We hosted a webinar on Cost Modeling and Deal Benchmarking: Best Rescue for Procurement Organizations on Wednesday, September 28 and Thursday, September 29, 2022.
Inflation had started to ease in July but it is still close to a multi-decade high and the North American and EMEA markets are witnessing soaring inflation over the past two quarters. Category managers get constant requests from suppliers on price increases amid high market fluctuations and face challenges in making informed decisions against the right deal sizes. These have had major implications on the overall procurement spend for the organization. The benefits of cost modeling and deal benchmarking is evident for category managers to be able to make great decisions through proper assessment of markets/categories that are susceptible to market fluctuations.
Why should category managers bother?
SpendEdge’s webinar is aimed at understanding many things at the category manager level, as rapid market fluctuations and price rises keep on presenting new challenges – as well as fresh opportunities. Essentially, managers responsible for specific product categories need to know what’s working and what isn’t in a market scenario type casted by sharp price movements. And that would mean, in the near future, procurement decisions will have to be necessarily made based on hard data and numbers.
Cost modelling and deal benchmarking to the rescue
Cost modeling and deal benchmarking tools can help you get the metrics you need to understand the economics behind the creation of a product, so you can easily work out cost-effective prices and winning procurement deals. True, cost modelling and deal benchmarking have been around for decades, but they haven’t got the attention they deserve except from some top-end manufacturing organizations. With some more awareness and understanding, you too can leverage these tools to raise your profile in the procurement arena and post significant wins.
Challenges in Benchmarking
Data plays a fundamental role in benchmarking. Procurement faces the key challenge of identifying the most relevant data for benchmarking purposes. Different businesses within the same industry may have varying priorities and capabilities, leading to differences in their procurement strategies, scopes, and objectives. As a result, obtaining comparable data for benchmarking presents a significant challenge. Equally important to data selection is determining the appropriate metrics for measurement. Procurement metrics and key performance indicators (KPIs) may differ across businesses and industries, with some focusing solely on cost savings while others aim to develop multiple capabilities. Many organizations now evaluate procurement performance based on the overall value it brings to the business. 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 leveraging the insights gained from benchmarking poses a significant challenge. While the benchmarking exercise can yield valuable insights, its benefits may be lost if there is no system in place to utilize these findings and enhance processes.
Benchmarking Procurement
- Determine KPIs: Identify the key metrics that have the highest impact on your procurement performance and competitive strength. Consider factors such as cost savings, managed spend, timely delivery, and product quality. Make sure procurement aligns with your competitive strategy.
- Identify benchmarking partners: Look at industry peers that have a similar size and procurement complexity. Assess 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 is not meeting expectations.
- Refine processes: Use the insights from data analysis to create an improvement plan. Devise a strategy to address any gaps and fine-tune procurement processes. It’s important to communicate these findings to internal and external stakeholders and involve them in the improvement plan.
- Track progress: Continuously monitor your procurement performance and look for improvements. If there aren’t any significant improvements over a period, be prepared to adjust the plan.
Benchmarking Can Drive Change
While the key objective of Benchmarking and Supplier Evaluation is to support procurement transformation, it can also drive improvements at the enterprise level. Organizations can align benchmarking with larger business goals by linking procurement metrics with those of other functions.
For example, procurement metrics can be aligned with finance to determine the Total Procurement ROI. Likewise, businesses can align procurement with sustainability and supplier relationships goals to enhance Environmental Impact.
Additionally, procurement benchmarking should not be a one-time exercise, especially amid growing uncertainty in the business environment. Instead, businesses should engage in benchmarking on an ongoing basis. By regularly incorporating strategic sourcing KPIs and evaluating the Total Cost of Ownership (TCO), organizations can use the 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. An MBA in finance, George has 10+ years of hands-on experience in quantitative and qualitative market assessment, growth forecasting, competitor intelligence, category benchmarking, as well as supplier analysis and benchmarking. He is a much sought-after webinar speaker and provides a ringside view of sectors like pharmaceuticals, CPG & FMCG, energy, and automotive.
Mohana Ilavarasan is a key member of the sourcing team at Infiniti Research. Mohana holds an MBA degree in finance and has more than 5 years of experience in delivering custom market intelligence to decision-makers in sourcing and procurement. He has a string of projects to his credit, covering industry benchmarking, cost modeling, rate card benchmarking, negotiation advisory, and supplier intelligence. His expertise spans multiple sectors like pharmaceutical, F&B, industrial and manufacturing, oil & gas, and utilities.
To get all the scoop on the benefits of cost modeling and deal benchmarking on your procurement strategies, please connect with us.
What are the uses of cost modeling and deal benchmarking in the current inflationary and volatile market?
Key takeaways from the webinar:
- The impact of inflation and supply disruptions on the companies
- The importance of cost modeling and deal benchmarking in making research-driven business decisions.
Conclusion
In today’s inflationary and volatile market, benchmarking and supplier evaluation have become crucial tools for procurement organizations. By leveraging strategic sourcing KPIs and industry-standard metrics, businesses can enhance their supply chain efficiency and foster stronger supplier relationships. This not only drives growth and profitability but also improves decision-making processes. Understanding the Total Cost of Ownership (TCO) and Total Procurement ROI through detailed data analysis allows companies to optimize their production capacity and overall performance. Moreover, aligning procurement practices with sustainability goals enhances the environmental impact and builds a competitive advantage. Regular benchmarking helps mitigate risk, align with industry standards, and ensure continuous improvement. By embracing these strategies, procurement organizations can navigate market fluctuations, improve procurement strategies, and drive long-term success.
