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.

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. 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. 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. 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. 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. 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