From Process Efficiency to Savings: 12 KPIs for Business Spend Management

Coupa recently released its 2018 benchmark report on measuring business spend management success by means of 12 key performance indicators (KPIs). The 12 KPIs, which cover process efficiency, digitization, compliance and savings, were based on anonymized data from the top quintile of Coupa customers’ performance in each KPI.

In this post, we will look in more depth at each of the four categories, but first, here is the full list of KPIs:

1. Requisition-to-order time: 11.6 hours
2. Invoice-approval cycle time: 22.1 hours
3. Expense report approval cycle time: 27.9 hours
4. First-time match rate: 95% of POs
5. Electronic PO processing: 98.9% of POs
6. Electronic invoice processing: 83.8% of invoices
7. Structured spend: 53.7% of spend
8. Manual expense audit: 3.5%
9. Pre-approved spend: 97.6%
10. Expense report lines: 97.8% within policy
11. On-contract spend: 72.1%
12. Realized savings: 9%

Process Efficiency

Short cycle times for requisition-to-order, invoice approval and expense report approval are crucial. The first KPI, requisition-to-order time, measures how long it takes from the time an employee submits a requisition to the time the purchase order (PO) is placed. For leaders, or the top quintile of Coupa customers in this KPI, that average time is 11.6 hours. A longer cycle time here can lead to employee frustration and lower productivity, as can a long expense report approval cycle time.

Similarly, a short invoice-to-approval cycle time is important for good supplier relations. Aside from avoiding supplier frustration and penalties, improving one’s invoice-to-approval cycle time can help one negotiate better terms for future contracts.

If your company has not done so already, moving from paper-based requisition to a digitized process will greatly improve efficiency. Another recommendation the report gives is to reduce the total number of approvers. Two approvers is a good rule of thumb, although higher-cost purchases may call for more.

Digitization

The next five KPIs have to do with digitization, which cuts down on the inefficiencies of manual paper processing while improving employee and supplier satisfaction.

On average, 98.9% of leaders’ POs are processed electronically. This decreases the risk of fraud, reduces invoice and payment errors and supports accurate budgeting. And as for invoices, leaders on average process 83.8% of their invoices electronically. This also reduces fraud and error while improving supplier relationships and saving costs on manual processing.

Compliance

The report provides two KPIs for compliance: pre-approved spend and expense report lines within policy. The former refers to the amount of spend that has been approved before an order is made or work is done, and for leaders, 97.6% of their spend is pre-approved. The latter KPI measures the share of expense report lines that adhere to the company’s expense policies, and for leaders, this percentage is 97.8%.

The higher these two percentages, the easier it is for financial departments to close the books on time every month and not be surprised by late invoices. The report recommends that companies put a “no PO, no pay” policy in place, follow a strict expense policy and automate approval workflows.

Savings

Last, we come to savings. Companies need to aim for a high percentage of on-contract spend, or spend that is attached to a pre-approved contract. This helps realize savings by enabling procurement to negotiate better contracts and pricing and reducing financial risk.

The final KPI is realized savings, or the amount of savings realized under vendor contracts. This allows companies to invest the savings strategically, as well as inspire a company culture of smart spending. Leading organizations average 9% in realized savings.

Check out the 2018 Benchmark Report: 12 Ways to Measure Business Spend Management Success here.