Understanding how your organization compares to others within your industry, or best practices in general, is critically important to ensuring you stay ahead of the curve. Over the last 22 years, Source One has accumulated a database of price points, contracts, and best practices, that allows benchmarking to be a normal part of our sourcing process - in fact it's one of the ways we develop our sourcing strategies for new projects. But how can organizations without access to the real time market intelligence that comes with sourcing similar goods and services for a large grouping of clients at the same time integrate benchmarking into their process?
Over the next few weeks, several of Source One’s experts will delve into the topic of benchmarking. We will explore the importance of benchmarks as it relates to sourcing strategy and supplier management, how benchmarks from independent third parties can bring actionable results and value to an organization, and best practices for stakeholder involvement and getting the most from a benchmarking exercise. Part one of our series provides an overview of benchmarks and their importance.
A benchmark is a measurement tool used to compare your company against best practices to evaluate areas such as pricing and performance. This tool can be used across a variety of industries and departments within your company. Benchmarks should provide you with an overview of what you are doing today, evaluate your program, including processes & workflows, contractual relationships and spend profiles against the marketplace, and provide you with both conclusions and actionable recommendations. Another important component to benchmark reports is to understand that it is a tool that you should be using on an ongoing basis. Utilizing a benchmark once will not get you the results that you need to sustain long term goals and best practices.
To establish a benchmark it is important to create and outline a baseline that can be used to evaluate against others. This includes collecting pertinent information including current contracts, statement of work, pricing structures and engaging with the stakeholder to understand requirements. Without taking the time to clearly outline your process as it is today, the benchmark will not provide any benefit to your company’s success.
Companies can conduct benchmark reports internally to evaluate their performance or their supplier’s performance, or they can hire an outside company to develop a benchmark. Hiring an outside company to develop a benchmark report has its advantages and disadvantages. The primary advantage is getting access to a broader, more up to date set of data with the potential for meaningful and customizable analysis. Unfortunately, not every company that provides benchmark reports go as in depth as customers looking for clear sourcing strategy and actionable intelligence would like. (See Bill Dorn's post "You Need Real Benchmark Data - Here's Why"
Benchmarks can be used for a variety of reasons. Some companies are preparing for negotiations with their suppliers; others are looking for insight into how their contracts and pricing align to similar companies in their industry. We also find that companies are looking for feedback on their supplier’s KPIs and service levels and how they compare to others, and how they can be improved upon.
Taking advantage of conducting benchmarks helps you develop strategy, operational improvements, and financial improvements. It can identify potential gaps in your company, department or supplier relationships, and if it is a reliable benchmark it provides you with actionable recommendations that can be used as leverage to give your company a competitive advantage. Having recommendations and specific observations in your benchmark report provides a focus and allows the company or stakeholder to look at their own actions to understand where there may be issues and develop strategies to address them based on what is happening in the industry. Also, a benchmark might provide confirmation to a company. For example, if you find from a benchmark that your growth, revenue, or supplier relationships are consistent with the industry you can continue to grow based on your current scope of work while investing time and effort in other areas until it's time to conduct a new benchmark.
Next week, we will discuss why using an independent company to conduct your benchmark services, can benefit your company.