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- February 02, 2017
- Spend Management
Spend management, which is the management of the business process that encompasses everything from sourcing goods and services, to setting up contracts, to paying suppliers—impacts nearly every employee in a company. When employees buy and pay for the things that they need to do their jobs—everything from copier paper to landscape services to hotels and rental cars—they’re interacting with parts of this process.
For people to be able to devote most of their time and energy to their “real” jobs, and for your company to be efficient and agile, this process needs to be fast and easy. One way to judge your performance is to look at how fast and easy the process is at other companies. That’s exactly what we’ve done in our 2016 Benchmark report, “12 Ways to Measure Spend Management Success.”
Within this report, we’ve identified four areas that are critical to managing this function successfully: Process efficiency, digitization, compliance and savings. Within each area, we’ve developed benchmarks from global companies who are leading in these areas. Although each area is connected to and affects the other areas, the first area you’ll want to improve is process efficiency, and in this post we’ll take a look at four process efficiency benchmarks you’ll want to reach for.
Benchmarks have long been used as measuring sticks for a wide variety of business processes. Traditionally, they were developed through surveys conducted by consulting or analyst firms. But of course, benchmarks that are developed in this way rely on self-reported data from surveyed companies, who may or may not use similar processes, tools or standards of measurement.
As a Software-as-a-Service company hosted in the cloud, Coupa has visibility into millions of transactions by hundreds of companies using similar automated processes. The benchmarks we’re presenting here are based on actual, aggregated and anonymized operating data compiled from customers who have been managing their spending using Coupa for a minimum of one year.
Here are four key process efficiency benchmarks among leading companies:
Purchase requisition to order time – 6.2 hours
Leaders average 6.2 hours from the time an employee submits a requisition to the time it is approved. That’s pretty much same day service.
If employees must wait for an item or service, that can have a domino effect in delaying people and projects. But they may not wait. Long approval cycles may cause employees to find ways to work around the system, hurting your efforts to manage spending.
What slows people down? Many companies only allow certain people to make requisitions. This is often a mental model left over from the days when requisitioning systems were difficult to use and required special training by power users. If access is limited to only certain users, or to being on site, that can add cycle time that hurts company efficiency. Modern spend management systems are far more user friendly, so employees can have broad access to make requisitions, even on mobile devices.
Approvers per purchase requisition - 2
Approvals are another thing that often slows down requisition to order time. Leading companies average two approvers per requisition. The number of approvers on a requisition may vary—small purchases may require one or even none, while large purchases may require more than this average.
The key takeaway is to keep the number of approvals to the necessary minimum. Excessive approval requirements tend to provide very little in the way of spend avoidance or control, while slowing things down and costing the company in other ways.
If your company is not meeting this benchmark, review your approval workflows to see if you can reduce the number of approvers. Look at your approval data to see which types of approvals take longer than normal. Study the number of rejections by each approver. If an approver isn’t rejecting anything, their approval probably may not be adding value. Consider removing them, or moving them to a watcher role if they want to retain visibility. Using dynamic workflows can make it easier to do this, and to include only the approvers needed by department, division, or dollar amount.
Invoice approval cycle time – 23.1 hours
Leading companies can typically approve an invoice for payment within an average of 23.1 hours after it enters the system. That helps accounts payable realize early payment discounts, properly manage cash flow and avoid late payment penalties. It also helps employees keep the focus on supplier partnership and productivity, rather than having to spend time exchanging emails about invoices and payments, which inevitably hurts the relationship.
If your company lags in this area, review your matching requirements. Many companies require a 3-way match between invoice, purchase order and receipt. Consider approving invoices within certain tolerances with just an invoice and a PO.
Consider whether it’s necessary to have a receipt for everything, particularly for small ticket items. Because the broad base of employees may not understand receipt requirements, removing this step for certain items can speed this process dramatically. Finally, let people receive and approve invoices on a mobile device to avoid out-of-office delays.
Expense report approval cycle time – 24.8 hours
Leading companies approve an expense report on average in 24.8 hours after its submission. Fast cycle times here reduce the need to accrue for outstanding and unknown expenses. They also reduce friction for traveling employees, helping them stay focused on more productive activities than filling out expense reports.
The key is to get expense reports that are easily approvable, which requires a combination of technology and policy. By having policies that are simple, clear and easy to understand, and by embedding these policies in the tools it the relevant points in the process, it makes it easy for employees to comply with the rules. Using technology to automatically fill in as many expense lines as possible, especially on mobile devices, ensures greater accuracy.
Can every company meet these benchmarks? Large or complex companies may take longer, but we believe that with the proper tools and processes in place, most companies can achieve similar results in a relatively short time. The first step toward progress is knowing what is possible, and how close or far away from that you are.
To see all 12 spend management benchmarks for digitization, compliance, and savings, get the full report.