Systems cost to perform the procurement process group per $100,000 revenue

This measure calculates the systems cost per $1,000 revenue to perform the procurement process group which includes the business activities of procurement planning, purchasing, sourcing, and inventory management. Further functions include sourcing strategies, selecting suppliers, and developing contracts, ordering materials and services, and appraising and developing suppliers. Systems cost include a variety of specific cost related to computer hardware/software, network maintenance, data storage, etc., and all fees paid to full-time, part-time, or temporary employees or independent contractors hired to perform these services. This measure is part of a set of Cost Effectiveness measures that help companies understand all cost expenditures related to the process "procure materials and services."

Benchmark Data

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Measure Category:
Cost Effectiveness
Measure ID:
106493
Total Sample Size:
1,896 All Companies
Performers:
25th
- Median
- 75th
-
Key Performance
Indicator:
No

Compute this Measure

Units for this measure are dollars.

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(Total cost to perform the process group "procure materials and services" * Percentage of total procurement cost allocated to systems cost * .01) / (Total business entity revenue * .00001)

Key Terms

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Total Annual Revenue/Net Revenue

Total annual revenue is net proceeds generated from the sale of products or services. This should reflect the selling price less any allowances such as quantity, discounts, rebates and returns. If your business entity is a support unit and therefore does not directly generate revenue, then provide the revenue amount for the units you support. For government/non-profit organizations, please use your non-pass-through budget. For insurance companies the total annual revenue is the total amount of direct written premiums, excluding net investment income. Note: Business entity revenue needs to only include inter-company business segment revenue when the transactions between those business segments are intended to reflect an arm's length transfer price and would therefore meet the regulatory requirements for external revenue reporting.

Systems Cost

Systems costs include all expenses, paid or incurred, in conjunction with:

Computer hardware or computer software acquired by the organization or provided to the organization through service contracts.

Any related costs to process, service and maintain computer hardware or computer software. The costs of providing and maintaining services for each applicable process (e.g., computer system(s) processing (CPU) time, network/system communication charges, maintenance costs for applications and data storage). This includes the costs related to LANs, WANs, etc. This does not include one-time costs for major new systems developments/replacements. Consultant fees should not be included in depreciation of new system implementations. Include only those costs that occur more than six (6) months after implementation, as normal system maintenance costs. Any systems cost (e.g., maintenance) which is outsourced to a third party supplier should be captured in the separate cost category labeled outsourced cost.

Systems cost should include all salaries, overtime, employee benefits, bonuses or fees paid to full-time, part-time or temporary employees or independent contractors who perform services relating to computer hardware, computer software, processing or systems support.

Cost Effectiveness

Cost effectiveness measures are those in which two related variables, one of which is the cost and one of which is the related outcome related to the expenditure are used to determine a particular metric value.

Measure Scope

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Cross Industry (7.3.0)

  • 4.2.1 - Provide sourcing governance and perform category management (10277) - Creating strategies for procuring materials and services from various sources, and for managing and evaluating categories. Establish a procurement process that describes the approach for obtaining products and purchasing activities. Evaluate the sources. Create sourcing relationships in order to continuously improve. Re-evaluate purchasing activities.
    • 4.2.1.1 - Develop procurement plan (10281) - Creating a plan for procuring materials and services. Plan what to buy, when, and from what sources. Include project requirements, the procurement team, the justification for the procurement, a timeline of events, and an explanation of the supplier selection process. Outline specific actions to start and complete purchases in order to adhere to best practices.
    • 4.2.1.2 - Clarify purchasing requirements (10282) - Defining the purchasing requirements for materials and services. Specify the exact inventory required for the production process. Create a specific quotation for all the sources in order to avoid any duplication or overlap.
    • 4.2.1.3 - Establish materials management contingency plans (10283) - Developing a strategy to deal with issues projected to arise during implementation of the inventory plan. Identify how to react to issues that arise and require changes to the inventory plan, such as a vendor failing to deliver materials on time. Collaborate with production and suppliers to prepare solutions to projected problems.
    • 4.2.1.4 - Match needs to supply capabilities (10284) - Synchronizing the requirements of materials and services and the capacity of suppliers for providing these materials and services. Revamp the procurement needs of the company in consideration of the capabilities of the suppliers.
    • 4.2.1.5 - Analyze organization’s spend profile (10285) - Evaluating the spend profile of the organization. Collect, cleanse, classify, and analyze the procurement data with the purpose of reducing procurement costs, improving efficiency, and monitoring compliance.
    • 4.2.1.6 - Seek opportunities to improve efficiency and value (10286) - Seeking the most efficient sourcing and procurement opportunities.
    • 4.2.1.7 - Collaborate with suppliers to identify sourcing opportunities (10287) - Collaborating with the suppliers of materials and services in order to determine new opportunities for sourcing.
  • 4.2.2 - Develop sourcing and category management strategies (20973) - Deploying a strategic sourcing methodology to segment the majority of organizational spend based on external supply markets (versus individual suppliers or internal stakeholders) to reduce the cost of buying goods and services, reduce risk in the supply chain, and maximize value delivered from the supply base. This approach typically includes cross-functional management of categories, examining the entire category spend, how the organization uses the products or services within the category, the marketplace, and major suppliers.
  • 4.2.3 - Select suppliers and develop/maintain contracts (10278) - Evaluating supplier options to select the most effective and efficient suppliers. Validate selected suppliers. Establish and manage supplier contracts.
    • 4.2.3.1 - Select suppliers (10288) - Evaluating the pros and cons of various suppliers. Choose the most appropriate and cost-effective suppliers on the basis of their material quality, delivery schedules, and costs.
    • 4.2.3.2 - Certify and validate suppliers (10289) - Validating the supply sources, and provide certification as an official supplier.
    • 4.2.3.3 - Negotiate and establish contracts (10290) - Legally binding suppliers with the company. Negotiate contracts individually with all the suppliers that include the promised material delivery, the delivery dates and duration, etc.
    • 4.2.3.4 - Manage contracts (10291) - Keeping contracts up-to-date with routine evaluation. Maintain order and discipline with the contracts in order to avoid any loss of information and mishaps.
  • 4.2.4 - Order materials and services (10279) - Creating and approving requisitions and distributing purchase orders accordingly. Hasten the procurement process to satisfy internal needs.
    • 4.2.4.1 - Process/Review requisitions (10292) - Handling operations related to processing/reviewing the requisitions. Establish and maintain procedures for the initiation, authorization, and processing of purchase requirements to procure products/services.
    • 4.2.4.2 - Approve requisitions (10293) - Approving requisitions for materials and services. Examine distributor-specific requests, and validate them individually.
    • 4.2.4.3 - Solicit/Track vendor quotes (10294) - Requesting quotes from suppliers. Use a request for quotation (RFQ) to invite suppliers into a bidding process for specific products/services.
    • 4.2.4.4 - Create/Distribute purchase orders (10295) - Creating and placing the orders for purchasing materials and services from suppliers. Analyze vendor quotes. Choose the most cost-effective vendors. Create vendor-specific orders. Distribute them in order to initiate the purchasing process.
    • 4.2.4.5 - Expedite orders and satisfy inquiries (10296) - Accelerating the purchase orders in order to fulfill the internal needs (for raw materials) depicted through inquiries.
    • 4.2.4.6 - Reconcile purchase orders (10297) - Verify that purchase orders are filled as expected: verify that items and quantities are delivered as expected, based on purchase order details and goods receipts.
    • 4.2.4.7 - Research/Resolve order exceptions (10298) - Identifying and resolving any exceptions. Address the internal needs/inquiries for materials that cannot be procured immediately. Research inquiries that require the need of exceptional materials.
  • 4.2.5 - Manage suppliers (10280) - Collecting and analyzing new information in order to track and rate suppliers through a supplier information management system.
    • 4.2.5.1 - Monitor/Manage supplier information (10299) - Examining procurement and vendor performance. Report delivery timing and the quality of the materials procured through different vendors.
    • 4.2.5.2 - Prepare/Analyze procurement and vendor performance (10300) - Assisting the production and inventory processes through the information and reports created. Use the information and metrics of the procurement and vendor performance to enhance or improve the production process.
    • 4.2.5.3 - Support inventory and production processes (10301) - Support inventory and production processes by analyzing impact of procurement decisions and collaborating to constantly improve. (For example, perhaps minimum order requirements could be negotiated to be lower, to reduce excessive inventory and make production more flexible.)
    • 4.2.5.4 - Monitor quality of product delivered (10302) - Track the performance of the suppliers on product quality. Use this information to further improve sourcing and supplier performance.