Benchmarking is one of the factors that allows companies to adapt more easily to market problems, contributing to business growth and success. In a time of supply chain disruptions and challenges faced by suppliers, Purchasing professionals need to seek a business approach, and benchmarking is an important factor for successful negotiation.
Recent years have shown the importance of making the Procurement function more resilient and agile to enable companies to react quickly in times of crisis and, as the supply chain returns to normal, add more value to the business and invest in a model that allows for innovation.
And this is only possible if there is full visibility of spending and analyses are carried out that compare the company performance with the performance of market leaders in order to gain competitive advantages.
Smarter, safer shopping with benchmarking
And benchmarking meets this need. According to the American Productivity & Quality Center (APQC), a non-profit benchmarking and best practices organization focused on productivity, benchmarking “is the competitive advantage that enables companies to adapt, grow, and thrive through change.”
Therefore, price benchmarking is essential for the strategic sourcing, after all, it is necessary for Purchasing professionals to have good knowledge about their suppliers in order to carry out more effective negotiations.
Benchmarking, then, compares the price paid for a good or service with the industry average and is based on the price charged by other suppliers and what competitors are willing to pay.
However, this process may not be as simple as it seems, as it requires information that is not so easy to obtain. After all, most companies are not willing to share the amounts paid for inputs, which requires finding other ways to find this data, making the process more time-consuming and expensive, which makes hiring a specialized company the most efficient way.
How to use benchmarking in strategic sourcing
If the benchmarking results show that the company is paying a high price for a product or service, this does not mean that it is time to look for a new supplier, but that it is necessary to analyze other factors, such as the quality of the product offered and even review points in the relationship. In other words, it may be time to renegotiate a contract.
In this way, with benchmarking in hand, armed with market information, the Purchasing professional has more power to seek to reduce values or improve payment conditions, delivery, etc.
But it may also be time to change suppliers. At the moment when price benchmarking is part of the strategic sourcing, and it is detected that the company is paying more for a certain input, seeking another supply option may be the best way forward. Based on the information gathered, the Purchasing area can evaluate the quotes received more consistently and intelligently.
Although benchmarking is typically used for higher-value products, it is also essential for everyday items. For example, a few years ago, American Airlines saved around $40 by removing an olive from the salad served in first class on its flights.
No one wants to pay more for a product or service, so adopt benchmarking as part of your Purchasing strategy.
COSTDRIVERS' Data Strategy platform has information for all your company's needs. Perform competitive benchmarking and get advantages when negotiating with your suppliers. Talk to one of our experts and find out how we can help your company.