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The Coupa Benchmark: 2014 An Industry Benchmark of Key Performance

Indicators for Procurement and Financial Leaders

Benchmark Update: Spring 2014

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WHAT IS THE COUPA BENCHMARK? Procurement organizations need ways to determine if their efforts to drive savings and increase efficiencies are successful. But their visibility is generally limited to what’s happening in their own business. By comparing their efforts to other businesses, procurement professionals can better understand the effectiveness of their efforts and find areas of opportunity for future growth.

The Coupa Benchmark is designed to provide this kind of broad visibility and guidance by sharing benchmark measurements on key performance indicators that are relevant to procurement organizations. The first Coupa Benchmark was published in 2013. This release of the Coupa Benchmark provides updated values for the six performance metrics included in the first report:

1: Req-to-Order Cycle Time

2: Number of Approvers per Requisition

3: Invoice OK-to-Pay Hours

4: Visible PO Spend-on-Contract Percentage

5: Percentage of POs sent via CXML and EDI

6: Self-Service Potential

This update includes benchmark data for an additional four key metrics that indicate not only procurement performance but also the maturity of procurement processes. These new metrics are:

7: Catalog Items

8: Punchout Sites

9: Embedded Buying Policies

10: Web Forms

About the Benchmark Data

The data was extrapolated from customer usage metrics on the Coupa cloud platform, analyzing data from hundreds of thousands of global users, over 750,000 suppliers, millions of transactions and billions of dollars of spending. The performance metrics are based on aggregate data; no individual companies are identified.

To avoid skew from very small organizations or those that are very new to Coupa, the metrics are based on data gathered from customers meeting the following criteria:

• At least one year worth of spending data in the Coupa system

• At least five million dollars in PO spending

Unless otherwise noted, all metrics are median values for the overall set of customers on

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the Coupa platform. This helps to eliminate extremely high or low numbers that would skew the results. For reported averages, the extreme outlying data points are eliminated to normalize the data.

Where there are significant differences based on company size, the Coupa Benchmark divides company size categories based on annual revenue as follows:

Large: More than $1.5 billion

Medium: $250 million - $1.5 billion

Small: Less than $250 million

How Do I Use The Benchmark? By comparing your performance against the reported benchmarks, you can get an indication of where your procurement performance fits with other companies. Although every business is unique, comparing the results with other companies of your size offers useful guidance into what you’re doing right, what others are doing, and potential areas for improvement.

In cases where your performance lags comparable companies, the report provides best practice suggestions. For each benchmark, the report also offers specific recommendations to improve your performance.

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METRIC #1: REQ-TO-ORDER CYCLE TIME (HOURS) Req-to-Order cycle time is the length of time it takes between a requisition being submitted and an order being issued (total hours, not business hours). Cloud and mobile technologies have “democratized” the approval process; now even small companies can use technology to get approvals quickly.

Why This Matters The approval cycle time should match the pace of your business. When an employee needs a business-critical item, long approval cycles hamper their ability to conduct business. Long approval cycles contribute to low adoption rates by employees – if it takes too long to get necessary products or services, people will bypass standard processes and systems.

What You Can Do

Evaluate your data to see which types of requisitions are taking the longest to approve, and who the approvers are.

If you find approvers taking longer-than-usual times to approve requisitions, spend time with them to identify the problem. Offer training or provide them with mobile devices so they can make approvals when away from their desks.

Review requisitions that have many approvers. In most cases, having many approvers doesn’t provide real value. Often, you can decrease the number to shorten the approval time without affecting the controls of the approval process.

Changing the limits and nature of approvals can accelerate the approval process. Shorten approval cycle times and become more competitive by introducing self-approval limits for some employees or increasing approval limits. In general, the more dynamic and flexible your approval processes, the better.

The median req-to-order cycle is less than a day for larger companies.

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METRIC #2: NUMBER OF APPROVERS PER REQUISITION This metric describes the average number of approvers required for purchase requisition approval at a company.

Why This Matters

Contrary to popular belief, increasing the number of approvers does not always result in more effective spend control. More often, adding approvers hinders the process by delaying the time it takes employees to get approval for the goods and services they need to get their jobs done.

Having many approvers may also indicate a highly bureaucratic environment, which reduces individual accountability. When there are many approvers, people assume that the others are doing due diligence and simply approve without much thought.

What You Can Do Take a good look at your approvers. Most importantly, look at the number of rejections by each. If the approver is not rejecting any requisitions, odds are they aren’t providing any spend governance or adding value in the approval chain.

Re-evaluate your approval chains to ensure there are no legacy approvers in the loop. Organizations often have legacy approval workflows because of audit documentation that dictated the approval levels. Take the time to review and update audit documentation to streamline processes. Don’t assume that a process that was necessary a few years ago is still valid today.

Define and implement dynamic approval workflows that change based on the characteristics of the requisition – such as what’s being bought and how much is being spent – not just who is doing the buying. Having the wrong people in an approval chain reduces accountability.

Make sure that you can easily change approval workflow based on your changing needs and employee turnover.

Fewer approvers means greater accountability and faster processing.

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METRIC #3: INVOICE OK-TO-PAY HOURS The Invoice OK-to-Pay hours (total hours, not business hours) metric represents the length of approval time for an incoming invoice for payment. This includes matching invoices to POs and any approval cycles required.

Why This Matters

The Invoice OK-to-Pay metric is important for the finance executive as it affects their ability to accurately manage working capital, accruals and general financial health. The fact that an invoice is ready to pay doesn’t mean that an organization needs to pay the invoice at that time. Shorter time-to-pay actually delivers better control of the payment process, supporting the following scenarios:

• Taking advantage of payment discounts

• Eliminating late payments that alienate vendors

• Reducing accrued liability and moving it towards accounts payable (AP) liability

• Negotiating better terms and access to working capital loans

What You Can Do Companies typically use either matching levels (i.e., a receipt for three-way approval), invoice approvals, or a combination of the above to verify that the invoice is ready for payment.

You can leverage opportunities for improvement and reducing cycle time in both areas:

Matching Levels

Evaluate whether you really need to require a receipt for all spend categories. For example, it may be unnecessary to create a receipt for office supplies, but necessary for capital expenditures.

Adjusting receipt requirements can have a significant impact. Because employees often don’t understand receipt requirements, adoption of this process is usually suboptimal. Invoice approval can often accomplish the same goal.

Shorter OK-to-Pay cycles give finance more payment management options.

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Invoice Approvals

Evaluate your data to see which types of invoices take longer to approve. You will likely find that certain approvers take a longer time to approve invoices. Spend time with these approvers to either train them or provide them with mobile approval capabilities. Most approvals today happen on mobile devices.

Also, review the invoices that have multiple approvers. Most of the time, having a high number of approvers does not translate into better accounting controls. Multiple approvers can often simply be eliminated.

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METRIC #4: VISIBLE PO SPEND-ON-CONTRACT The Visible PO Spend-on-Contract percentage indicates what percentage of all PO-based spend is tied to vendor contracts. Typically, larger companies with more resources and processes in place have more spend under contract than smaller businesses. Many organizations today are using P2P systems for non-traditional P2P uses such as marketing, utilities, cleaning contracts, and temp labor.

Why This Matters Getting more of your spend under contract means you’ll benefit from lower negotiated pricing. In addition, negotiating long-term contracts protects you from unforeseen price increases in the future.

Purchasing services under contract also minimizes your liability. You can be assured that the vendor has the required licenses and insurance in the event anything should go wrong. If an uninsured vendor gets hurt on the company site, the company could end up footing the bill.

What You Can Do First, leverage analytics to get visibility into your spend and identify suppliers that are not under contract. Next, focus on the top spend categories and consolidate your suppliers in those categories. Reducing the number of suppliers in your high spend categories will increase your negotiating power, drive down costs, and protect you from unplanned risk.

Additionally, you should review your overall spend by supplier regardless of category. Then identify those suppliers that represent the majority of your spend and put them under contract. It’s a good idea to create a policy for certain types of spend (such as contracted labor, etc.) that require a contract before doing any business with a supplier.

Perhaps most importantly, provide visibility to your contracts. In other words, make it easy for employees to see and buy against your contracts through the normal requisition process. Spend will follow the path of least resistance. If that path does not expose the buyer to your contracts, then your contracts will not get used.

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METRIC #5: PERCENTAGE OF POs SENT VIA CXML AND EDI The percentage of POs sent via CXML and EDI measures the number of POs that are transmitted electronically to suppliers. Many suppliers, large and small, are taking advantage of electronic commerce methods. Even smaller suppliers have the opportunity to connect via networks like the Coupa Supplier network. (For this study, the Coupa Supplier Network transactions were not included.)

Larger companies are driving the trend toward business e-commerce, but medium and small businesses are adopting this technology rapidly. This version of the benchmark sees better performance across all company sizes than the previous year.

Why This Matters Eliminating manual processing and entry of purchase orders reduces processing errors and supports faster turn-around times. Buyers and suppliers both can decrease their transaction time, making for a more streamlined, agile process.

Automating this process eliminates the manual paper processes and data entry – saving everyone time and money.

What You Can Do

Begin the transformation by identifying your high-volume PO suppliers. Find out if they support cXML or EDI. For those suppliers that don’t support cXML or EDI today, request that they do. It isn’t expensive to implement and there are many companies that help suppliers set up this capability. The supplier will reap great benefits, as they can reduce manual order processing, reduce staff, and process orders faster. Plus, they can use electronic ordering across all of their customers.

Finally, consider options such as the free Coupa Supplier Network, which simplifies e-commerce transactions between your business and smaller, low-volume suppliers.

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METRIC #6: SELF-SERVICE POTENTIAL Self-service potential refers to the percentage of employees within a company who are allowed to create requisitions.

Why This Matters Reducing cycle times can help your business be more competitive in the market. One way to do this is to create a method for self-service approvals. Companies of all sizes can use self-service requisitioning to drive efficiency and empower employees to request what they need. An automated workflow can drive approvals and resulting compliance.

What You Can Do Evaluate the costs of restricting requisition creation and approval to a select few employees. Companies can often save money by providing a license for all users instead of wasting time and money determining which users should own a license.

Look at systems that support SSO or LDAP/AD user authentication to make it easier to manage your license counts and access control. This will enable you to give all users access to catalogs, while centralizing access systems to manage attrition and user customization.

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METRIC #7: CATALOG ITEMS The Catalog Items metric tracks how many items an organization has in its online purchasing catalog available to buyers for searching and selection. This metric does not include items in punchout sites. (See Metric #8.)

Why This Matters The number of catalog items is a good indicator of the work that an organization has done negotiating pricing for its purchases. Catalog items frequently include services as well as physical goods. The catalog can also be used to manage approval processes for other business processes, such as vacation requests.

Eliminating special-request purchases and driving purchasing to the catalog maximizes the use of negotiated pricing and reduces the manual work involved in procurement processes for one-off purchases.

What You Can Do

There is no set best practice, as the number will vary according to the size and type of the business. Coupa customers' catalogs range from a few hundred items to more than a million.

However, the catalog is the first place you want employees to look, for both efficiency and cost savings purposes. In general, the larger the number of catalog items, the better.

• Include services spending in the catalog, so employees can search for and order the services they need in the same way they search for and purchase supplies.

• Offer ways for suppliers to update and manage their data in your catalog with self-service tools.

• Use catalog items to streamline other business processes. For example, using the catalog for vacation requests lets businesses automate and manage approval processes for vacation requests.

Catalog items are not valuable if people don’t use them. To drive more purchasing through the catalog, make sure it’s easy for business users to search for items/services and find what they need in the catalog.

# of Catalog Items

Average # 17,655

Smallest 200 Largest catalogs >1 million

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METRIC #8: NUMBER OF PUNCHOUT SITES A punchout site is a connection from within your own catalog or procurement system to a supplier’s website. The punchout site is maintained by the supplier but is integrated with your procurement system and uses your negotiated pricing with the vendor.

Figures listed are averages for each size sector. Actual numbers in collected data range from 0 to 37.

Why This Matters

Punchout sites are a great alternative to maintaining catalog information for high-volume or rapidly changing catalogs. Common examples include industrial supplies and computing equipment. The alternative to maintaining punchout sites is keeping your own catalog current with this information. Suppliers can also offer time-sensitive offers and promotions on punchout sites.

Using punchouts reduces your catalog maintenance efforts while keeping those purchases within your visibility and control. For complex equipment purchases, using a punchout is preferable to having people requisition specific configurations and then negotiating pricing on a case-by-case basis.

What You Can Do Negotiate with major vendors of complex, configurable or high-volume equipment, such as industrial equipment, chemicals, and computing supplies, to enable punchout integration with your purchasing system. And take advantage of suppliers that are already enabled with punchout technologies. In most cases, you can negotiate similar pricing with those suppliers, allowing you to drive cost savings and efficiencies.

Make it easy for your employees to discover and use your available punchout sites. For example, expose the punchout sites through your standard catalog/procurement system, and integrate the user’s selected punchout items back into the normal purchase and checkout flow.

Good candidates for punchout sites include:

• Major distributors

• Vendors with 1,000 or more items

• Products with weekly price changes

• Configurable/customizable items

Average # of Punchout Sites

Large 7 Medium 6 Small 6

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METRIC #9: EMBEDDED BUYING POLICIES This metric looks at the number of “how-to-buy” policies that are embedded in the procurement system. These are policies that appear online, at the point of the request, to provide the requestor or purchaser with the policy and procedure insight at the moment they need it.

For example, when an employee searches for temporary labor services, the system might show them the procurement policy before they submit their request.

A sample of an embedded policy

The average number varies not by company size, but by maturity of procurement processes.

Why This Matters

Embedding “how to buy” policies within the procurement system eliminates a great deal of unnecessary emails and calls by providing the information the employee needs at the point of purchase.

Embedding purchasing policies has several significant benefits:

• Employees waste less time requesting things outside of corporate policies or searching for applicable policies.

• Procurement teams spend less time on emails and calls explaining policies.

• Communicating policy changes is simpler, as any changes are automatically embedded and instantly available in the procurement system.

• Overall adherence to policy is better when policies are presented at the moment they are needed.

# of Buying Policies

Average 6

Minimum 2 Maximum hundreds

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What You Can Do The benchmark averages listed above are still quite low relative to the potential opportunities for most companies. Companies with more mature procurement practices typically have 20-30 embedded policies.

If you already have defined “how-to-buy” policies in employee handbooks or portals, look for ways to embed them in your purchasing system with relevant searches. Go through your most frequent requests for patterns of questions. Look at rejected purchase requests for common mistakes or policy violations. If there are standard policies that can mitigate these questions and mistakes, find a way to embed them in the procurement system.

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METRIC #10: NUMBER OF WEB FORMS Web forms are online, guided forms that help employees submit all of the information necessary for a request. Web forms may be populated with drop-down menus, so employees can choose the location, device or service they need, as well as enter text in unstructured fields.

A sample web form

Why This Matters Web forms provide a standardized way to collect required information for common purchase requests. This information streamlines purchasing and eliminates emails or phone calls sent back and forth to clarify and complete an order.

As an example, a catalog item requesting copier repair could have a web form in which the employee indicates the campus location of the copier, the type of machine, and the problem being experienced. This information would be passed to the vendor to facilitate a prompt repair, with the right parts available on the first visit – streamlining the order and accelerating the end result.

Note that web forms are particularly helpful for service requests, for which the service provider needs detailed information about the scope of the service.

# of Web Forms

Average 10 Minimum 2 Maximum hundreds

Common web forms in the Coupa network

• Air/hotel booking request • Fed Ex shipping request • Truck cleaning

• PO change request • Travel authorization request • Business cards

• Toner request • Cell phone request

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What You Can Do Companies with more maturity in their purchasing processes often have dozens of embedded web forms. Depending on your purchasing models (including how many services or complex products you purchase), having 20 or more web forms is a reasonable objective.

Look for purchases, whether services or goods, that require multiple iterations to complete – these are good candidates for web forms. Determine if you can create a web form in the purchasing process to reduce those iterative cycles. Start with those purchases that happen most frequently to get the greatest payback from the process of implementing the web form.

Also, look for ways to use web forms to streamline other business workflows, such as vacation requests or mileage reimbursement. Integrating these workflows into the purchasing system with web forms lets you take advantage of built-in approval workflows and reporting capabilities.

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COUPA: A LEADER IN CLOUD-BASED SPEND OPTIMIZATION SOLUTIONS Coupa provides a full suite of cloud-based applications for finance including procurement, accounts payable, and expense management. More than 400 customers in 40 countries use Coupa to increase their compliance and reduce their spending costs up to 11%. Only Coupa provides a true suite of cloud-based applications that enable customers to launch the solution immediately and realize significant savings quickly.

To learn more, call us at 650.931.3200, or visit www.coupa.com.

Coupa definitely increased the amount of volume we could handle and increased the speed at which we could do it. We’ve gone from about an average of a week for requisition approval now down to less than 24 hours.

— Bryce Berg, Vice President, Procure to Pay, Molina Health Care

For us, it’s a simple equation. The more our employees use our system, the more spend we get under management which increases savings on everything we buy. Coupa’s ease-of-use has made all of that possible.

— Chris Lavoie, Director of Application Development for ERP, Enterasys Secure Networks

Coupa was the perfect fit – letting us capture the power of our employees to save money and allowing us to gain visibility into our spend when it comes to our critical categories like IT, and therefore, be in a position to be more competitive and to offer even more music.

— Benjamin Hasselgren, IT Procurement Manager, Spotify

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