Originally published by Spendedge: Webinar by SpendEdge on Cost Modeling and Deal Benchmarking: Best Rescue for Procurement Organizations
We recently hosted a webinar focusing on Cost Modeling and Deal Benchmarking: An Essential Tool for Procurement Organizations, which took place on Wednesday, September 28, and Thursday, September 29, 2022.
While there was some alleviation of inflation in July, it remains at nearly multi-decade highs, especially in the North American and EMEA markets, where significant inflation has persisted over the past two quarters. Category managers are constantly dealing with requests from suppliers for price increases amidst these volatile market conditions, making it challenging to make well-informed decisions about deal sizes. These challenges carry significant implications for organizations' overall procurement spending. The importance of cost modeling and deal benchmarking for category managers is evident, as they enable informed decision-making by thoroughly assessing markets and categories prone to fluctuations.
Why should category managers take note?
Our webinar explores the challenges and opportunities faced by category managers due to rapid market fluctuations and price increases. Essentially, managers responsible for specific product categories need to understand which strategies are most effective in markets characterized by sharp price movements. Consequently, procurement decisions will increasingly rely on solid data and figures in the near future.
Cost modeling and deal benchmarking as a solution
Cost modeling and deal benchmarking tools offer the necessary metrics to understand the economics behind product creation, facilitating the determination of cost-effective prices and successful procurement deals. While these tools have been available for decades, they have not received widespread attention outside of top-tier manufacturing organizations. With increased awareness and understanding, organizations can leverage these tools to enhance their position in the procurement arena and achieve significant successes.
Challenges in Benchmarking
Benchmarking heavily depends on data. Procurement faces the challenge of identifying the most relevant data for benchmarking purposes, as different businesses within the same industry may prioritize and possess different capabilities, leading to variations in procurement strategies, scopes, and objectives. Obtaining comparable data for benchmarking poses a significant challenge as a result. Equally important is the selection of appropriate metrics for measurement, as procurement metrics and key performance indicators (KPIs) may vary across businesses and industries. Metrics can encompass various factors, including lead times for raw materials, average cost of processing purchase orders, percentage of suppliers delivering on time, and supplier compliance rates, among others. Lastly, effectively utilizing the insights gained from benchmarking is a significant challenge. While benchmarking can provide valuable insights, its benefits may be lost without a system in place to utilize these findings and improve processes.
Benchmarking Procurement
Identify KPIs: Identify the key metrics with the greatest impact on your procurement performance and competitive strength. Consider factors such as cost savings, managed spend, timely delivery, and product quality. Ensure that procurement aligns with your competitive strategy.
Identify benchmarking partners: Look for industry peers of similar size and procurement complexity. Evaluate their procurement metrics and performance.
Collect and analyze data: Gather data related to procurement KPIs and processes. Use analytical tools to derive meaningful insights from this data. Identify areas where procurement performance falls short of expectations.
Refine processes: Use insights from data analysis to develop an improvement plan. Address any gaps and fine-tune procurement processes. Communicate these findings to internal and external stakeholders and involve them in the improvement plan.
Track progress: Continuously monitor procurement performance and pursue improvements. If significant improvements are not observed over time, be prepared to adjust the plan.
Benchmarking Can Drive Change
While the primary goal of Benchmarking and Supplier Evaluation is to support procurement transformation, it can also drive improvements at the enterprise level. Organizations can align benchmarking with broader business goals by correlating procurement metrics with those of other functions.
For example, procurement metrics can be aligned with finance to determine Total Procurement ROI. Similarly, businesses can align procurement with sustainability and supplier relationship goals to enhance Environmental Impact.
Moreover, procurement benchmarking should not be a one-time exercise, especially amid growing uncertainty in the business environment. Instead, businesses should engage in continuous benchmarking. By regularly incorporating strategic sourcing KPIs and evaluating Total Cost of Ownership (TCO), organizations can leverage findings to improve both procurement and larger business processes. This ongoing data analysis can significantly enhance supplier performance and production capacity, ultimately driving growth and profitability. Benchmarking effectively informs decision-making and helps manage risk within the supply chain. By doing so, businesses not only optimize their sourcing procedures and strategic sourcing process but also gain a competitive advantage. Ultimately, this continuous improvement cycle boosts overall performance.
Speakers
George Mathew is an integral part of the market intelligence team at Infiniti Research. With an MBA in finance, George brings over 10 years of hands-on experience in quantitative and qualitative market assessment, growth forecasting, competitor intelligence, category benchmarking, and supplier analysis and benchmarking. He is a sought-after webinar speaker, providing insights into sectors such as pharmaceuticals, CPG & FMCG, energy, and automotive.
