Hidden Cost of Purchase Approvals
For Mid Size and Enterprise
Companies
Organizations have the opportunity to reduce
hidde...
Purchase Approval Cost for Mid Market to Enterprise
Company Using Manual or Semi manual Process
25%
20%

20%

15%
10%

10%...
Typical Mid Size to Enterprise Companies Follow “Paretto Like” Spend Pattern
However Transaction Volumes reversed towards ...
Process Optimized For High Value
Approvals
• Generally a Purchase Order Approval process
is optimized for higher value pur...
Companies Are Incurring Big Hidden Approval Costs
PO Approval Costs
$35,000
$100,000 and Above

$500,000

$375,000

Betwee...
Solution to Recapture Huge Hidden
Approval Costs
• Reate Alternate Approval Process For Lower
Value/High transaction Items...
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The Hidden Cost of Purchasing Approvals

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Mid to Enterprise Organizations can significantly reduce the hidden total cost of purchase approvals by reviewing policy and process based on spend levels. For a company with an annual spend and a basic standard process there maybe over a million dollars of cost related to approvals of the bottom 15% of spending.

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The Hidden Cost of Purchasing Approvals

  1. 1. Hidden Cost of Purchase Approvals For Mid Size and Enterprise Companies Organizations have the opportunity to reduce hidden total cost of PO approval by reviewing spend profiles and implementing cost effective solutions based on spend levels Bill Kohnen
  2. 2. Purchase Approval Cost for Mid Market to Enterprise Company Using Manual or Semi manual Process 25% 20% 20% 15% 10% 10% 5% 0.50% 0.10% $100,000 to $1,000,000 $1,000,000 and Above 0% Below $1000 $1,000 to $100,000 Approval Cost as % ofValue Bill Kohnen
  3. 3. Typical Mid Size to Enterprise Companies Follow “Paretto Like” Spend Pattern However Transaction Volumes reversed towards lower spend items 80% 70% 60% 50% 40% Spend 30% Transaction 20% 10% 0% $100,000 and Above Between $10,000 and $100,000 $10,000Less to $1,000 Less Than Bill Kohnen
  4. 4. Process Optimized For High Value Approvals • Generally a Purchase Order Approval process is optimized for higher value purchases – Good For Control – Cost Effective – Extra Time compared to cost seen as reasonable check and balance – Multiple Approvers input considered important However Optimizing to High Value Is A Source of a Very High Kohnen Hidden Cost Bill
  5. 5. Companies Are Incurring Big Hidden Approval Costs PO Approval Costs $35,000 $100,000 and Above $500,000 $375,000 Between $10,000 and $100,000 Less Than $10,000 $500,000 Less to $1,000 In This Example A Company with $50M Total Spend Incurs One Million Dollars Cost For Approval Of Its Lowest Dollar Items Company Spend $ 50,000,000.0 Spend Total Range Approval Cost as % ofValue Spend Spend Total $100,000 and Above 0.1% 70% $ 35,000,000 Between $10,000 and $100,000 5% 15% $ 7,500,000 Less Than $10,000 10.00% 10% $ 5,000,000 Less to $1,000 20% 5% $ 2,500,000 Bill Kohnen Total Approval Cost $ 35,000 $ 375,000 $ 500,000 $ 500,000
  6. 6. Solution to Recapture Huge Hidden Approval Costs • Reate Alternate Approval Process For Lower Value/High transaction Items – Single Level Approval – P Card – Automation – Commerce as a Service Solutions • Retain Formal Process for High Value Items Bill Kohnen

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