Why Benchmarking Matters in Procurement
Procurement is all about achieving value for money. But how do you determine whether your suppliers are truly offering the best value? The answer lies in benchmarking.
What is Benchmarking?
The Oxford English Dictionary defines benchmarking as:
“Evaluating (something) by comparison with a standard.”
In procurement, benchmarking involves assessing supplier performance, costs, and processes against industry standards or competitors to ensure you are receiving the best value.
More Than Just Price
While price is often the most common focus in benchmarking, it is only one piece of the puzzle. To accurately assess value, procurement teams must also benchmark:
- Total cost of ownership
- Compliance and risk management
- Cycle times and lead times
- Defect rates and quality standards
- ESG (Environmental, Social & Governance) commitments
- Innovation and continuous improvement
- Supplier KPI performance
Benchmarking across these areas ensures procurement decisions are based on holistic value, not just upfront pricing.
Types of Benchmarking in Procurement
The benchmarking approach depends on the objectives and data available. The five key types include:
- Internal
- External
- Competitive
- Functional
- Generic
Figure 1: Types of Benchmarking
How Benchmarking Drives Better Procurement Decisions
By leveraging benchmarking insights, procurement professionals can:
- Identify the best suppliers – Gain clarity on which supplier offers the best deal based on total value, not just cost.
- Improve operational efficiency – Pinpoint process inefficiencies and areas for improvement within the procurement function.
- Perform GAP Analysis – Compare current performance to aspired performance and develop an action plan to close the gap.
Figure 2: Benchmarking Process
From the above process of benchmarking you will gain results against where you are now, and where you aspire to be. The difference in the two states can be shown on a GAP analysis and from this an action plan can be created to reduce the gap.
Figure 3: Key steps to bridge the gap
Key Steps to Effective Benchmarking
To ensure benchmarking results are accurate and actionable, follow these best practices:
- Define clear objectives – What exactly do you want to compare and improve?
- Use ‘like-for-like’ comparisons – Ensure fair and relevant data comparisons.
- Establish a baseline – Know your starting point before tracking improvements.
- Choose meaningful benchmarks – Compare against organisations or processes that provide valuable insights.
- Benchmark regularly – Procurement is constantly evolving, so continuous benchmarking prevents stagnation.
Benefits of Benchmarking in Procurement
Benchmarking offers several key advantages for businesses looking to optimise procurement practices:
- Identifies areas for improvement – Highlights gaps and inefficiencies in procurement processes.
- Encourages best practices – Helps companies learn from industry leaders.
- Supports better decision-making – Provides data-driven insights for procurement teams.
- Enhances competitiveness – Ensures organisations stay ahead in supplier negotiations.
- Improves service quality – Drives better supplier performance and customer satisfaction.
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