Earlier in this series on the Hackett Group metrics that Richard Waugh shared at Zycus Horizon, I focused on eProcurement and broader P2P efficiency. Today, I’d like to turn your attention to overall effectiveness metrics that I believe go even further in justifying increased efforts and attention to eProcurement and e-invoicing activities.
Warning: these high-level numbers will convince even spend curmudgeons to take action.
- Percent of indirect cost savings: World-class organizations achieve indirect cost savings of 6.69% compared with 3% for peer group (average) performers.
- Percent of indirect procurement process costs as % of spend: World-class organizations in this capacity dedicate .68% of overall spend activities to process costs compared with .85% for peer group organizations
- Summing up these two previous metrics suggests a near ten-times return on investment ROI) for top performing organizations, compared with roughly 4X for peer group performance.
- Percent of early payment discounts as a percentage of spend: World-class organizations achieve a .13% uptake for early payment discount adoption as a percentage of overall spend. This contrasts with .018% (approximately 80% less) uptake for peer group performers
As Richard noted, the Hackett data suggests that “world-class generates nearly three times more ROI at 20% lower processing costs,” compared with peer group performance. And “almost three-fourth of cost savings” is in the form of “cost reduction vs. cost avoidance.”
If this delta between top and average performers does not provide enough rationale for organizations to invest in the right types of procurement, A/P and treasury collaboration to improve performance, ROI, and savings, as well as the right technologies to drive automation and uptake, then there’s clearly a misunderstanding inside companies between what procurement is capable of delivering to the business and what it actually does.