The procure-to-pay (P2P) process is growing in importance within many enterprises as we’ve noted in many articles including here and here. As with any business process, optimization is key to creating value throughout the process. Within P2P, I believe that the main drivers of optimization include:
- Efficiency – from a cost, productivity, resource allocation and time perspective
- Connectivity– to suppliers but also other internal organizations (e.g., finance, treasury)
- Cash management– optimal use of enterprise working capital
- Compliance – to policies, negotiated contracts, terms, etc
The four drivers above can and should have associated metrics that enable organizations to monitor activities and measure/improve performance of the overall P2P process. There is one additional driver that is also important to optimizing this process – visibility. Visibility into real-time and accurate data throughout the P2P process is invaluable to all stakeholders involved. Visibility is created through the establishment of metrics, reporting and analytical tools, dashboards and access to data.
Some organizations may place more importance on one of the above drivers and that will determine the metrics they utilize to monitor, track and continuously improve performance. It is important to note that when establishing metrics each one should have a clear definition or purpose, an achievable target and stakeholder(s) ownership and involvement whether in procurement, AP, finance or some combination of the three.
Also, you don’t want too many metrics either, so pick the ones important to your organization’s objectives. Metrics can be developed in phases, for example in phase one it may be more important to focus on efficiency and reducing costs, phase two may focus more around improving connectivity to suppliers and so on.
So, what are the various metrics that fall within each of these categories? Here is a list of P2P metrics that matter to get you started.
Efficiency
- Cost per invoice, purchase order and/or transaction
- Invoice cycle time – Average length of time from receipt of an invoice up to payment approval
- Purchase order cycle time
- Number of invoices processed per FTE
- Percentage of invoices process straight-through
- First time match rate
- Number of supplier inquiries
- Paid on-time percentage
Connectivity
- Percentage of invoices received electronically – should not include email attachments, PDF, paper or fax
- Percentage of suppliers submitting electronic invoices
- Percentage of suppliers accepting electronic payment
- Percentage of payments made via Check/ACH/Card/Wire
Cash management
- Early payment discounts captured – Dollar amount or as a percentage of total opportunity
- Percentage of suppliers participating in early payment program
- Days Payable Outstanding
Compliance
- Purchase Order compliance
- eInvoicing compliance
- Contract compliant spend and its inverse — Non-compliant spend or Off-contract spend often called maverick spend
- Percentage of spend compliant to contracts
- Percentage of compliant transactions
