Tools & Tips

Calculating the cost of processing purchase transactions? 9 Steps to consider

Calculating the cost of processing purchase transactions as a procurement professional involves considering various factors. Here are some tips to help you with this task:

1. Identify cost components: Begin by identifying the different cost components associated with processing purchase transactions. This can include labor costs, software or technology expenses, communication costs, overhead costs, and any other relevant expenses.

2. Determine labor costs: Assess the amount of time spent by procurement personnel on each purchase transaction. Take into account activities such as vendor research, obtaining quotes, negotiating terms, generating purchase orders, processing invoices, and resolving any related issues. Calculate the labor cost by multiplying the hours spent by the applicable labor rate.

3. Consider technology costs: Determine the cost of any software, procurement platforms, or tools used to manage and process purchase transactions. Include licensing fees, maintenance costs, and any additional expenses associated with technology infrastructure.

4. Evaluate communication costs: Take into account the expenses incurred for communicating with vendors, such as phone calls, emails, and other forms of correspondence. Assess any subscription fees or charges related to collaboration platforms or supplier portals used for communication.

5. Assess overhead costs: Consider any indirect costs associated with processing purchase transactions, such as office space, utilities, equipment, and administrative support. Allocate a portion of these costs to purchase transaction processing based on factors like floor space utilization or employee headcount.

6. Calculate the total cost: Add up all the cost components identified in steps 2 to 5 to determine the total cost of processing purchase transactions. This total cost represents the expenses incurred by your organization in managing procurement activities.

7. Analyze cost per transaction: Divide the total cost by the number of purchase transactions processed over a specific period (e.g., monthly or annually). This calculation provides the average cost per transaction and helps you evaluate the efficiency and cost-effectiveness of your procurement processes.

8. Identify cost optimization opportunities: Analyze the cost breakdown and look for areas where cost savings or process improvements can be made. For example, consider automating certain tasks, streamlining workflows, leveraging technology solutions, or renegotiating vendor contracts to reduce expenses.

9. Continuously monitor and refine: Regularly monitor and track the cost of processing purchase transactions. Analyze trends, identify cost drivers, and seek ongoing opportunities for optimization. Adjust your processes, allocate resources efficiently, and implement strategies to reduce costs over time.

Want to learn more? Attend our Fundamentals Of Purchasing and World Class Procurement (2 Days), Managing Total Cost of Ownership – TCO (1 Day) and Finance for Procurement Professionals (2 Days) courses.

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