Key takeaways
- Essential for Financial Services: Supplier benchmarking is crucial for financial institutions to find top-performing suppliers, reduce risks, lower costs, and enhance service quality in a fast-changing market.
- Five Key Pillars: Effective benchmarking focuses on quality, price, strategic alignment, compliance, and strong negotiations to ensure robust and cost-effective partnerships.
- Benchmarking Process: This involves identifying metrics, collecting data, comparing suppliers, assessing risks, and making informed decisions, with continuous monitoring for sustained effectiveness.
- Measuring Impact: Define KPIs, establish baselines, measure improvements, compare to industry standards, and report comprehensively to ensure continuous improvement and strategic alignment.
What exactly is supplier benchmarking, and why is it important in the financial services industry?
An evolving market compromises challenging competition, rising risks, frequent obstacles, and numerous opportunities for growth that require significant strategizing, planning, and analytics to efficiently leverage. The financial services industry has witnessed rapid evolution over recent decades due to increased urbanization, financial independence, and the rise of digitization. Financial services providers are now struggling to keep pace with their transforming market, and require resilient partnerships that help them achieve their targets and goals, which has given rise to the widespread use of supplier benchmarking and relationship management. Invest finances, expertise, and time in the efficient identification, development, and maintenance of robust business relationships can enable unparalleled success, sustainable growth, and a substantial strategic advantage in the financial services market. As companies continue to adjust to the changing and developing market trends, developments, and risks, the assistance and guidance of a strategically sound and data-driven partner can significantly minimize error, reduce losses, and improve efficiency. Supplier benchmarking helps companies identify the industry standard, choose their best fit suppliers, and leverage the ideal opportunities for growth. However, to successfully do so, companies must be aware of the important characteristics and criteria for choosing a partner.
What are the Five Key Pillars for Supplier Benchmarking?
Quality: Developing robust partnerships and business relationships requires a comprehensive understanding of target market needs, preferences, and demands, and the ability to meet or surpass standards established by key competitors and industry leaders. When choosing a partner, supplier benchmarking enables the identification and determination of clear quality standards, and helps companies choose partners that can meet industry standards. In a competitive market such as the financial services sector, quality of services and products, and differentiated offerings, surpass the attractiveness of price and accessibility for end-consumers, leading to the dire need to meet unparalleled standards, and stay ahead of competitors.
Price: A growing market often leads to a surge in costs, legal requirements, and supply chain demands, and companies may fail to account for this common development when searching for their best-fit suppliers. However, in the financial services market, there is potential for companies to find and partner with unparalleled suppliers that meet industry standards and offer improved prices. Internal efficiency, cost-reduction strategies, and a comprehensive understanding of market trends can provide suppliers with the resources to maintain low prices while meeting company and consumer demands. Supplier benchmarking provides companies with the necessary data to assess various suppliers, and choose those that offer the best prices for high-quality products and services.
Strategic Congruence: Maintaining a partnership is not limited to monetary, legal, and contractual congruency, and the lack of strategic congruence can often lead to major challenges, risks, and losses in the future for both parties. Strategic congruence involves an understanding of both parties’ goals, targets, and motivations, and mutual agreement on their structure, contract terms, offerings, and long-term business plans. Supplier benchmarking encourages researching and grasping the dynamics of the market, helps companies to identify and outline their targets and goals, and provide a transparent, robust, and in-depth understanding of their expectations to suppliers. This also helps achieve honest and trusting negotiations, and develop a robust foundation for the future business relationship.
Compliance Rates: While meeting quality, price, and strategic expectations is extremely crucial for businesses attempting to develop and maintain a partnership, it is equally important for companies to ensure that potential partners will comply with stipulated contract terms and clauses. When choosing a partner, companies must review previous client-supplier relationships, revisit compliance rates, and ensure that this potential business relationship will meet determined standards. Supplier benchmarking helps companies determine the right compliance rates, expectations, and potential stipulations, and conduct in-depth research regarding the ability and affinity of a particular supplier to meet said standards and terms.
Negotiations: The approach a company takes to negotiating, planning, and developing a contract can significantly alter the nature of a relationship. Simultaneously, the way a supplier plans, negotiates, and determines the terms and clauses of a contract makes a major impact on the sustainability, congruence, and success of a partnership. Supplier benchmarking helps companies assess the industry standard for negotiation, and establish a clear set of stipulations when entering into the pertaining discussions and interviews. Furthermore, it provides companies with the data required to develop a well-informed approach to negotiating, and enables a comprehensive understanding of the expectations, requirements, and standards that the supplier must meet.
Financial services benchmarking: How does supplier benchmarking work?
Supplier benchmarking helps financial institutions make informed decisions about selecting the right partners for their business operations. Here are five key points that outline how supplier benchmarking for financial services works:
Identification of Key Metrics: The first step in supplier benchmarking is to identify the key performance metrics and criteria that are essential for evaluating suppliers in the financial services sector. These metrics could include factors like cost-effectiveness, service quality, compliance with regulations, technology infrastructure, and scalability.
Data Collection and Analysis: Relevant data is collected from various suppliers in the market. This data could be obtained through surveys, questionnaires, site visits, and third-party reports. Financial institutions then analyze this data to assess each supplier’s strengths and weaknesses, as well as their performance against the predetermined metrics.
Comparison and Ranking: Financial institutions compare the performance data of different suppliers to create a ranking or rating system. This ranking helps in identifying which suppliers perform better in specific areas and which ones align more closely with the institution’s needs and goals.
Risk Assessment: In the financial services sector, risk management is critical. Suppliers’ risk profiles are evaluated to determine their financial stability, security measures, and ability to withstand potential disruptions. This helps financial institutions minimize potential risks associated with their supplier relationships.
Decision-Making and Continuous Improvement: Based on the benchmarking results, financial institutions make informed decisions about selecting, retaining, or modifying their supplier relationships. These decisions are not one-time events; they involve continuous monitoring and reassessment of supplier performance to ensure that the chosen suppliers continue to meet the institution’s requirements.
Measuring and Reporting the Impact of Benchmarking
Define KPIs: : Start by identifying specific KPIs that will help you measure the impact of benchmarking. These KPIs should be aligned with the goals and objectives you set for the benchmarking initiative. For example, if you benchmarked supplier performance, KPIs could include cost savings, improved service quality, reduced risks, and enhanced operational efficiency.
Baseline data: Before implementing any benchmarking changes, establish a baseline measurement of the KPIs. This provides a starting point against which you can compare the post-benchmarking performance. It’s important to have accurate data about your organization’s performance before the benchmarking process began.
Quantify changes: Compare the post-benchmarking performance to the baseline measurements. Calculate the percentage change or improvement in each KPI to quantify the impact of the benchmarking process. Consider collecting qualitative feedback from stakeholders such as employees, customers, and partners. Qualitative insights can provide a deeper understanding of the impact of benchmarking on various aspects of the business.
Comparative insights: Compare your organization’s performance with industry standards and best practices. This comparison can help highlight areas where your organization has made significant improvements and where there is still room for growth. It also provides context for understanding the competitive landscape.
Impact report: Create a comprehensive report that includes both quantitative and qualitative findings. Present the baseline measurements, the changes post-benchmarking, and the calculated impact on each KPI. Use charts, graphs, and narratives to effectively communicate the results. Include a section that discusses lessons learned from the benchmarking process and provides recommendations for future initiatives. Continuously seek feedback from stakeholders to further enhance the effectiveness of your benchmarking practices.
Success Story
The financial services market has seen a dramatic shift from legacy systems to novel digital and technological approaches, and incurred major changes due to the development of cryptocurrencies, fintech, and digital banking platforms. As the world continues to transform, companies face a rising need to transform and change with advancing technologies and times, and often fail to find the right partners that can enable a comfortable and successful transition. Similarly struggling to meet the industry’s rapidly evolving standards, a financial services provider was struggling to find a partner that could meet the industry standards and technological needs required to keep pace with industry leaders and key competitors in their geographic location. To tackle this challenge, the company approached SpendEdge and chose to leverage our expertise in supplier benchmarking, and sought to choose the ideal partners for their business as they planned to expand services and increase their market share. With recommendations, advice, and guidance from our experts, the financial services provider was able to successfully develop a comprehensive understanding of their expectations and requirements, establish a clear scorecard and method of shortlisting and choosing potential partners, and flawlessly execute the same. With this data, the company successfully identified and chose partners that helped them surpass competitors, and meet industry standards with ease, while promoting their business goals, and overcoming the impact of the changing market.
Conclusion
Conclusion
Supplier benchmarking is essential for financial services firms to remain competitive in an evolving market. Through competitive benchmarking exercises, firms can align their strategies with industry best practices, optimize resources, and enhance performance. Embracing digital platforms and focusing on digital customer experience ensures better access to account information, account balance, and transaction history via banking websites. Strategic decisions driven by benchmarking can improve products, boost revenue, and help firms like insurtech companies adapt to industry trends. A well-executed retirement benchmarking exercise further ensures that financial services firms meet industry standards and exceed customer expectations.
