In the previous blog we discussed how the current P2P performance remains a far cry from the theoretical goal of a completely “touchless” P2P process.
Let us start with the evaluation of P2P process efficiency by unlocking;
What are the Key Measures of P2P Process Efficiency?
Consistent with the original value proposition of e-Procurement to divert more resources from tactical to more strategic activities, perhaps the best way to measure progress toward that objective would be to simply examine how a procurement organization’s resources are allocated.
According to benchmark data from The Hackett Group’s 2011 “Book of Numbers” Research Series, “Optimizing Procurement’s Service Delivery,” world-class procurement organizations devote just above a third (34%) of total procurement costs to transactional purchase-to-pay processes, while the peer group consumes 43% of total procurement costs on tactical buying.
Moreover, world-class performers allocate only 21.6 transactional FTEs per billion dollars of indirect spend, while the peer group applies 41% more resource with 30.5 transactional FTEs.
Early adopters of first generation e-Procurement tools, which focused primarily on the requisition-to-order processes, have reaped efficiency benefits in the front-end of the P2P process – with reduced cycle times and lower per transaction costs. Consider for example the 3x productivity advantage for top performers in the Hackett benchmarks, where PO processing employees are able to process 11,667 POs per FTE as compared to 4,267 for their counterparts.
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Likewise order costs are lower by a factor of 3, with requisition to PO processing costs of only $6.81 per order as compared to $18.17 for the peer group. Allowing for the fact that world-class performers could also have implemented better underlying processes, only the introduction of process automation could produce such divergent productivity measures.
Stay tuned as we discuss what steps lagging performers can take to close the P2P efficiency gap.
