Do you think you’re getting the right price for your supplies? If so, can you show the math? For a surprising number of companies, the answer is no. 

Ensuring competitive pricing for goods and services should be a top priority for every purchasing team. Procurement benchmarking requires effort and diligence, but the money you save can fuel growth and create additional opportunities for cash optimization. 

Technology makes the benchmarking process easier and faster than ever. Read on to learn how the right platforms and resources can help your company save money and improve supplier relationships at the same time.

Download my free ebook: The Procurement Strategy Playbook for Modern Businesses

What is procurement benchmarking and why does it matter?

Procurement benchmarking is the process of comparing your procurement processes, practices, and performance metrics against industry standards or best-in-class peers. It matters because it helps identify areas for improvement, drives efficiencies, reduces costs, and enhances competitiveness by uncovering innovative practices and technologies.

Using procurement benchmarks in planning and negotiation provides a factual, data-driven foundation for decision-making. Benchmarking offers valuable insights into market trends and standards, helping organizations negotiate better terms, achieve cost savings, and optimize the steps of the procurement strategy for better cash management outcomes.

Ebook

The Procurement Strategy Playbook for Modern Businesses

Learn the key pillars of a strong strategy, valuable procurement metrics to track, and initiatives you can start implementing today.

Download my free ebook

The hidden costs of neglecting procurement benchmarking

Neglecting procurement benchmarks means losing leverage and potentially overpaying for the supplies your company needs. Regular comparison against industry standards helps prevent overspending, increases efficiency, and ensures you can maintain competitive contracts with vendors. 

The negative outcomes of poor benchmarking make building a strong program a priority for every growth-minded business: 

• Overspending on supplies: Lack of awareness regarding market prices and industry standards can lead to overpaying for goods and services, draining valuable financial resources.
• Poor supplier performance: Failing to measure supplier performance against benchmarks can result in partnerships with underperforming suppliers, which can affect product quality and customer satisfaction.
• Missed growth opportunities: By not comparing spending figures with those of industry leaders, you might miss out on opportunities to streamline spending and reinvest savings in growth.
• Reduced negotiation leverage: Without benchmark data to inform discussions, procurement professionals lack the necessary insight to negotiate contracts or pricing effectively. The result may be higher total cost and lower-quality service.
• Wasted resources: Without a clear understanding of how spending contributes to overall business goals, you risk investing in materials or services that offer little to no return on investment. Redundant spending, over- or under-supply, or lost procurement efficiency drain capital.

Ignoring pricing benchmarks doesn’t only ding the budget—it can reduce profitability and hinder growth by sapping potential reinvestment capital.

Step-by-step guide to implementing procurement benchmarking

Benchmarking and procurement optimization are processes that take time and effort. To develop initiatives that guide your organization toward the right data, sourcing strategies, and practices for optimal spend management and contract compliance, you need a step-by-step approach. By integrating best practices like those suggested below, you can maximize efficiency, improve cost savings, and create a competitive advantage.

1. Set clear, measurable goals

The first step is building a solid plan. Identify business needs and set well-aligned goals to ensure your efforts align with your organization's larger business objectives. This will help establish a framework that guides procurement activities and ensures outcomes meet expectations. 

It's also essential to set the right metrics to track success. Instead of monitoring every possible factor, focus on those that provide relevant data. Well-defined goals and associated metrics allow you to measure performance in the right areas, uncover insights into efficiency, and assess the effectiveness of your efforts. 

2. Cleanse data for consistency and visibility 

Maintaining data visibility can be a challenge, especially in fast-growing organizations. Centralizing data from diverse sources, keeping quality and integrity high, and managing an increasing flow of transactions and invoices requires a well-integrated tech stack. 

A procurement platform like Order.co takes much of the stress out of centralizing data, ensuring the procurement team captures every transaction and brings data together for future spend analysis. 

3. Audit current spend and vendor performance

Review collected and cleansed data to begin the streamlining process and make informed decisions about your procurement performance. Identify patterns of redundancy, SKU overlap, and unnecessary spending to capture quick wins. Depending on the scale of the program, you can begin with high-value category management or focus on reducing spending across the entire organization. This audit process helps optimize your procurement strategy and sets you up to negotiate better terms with suppliers.

4. Use aligned external benchmarks for comparison

Accurate benchmarks provide a solid foundation for evaluating efficiency, cost-effectiveness, and overall operational success in the procurement function. Finding reliable and accurate benchmark data is an important component of the task. When setting up a program, consider using these reliable third-party resources to guide your research: 

• Institute for Supply Management (ISM)
• The Chartered Institute of Procurement & Supply (CIPS)
• The Hackett Group's Procurement Executive Advisory Program
• Gartner for Supply Chain
• American Purchasing Society
• Spend Matters 
• Sourcing Industry Group (SIG)
• American Productivity & Quality Center (APQC)

5. Negotiate based on findings

Once your data is together and clean, procurement has all the information it needs to compare current spending and contracts against established benchmarks. 

Evaluating performance against industry expectations allows you to approach the negotiating table with confidence. It prepares you to use the following strategies to form stronger, more beneficial partnerships:

• Identify cost-saving opportunities: Pinpoint areas where you may be overspending compared to industry standards. This insight helps you to negotiate lower prices or better terms that align with market rates.
• Leverage volume discounts: Use the available data to negotiate discounts based on purchasing volume. Bundling purchases or committing to higher volumes can unlock more advantageous per-unit pricing, better net terms, or other favorable contract specifics.
• Highlight preferred vendor opportunities: Use a comprehensive analysis of past purchasing behavior and vendor performance to make a case for consolidating spend under preferred vendors. By working with fewer vendors that offer competitive pricing and terms, stakeholders strengthen their negotiating power, leading to more strategic partnerships than would be possible with a transactional approach.
• Enhance contract terms: Price isn’t the only consideration when looking at a contract. Use competitive data to secure better service levels, delivery timelines, and quality metrics, ensuring contracts are optimized for value rather than just cost. 

6. Implement continuous improvement

Implementing continuous improvement practices ensures efforts invested up front continue to benefit a company over the long term. Regularly reviewing processes, expenditures, and vendor performance helps organizations identify inefficiencies, make course corrections, and find new areas for cost reduction as spending patterns and supply needs evolve. This proactive approach fosters a culture of ongoing procurement excellence, keeping operations competitive and aligned with market dynamics.

Ebook

The Procurement Strategy Playbook for Modern Businesses

Learn the key pillars of a strong strategy, valuable procurement metrics to track, and initiatives you can start implementing today.

Download

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How AI makes procurement benchmarking easier and more accurate

AI has made assessing and predicting current and future costs and terms easier, improving capital efficiency and smoothing transactional business processes. Companies can now analyze their datasets, identify trends, and forecast quickly and accurately. AI speeds the benchmarking process and enhances decision-making by providing actionable insights for better purchasing and capital management. 

AI's predictive procurement analytics capabilities allow organizations of all sizes and stages to anticipate market changes, adjust strategies, and ensure their contracts remain competitive.

• Enhanced predictive data analysis: AI algorithms can process vast amounts of data quickly and accurately, identifying patterns and insights human analysts might miss. This leads to more informed decisions based on a comprehensive analysis of procurement activities. AI can also forecast future trends and market conditions by analyzing historical data. This capability​​ proactively assesses your current purchasing trends and extrapolates future needs.
• Real-time benchmarking: With AI, benchmarking becomes an ongoing process rather than a periodic one. It provides real-time comparisons against industry standards, ensuring that procurement strategies remain competitive at all times.
• Increased financial efficiency: Using AI to automate the data collection and analysis phases of benchmarking frees up human resources for strategic decision-making. It not only speeds up the process but also reduces the likelihood of errors.
• Scalable procurement management: AI systems can be tailored to meet the specific needs of an organization, considering well-aligned procurement key performance indicators (KPIs), goals, and industry variables. They can also scale with businesses, accommodating growing datasets without compromising performance.
• Improved cost reduction: By optimizing procurement practices based on accurate insights, organizations can significantly reduce baseline costs. AI-driven recommendations often include ways to streamline operations, negotiate better terms with suppliers, and eliminate unnecessary expenditures.
• Streamlined supplier optimization: AI tools can evaluate supplier performance across multiple dimensions in real time, helping businesses identify underperformers and discover opportunities for consolidation or renegotiation.
• Stronger risk management: Advanced analytics capabilities allow AI systems to identify potential risks and supply chain management issues before they become problematic. This proactive approach to risk management helps prevent disruptions and ensures continuity of operations.

Use Order.co to streamline procurement benchmarking

Order.co brings all your procurement data and vendor transactions together in a powerful, flexible platform that provides increased visibility and more streamlined, strategic procurement. With a centralized approach to procurement management and AP, your organization gains insights into spending data for better negotiation and planning. 

Order.co makes it easier to optimize spending and ensure compliance for all buyers with its powerful features, including:

• Curated purchasing experiences that balance ease of use with dynamic budgetary control, helping maintain strong spend management while reducing the risk of overspending
• Automatic transaction centralization that captures comprehensive data at the point of purchase, even for hard-to-track purchases like subscriptions, ensuring improved visibility and more accurate recordkeeping 
• Buying option evaluation to get the best price and value for high-volume purchases, enabling better buying decisions and increasing cost savings
• Ability to purchase from any vendor, including those with offline or phone-based processing, providing flexibility while maintaining control over procurement 

If you’re ready to boost your bottom line with a curated, dynamic purchasing platform that centralizes procurement and maximizes capital efficiency, get a demo of Order.co.