A simple formula shows what an order really costs in process terms. Ten sample orders deliver your own figure – and reveal which strategy actually lowers it.
Process costs per order can be calculated with a simple formula: steps involved times time per step times hourly rate, plus system costs. Apply this formula to ten of your own orders, because that produces a solid figure without an external study and without guesswork. The figure shows immediately where process costs really arise. Not in the value of the goods, but in the steps around them.
The formula has four components: first, the number of steps involved, from supplier vetting through approval and goods receipt to invoice review and payment. Second, the time each step actually takes, meaning measured time rather than time on paper, because queries and waiting time count too.
Third, the fully loaded hourly rate of the roles involved, meaning salary plus non-wage labor costs, and fourth, the system costs per transaction: ERP transaction, archiving, and license fees where applicable.
You multiply steps, time, and hourly rate, then add the system costs, which produces the process cost figure for a single order. This formula applies to every order type.
The difference between order types lies solely in the number and duration of the steps, and anyone who wants to dig deeper into the methodology behind it can find an overview in the Haufe Akademie's process costing glossary.
With a catalog order, the supplier, terms, and approval limits are already on file, so the process runs largely automatically: select, order, have it delivered, reconcile automatically. Two to three steps, each of them short.
With a one-off requirement, the process looks different: a suitable provider is sought out and vetted, and their data is newly created in the system. The order then runs through several approval levels. There is no framework agreement here.
After delivery, accounting manually checks the invoice against the order and goods receipt, because the invoice issuer is new in the system. That is five to seven steps. Several of them are time-intensive, and the difference in process costing arises right here, not in the item, but in the path to it.
A solid figure of your own doesn't require a full survey. Ten samples from your most recent one-off requirements are enough:
An example of the methodology: five steps take 15 minutes each on average, which adds up to 75 minutes, or 1.25 hours. At an hourly rate of €45, that comes to €56, plus €8 in system costs. The order therefore costs around €64 in process terms.
Your own figure will differ from this, and that is precisely the point of the exercise: a measured value from your own organization instead of an industry average.
Three strategies lower the measured figure. Each one acts at a different point.
| Strategy | Applies to | Limit | |---|---|---| | Streamlining the process | Every order | Steps remain, only their duration decreases | | Consolidating volume | Recurring needs with a fixed supplier | Falls flat for genuine one-off requirements | | Consolidating orders | Any irregular need, regardless of supplier | Requires a central creditor |
Streamlining the process shortens the time per step: fewer approval levels, standard forms, clearer responsibilities, and this works quickly without requiring new infrastructure. The number of steps stays the same, though, because supplier onboarding takes less time but doesn't disappear.
Consolidating volume reduces the number of orders: bulk orders, framework agreements, fixed ordering dates, and this works well for recurring needs with a known supplier.
With a genuine one-off requirement, though, there is neither a fixed date nor a fixed provider, so consolidation falls flat here. Where this limit lies in practice is shown in the guide on reducing indirect costs.
Consolidating orders attacks the problem at a different point: a single creditor takes over onboarding, invoicing, and payment for all irregular needs, so entire steps disappear, not just their duration. Supplier onboarding is the most labor-intensive item in almost every sample. It disappears completely.
Anyone who applies the formula to their own samples sees the same effect again and again: the two most expensive steps are onboarding a new supplier and reviewing the invoice individually. Both arise because every requirement brings a new invoice issuer with it.
Streamlining the process reduces the time these steps take, while consolidating volume only helps if the need recurs. Only one strategy removes the steps themselves: consolidating all orders with a single creditor – how strongly this affects Tail Spend is shown in the article on hidden costs in procurement.
This is the core idea of the Single Creditor Model: one supplier, one creditor, one consolidated invoice, while agents handle the processing in the background. No one-off creditors (one creditor for all one-off requirements, no more supplier onboarding).
For your own process costing, this means: for every future order, two steps drop out of the formula, onboarding a new supplier and reviewing the invoice individually. What remains is a fixed, short process. No matter how many providers stand behind it.
The full overview of all levers for occasional purchases is provided by the practical guide to administrative costs.
Find out how the Single Creditor Model removes these two steps from your process costing: Schedule a call →
