Automated Benchmarking: Transforming e-Procurement

During a slow economy, procurement and sourcing professionals are asked to cut budgets, do less-with-more and do it strategically. Yet, despite the many new tools available, progress in strategic spend management has been painfully slow.

There are few sources of reliable information available to help guide a chief procurement officer's (CPO) efforts in the mission to manage and curb spend. Software suppliers give biased viewpoints, and consultants' advice almost always leads to a big, new study. The message: We're not really sure because no one has ever done this before. As a result, CPOs must constantly reinvent the wheel, which dramatically increases the time it takes to get the job done.

What's the Problem?

Today's best benchmarking programs provide invaluable data to the purchasing professional. However, there are a number of issues that prevent them from being a useful tool for spend management transformation, such as:

·      Long turnaround time: On average, survey-based benchmarking efforts have a turnaround time of five to 10 months. Yearly surveys might provide great input to the budgeting process, but they are not effective tools for the day-to-day management of a project team.

·      Limited consistency: With surveys, the accuracy of the data is limited by the knowledge of the respondents. Seemingly simple differences in the understanding of a question can bias the data and change the conclusions.

·      Limited data: Traditional benchmarking focuses on a small set of metrics that are merely snapshots of a procurement organization, like training levels, for example. To make them more operationally useful, a CPO needs benchmark data that shows dynamic measures of procurement or sourcing activity over time.

·      Incomplete answers: The most natural questions a CPO asks upon seeing that his or her company has room for improvement is, How do I get there? What CPOs really would like to know is how they should change their policies, programs or technologies to achieve results. 

Whether they are online or paper-based, surveys can be costly and time consuming. What's needed is a way to get systematically generated, real-time benchmark data in a way that can be used to manage day-to-day operations.

Automated Benchmarking

Peer group interaction and inter-industry data sharing have always been staples of the procurement profession. Now this idea is being applied in new ways to the deployment and usage of spend management technologies. And automating the benchmarking process provides management tools that are fast and objective enough to help companies finally deliver on a really new approach to spend management.

When applied to enterprise spend management, automated benchmarking is deceptively simple. Taking advantage of the new technologies allows companies to receive benchmarks more often, with more consistent data and with better operational detail. Additionally, this benchmarking program can be adjusted on the fly to keep up with changing technologies.

First, instead of the usual, time-intensive surveys, e-procurement and e-sourcing tools provide databases that can be queried quickly and easily to provide quarterly benchmarking insights that are delivered to a CPO within two weeks of a quarter's end.

The timely turnaround is possible because the data is gathered by a piece of software instead of a survey. It can be systematically aggregated and analyzed within just a few days. This enables CPOs to use benchmark data from the quarter before to make decisions in the current quarter.

Secondly, because the process is automated, much more data can be gathered than was previously possible. This kind of benchmarking now provides quantitative insights at a detailed operational level. For example:

·      What's the average size of an e-sourcing event in my industry?

·      What's the best practice for the average number of approvers per requisition?