necessarily mean that the organization must centralize the procurement function, only that processes should be standardized across the organization. A standardized system makes it easier for purchase orders to be placed and ensures that employees complete tasks in a consistent manner across the organization.

Although ordering materials and services may seem straightforward, this is where many organizations spend much of their procurement time and money. Our research shows that organizations devote more than half of their procurement time and resources to ordering materials and services. However, organizations can take steps to increase the efficiency with which they process purchase orders and conduct other activities related to purchasing. By standardizing procurement processes and using an electronic system to facilitate purchase order processing, organizations are able to reduce the number of procurement personnel needed and redirect employee efforts toward more strategic activities, such as managing supplier relationships.

Voices (3)

  1. Maverick:

    Good article, but these numbers are too low. It is probably based on total number of Procurement FTEs – which is not as relevant as POs per PO PROCESSING FTEs (which is how Hackett does it). If the FTEs that process POs only represent 33% of total FTEs, then these numbers are 3X too low!
    You need to be careful with benchmark figures like this.
    The article told the right story though!

  2. Kevin Turner:

    Great article! Other research I’ve seen produces very similar conclusions so it’s great to see it all validated.

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