Procurement benchmarking is the process of measuring various factors related to an organization’s acquisition of goods against industry standards. This can include elements such as cost, delivery, and accounts payable for items purchased. The goal is to continually develop and facilitate adherence to industry best practices.
Cost is one of the most important targets of procurement benchmarking. The process can include making guidelines for the expenses involved in acquiring materials and services. Costs of producing each product are another factor to consider. This process may also include adhering to benchmarks for lowering prices by improving a variety of procedures.
Accounting is another key aspect of procurement benchmarking. Factors to consider include the typical size of accounts payable, the average amount of time it takes to pay an invoice, and how much it costs to manage these processes. Periodic analysis of payment terms may also be necessary in order to adjust cash flow so that benchmarks can be achieved.
Procurement benchmarking can also include developing guidelines for the quality of the product. The complexity of this process depends upon the item. While there may be an industry standard for certain characteristics, there could also be some ways in which an organization will want to exceed its competitors in quality.
Another important part of procurement benchmarking is delivery. This includes creating guidelines for timeliness and order accuracy. It is also common to regularly evaluate the quality of materials delivered as a part of this process.
Once a system of procurement benchmarking is in place, there are several ways an organization can maintain and improve its operation. One key task is to periodically review the procurement process to ensure that benchmarks are being met. If they are not, then further review and analysis will typically be required in order to determine what actions would best improve the situation. It will also usually be necessary to adjust benchmarks as industry, market and organizational factors change.
Meeting procurement benchmarks will typically require periodic evaluation of vendors as well. This can include analyzing performance and comparing it to that of a vendor’s competitors. It may also involve comparing prices, quality and other key elements in order to determine that the organization is receiving the optimum benefit from the current vendor relationship. A drop in quality, organizational growth and market changes may make it necessary to find a new vendor who can better accommodate the company and meet benchmarks.