By not benchmarking the prices and services you receive from suppliers and the way you use those goods and services removes valuable insight into what other organisations are achieving in the market and increases unknown risks, says Alan Low of Purchasing Index (PI), in this month’s SmartProcurement.
“Benchmarking is the process of identifying and learning from best practice in other organisations and is a powerful tool in the quest for continuous improvement and performance breakthroughs.”
– The European Benchmarking Code of Conduct
Over the last 10-15 years the Procurement profession has blossomed in many South African organisations. Procurement is a career of choice for many graduates, and staff who started their working life in other functions such as finance often successfully transition into Procurement.
While Procurement has a mandate to cut costs or ensure that the organisation’s money is spent effectively, it requires the assistance of the Business Units (BUs) to make sure that this happens. Put bluntly (and perhaps simplistically) – procurement can control the price, but the BUs normally manage the quantum of goods and services bought from suppliers. Therefore, effective cost management requires a partnership between procurement and its internal clients.
In this environment benchmarking the prices and services you receive from suppliers and the way you use those goods and services is a vital service, providing invaluable structured insight into what other organisations are achieving in the context of the South African market. Most procurement professionals are constantly seeking new ways to get “more bang for their bucks”; what better way can there be than comparing the key metrics for each spend category with other South African organisations?
An impartial, confidential and informed benchmarking service assists clients to:
• Measure the prices paid to suppliers and the effectiveness of the services provided by suppliers.
• Develop effective purchasing and usage strategies and policies.
• Strengthen procurement’s negotiating position with suppliers by giving them insight into other market related prices and processes.
• Manage the organisation’s costs over time in a sustainable way.
• Get independently validated reports highlighting procurement’s achievements.
• Market procurement’s services to internal clients and provides empiric evidence of the value of procurement.
• Support increased competition by showing who else can supply goods and services and what new services are being offered.
• Highlight the cost of technical & user preference within the organisation.
• Identify fraud.
It is important that benchmarking be done by an impartial third-party organisation in order to be independent, consistent and credible, say Low. “For suppliers who offer to benchmark themselves, the old adage holds good – ‘you can’t run with the fox and hunt with the hounds’”.