Why the procurement metrics you have aren't enough

Data analysis is synonymous with finding improvements in practically everything businesses do. 

It’s a multi-billion dollar industry, with many companies now spending substantial amounts of their budgets investing in ways and capabilities to dig ever deeper into datasets to uncover answers to problems, search for performance boosts, and gain competitive advantage.

One business function in particular that is heavily reliant on data to inform decision making, yet is often behind the curve on how to use it, is procurement.

The majority of procurement teams globally miss out on significant performance improvements because they are only looking at basic-level metrics. Only 1 in 6 procurement leaders are using advanced datapoints to unlock routes to higher levels of output, efficiency, and robustness from their procurement processes.

Why do 83% miss out?

Procurement is often the most hard-pressed and time-poor department within a company. Researching new metrics to track, or uncovering new data from old contracts and procurement processes is something they simply cannot afford to do.

It goes beyond simple resource and time allocation though. The Vertice Procurement Impact Report found a correlation between the level of procurement maturity and the ability to more successfully leverage advanced data and information to create improvements. 

Efficient, deep-level data extraction relies on intelligent automation, a coherent data recording strategy and a procurement eco-system that fully integrates all aspects into a customizable process. That way, everything is accounted for across all stages of a procurement process.

However, as we found in the Procurement Impact Report, only 17% of procurement leaders have these aspects in place. Which restricts the data and metrics that can be picked out and consistently analyzed, subsequently disguising areas of improvement for them. 

Why “basic” metrics are not sufficient.

It’s important to say this from the start – basic metrics are key components of procurement data analytics. They power individual cost-saving initiatives and help optimize specific tasks. So keep using them. 

The problem is, they don’t drill into your procurement processes and outcomes enough. They can answer what a situation is, but not why you’re in that situation. 

For example, they can help you pinpoint which tools you’re spending your money on, but without more advanced metrics and data analysis you can’t say why you’re spending that amount on each tool for each department (e.g. what’s the pricing breakdown for users, what’s the usage rate, are you rushing renewals through that is increasing costs). The why isn’t always so clear. 

What you want to be with your data is strategic. The ability to make informed decisions and demonstrate overall value is vital for any successful procurement team – and it’s something that can’t be achieved when relying on high level metrics alone.

Let’s take a look at some of the more common procurement metrics, and where access to deeper data insights can make the difference.

Budget vs spend

This is allocated spend mapped against what has been committed. A fairly simple calculation, but one that can provide  an overview of whether or not you’re coming in under or over budget, while helping to indicate procurement’s ROI.

But it’s extremely high level, and doesn’t give any idea on what you can do to fix or rightsize this, or even explain why you are on track to meet your budget. If you’re over budget, what’s causing this? Is it a few tools that have rocketed in price, or one significant new investment? 

And if you’re under-budget, does this mean you’re saving money effectively or that you’re not sizing your contracts correctly and could be hit with extra payments further down the line?

The same questions apply to when digging slightly deeper and considering spend per department, and spend by category.

Completed vs inflight spend

This highlights what has been spent through your procurement process compared to what is still moving through it. 

Whilst this helps with future budgeting and a basic status report of projects, it doesn’t drill down into more strategic aspects. 

For example, requests (and associated costs) may be getting consistently delayed at certain stages within the process, but if you only know what’s inflight, you won’t know which projects are getting stuck, where they are delayed and, more importantly, why.

Alternatively, some projects and associated spend may travel through the process extremely quickly. The problem is, when you rely solely on this information, you won’t know why certain requests speed through and others are slow to progress.

Without such granular information, you don’t have the opportunity to implement improvements that not only fix these problems but prevent them from occurring again – resulting in a more robust and efficient workflow.

Last contract spend

If you know the total cost of a previous contract you’ve held with a specific supplier, you can use it as a basic benchmark for future negotiations.

However, it’s rare that business requirements, feature sets and numbers of users stay consistent over the lifespan of a contract and into the next one. These granular details aren’t sufficiently captured by a simple ‘total’ cost figure. 

So when it comes to renewing your contract or looking elsewhere, only knowing the total cost leaves you in the dark. You can’t effectively research and benchmark a renewal, a new potential vendor, or a BATNA to fit your current requirements if you don’t know the following about your previous contract:

• If you paid by usage, user, or with a hybrid model - and how much these were.
• If you included additions like extra features, tiered data amounts, and more user seats, and associated costs for each.
• If you had previously negotiated a saving, and by how much your discount was from the original quote.

To begin a procurement project without all this information risks costs spiraling or contracts not being effectively rightsized - creating constraints on performance or unnecessary spending bloat. 

What advanced metrics can you start looking for?

Once you start digging deeper into the basic procurement metrics, you’ll often uncover additional questions that need answering. In fact, there are almost endless data points to explore. The key is to identify those that will be most impactful to your business, and are most realistic to access. 

For example, if you look at the average time it takes for a procurement request to go through a workflow – that’s a base metric. But beyond this, you could be measuring how long each stage in the process typically takes. And if a specific department – for example IT – is a common offender in delaying a project’s progress, you should be asking why? 

If you know this data, you can uncover much more than ‘who’s the slowest’. And it’s likely not an individual  stakeholder’s fault – they may be being asked for their sign-off too late, too early, without the right information, or without being notified at all. 

This then becomes a problem with the actual workflow that you can fix for faster, more efficient and reliable procurement that external stakeholders better buy into. 

In The Procurement Metrics That Matter report, we’ve done some of the digging for you and uncovered 11 untapped metrics that the top performing procurement leaders use to boost performance and work more strategically. 

With this, they can showcase how they provide real business value, and ultimately contribute more to shaping business direction and growth. 

If you’re wanting to ask the ‘why’ and not just the ‘what’ about your procurement data and function performance, you’ll find this report extremely valuable.