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How Much Is Your Procurement Process Really Costing You?
By Rosita Johnson
At ASCI, we spend a lot of time talking with companies about supply chain challenges. Some of those conversations are with clients and prospective customers, while others happen through organizations ASCI is involved with, including the Export Council of Alaska and the Alaska Manufacturing Association. Being part of these groups gives us a good view into the pain points businesses are dealing with, especially small and mid-sized companies that may not have large procurement departments, dedicated supply chain analysts, or formal process-improvement teams.
One issue comes up often: procurement takes more time and effort than it should.
When companies look at procurement costs, they usually focus first on supplier pricing. That is important, but it is only part of the picture. There is also the internal cost of creating requests, getting approvals, finding suppliers, issuing purchase orders, tracking deliveries, receiving materials, resolving invoice discrepancies, correcting errors, and maintaining information in multiple places.
According to APQC procurement benchmarking data, organizations spend about $14 to more than $54 to process a single purchase order, depending on how efficiently the procurement work is structured and performed. At higher transaction volumes, that difference can become a significant operating cost.
A few extra minutes on one transaction may not seem important. When the same delay or manual step happens hundreds or thousands of times a year, it can become a meaningful operating cost.
Procurement Processes Change as the Business Changes
After more than 25 years in supply chain, I have seen procurement processes become more complicated a little at a time. Usually, nobody sets out to create an inefficient process. It happens as a business changes.
A new system gets implemented, but some of the old processes stay in place. Another company may not have a procurement system at all, so employees create spreadsheets, email approvals, shared folders, or other workarounds to keep things moving.
The company takes on a new project with different purchasing requirements. A new customer requires additional documentation. Approval levels are added. Responsibilities move between departments. Transaction volumes increase. New employees join the company and learn the process from whoever handled it before them.
A temporary workaround can solve a real problem, but five years later it may still be part of the procurement workflow even though the original reason for it no longer exists.
The process that worked when a company had ten employees, a handful of suppliers, and relatively simple purchases may not work as well when that same company has fifty employees, several projects, multiple locations, and hundreds of suppliers.
The opposite can happen too. A company invests in a new ERP, accounting, or procurement system but continues doing things the same way it did before the system was installed. Employees enter information into the system and then update the same information in a spreadsheet. Managers continue approving purchases by email even though the system has an approval workflow. Reports are created manually even though the information is already available somewhere else.
At that point, the system has not necessarily improved the purchasing process. It may have simply added another step.
Small Procurement Inefficiencies Add Up
A simple purchase order is a good example.
If a requisition includes a clear description, the correct part number, an approved supplier, the right accounting information, and a realistic required date, the Buyer may be able to process it fairly quickly.
If the request only says “replacement pump,” the Buyer now has to start asking questions. Which pump? What manufacturer? What part number? Is there a specification? Has it been purchased before? Is there already one in inventory?
The Buyer may eventually issue exactly the same purchase order, but it took much more work to get there.
The same thing happens in other areas of the procure-to-pay process. Common examples include:
Buyers chasing approvals or missing information
Employees entering the same information in more than one system or spreadsheet
Purchase orders being corrected after they are issued
Invoices not matching purchase orders or receipts
Supplier information being researched repeatedly because it is not easy to find
Employees manually creating reports that could be generated from existing data
None of these issues may look significant by itself. The cost becomes more visible when the same work is repeated across hundreds or thousands of transactions.
For a small business, it may be the owner, office manager, or operations manager spending several hours a week dealing with purchasing problems instead of other responsibilities. In a larger organization, it may mean Buyers are processing fewer transactions, Accounts Payable is spending more time resolving discrepancies, or managers are being pulled into routine approvals and exceptions.
Material and Supplier Data Matter
Material and supplier data are another common source of procurement inefficiencies.
Companies that do not maintain consistent material descriptions may purchase the same item under several different names. One employee may use the manufacturer's part number, another may use a distributor's number, and someone else may type a basic description into the requisition.
Over time, it becomes difficult to determine how much of that item the company has purchased, what it paid, which suppliers were used, or whether the same item is already sitting in inventory.
Good material and supplier data can make the purchase order process much more efficient. Buyers can make better decisions when they have access to consistent descriptions, historical pricing, previous suppliers, and prior purchasing activity. Accurate information also helps Warehousing, Inventory, Accounts Payable, and Finance because the same data is being used throughout the process.
Poor data usually creates more manual work somewhere else.
Approval Processes Need to Keep Up Too
Approval controls are important, especially as a company grows. The problem is that approval processes also tend to grow over time.
One approval may have been added because of a past issue. Another may have been added when the organizational structure changed. A third person may have been added because a particular customer or project required additional oversight.
Years later, all three approvals may still be there.
That does not mean approvals should simply be removed. A procurement assessment should look at why each approval exists, what risk it is controlling, and whether the approval level still makes sense based on the type and value of the purchase.
The same applies to the entire procurement workflow. A step that was necessary five years ago may still be useful, or it may simply be there because nobody has revisited it.
Procurement Problems Are Usually Cross-Functional
One of the biggest mistakes companies can make is assuming procurement inefficiencies are simply Buyer problems.
A Buyer cannot issue an accurate purchase order if the requester does not provide enough information. Accounts Payable cannot efficiently process an invoice if the PO, receipt, and invoice do not match. A warehouse cannot accurately receive material if the description on the purchase order is incomplete. Operations may be frustrated that an item is late even though the original request did not allow enough lead time.
Procurement performance depends on coordination between requesters, Buyers, Operations, Warehousing, Accounts Payable, Finance, Engineering, Project Management, suppliers, and management.
That is why the entire procure-to-pay process needs to be reviewed together.
It is also important to separate process problems from employee performance problems. In many cases, employees have created spreadsheets, email workarounds, manual reports, and other solutions because they are trying to keep the business moving. Eventually, those workarounds become part of the normal process.
If employees are constantly working around the system, the first question should not always be whether they are following the process correctly. It may be whether the process still makes sense.
Taking a Fresh Look at the Procurement Process
There is a tendency to assume that procurement process improvement requires new software, more employees, or a major consulting project. Sometimes one of those may be necessary, but not always.
A company may need clearer requisition requirements, different approval limits, better supplier records, more consistent material descriptions, or better use of the system it already owns. A spreadsheet may be eliminated because the same information is already available in the ERP. Buyers may simply need better access to previous purchase orders and historical pricing. This is one of the reasons ASCI developed the Procurement Process Auditor.
The Auditor gives businesses a structured way to look at how their procure-to-pay process actually works in practice, not just how the written procedure says it is supposed to work.
It can help identify issues such as unnecessary manual work, duplicate data entry, inconsistent information, approval bottlenecks, delays, and other procurement inefficiencies that may have become part of the normal purchasing process over time.
The purpose is not to tell every company that it needs a new system, more employees, or a major consulting engagement. In many cases, the better opportunity may be making more effective use of the people, processes, data, and systems the company already has.
Conclusion
Procurement processes should change as the business changes. Systems are implemented, projects are added, suppliers change, customers introduce new requirements, staffing changes, and transaction volumes grow.
A process that worked five or ten years ago may still technically work today, but that does not mean it is still the best way to do it.
Taking the time to review the procurement workflow can uncover duplicate work, unnecessary approvals, poor data, outdated workarounds, and other issues that employees may simply have learned to work around.
Sometimes the biggest opportunity for procurement process improvement is not negotiating another discount from a supplier. It is finding the unnecessary time and effort that has quietly become part of the purchasing process.
Want to See Where Time Is Being Lost?
ASCI's Procurement Process Auditor provides a practical way to review the current procure-to-pay process, identify improvement opportunities, and prioritize next steps based on the company's people, systems, transaction volume, and operating requirements.
ASCI specializes in helping businesses to address supply chain management challenges. Visit our website to learn more and to arrange for a free consultation.
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