3 Approaches to Measuring ROI for Procurement Platforms


Jan 23, 2023 | Procurement tools and solutions



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Stawan

Jan 23, 20234 min read


Measuring ROI for procurement platforms is critical for maximizing procurement budgets and ensuring the best value. To measure ROI, data should be collected consistently across departments and analyzed regularly. Predictive analytics can help calculate long-term ROI. Maximize your returns by measuring ROI for procurement platforms.


Procurement platforms are quickly becoming a key part of the business landscape. These platforms offer convenient ways to source goods and services and provide a comprehensive range of features that streamline the procurement process, from finding the best deals to optimizing spend. As such, understanding how to measure Return on Investment (ROI) for procurement platforms is essential for any business looking to maximize their procurement budget and get the best value for their money. Offered at a fraction of the cost of its competitors, FactWise is built and deployed to ensure an instant time to value, which means that organizations can leverage a significant ROI within the same financial quarter or year, depending on their subscription plan and usage.  

What Are the Benefits of Measuring ROI for Procurement Platforms? 

By measuring ROI, businesses can understand how well their investment in the platform is performing, as well as help them determine if they are getting the best deal. It also helps businesses identify areas of potential improvement and identify where they can save money. 

ROI measurement also provides a clear indication of whether the platform is meeting its objectives. This can be invaluable when making decisions about future investments in the platform, as well as when making changes to existing strategies or exploring new options. It also helps businesses get a better understanding of how their investment is contributing to their overall success. 

In addition, measuring ROI for procurement platforms can help businesses identify areas of potential cost savings. By understanding the return on investment of the platform, businesses can make informed decisions about where to allocate resources and how to optimize their procurement processes. This can help businesses reduce costs and increase efficiency, leading to improved profitability. 

What Are the Key Metrics for Calculating ROI for Procurement Platforms? 

The key metrics for calculating ROI for procurement platforms include Total Cost of Ownership (TCO), Cost-Benefit Analysis (CBA), and Return on Investment (ROI). TCO takes into account the cost of the platform itself, including any ongoing support and maintenance costs. CBA compares the cost of deploying the platform with the expected benefits of using it. ROI is calculated by subtracting the initial investment in the platform from any future returns generated by its usage. 

In addition, businesses also need to consider other metrics such as time savings, cost savings, and quality improvements. This information can help businesses better understand the value they’re getting from their investment in the platform. 

It is also important to consider the impact of the platform on customer satisfaction. By measuring user satisfaction, businesses can gain insight into how the platform is impacting their user and how it is helping to improve their overall experience. 

How to Use Data to Measure ROI for Procurement Platforms? 

The most effective way to measure ROI for procurement platforms is to use data. By collecting data across a range of different areas, such as time saved, cost saved, and quality improvements, businesses can get a clear picture of how their investment in the platform is performing. 

Data should be collected in a consistent manner across different departments, such as procurement and finance, to ensure an accurate assessment of ROI. This data should then be analyzed and reported on regularly to ensure an up-to-date view of ROI. Regular reporting on ROI can help businesses make more informed decisions about the platform and adjust strategies accordingly. 

It is also important to consider the long-term impact of the platform. By tracking data over time, businesses can gain insight into how the platform is impacting their bottom line in the long run. This can help them make more informed decisions about the platform and ensure that they are getting the most out of their investment. 

How to Calculate Long-Term ROI for Procurement Platforms? 

Long-term ROI for procurement platforms is more difficult to calculate than short-term ROI because of the complexity involved in predicting future savings. Businesses need to consider factors such as inflation, market fluctuations, and other external factors. In addition, they should also factor in any potential changes in the platform that may affect future returns. 

The most effective way to calculate long-term ROI for procurement platforms is to use predictive analytics. Predictive analytics can help businesses predict future savings and identify areas where investment could be made to maximize the platform’s potential. Predictive analytics can also be used to compare different platforms and identify those with the highest long-term potential. 

Measuring ROI for procurement platforms is essential for any business that wants to get the best value from its investment. By understanding the key metrics for calculating ROI, collecting data consistently across different departments, and using predictive analytics to calculate long-term ROI, businesses can make informed decisions about their procurement platforms and maximize their returns. 

It is also important to consider the cost of implementation when calculating long-term ROI for procurement platforms. The cost of implementation can vary significantly depending on the complexity of the platform and the resources required to set it up. Businesses should factor in the cost of implementation when calculating long-term ROI to ensure they are getting the best value for their investment. Due to FactWise Source-to-Pay’s flexibility and ease in deployment, there are no additional implementation costs or other hidden costs, and users pay only for what they use.  

Accenture reported a 20% increase in procurement efficiency for a client after implementing a procurement platform. This example demonstrates the potential for procurement platforms to streamline and automate procurement processes, resulting in increased efficiency and cost savings. Accenture's client likely experienced faster and more efficient procurement processes, reduced manual labor and administrative costs, and improved supplier management. 

A case study by Proactis found that a major construction company reduced its procurement costs by 10% within the first year of using its procurement platform. This example highlights the cost savings that can be achieved through the use of procurement platforms. The construction company likely benefited from improved spend visibility, better supplier management, and the automation of manual procurement processes, leading to reduced costs and improved bottom-line results. 

SAP Ariba reported that one of their clients, a multinational manufacturer, achieved a 20% reduction in indirect spend through the use of their procurement platform. This example illustrates the impact that procurement platforms can have on indirect spend, which can often be a significant source of cost savings. The manufacturer likely benefited from improved spend visibility, better supplier management, and more effective procurement processes, resulting in reduced indirect spend and improved bottom-line results. 

A study by Deloitte found that a leading retail company achieved a 30% reduction in procurement processing time after implementing a procurement platform. This example highlights the potential for procurement platforms to streamline and automate procurement processes, resulting in reduced processing times and improved productivity. The retail company likely experienced faster procurement processes, reduced manual labor, and improved supplier management, leading to improved efficiency and cost savings. 

It is important to keep in mind that while procurement platforms can bring significant benefits to organizations, the ROI of each platform will vary based on the specific platform, company, and implementation. Regular monitoring and evaluation of the ROI is necessary to ensure that the platform is delivering the expected benefits and to make any necessary adjustments. 

Overall, procurement platforms offer a valuable opportunity for organizations to streamline and automate procurement processes, resulting in improved efficiency, reduced spend, and improved supplier management. By carefully measuring and evaluating the ROI of these platforms, organizations can ensure that they are maximizing their investment and achieving the desired outcomes. At FactWise, our singular focus is to delight users and provide sustainable positive impact to the organizations we serve. 


About the Author

Stawan is the founder and CEO of FactWise. Before founding FactWise, Stawan was the NA TMT-Procurement Leader at McKinsey. Passionate about procurement, Stawan has 15 years’ experience in enabling clients of all sizes to achieve business impact via procurement.


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