Most procurement functions will conduct their own benchmarking exercises on a regular basis (e.g. comparing suppliers, in terms of the prices they quote and what services they offer). Does this give the procurement function a good enough ‘view’ of the market, and ensure they have they source the ‘best products/services, at the right price’? asks Alan Low of benchmarking services provider Purchasing Index (PI).
What is benchmarking? A new client recently said ‘it’s simply about paying the best price’. A more comprehensive definition of benchmarking is “the process of measuring an organisation’s internal processes, then identifying, understanding, and adapting outstanding practices from other organisations considered to be best-in-class.” (Wikipedia)
It is evident that benchmarking is not just about the price, but also about understanding what processes are in place, to ensure:
• effective management and use of services and products throughout the organisation; and
• that the organisation manages their relationships with suppliers in an effective manner.
How to do effective benchmarking?
For effective benchmarking to take place, organisations need to compare their performance against other organisations, in South Africa – based on local market dynamics and local regulations, says Low:
- Background – are we comparing ‘apples with apples’? Does the benchmarking exercise take into account organisational differences that may impact on the way the organisation procures, and makes use of, bought-in goods and services?
- Price – is still important, but needs to be measured in context, with some of these other measures.
- Service – Measuring the scope of the service, how effectively this is delivered by the service provider and how effectively service performance is managed by the organisation.
- Process – how are the products and/or services managed throughout the organisation? How do you ensure the correct governance and compliance measures are in place?
- Scope – What value added services does your organisation receive? And how does this compare with what other organisations receive?
Why benchmark and what are the benefits?
If you have gone out to test the market (either through an RFP or tender process) how can you be sure that the price you have negotiated with that supplier is really the best price you could be/should be paying?
A client with a very mature procurement function, tests the market once a year for pricing on PCs. When they joined the benchmark report, PI was able to show that there were other companies who had negotiated better pricing, for the same model of laptops, from the same supplier, despite buying lower volumes of these machines.
How do you ensure that the scope of your services is in line with what other organisations receive?
A client recently joined the Cellphone Benchmark report. They had not realised, up to this point, the extent to which they could get the service provider to handle the billing and administration, on their behalf, free of any extra charge.
How do you promote your department and the work you do, to ensure more ‘compliant’ behaviour across the organisation?
Many of PI’s clients use the findings of the catering benchmark report, to help illustrate:
1) How competitively priced their food is; and
2) How the range of meals on offer and quality of food is in line with other organisations in the report.
This has assisted them to drive down the number of complaints they receive, and to help boost utilisation levels of on-site canteens.
How do you keep abreast of what your competition is doing?
PI provides relevant, local benchmarks of what other organisations are doing to manage costs and increase efficiencies.
PI specialises in providing benchmarking services. If you are interested in finding out more please contact email@example.com.