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Benchmarking Purchase-to-Pay Success

December 14, 2016 by David Griffiths, CEO

“Measurement is the first step that leads to control and eventually improvement.” H. James Harrington.

Benchmarking is the process of comparing one's business processes and performance metrics to other organizations. More importantly it describes the process of adopting significantly better practises that leads to superior performance.

Why benchmark?

The finance function and in particularly Purchase to Pay (P2P) is in a state of transition with the move to shared services, outsourcing, automation, and globalization of suppliers. Furthermore, the complexity of their processes has increased dramatically in the last few years as the methods of inputs (manual, electronic data interchange, purchasing-cards, e-invoicing etc.) and outputs (checks, BACS, SWIFT, ACH) are rising, at the same time the natural checks and balances of human intervention are being eroded by automation.

Benchmarking is the first step to determining an effective strategy for change; it highlights areas of success while also suggesting areas for improvement. Organizations typically use it to support the case for investment, and it can be the basis on which to retain and recruit staff or lose them depending on the needs of the business. However leaders in P2P are now using benchmarking to help motivate, develop a P2P voice, and create best-in-class teams.

What to Measure

There are well over fifty metrics P2P functions can use to measure their effectiveness. These should include the top 10 all-time benchmarks: payment on time, cost-per-invoice, days paid outstanding, first-time match rates, PO compliance, percentage of invoices in query, discounts captured, number of suppliers per 1000 invoices, touchless invoices, and number of invoices processed per full-time equivalent. Ultimately organizations must choose and measure the key performance indicators that reflect their own finance goals.

Six practical steps to benchmarking

  1. Sit down and define what your objectives and metrics are, and be realistic about how easy they are to attain.
  2. Compare those to your core finance goals and ensure the metrics you choose are meaningful to your team. As organizations change and evolve so should their KPIs.
  3. Collect and analyze that data. If you don’t want to go outside the company to do a comparison, then do an historical internal analysis, essentially benchmarking against your own company.
  4. Identify gaps that require improvement, chooses a manageable two or three KPIs which you can aim to improve into the top quartile range.
  5. Define a plan of action to achieve these aims, based on resources available and what is achievable
  6. Implement the action to improve processes and raise the organization’s quartile performance.

If a company is benchmarking for the first time it won’t be possible to do everything at once. Start small, with 5-10 benchmarks, adjust them if they’re not working, communicate what they are and when they change, and make sure they are linked to the finance goals of the organization.

To support an organization, there are several external benchmarking sources available from research leaders like Hackett Group, Aberdeen Group, Paystream Advisors and APQC. Other sources of benchmark comparison include the Purchase to Pay Network, and P2PBenchmarking.com

Benchmarking isn’t free, it requires human resources to manage and collate internal KPIs, and financial resources to access industry data. But if organizations are committed to making their P2P department deliver internal value, they will need external insight to guide them there.

Visit the new benchmarking service www.p2pbenchmarking.com 

 

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