The real cost of a slow
purchase order cycle

Cycle time is the number that moves procurement business cases, because unlike savings it cannot be disputed and unlike headcount it does not threaten anybody.

It is also usually worse than people think, because the figure quoted internally tends to be the median rather than the average, and the tail is where the cost is.

Measuring it properly

Measure from the moment somebody decides they need something to the moment the order reaches the supplier. Not from when the request was formally submitted, which excludes the time spent working out how to submit it.

Take a sample of recent purchases and reconstruct the timeline from emails. It is tedious and it takes an afternoon, and the resulting number is usually enough to fund the project on its own.

Report both the average and the worst decile. The average is what people expect. The worst decile is what operations actually complains about.

Four costs to add up

Each of these is estimable from data you already have, and none of them requires a consultant to model.

Most organisations find one of these dominates. Working out which tells you where the argument for change actually is.

Rush fees and expedited freight

The easiest to quantify, because it appears as a line on invoices. Pull twelve months of freight and premium charges and separate the expedited ones.

Then ask a harder question. How many of those were expedited because the requirement was genuinely urgent, and how many because approval took a week and the deadline did not move?

The second category is cycle time cost wearing a different label, and in most organisations it is the larger share.

Stockouts and downtime

Harder to quantify and usually the largest number where it applies. A production line waiting on a part, or a site unable to proceed, has a cost per hour that operations can usually state precisely.

You do not need every incident. Take the ones people remember from the last year, attach the hourly cost, and be conservative. A conservative figure that survives scrutiny is worth more than a comprehensive one that does not.

Time spent chasing

The most widely distributed cost and the most often ignored, because it is spread thinly across many people rather than appearing anywhere as a line item.

Estimate it in three parts. Requesters following up on their own requests. Approvers dealing with reminder emails and status questions. And procurement or finance answering where has this got to, which in many organisations is a substantial part of somebody's week.

Multiply by loaded cost and the annual figure is usually larger than anybody expects.

Building the case

Three principles make a cycle time case persuasive.

Be conservative and say so. Present the low end of each estimate and note that you have done it. It shifts the conversation from challenging your numbers to accepting them.

Lead with the cost that dominates. If stockouts are the big number in your business, open with that rather than with finance time.

Separate the hard from the soft. Rush fees are invoiced and provable. Chasing time is real but estimated. Presenting them separately is more credible than blending them into one figure.

A business case that admits its own uncertainty is harder to argue with than one that does not.