Not all firms can get their procurement processes right. Indeed, many firms that think that their procurement processes are at par also do not realize that the process often comes with numerous hidden inefficiencies that cannot be eliminated easily. The first step in reducing inefficiencies really is finding out where the inefficiencies are so that they can be targeted and reduced. This is where the reporting and analytics feature offered by online procurement software solutions come in to the picture. Using this module, firms can generate different reports that tell them how the procurement function is performing. In this post, we will look at some of these metrics and what they mean to the firm.
One of the more important metrics that tells the organization how much its procurement process is following the organizational procurement policy, this metric allows users to update and amend their policies with respect to current needs and requirements. In many organizations, procurement policies are outdated, and envision an idealistic nature without actually taking into account the needs to today. Business units or divisions showing decreased compliance should not necessarily be taken as them missing their policy requirement, but rather how much the policy is not taking into account the actual needs of the organization.
Not all supplies that are received are up to the mark in terms of quality or performance. It is in such times that this metric will help organizations evaluate how good the supplier is, and how much the firm can depend on the supplier. A close metric that follows this is the replacement time, the time taken for the supplier to replace the defective product in question. By understanding both metrics in conjunction, users can understand just how reliable the supplier is, and whether the firm needs too diversify its supplier base to ensure a stable rate of supply.
Procurement happens in a variety of cycles. One of them is the time it takes for the firm to receive the product after a requisition has been filled. Another cycle deals with the time it takes for the firm to pay for the product once the product has been received. In many organizations, these two cycles can be combined, and the whole process can be taken as one procure-to-pay cycle, the entire time it takes from the time of filling in the requisition for a product to the time it is paid for. Of course, for organizations, it is better to keep the first part of the cycle shorter and the second part longer, where as for suppliers, it is better to keep the first part of the cycle longer and the second part of the process longer.
This conflict can be resolved effectively and both organizations and suppliers can work together closely if both cycle times are kept a check on, or if the entire process is measured as one, and both parties make efforts to keep the cycle short.
Cost and Savings:
Another important metric that is worth tracking is the cost of a supply over time, and the various savings on the cost, that come in the form of discounts. This is something that organizations would want to keep down, while at the same time ensuring that the continuity of business is maintained at all times. By keeping a close eye on the total cost, or the spend under management, firms can also keep a check on maverick spending that leads to increased costs.
There is no question that a data-driven procurement process is much better than a process that is driven largely by the decisions taken at the whim of the senior people involved in the process. The world has changed a lot, and digital processes can ensure savings and better performance that in many ways would not be achieved by traditional processes. Apart from the few metrics mentioned above, firms would also be able track multiple Key Performance Indicators (KPIs) simultaneously using the procurement management software solution.
These metrics can also be shared across the organization with all the parties involved in the process so that everyone is kept abreast of the developments in the various steps of the process and their role in ensuring procurement success across the organization.