2023 Procurement

Benchmarks
A Guide to Excellence

Sarah Lowes

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Procurement's
Evolving Role

Several factors have contributed to this shift.

$100M
Globalization has led to increasingly complex
supply chains, requiring procurement teams to
manage suppliers from different countries and
navigate complex regulatory environments. The
rapid pace of technological advancements
The financial rewards of improving
has also made it more critical than ever for
procurement practices are substantial. For
procurement professionals to stay up to date
example, moving from the mid to top
with the latest tools and trends, enabling them
quartile in terms of procurement
to drive efficiency and effectiveness in their
effectiveness boosts annual savings by
processes.
more than 1%. So, for a company with
$10B in annual spending, this improvement
Additionally, growing awareness around
in procurement can translate to savings of
environmental, social, and governance (ESG)
$100 million.
factors has pressured organizations to be more
responsible and transparent in their
https://www.mckinsey.com/capabilities/operati
procurement practices. As a result,
ons/our-insights/now-is-the-time-for-
procurement-to-lead-value-capture procurement teams are now expected to
manage risk, ensure compliance, and
contribute to sustainability goals.

The Changing Landscape Strategic Importance in Modern

Over the past few decades, procurement has
undergone a significant transformation. What
Organizations
was once considered a purely tactical function
Procurement has taken on a more strategic role
focused on purchasing goods and services at
in this new era, focusing on delivering value
the lowest possible cost has evolved into a
beyond cost savings.
strategic business partner responsible for
managing supplier relationships, driving
Here are some of the ways in which
innovation, and contributing to overall procurement contributes to the overall success
organizational growth. of modern organizations:

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 Cost Management: While cost savings remain an essential aspect
of procurement, the focus has shifted from simply obtaining the
lowest prices to managing costs holistically. This includes
Procurement considering the total cost of ownership (TCO) of goods and
services, which considers factors such as quality, reliability, and
Impact Upon
after-sales support.
Organizational Goals
Supply Chain Risk Management: Supply chain disruptions can
significantly affect businesses in an increasingly interconnected
world. Procurement teams play a crucial role in identifying and
mitigating risks, such as supplier financial instability, geopolitical
issues, and potential disruptions due to natural disasters or global
pandemics.

Supplier Relationship Management: Strong supplier relationships

are critical to procurement success. By fostering collaboration and
open communication, procurement teams can work with suppliers
to drive innovation, improve quality, and ensure consistent delivery
performance.

Sustainability and ESG: Procurement teams are uniquely

positioned to support an organization's sustainability goals by
selecting suppliers that adhere to environmentally friendly
practices, promoting ethical labor standards, and ensuring
compliance with relevant regulations.

Innovation: Procurement teams can drive innovation by identifying

and partnering with suppliers that offer cutting-edge products or
services. By staying abreast of market trends and leveraging
supplier expertise, procurement professionals can help their
organizations maintain a competitive edge.

Internal Collaboration: Procurement teams must collaborate

effectively with other functions within the organization, such as
finance, operations, and research and development. By working
together, these teams can align their objectives and ensure that
procurement activities support overall business goals.

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Understanding What are KPIs, and Why are They Important?

KPIs:
Key Performance Indicators (KPIs) are quantifiable
metrics that help organizations measure and evaluate
their performance against strategic objectives.

The Foundation In procurement, KPIs serve as valuable tools for

monitoring the efficiency and effectiveness of
of Procurement procurement processes, identifying areas for
improvement, and guiding decision-making.

Excellence KPIs are essential in driving procurement excellence

for several reasons:

Alignment with Organizational Goals: By establishing KPIs that are

Alignment with directly linked to the overall business objectives, procurement teams can
Organizational Goals ensure their activities are aligned with the company's strategic vision.

Performance Monitoring: KPIs enable procurement teams to track their

Performance progress, identify trends, and uncover potential issues before they
Monitoring become critical.

Continuous Improvement: Regularly measuring and analyzing KPIs

allows procurement professionals to pinpoint areas for improvement, set
targets, and implement changes that drive continuous improvement in
Continuous their processes.
Improvement

Accountability: KPIs create a sense of responsibility among procurement

team members, ensuring they remain focused on achieving their
performance targets.
Accountability

Communication: Sharing KPI results with stakeholders, both within and

outside the procurement function, fosters transparency and collaboration
and helps demonstrate the value procurement brings to the organization.

Communication

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 2023 TOP Procurement KPIs

• Supplier Diversity Composition

• Risk Management Evaluation
Completion Rate
ESG • Risk Management Evaluation
Cycle TIme

• Contract Management Cycle

TIme
• Structured Spend
Source to • On-Contract Spend

Contract • Spend with Primary Suppliers

• Pre-Approved Spend
• Electronic PO Processing
• Requisition-to-Order Cycle Time
Procurement

• Supplier Information
Management Cycle Time
Supplier
Management

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 2023 TOP Procurement KPIs

• Electronic Invoice Processing

• Invoice Approval Cycle Time
• First-Time Match Rate
Invoicing

• Expense Report Approval Cycle

Time
• Expense Report Lines Within
Expenses
Policy

• Invoices Paid Digitally

• Suppliers Using Digital
Payments
Payments • Payment Batch Approval

• Spend Control

Spend

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 Streamline Processes
The Role of Automation and digital tools can
help procurement teams streamline
Technology their processes, reduce manual tasks,
and improve overall efficiency.

Enhance Data Analytics

Advanced Analytics capabilities

enable procurement professionals
to analyze large volumes of data,
uncover valuable insights, and
make data-driven decisions.
Improve Collaboration
Technology can facilitate better
collaboration, internally with other
departments and externally with
suppliers, by providing centralized
platforms for communication and
information sharing.

Bolster Supplier
Management

Digital tools can help procurement

teams manage supplier
relationships more effectively by Support Sustainability Goals
providing real-time performance
Technology can play a crucial role
data, automating routine tasks,
in helping procurement
and enabling more efficient
communication. organizations achieve their
sustainability objectives by
enabling them to track and report
on critical ESG metrics and
identify suppliers with strong
environmental and social
performance.
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 KPI BENCHMARK

Spend Control 6.6%

Supplier Diversity Composition 7 Categories

Risk Management Evaluation

ESG Completion Rate 99.1%

Risk Management Evaluation

Cycle TIme
23.9 Business Hours

Contract Management Cycle

TIme 10.1 Business Days

Structured Spend 67.6%

Source to Contract
On-Contract Spend 80.8%

Spend with Primary Suppliers 19.3%

Pre-Approved Spend 95.0%

Procurement Electronic PO Invoicing 98.9%

Requisition-to-Order Cycle Time 3.6 Business Hours

Supplier Information
Supplier Management Management Cycle TIme
1.4 Business Hours

Electronic Invoice Processing 82.5%

Invoicing Invoice Approval Cycle Time 10.9 Business Hours

First-Time Match Rate 96.5%

Expense Report Approval Cycle

Time 7.4 Business Hours
Expenses
Expense Report Lines within
Policy
98.6%

Invoices Paid Digitally 96.9%

Payments Suppliers Using Digital Payments 96.5%

Payment Batch Approval Cycle

TIme 1.1 Business Hours 8
SAP Ariba™
and KPIs

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 Bonus Chapter: KPIs and SAP Ariba™
In today's rapidly evolving business landscape, procurement
organizations face the challenge of balancing cost containment
with the drive toward innovation and value creation.

Y ou cannot
manage what
you have not
Key Performance Indicators (KPIs) serve as vital signposts on
this journey, providing actionable insights that facilitate
strategic decision-making.
measured.
Peter Drucker This bonus chapter aims to guide procurement professionals
on leveraging the capabilities of SAP Ariba, a leading
procurement software, to meet and exceed these KPIs.

SAP Ariba, a pioneer in procurement solutions, offers a robust

platform to streamline business processes, enhance supply
chain visibility, and foster collaborative supplier relationships.
Born from a vision to transform procurement into a strategic
business function, SAP Ariba is now a pivotal player in the
procurement landscape, powering over 4.6 million companies.

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 How SAP Ariba Addresses Key KPIs

Spend Control: A top priority for many procurement departments, spend control ensures that expenditures align
with the company's strategic objectives. SAP Ariba's spend visibility tools provide a comprehensive, real-time
view of company-wide spending, facilitating informed decision-making and enabling opportunities for cost
savings.

Supplier Diversity Composition: In an era where corporate social responsibility is paramount, maintaining a
diverse supplier base has become a key objective for many organizations. SAP Ariba's supplier management
capabilities help businesses identify and engage with various suppliers, thus supporting this critical KPI.

Risk Management Evaluation Completion Rate and Cycle Time: Effective risk management is vital for
maintaining supply chain resilience. SAP Ariba offers comprehensive risk management tools, including supplier
risk insights, that can expedite the risk evaluation process and improve completion rates.

Contract Management Cycle Time: The faster a contract is managed, the quicker value can be delivered. SAP
Ariba's contract management solution simplifies and accelerates the contract lifecycle, reducing cycle times and
improving efficiency. We'll continue exploring how SAP Ariba aligns with procurement KPIs in the following
sections, delivering in-depth insights for each of the remaining KPIs on our list.

Structured Spend: Organizations aim to increase their structured spend as it makes the procurement process
more manageable and efficient. SAP Ariba's catalog management capabilities can help businesses classify their
spending effectively, increasing their structured spend and leading to better cost control and vendor
management.

On-Contract Spend: A significant percentage of a company's savings can be lost due to maverick spending -
purchases made outside of negotiated contracts. SAP Ariba's guided buying functionality directs users toward
preferred suppliers and negotiated agreements, thus increasing on-contract spend and driving compliance.

Spend with Primary Suppliers: Strong relationships with primary suppliers can lead to better terms and
conditions. SAP Ariba's strategic sourcing tools provide the data and insights to identify key suppliers and
concentrate spend, ultimately enhancing these crucial relationships.

Pre-Approved Spend: SAP Ariba's requisition-to-order tools streamline and automate the procurement process,
thereby increasing the proportion of pre-approved spending and reducing instances of rogue spending.

Electronic PO Invoicing and Electronic Invoice Processing: With SAP Ariba's e-invoicing capabilities,
organizations can expedite invoice approval, reduce errors, improve supplier relationships, and increase
efficiency. The platform's digitization encourages more suppliers to submit electronic invoices, leading
to faster processing times.

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 How SAP Ariba Addresses Key KPIs

Requisition-to-Order Cycle Time: SAP Ariba's automation capabilities reduce manual processing times,
decreasing the requisition-to-order cycle time. This efficiency frees up resources, allowing
procurement teams to focus more on strategic tasks.

Supplier Information Management Cycle Time: Managing supplier information effectively is critical for maintaining
strong supplier relationships. SAP Ariba's supplier lifecycle management tools offer a centralized repository for
supplier information, reducing the time spent managing this data and improving the accuracy of supplier records.

Invoice Approval Cycle Time: SAP Ariba's Invoice Management solutions provide an integrated, end-to-end
automated process that significantly reduces invoice approval time. This not only improves efficiency but also
helps to prevent late payment penalties and capture early payment discounts.

First-Time Match Rate: A high first-time match rate between purchase orders, invoices, and receipt documents
signifies procurement efficiency. SAP Ariba's three-way matching feature automates this process, minimizing
discrepancies and enhancing the first-time match rate, leading to fewer delays and disputes.

Expense Report Approval Cycle Time: SAP Ariba integrates with SAP Concur, a leading travel and expense
management solution. This integration allows for an efficient expense reporting process, significantly
reducing the approval cycle time and improving the visibility of travel and entertainment expenses.

Expense Report Lines within Policy: Integrating SAP Ariba with SAP Concur also helps maintain expense report
lines within the company's policy. The system flags policy violations, ensuring compliance and helping to control
costs.

Invoices Paid Digitally: SAP Ariba Payables provide an end-to-end automated invoice-to-pay solution. This
increases the percentage of invoices paid digitally and reduces errors, saves time, and improves relationships
with suppliers by ensuring timely payments.

Suppliers Using Digital Payments: With SAP Ariba's digital payment capabilities, suppliers can receive payments
more quickly and securely, encouraging more suppliers to transition to digital payments.

Payment Batch Approval Cycle Time: SAP Ariba Payables also help reduce the payment batch approval cycle
time. The system's automation capabilities streamline the approval process, making itfaster and more efficient.

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 How SAP Ariba Addresses Key KPIs

Conclusion

After delving into the world of procurement and exploring the

multifaceted capabilities of SAP Ariba, we arrive at a simple truth:
mastering procurement is a strategic necessity for any organization
that seeks to drive efficiency, manage risk, and deliver value. SAP
Ariba's procurement software is a robust and reliable solution for
procurement organizations to hit their top KPIs.

We've seen how SAP Ariba's solutions can empower businesses to

maximize their Spend Control, enhance Supplier Diversity
Composition, optimize Risk Management Evaluation Completion Rate
and Cycle Time, streamline Contract Management Cycle Time, and
much more. These KPIs are crucial to an organization's financial health
and operational success.

The procurement landscape will continue to evolve, driven by

technological advancements, changing market dynamics, and shifting
regulatory landscapes. As it does, SAP Ariba, backed by its proven
track record and commitment to innovation, ispoised to remain a
leading force in shaping the future of procurement.

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 Appendix
Spend Control
Refers to the management and regulation of company expenditures.
It aims to optimize the use of resources and eliminate wasteful spending.
It involves monitoring, analyzing, and controlling both direct and indirect spending.

Supplier Diversity Composition

Measures the degree to which an organization is engaging with diverse suppliers.
Diverse suppliers can include businesses owned by minorities, women, veterans, LGBTQ+ individuals, or
other underrepresented groups.
Supplier diversity can foster innovation, drive competition, and support community development.

Risk Management Evaluation Completion Rate

Reflects the percentage of planned risk evaluations completed within a given time period.
A high completion rate indicates effective risk management practices.
Factors impacting this KPI can include the complexity of the evaluation, the resources available, and the
efficiency of the risk management process.

Risk Management Evaluation Cycle Time

Measures the time taken to complete a risk management evaluation.
Shorter cycle times indicate more efficient risk management processes.
This KPI can be influenced by factors such as the complexity of the risk being evaluated and the resources
and tools available for risk management.

Contract Management Cycle Time

Reflects the total time taken from initiating a contract to its final execution.
A shorter cycle time can indicate a more efficient contract management process.
This KPI is influenced by factors such as the complexity of the contract, the negotiation process, and the
efficiency of the contract approval process.

Structured Spend
Refers to spending that is managed and controlled through formal procurement processes.
Structured spend is typically associated with contracts and approved suppliers.
Maximizing structured spending can ensure money value, manage risks, and enhance procurement
efficiency.

On-Contract Spend
Measures the proportion of total spending that is tied to formal contracts.
A higher percentage indicates greater spending control and usually results in better pricing, terms, and
conditions.
The procurement strategy and the effectiveness of contract management processes influence this KPI.

Spend with Primary Suppliers

Reflects the proportion of total spend allocated to an organization's primary or preferred suppliers.
Spending on primary suppliers can strengthen relationships, improve pricing and terms, and streamline
procurement processes.

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 Appendix
Pre-Approved Spend
Measures the percentage of total spend that is pre-approved before the purchase is made.
Pre-approved spending can help ensure compliance with procurement policies, manage costs, and reduce
the risk of maverick spending.
This KPI is influenced by the effectiveness of procurement controls and the culture of compliance within the
organization.

Electronic PO Invoicing
Refers to electronic systems for processing purchase order (PO) invoices.
Electronic invoicing can enhance efficiency, reduce errors, and provide better visibility of spending.
The percentage of invoices processed electronically is a measure of digitalization in the procurement
process.

Requisition-to-Order Cycle Time

Measures the time taken from the initiation of a requisition to the placement of an order.
Shorter cycle times can indicate a more efficient procurement process.
This KPI is influenced by factors such as the efficiency of the approval process, the availability of
resources, and the complexity of the requisition.

Supplier Information Management Cycle Time

Reflects the time to update and manage supplier information in an organization's database.
Efficient supplier information management is crucial for maintaining accurate and up-to-date supplier data,
which is vital for effective procurement and supply chain management.
This KPI is influenced by factors such as the quality of the supplier information management system and
the resources available for data management.

Electronic Invoice Processing

Refers to the use of electronic systems for processing invoices.
Electronic invoice processing can enhance efficiency, reduce errors, and provide better visibility of
spending.
The percentage of invoices processed electronically is a measure of digitalization in the procurement
process.

Invoice Approval Cycle Time

Measures the time taken from receiving an invoice to its approval for payment.
Shorter cycle times indicate quicker invoice processing and help avoid late payment penalties.
This KPI is influenced by factors such as the invoice approval process's efficiency and the invoicing
system's quality.

First-Time Match Rate

Reflects the percentage of invoices that are successfully matched with their corresponding purchase
orders and receipts on the first attempt.
A high first-time match rate indicates that the majority of invoices are being matched without errors or
discrepancies.
This KPI is influenced by the accuracy of the invoicing and receiving processes and the quality of the
matching system.

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 Appendix
Expense Report Approval Cycle Time
Measures the time taken from the submission of an expense report to its approval.
Shorter cycle times can enhance employee satisfaction and improve the management of travel and
expense costs.
This KPI is influenced by the efficiency of the expense approval process and the quality of the expense
management system.

Expense Report Lines within Policy

Reflects the percentage of expense report lines that are within the organization's expense policy.
A higher percentage indicates better compliance with the expense policy and can help to manage costs
and reduce risks.
The clarity of the expense policy influences this KPI, the culture of compliance, and the effectiveness of
expense controls.

Invoices Paid Digitally

Measures the percentage of invoices that are paid using digital payment methods.
Digital payments can enhance efficiency, reduce errors, and provide better visibility of payments.
This KPI is a measure of digitalization in the payment process.

Suppliers Using Digital Payments

Reflects the percentage of suppliers that accept digital payments.
Encouraging suppliers to accept digital payments can enhance efficiency, reduce errors, and improve
supplier relationships.
This KPI is influenced by the organization's payment strategy and the quality of the payment system.

Payment Batch Approval Cycle Time

Measures the time taken from creating a payment batch to its approval.
Shorter cycle times can enhance efficiency and help to ensure timely payments.
This KPI is influenced by the efficiency of the payment approval process and the quality of the payment
system.

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