Benchmarking

Benchmarking in procurement terms can have two specific applications. The first type, price benchmarking involves the determination of whether commercial terms currently offered or enjoyed represent value when compared with terms enjoyed by other customers for a similar category. Price benchmarking is most easily undertaken for homogenous and simple goods, but even so needs to consider other terms of the arrangement such as quantities ordered, frequency of orders, payment terms etc. The second type of benchmarking, performance benchmarking, also involves comparisons of key metrics against other entities, but typically addresses dimensions of organisational performance rather than price paid. Examples might include the cost of the procurement function as a percentage of the total spend, the cost of raising and paying a purchase order, the quality of the strategic sourcing process, the quality of staff development processes etc. See also Best in Class and Measurement.