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Calculating Current Procurement Costs and Potential Savings to Make a Case for Automation

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Making a case for automation can seem like a daunting task. Procurement professionals must find clear, compelling ways to communicate the potential savings and benefits of P2P automation to their organization’s decision-makers. In a conversation with PayStream Advisors, Paramount WorkPlace CEO Salim Khalife explained that the first step organizations should take when considering automation is “to make sure that their house is in order” by ensuring internal adoption and management buy-in — but how can this be done?

One persuasive argument for automation lies in the potential savings organizations can achieve using a robust procurement solution. Khalife stated that “any system that takes the burden away and all the touch points should be able to give you at least 50% to 60% savings, maybe even 70%, on the cost to process a requisition or a purchase order.” Procurement professionals should first assess their organization’s current procurement state and costs, then demonstrate the savings that can be delivered by P2P automation. To this end, Paramount WorkPlace and PayStream Advisors have collaborated to develop the Procure-to-Pay Calculator.

The Procure-to-Pay Calculator is a simple tool to help organizations measure the total cost of processing purchase orders and invoices. This calculator factors in all of the variables contributing to a company’s estimated cost per purchase order (CPPO) and cost per invoice (CPI), such as the time procurement and AP professionals spend on all activities across the PO and invoice lifecycles. After entering some basic information, companies can quickly estimate their current costs — and also see how those costs could change by automating processes.

For example, a mid-market organization processing 1,500 requisitions and 3,000 invoices per month may have three purchasing agents, two AP clerks and a manager in each department. Using the Procure-to-Pay Calculator, organization leaders can clearly see their current estimated CPPO and CPI; they can also view the potential savings they can achieve with automation — up to 52% per year.

Demonstrating the staggering amount of savings that can be achieved with P2P automation is an excellent way to catch the attention of decision-makers, especially when presented alongside the other benefits of a procurement tool. Other significant advantages of these solutions include the ability to manage all procurement and order management tasks under one platform, reduce paper and manual processing, enhance communication among departments and cut back on staff time spent on low value-added tasks. Khalife also highlighted some key functionalities of Paramount WorkPlace’s solution, including multicompany purchasing, project-based requisition down to the activity level, and the elimination of maverick spend.

Khalife recommends involving a variety of stakeholders when building a business case, including purchasing managers, users from different departments and controllers or a chief financial officer. These stakeholders will be able to clearly see the potential benefits and help guide an organization as it identifies automation goals and researches potential solutions. Identifying how a company can benefit in many ways — financially, operationally and strategically — strengthens the case for automation, and helps decision-makers truly understand the impact that a procurement tool could have across the entire organization.

Professionals considering an automation initiative should consult The Ultimate Guide to Building a Procure-to-Pay Business Case for more ways to drive change and implement new processes. The benefits of a holistic procurement platform are also described in further detail in PayStream’s Integrating Purchasing and Payables report.

Salim Khalife is founder, president and CEO at Paramount WorkPlace.

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