.avif)
Procurement Glossary
Process Costs: Definition, Calculation, and Control in Procurement
March 30, 2026
Process costs refer to the totality of all costs incurred through the execution of business processes. In procurement, they include all expenses for sourcing activities – from needs identification to invoice processing. Precise recording and management of these costs is crucial for optimizing procurement efficiency. Below, learn what process costs are, how they are calculated, and which methods exist for reducing costs.
Key Facts
- Process costs arise from all activities within a procurement process
- They include personnel, material, and overhead costs of the procurement organization
- Typical cost drivers are order frequency, number of suppliers, and complexity
- Process costing enables cause-based cost allocation
- Digitalization can reduce process costs by 20-40%
Content
Definition: Process Costs
Process costs are all costs incurred in the execution of business processes that can be allocated to the respective activities based on causation.
Basic Components of Process Costs
Process costs are composed of various cost types:
- Personnel costs for all employees involved
- Material costs such as IT systems, office supplies, and communication
- Overhead costs for infrastructure and administration
- Opportunity costs due to capital commitment
Process Costs vs. Traditional Cost Accounting
In contrast to traditional cost center accounting, Activity-Based Costing uses activity-based cost allocation. This enables more precise calculation and better decision-making foundations for optimization measures.
Importance of Process Costs in Procurement
For procurement organizations, process costs are a critical success factor. They significantly influence the Total Cost of Ownership (TCO) and can account for up to 15% of procurement volume in inefficient processes.
Methods and Approaches
The systematic recording and optimization of process costs requires structured methods and proven approaches.
Activity-Based Costing (ABC)
Activity-Based Costing assigns costs directly to the activities that cause them. In this process, cost drivers are identified and cost rates per activity are determined. This method provides a high level of transparency regarding the actual process costs of individual procurement transactions.
Process Analysis and Value Stream Analysis
Detailed process analyses can be used to identify inefficiencies and cost drivers. Value Analysis helps distinguish value-adding from non-value-adding activities and uncover optimization potential.
Benchmarking and KPI Comparison
Comparison with internal and external benchmarks makes it possible to assess your own process efficiency. Important KPIs include cost per order, lead times, and the degree of automation in procurement processes.
KPIs for Managing Process Costs
Effective KPIs enable the continuous monitoring and optimization of process costs in procurement.
Cost Metrics per Transaction
The Ordering Costs per transaction are a key metric. They include all expenses from the purchase requisition to invoice processing. Typical values range between 50-200 euros per order, depending on complexity and degree of automation.
Process Efficiency Indicators
Lead times, degree of automation, and error rates measure operational efficiency. A high degree of automation usually correlates with lower process costs and higher process quality.
ROI Metrics for Optimization Measures
The ROI in Procurement evaluates the profitability of process improvements. Investments in digitalization typically pay for themselves within 12-24 months through reduced process costs.
Risks, Dependencies, and Countermeasures
There are various risks involved in managing process costs that can be minimized through suitable measures.
Incomplete Cost Recording
Hidden or unrecorded costs lead to poor decisions. Indirect costs in particular, such as coordination effort or quality inspections, are often overlooked. A complete Cost Driver Analysis creates transparency.
Over-optimization of Individual Process Steps
The isolated optimization of individual activities can lead to suboptimization. What is important is a holistic view of the entire process chain, taking into account interfaces and dependencies between the process steps.
Neglect of Quality Aspects
A pure cost focus can lead to losses in quality. A balanced relationship between cost efficiency and process quality is crucial for sustainable success in procurement.
.avif)
Practical Example
A mid-sized company analyzed its procurement process costs and found that 60% of orders had a value of less than 500 euros, but caused 40% of total process costs. By introducing an electronic catalog for standard items and automated approval workflows, the process costs for these small-value orders were reduced by 70%.
- Implementation of a self-service portal for standard items
- Automated budget check and approval up to 500 euros
- Digital invoice processing with automatic matching
Trends & Developments Related to Process Costs
Digitalization and new technologies are fundamentally changing the structure and level of process costs in procurement.
Automation and AI Integration
Artificial intelligence and robotic process automation (RPA) significantly reduce manual tasks. Automated ordering processes, intelligent supplier evaluation, and AI-supported price analyses lower process costs by an average of 30-50%.
Cloud-Based Procurement Platforms
Software-as-a-Service solutions shift IT costs from capital expenditures to operating costs. This leads to predictable, variable cost structures and reduces total process costs through economies of scale and automated updates.
Data-Driven Cost Optimization
Advanced analytics and real-time monitoring enable continuous process cost optimization. Predictive analytics helps identify cost drivers at an early stage and initiate preventive measures.
Conclusion
Process costs are a decisive success factor for efficient procurement organizations. Their systematic recording and optimization enables significant cost savings and improved service quality. Digitalization offers the greatest leverage for sustainably reducing process costs. Companies that manage their process costs transparently create sustainable competitive advantages for themselves.
FAQ
What are the main cost drivers of process costs?
The most important cost drivers are personnel effort for manual activities, IT system costs, communication effort with suppliers, and internal coordination processes. It becomes particularly complex in the case of individual inquiries and special procurements.
How can process costs be reduced most effectively?
The greatest savings potential lies in automating recurring activities, standardizing processes, reducing the supplier base, and implementing self-service solutions for standard needs.
What role does digitalization play in process costs?
Digitalization is the most important lever for reducing process costs. E-procurement systems, automated workflows, and AI-supported analyses can reduce process costs by 30-50% while simultaneously improving process quality.
How do you calculate process costs correctly?
Process costs are calculated by multiplying the cost rates per activity by the number of activities carried out. All direct and indirect costs as well as opportunity costs must be taken into account.
.png)
.png)
.png)
.png)
