A benchmark program from SAP Ariba has analyzed data from more than 200 companies that buy and sell products and services on the SAP Ariba Network to identify a series of performance standards for procurement organizations.
The standards were calculated using data from $350 billion in spend demand across 3,500 categories in a review of the latest year of data in the 14-year-old SAP Ariba Benchmark Survey, says Kay Ree Lee, the company’s director of value realization. SAP Ariba, a unit of business software company SAP SE, is a provider of procurement technology and services.
The report uncovered several traits among procurement practices with the highest levels of performance in terms of the extent they manage employee spending and procure products most efficiently. “Through their willingness to think outside of the box and enable a technology-enabled, data-driven approach to procurement, top-performing procurement organizations are not only managing more spend, achieving greater savings and efficiencies,” the report says. “They are delivering real business transformation.”
SAP Ariba breaks out comparative results in the study for companies it identifies as “top 25%” performers and others as “average” performers. It says it determines inclusion in those groups by evaluating multiple parts of each company’s procurement operations, including the volume of product they purchase, the savings they incur through e-procurement and their overall sales growth and profit numbers.
Among the results, the report found that the top 25% of performing procurement organizations:
- Play a strategic role in their companies, participate in decision making and manage more spend than average performers. They have 80% of spending under management versus 58.8% for average performers.
- Have a single integrated procurement platform from which they manage all spend rather than separate point solutions and attain higher sourcing savings. Their procurement savings rate is 7.8% of spend versus 4.1% for average performers.
- Manage procure-to-pay as an end-to-end process with a single point of accountability rather than as a series of discreet tasks, with a result of higher purchase order and invoice efficiency. Total electronic purchase order count is 99.6% for top 25% performers versus 67.2% for average performers. Total electronic purchase order spend is 95.5% for performers compared to 42% for average performers. Total electronic supplier invoices are 54.5% for top performers versus 23% for average performers. And total electronic invoice spend is 60.3% for top performers compared to 10% for average performers.
- Drive more spend to contract and e-catalogs, which facilitates improved compliance. Top 25% performers had 98% of Ariba invoices on contract and catalog compared to 88% among average performers. Catalog spend as a portion of purchase order spend was 36% among top performers versus 27% among average performers.
- Analyze transaction data and histories to determine days payable outstanding for optimized payments and lower costs. Top 25% performers showed an average supplier discount rate of 2% compared to 1.6% for average performers.
- Provide an intuitive, self-service requisition environment for material and service items using online catalogs and rules-based checks. This allows compliant purchasing to be done easily, which drives down requisition-to-order cycle times to 0.17 days for top 25% performers compared to 5.7 days for average performers.
- Automate key tasks such as purchase order and invoice processing to reduce operating costs. Operational procurement per billion of spend for top 25% performers were eight full-time equivalent hours compared to 21 full-time equivalent hours at average performers. Accounts payable per billion of spend were three full-time equivalent hours at top performers while average performers tallied 13 full-time equivalent hours.
- Use procurement technology to facilitate greater collaboration among employees and with suppliers instead of just automating tasks.
- Connect to supply networks to access intelligence rather than just transacting.
Lee described the results as a cross referenced tally of the companies that have high adoption of particular practices using both qualitative and quantitative measurements. “These best-in-class outfits have more spend under management, drive greater savings and efficiencies and are transforming their operations,” he says.
“Every year we launch a benchmark program in which our customers participate in the program,” Lee says. “We ask a series of questions covering the entire source to pay spectrum of processes—everything from sourcing to contract management, procurement, working capital, accounts payable.”
Lee says that what differentiates the SAP Ariba benchmark from those of other companies is the SAP Ariba capability—with customer permission—to extract all of the transactional information for the benchmark time period.
“You have a survey question and then along with the survey question you have all of these thousands or hundreds of thousands of records of data just for one particular customer,” he says. “And we do that for all of our customers that participate to create the benchmark. Because of the volume of data that we see we get a more granular level of understanding of our customers’ level of performance.”
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Phil Burgert is a Pittsburg, Kan.-based freelance writer.
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