FOUR KPIs of World Class Purchase to Pay Organisations To Benchmark Against
By Susie West.
In our lives we have our own KPIs – though we might not call them that, admittedly. They may total to 8 significant ones, each reflecting a certain section of our life – our health, our money, our home etc. They may involve a salary slip, a bank account or the bathroom scales… Most of us instinctively know, because of these deeply embedded KPIs, when we have to parachute in the troops to rescue a certain area.
When running a P2P organisation which is high in volume, packed with multiple systems, multiple processes, scores of people, and tens of thousands of invoices, collecting information which quickly tells you what the state of your operation is, is absolutely vital. We have to say “Cheerio!” to instinct, and “Hello” to hard data, so that everyone knows where the change needs to happen and why.
In this article – the third in a three part series - we will look at a) what the chief KPIs are that help a Purchase to Pay Owner know instantly where their organisations strengths and weaknesses are and b) what percentage world class P2P organisations are hitting in these areas.
KPI Number One: Productivity Per FTE
Let’s start first with productivity per FTE, which means numbers of purchase invoices processed per FTE per annum. This can be very telling of the state of your P2P. If you have high PO compliancy, and high automation/electronic invoicing, then the number of invoices processed per FTE per annum will be high. Maybe even World Class. According to Hackett the figure for World Class P2P organisations is 35,147 invoices per FTE per annum. So this is a very useful KPI, indicating the actual effectiveness of your process. But it gives no indication of cost. So you could have a productivity number of 60,000, but because you spent millions on whizz bang technology, it’s not surprising. So this KPI really needs to be read in conjunction with Cost Per Invoice.
KPI Number Two: Cost Per Purchase Invoice
If indeed your productivity is high you would hope that your cost per invoice is low. However, cost per invoice should not really be read in isolation. We all know you can process an invoice in India for relatively little, but where’s the good in that if all the invoices are a) paper and b) failing to match. So, this KPI goes towards filling in the picture, rather than telling the whole story. According to Hackett the cost per invoice for a World class organisation is $1.28. A Non World Class organisation comes in at $3.89. When we look at what is included in this calculation, we typically take all invoices from 3rd party vendors over 1 year (paper, electronic, OCR, EDI, self bill). We then take the sum of all salary and IT costs incurred during the receipt of invoice within the company, through to payment, and divide the latter by the former (number of invoices).
KPI Number Three: First Time Match Rate
More and more we are all striving to drive our FTM into the mid 90s. The lower our FTM, the lower our productivity, the higher our cost per invoice, and the lower our invoices paid on time. So you could say out of the 4 KPIs presented here today, this one is the chief KPI. If indeed you are mainly electronic in your processing, then a very sophisticated P2P organisation would use the % of Touchless invoices as a chief KPI (ie electronic AND straight through). Looking at the Hackett figures, World Class organisations come in at a very impressive 94%, whilst Non World Class are looking at an FTM of 70%. What we mean by FTM is an invoice passing first time without waiting, parking or exception handling.
KPI Number Four: Payment On Time
This dovetails in very neatly with First Time Match. If your FTM is high, chances are your Payment on Time is high too. PoT does not of course mean paying suppliers early, but to the terms that were agreed by Procurement. Ideally you have a minimum number of terms across a region. One chemicals company I know reduced their number of terms across Europe to three and automatically increased their cash ownership by €7 million. Hackett’s research reveals that World Class organisations are hitting 95% PoT, where as Non World Class are coming in 72%.
If you have any comments on this piece or feel there are other equally important KPIs please email me at Susie.west@sharedserviceslink.com, I would love to hear from you.
