Developing & Maintaining Competitive Advantage Through Benchmarking

It is often challenging, sometimes nearly impossible, to gain access to real time market intelligence that can provide you with insight into your industry or supplier relationships. Without access to this information or knowledge of best practices, it can be difficult to ensure your company has a competitive advantage. When delving into benchmarks it is important to understand the components of benchmarking, its benefits, and how the involvement of the spend owner is critical for the benchmark to provide the most value.

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. The specific actions outlined in a benchmark report allow the end user to develop strategies that can include operational and financial improvements as well as a basis for successful negotiations. Another condition to benchmarks is that they need to be conducted on an ongoing basis in your company or department. Much like a driver looking out the windshield once and only once, conducting a benchmark once will not get you the results you need to sustain long-term goals and best practices.

Conducting a benchmark means collecting pertinent information including contracts, statement of work, pricing structures, and engaging with the end user to understand their requirements. Some companies will conduct a benchmark internally. With limited internal data and a lean resource model, however, it can be difficult for those involved in the internal benchmark to gather the necessary information and conduct benchmarks on an ongoing basis. In lean environments such as this, the organization is likely better off using the services of an independent third party. This independent third party can step in and provide the expertise necessary to develop properly robust benchmark reports. Independent companies can dedicate the resources and time to collect all the relevant information to create a report that can be easily understood and used effectively. In addition, utilizing an independent company provides your organization with many advantages, including the ability to be objective when evaluating a company, their industry and category knowledge, and accessibility to data and market information.

Benchmarks can only be successful if there is an engaged spend owner. A benchmark will focus on the quantitative and qualitative components of a category or supplier, but without the spend owner’s input and involvement throughout the process, those components will not provide the desired end product. It is important to understand the spend owner’s requirements at the beginning of a benchmarking engagement to get the results needed. As with any service within the larger strategic sourcing portfolio, the owner’s involvement in a benchmarking report is essential to gathering the correct information, understanding the current state, and determining the future state of a company, department, or supplier relationship.

Properly conducted benchmarks can produce clear and actionable recommendations that can drive results to companies that take advantage of them. If done efficiently and effectively with the right components - including real-time market intelligence, knowledge of best practices, and stakeholder involvement - these reports can bring significant value to any company.

We have extrapolated each of these points at the Strategic Sourceror in a three-part series on Benchmarking. If you would like to learn more, please click here for Part 1, Part 2, and Part 3.