Benchmarking Procurement

Benchmarking is the process of identifying and understanding outside practices to help improve your own or your organizations performance. This includes comparing your practices and procedures to examples of best practice with your peers. Benchmarking helps facilitate the introduction of best practice into your organization by identifying the gap between best practice and your existing processes. Such improvements can better help satisfy customer requirements and Cost, Quality and Delivery.

Benchmarking can be very beneficial to supply chain organizations as it provides a direct and quantifiable comparison of performance. Typical areas such as supplier management, delivery performance, cost can be compared to other organizations highlighting process efficiencies that can be incorporated into the benchmarking company.

What are the typical steps in Benchmarking supply chain?

1/ Identify the processes to be benchmarked
2/ Identify the resources to carryout the benchmarking
3/ Identify peers which to benchmark against
4/ Collect data
5/ Analyze data and develop a gap analysis

The importance of metrics in Benchmarking Procurement

When undertaking benchmarking initiatives it’s imperative that your method includes reviewing quantifiable metrics – benchmarking should not be subjective. For most businesses that will mean reviewing performance metrics – bear in mind these metrics need to be easily transferable (i.e. that the measures means the same in each business and that you are comparing “apples with apples”). An example of an easily transferable metric is “on time delivery” – this is a universal measure that all procurement organizations are aware of and one that is usually easy to obtain data for.

So what other common benchmarking measures should we consider? This is usually down to the individual organization however we have some examples below. You might also want to consider the purpose of procurement – for example purchase order processing, supplier performance, Supplier sourcing, Purchasing cost – considering what functions your purchasing department carries out will help you determine what you’ll want to benchmark and subsequently improve

Example opportunities when Benchmarking Procurement.

1/ Numbers of Purchasing staff
2/ Value of spend under procurement control vs Total costs
3/ Supplier on Time Delivery
4/ Supplier Quality
5/ Total Number of suppliers
6/ Cost of raising an order
7/ Time taken to pay a supplier

A common failure when benchmarking is where organizations fail to capitalize on examples of “best practice”. This occurs where the shortfall between your organizations performance and that which you would like to attain does not result in improvement activity and you fail to capitalize on opportunities presented.

Also, benchmarking is not a short term initiative – Benchmarking requires dedication and regular review – markets change and peer performances change as innovation and business improvement activities result in changes to business activity – Benchmarking therefore should be an ongoing process and results reviewed regularly (bear in mind you should do this anyway to keep track of your improvements!).

Internal Benchmarking Procurement

While many organizations choose to benchmark an organization with external peers – where the opportunity exists organizations should consider internal benchmarking. Many procurement departments are structured into separate teams whether that’s strategic vs operational or individual commodity teams – benchmarking different organizational teams can highlight areas of best practice within a single organization and show how far removed they are from corporate targets/goals.

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Related posts:

  1. Introduction to Benchmarking
  2. Benchmarking strategy
  3. Drawbacks of Benchmarking with other organizations
  4. Best Practice Benchmarking – using analytics and process to drive best practice
  5. Using Internal Benchmarking to drive business improvement and corporate change