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- October 30, 2014
- Ravi Thakur
Through Coupa's cloud platform, we track hundreds of metrics to both continually improve our platform and help our customers be successful.
The annual Coupa Benchmark is designed to help companies by publishing data on key finance and procurement performance indicators. The Benchmark includes metrics about ten critical areas where we commonly find that companies can easily improve in once they gain insight into what is possible. Today we're focusing on metrics for PO spend on contract percentage.
This metric indicates what percentage of all PO-based spend is tied to vendor contracts. Typically, larger companies with more resources and processes in place have more
spend under contract than smaller businesses.
According to our data, the average large company (over $1.5B in annual revenues) has 21 percent of spend on contract. Medium-sized companies ($250M to $1.5B in annual revenues) fared slightly better, with 23 percent of spend on contract. Small companies (below $250M in annual revenues) lagged, with just 13 percent of spend on contract. This includes spend for non-traditional categories such as marketing, utilities, cleaning contracts, and temp labor, since many companies today are using Coupa to manage these categories of spend.
Minimize price hikes and liability
Getting more of your spend on contract means you’ll benefit from lower negotiated
pricing. In addition, negotiating long-term contracts stabilizes costs and protects you from unforeseen price increases in the future.
Purchasing services under contract also minimizes your liability. You can be assured that the contracted vendor has been thoroughly vetted and has the required licenses and insurance in the event anything should go wrong. Unapproved vendors, not so much.
Get visibility with analytics
So what can you do to improve? First, leverage analytics to get visibility into your spend and identify spending with suppliers that are not under contract.
Focus on the top spend categories and work to consolidate your suppliers in those categories.
Consolidating spend with fewer suppliers will increase your negotiating power, drive down costs, and protect you from risk.
Review suppliers and get them under contract
Additionally, you should review your overall spend by suppliers in all categories. Identify those suppliers you do business with the most and put them under contract.
It’s a good idea to create a policy for certain types of spend (such as contracted labor, etc.) that require a contract before doing any business.
Bake contract compliance into P2P
Perhaps most importantly, provide visibility to your contracts and policies. Don't just negotiate them and let them sit in a file drawer. Make it easy for employees to see and buy against your contracts through the normal requisition process.
Employees will buy through the path of least resistance. If that path does not expose the buyer to your contracts, then the contracts you negotiated will not get used.
Ravi Thakur is Vice President, Customer Success for Coupa.
About The Coupa Benchmark
This data was extrapolated from customer usage metrics on the Coupa cloud platform, comprising hundreds of thousands of global users, over 750,000 suppliers, millions of transactions and billions of dollars of spending. The performance metrics are based on aggregate data; no individual companies are identified.
To avoid skew from very small organizations or those that are very new to Coupa, we've only included customers that have accrued a year's worth of spending and at least $5 million in PO spending through Coupa. For reported averages, the extreme outlying data points are eliminated to normalize the data. To learn more click here.