Benchmarking
How do you make procurement great? Read all about benchmarking in procurement and how it will help your organisation
What is benchmarking in procurement?
Benchmarking provides evidence that Procurement is delivering value to the business in a rigorous, data driven manner – and reassures management that their practices are in-step with competitors.
The focus of benchmarking in procurement is to identify high performing organisations that excel in area of business, this could be in terms of capabilities, processes, or performance. Often, we can learn from best-in-class organisations, identify what they’re doing well and understand how you compare. You’re then able to set targets for your own organisation's improvement. You can also learn from their experience and avoid pitfalls that they may have encountered during their development. You’re then able to set targets for your own organisation's improvement. Good benchmarking practices help with adding value to your organisation.
Managing time, managing money and mitigating risk are at the core of these benchmarking activities
There is an ongoing need to ensure that Procurement and Supply Chain activities are competitive and governed by best practice, particularly across these three key areas.
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How can benchmarking identify opportunities for improvement?
Good benchmarking practices are core to identifying and limiting supplier risk. As well as:
- identifying gaps in performance and areas for improvement
- identifying best practice in procurement
- gaining a perspective of how well you are performing compared to other companies
- helping to set performance expectations
- monitoring company performance and manage change
- ensuring the company maintains a competitive edge.
What types of benchmarking are there?
The following types of benchmarking support improvement and help to add value to your organisation:
- Internal benchmarking:
Arises when one part of an organisation compares its performance with other parts of the same organisation. A good example would be where one company in a group of companies compares itself with other members of the group. The obvious disadvantage to this form of benchmarking is that best practice may sit outside of the group altogether. - Competitive benchmarking:
Occurs when you compare processes with market leaders who operate in the same market as your own organisation. - Functional benchmarking:
This happens when organisations compare functions, such as operations management, against that of a world class leader who doesn’t necessarily compete in the same market. - Generic process benchmarking:
This is like functional benchmarking but compares individual processes rather than whole functions. - Customer benchmarking:
Compares the organisation's performance against the expectations of customers.
There is of course no reason why an organisation should not apply more than one of the above approaches simultaneously.
Types of benchmarking
Benchmarking can be internal or external. Internal benchmarking involves comparing performance, processes or procedures within an organisation i.e. comparing how different departments carry out the same task.
External benchmarking involves comparing performance, processes, or procedures to those of an external organisation, such as a competitor.
Advantages of benchmarking in procurement
Benchmarking in procurement has a few advantages:
- Identifies gaps in performance to focus efforts on areas for improvement
- Identifies opportunities for creating more value
- Ensures that you’re kept up to date with modern procurement and supply management practices in order to develop new approaches or challenge accepted wisdom and current practice
- Inspires you to develop new approaches to challenge (i.e., accepted wisdom and current practice)
- Validation of an existing strategy
- Helps to ensure the organisation gains or maintains a competitive edge
Benchmarking can provide necessary external confirmation that might be needed to provide additional support for an organisation that has embarked upon a difficult period of change.
Disadvantages in benchmarking
Although benchmarking is a great method to monitor how your organisation is doing, there are some disadvantages to this method:
- Data cannot always be trusted.
- Is the data from a neutral source?
- Were the data collection methods robust?
- Is the data comparable to your organisation’s?
- Is the sample of respondents large enough and relevant to your organisation?
- Data is always open to interpretation and scrutiny.
Benchmarking data can be costly, so doing some homework on the credibility and suitability of the information is essential. Alternative methods can include attending events and conferences, reading case studies, and joining specialist networking and knowledge exchange groups.
- Identify
Can be hard to identify benchmarking partners - Opposition
Opposition within the organisation to participate in the benchmarking process - Prioritisation
Since it is not realistic to benchmark all processes simultaneously, problems of prioritisation may arise - Distinguishing
Difficulty of distinguishing between those processes which need to be benchmarked and those which do not
- Performance
The risk of aiming to be simply as good as the organisation with whom one is benchmarking may not necessarily be synonymous with optimum performance. - Measurement
A benchmark is a point of reference for a measurement at a particular point in time - Time lag
There will also be a time lag when benchmarking against other organisations
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