How to improve the efficiency of the procurement function in the company: a step-by-step guide. Benchmarking: examples Domestic benchmarking example

Hello! Today we in simple words we will tell you what benchmarking is and how it is useful this tool for business.

Nowadays, in any field of activity, it has taken on a global scale. The leaders of many companies understand that it is necessary to comprehensively study the positive experience of competitors in order to predict their own successful future. In order to keep up with more successful competitors, they use benchmarking.

What is benchmarking in simple words

The term "benchmarking" is very close to the concept of "marketing intelligence", but marketing intelligence is the collection of practically confidential information, as opposed to benchmarking.

Benchmarking Is a way to study the activities of competing companies in order to adopt their positive experience and apply data about it in their activities.

The purpose and objectives of benchmarking

The main purpose of benchmarking is to establish how likely a particular activity is to succeed.

For a complete coverage of this concept, it is worth considering in more detail the main tasks of benchmarking:

• Determine how competitive the company is, what are its weaknesses;
• Establish what changes need to be made;
• Develop a plan to improve the company's performance;
• Develop new approaches to doing business;
• Put long term goals that are more global than the current ones.

Types of benchmarking

Benchmarking can be roughly divided into several types:

1. Functional - allows you to compare how individual functions of a particular manufacturer or seller work with more successful sellers, but working in similar conditions;
2. General benchmarking - is a comparative analysis of the indicators of production and sales of goods of one manufacturer, with similar indicators of another, more successful manufacturer;
3. Competitive – comparison with competitors who operate at a higher market level. For example: a company that operates in the regional market selects for comparison a company that has already entered the international level. This data can be considered more important, but it is not easy to obtain it;
4. Interior - comparison is made between processes within the company that are as close to each other as possible. Data in this case is easy to collect, but the information is rather biased;
5. Strategic benchmarking – it is a procedure for finding a new development strategy that will ultimately lead the company to achieve the highest level of performance. It is he who determines the goals that the company will have to achieve;
6. Cost Benchmarking – if carried out correctly, it allows you to reduce costs, as well as determine the factors that affect their formation.

Publications are used as sources of information, various lists of prize-winners and winners in the category “quality” of various awards, as well as various databases (audit, consulting).

To conduct benchmarking, usually a dedicated working group is created. It is better to include specialists from different structural units companies. This increases the chances of an objective assessment of the information received.

Benchmarking methods and steps

The benchmarking methodology includes certain stages:

1. A specific function of the manufacturer's or seller's business is selected;
2. Parameters are selected for comparison. It can be one criterion, or it can be a group;
3. Information about similar manufacturers or sellers is collected;
4. The information received is carefully analyzed;
5. A draft of the changes that will be made to this function is being developed;
6. Preparation in progress business case planned changes;
7. The changes are being implemented in the company's practical activities;
8. The progress of the implemented changes is monitored and a final assessment is given to them.

The result will greatly depend on how well the collection of the necessary information is organized.

What indicators are compared in the benchmarking process

Can be compared:

• The volume of products or services provided;
• Financial efficiency;
• Business processes.

Benchmarking is not industrial espionage

You shouldn't confuse benchmarking with industrial espionage. These are two completely different and dissimilar concepts. Benchmarking compares its products or services with similar ones. Situations also arise when competing companies exchange experience at mutual desire.

In addition, most often when benchmarking is used information that is in the public domain, that is, it can be obtained through surveys, analyzing pricing policy.

The thin line between industrial espionage and research is competitive intelligence.

In our country, several companies often unite in order to resist competitors using benchmarking. Examples include the experience of several pharmaceutical companies that have established the exchange of information among themselves, while closing access to it to foreign competitors. Or the same cooperation in the banking sector: to solve the problem long queues a large bank adopts the experience of another bank (an increase in the number of ATMs, a decrease in fees for using online banking, the development of automation of many processes).

Disadvantages of benchmarking

• It is necessary to search for a benchmarking partner;
• Sometimes the services of consultants are required;
• If the organization does not have experience in benchmarking, the initial stages will require significant costs;
• Not always the necessary changes are welcomed and accepted by employees of the organization, although they are aimed at increasing the level of productivity;
• Not all general methods may apply to a particular organization.

How to benchmark a company yourself

The procedure that would suit any company simply does not exist. Each company develops it itself.

You can give only a few tips that it will be possible to rely on in the process:

• Select for comparison only those processes or services whose performance is unsatisfactory. Comparing indicators with which everything is in order will only entail a waste of time and money;
• Don't choose too extensive a list of indicators or processes to analyze;
• Prepare the company or enterprise for the planned changes in activities;
• Gather a group of highly qualified professionals;
• Use the appropriate software to make the process easier.

An example of benchmarking in an enterprise

The example of the automobile company Ford is very indicative. In the 90s of the last century, benchmarking was carried out in order to raise the company's shaky position in the market. The company's specialists conducted internal research on a large number of car models to examine the benefits of each and to identify the models that consumers preferred.

For each criterion, the best car in its class was identified, based on this, a strategy was developed to surpass the highest indicators.

The result of the analysis was a car that received the title of "Car of the Year". Gradually, the peaks reached were lost again.

The management of the company, in the end, came to the understanding that benchmarking is an ongoing process, it cannot be considered a one-off.

Summing up, I would like to say that benchmarking allows you to find out why a competing company has achieved significant success in its field of activity, what actions have led to a positive result. An analysis of only one of these indicators will not give a complete picture of the company's activities. Comparison should be made for similar indicators in similar areas of activity.

Benchmarking means systemic comparison organizational processes and performance, based on pre-selected indicators (Fig. 1). The goal of benchmarking is to identify the gap between the best results achieved and what the company is currently showing in order to develop new standards and / or improve processes.

There are four types of benchmarking.

1. Internal - the comparison of performance and applied techniques in different departments of the company, that is, in business units.
2. Competitive - comparing the performance and performance of a company with the performance and performance of its direct competitors.
3. Functional - compares the performance and performance of companies from the same industry.
4. General - Comparison of performance and performance of companies from different industries, carried out to find the most effective methods of work.

All types of benchmarking can be beneficial as they allow a company to better understand its strengths and weaknesses, identify problems and possible ways their elimination; they also set norms, set new directions, and generate new ideas to improve company performance.

Benchmarking methods vary depending on situational characteristics and / or explanatory factors that will help explain the difference in performance between the companies being compared. Moreover, some benchmarking techniques identify expected trends and how the most effective methods work. Other practical questions can be explored in this analysis.

When to apply the model

The choice of the type of benchmarking depends on the goal. Bearing in mind that what is conceived and its implementation in practice usually do not have 100% coincidence, we can formulate the purpose of benchmarking as follows: it is a method of obtaining an answer to one of the following questions.

• How well are we doing our business?
• Are we doing our job as well as others?
• How can we improve our performance?

The scale of a benchmarking project is determined by the impact it is likely to have on the company, the freedom to communicate its results openly to all stakeholders in order to increase the likelihood of success in the implementation of improvement projects, as well as the efforts that are required to achieve results that are important in practice.

How to use the model

Ideally, companies (or some other similar structure) participating in benchmarking should show higher or at least the same results as the studied company (structure), which in this case is called the target company. You can find such companies with the help of experts and through specialized publications. However, due to differences in products, processes, structures, or specific leadership and management styles, it can be difficult to compare companies.

This difficulty can be overcome with one practical trick. Research shows that it is possible to compare the companies in the sample using explanatory factors, for example, the reliability of a product being delivered to a consumer depends, among other things, on the complexity of the product. Therefore, a number of companies with approximately the same product complexity will have similar indicators for this quality, which makes it possible to form a homogeneous group for benchmarking delivery reliability (Figs. 2 and 3).

The assumptions made about the performance of the target company can be more accurate if we apply benchmarking to an indicator (for example, delivery reliability), taking into account several explanatory factors.

To conduct benchmarking, the following (sometimes overlapping) steps must be followed.

1. Determine the scope of the project.
2. Select a benchmarking partner (s).
3. Determine the scores, metrics and method for collecting the required data.
4. Collect data.
5. Analyze the differences, identify the facts behind the numbers.
6. Present the results of the analysis and discuss their implications in terms of the (new) objectives.
7. Track the dynamics of the development of the event (conduct monitoring) with the help of constantly carried out benchmarking.

conclusions

Benchmarking isn't easy at all. Too often, managers or consultants, on their own, resort to benchmarking, forgetting to select the necessary indicators or tools in advance to conduct serious detailed analysis and present its results. It is difficult to argue with the fact that many benchmarking projects end in failure. Comparing organizational processes and company performance in benchmarking is like the useless exercise of comparing disparate items like apples and pears. Even if benchmarking is done correctly, significant differences in performance that have been identified can be explained by the fact that “we are not like them,” and this “alienation syndrome” prevents the use of benchmarking as a mechanism to help guide the company on the path of change in order to achieve higher results. In addition, the presence of competition can impede the free exchange of information; sometimes this happens even within the company.

By using explanatory factors, benchmarking helps the company generate comparative data that allows executives and managers not only to improve performance (in fact, indicate opportunities for improvement), but also to show original and at the same time proven solutions that can help you cope with very difficult problems. Therefore, we argue that we should rather encourage differences between companies in a homogeneous group than try to exclude “dissimilar” participants on the grounds that their products or processes are “not comparable” to others.

The market presents companies with new requirements for the logistics activities carried out, the quality of service and their policy in the field of logistics. Companies, on the other hand, need to look for ways to improve to stay competitive and offer quality services. Benchmarking is one such method.

Benchmarking is a way to improve a company by evaluating and comparing performance indicators with those of other companies. Benchmarking appeared in the United States in the late twentieth century and is still used as a tool to improve efficiency. different types activities. There are several types of benchmarking. But regardless of the type, its main goal remains to improve the work of the company.

Benchmarking studies are conducted periodically. Conducting a one-time study cannot fully capture all the benefits that benchmarking brings. One of the tasks of benchmarking is to determine the current position of the company in the market, followed by the introduction of changes. After the changes are made, it is necessary to re-conduct the research and understand how effective decisions taken and how the company's position in the market has changed.

By participating in the benchmarking of the main logistics KPIs, you can:

• compare performance with other companies,
• make decisions to improve the company,
• track the dynamics of the indicators you are interested in,
• get to know the best industry practices.

Within the framework of modern business the idea is gradually emerging that it is not the firms themselves that are competing, but their supply chains, which explains the increased interest in logistics.

Efficient logistics should become the strongest competitive advantage in the struggle for the buyer. Logistics industrial enterprises is the preparation and implementation of the principles and methods of logistics in its activities.

It becomes obvious that in this case it is necessary to take into account the experience of successful enterprises inside and outside the industry in which the logistics facility operates - not only foreign, but also domestic, closer to real Russian conditions.

This is a relatively new direction marketing research, which appeared in the United States in the 70s. XX century, it is customary to call the term "benchmarking". Foreign scholars define benchmarking as "a systematic activity aimed at finding, evaluating and learning about best examples, regardless of their size, business area and geographic location. "

There is also a slightly different definition: "Benchmarking is a process of systematic and continuous measurement: the assessment of internal processes at the enterprise and their comparison with the processes of world leading enterprises in order to obtain information that will be useful for improving their own characteristics."

Many new business methods in logistics, marketing, quality management, developed by large companies and were successful, gradually began to be applied by enterprises in other industries. These include 6-sigma (Motorola), just-in-time (Toyota), Poke-yoka (Matsushita Co), and benchmarking itself (Xerox).

Benchmarking is currently a promising direction in the development of consulting. At the same time, the role of a consultant is to adapt the experience of leading companies, including those from other industries, to the real business conditions of the client company.

The benchmarking approach leads to a significant change in the decision-making procedure in the field of logistics management. Traditionally, such management decisions were made on the basis of the results of marketing and logistics research, intuition of management in the field of organizing supply and distribution chains.

The benchmarking approach in the field of industrial logistics involves the discovery, study and use of the useful experience of other firms in solving the problems of the development of logistics systems and chains, familiarity with the applied best practices, which contributes to a more informed, balanced adoption
management decisions in the development of intra-company logistics, thereby increasing the competitiveness of the company.

The subjects of study of benchmarking in logistics include:

1) organization of sales channels
2) storage facilities(including technical equipment of warehouses)
3) logistics management
4) transportation and relationships with logistics operators
5) logistic systems of management and control over resources at all stages of the production and sales cycle
6) information management in the course of goods circulation (including the availability of electronic document management, barcoding)
7) the process of the formation of logistics costs
8) interaction with suppliers and business partners.

The benchmarking process for logistics can be represented as the following diagram:

1. Determination of the range of problems in the functional areas of logistics to be considered from the standpoint of benchmarking.

2. Determination of a set of factors and variables for analyzing the state of logistics at the enterprise.

3. Selection of a set of enterprises for comparison and use of experience, both in the industry to which the object of logistics belongs, and from other industries. In parallel with this, it is necessary to analyze external secondary information associated with the use of logistics by other enterprises, their formation of supply and distribution chains.

4. Collection and analysis of indicators of companies selected for comparison according to the selected evaluation criteria. In this case, the information obtained is classified, systematized, the method of analysis is selected and the degree of goal achievement and a set of factors that determine the result are assessed.

5. Comparison of the results obtained with their own indicators in order to determine possible areas of improvement.

6. Development of an action plan to improve the state of logistics based on the information received.

7. Implementation and follow-up monitoring.

It is obvious that such a benchmarking scheme should be periodically carried out again, since practice shows that the process of improvement is limitless, since science and management are dynamically developing, and this causes corresponding changes in the field of application of logistic approaches and methods at the best enterprises.

Of great importance when conducting benchmarking in logistics is the compilation of a "collective", in fact, "ideal" image of a reference company for orientation, the state of supply and distribution chains to which one should strive.

The most important principle of benchmarking is the similarity of the logistics business processes of the logistics facility with the compared enterprises, which determines the possibility of using their experience.

The problem that needs to be addressed in the course of benchmarking is the need to adapt the research results to the specifics of the company.

Considerable importance in the future should be given to the mutual exchange of information between interested enterprises, including those from different industries, by holding conferences on various applied issues of logistics and marketing. Sources of information for benchmarking in the field of logistics are information posted on the Internet, visit thematic exhibitions, personal contacts with suppliers, consumers, competitors, representatives of leading companies in other industries, economic periodicals, data from professional associations, industry consultants.

According to a number of researchers, for example, Y.K.Shetty, the buyer remains the main source of information about the market and competitors. Indeed, by conducting appropriate marketing research, it is possible to find out the opinion of consumers about the state of supply chains and the necessary changes in the nature of interaction.

Direct communication between logistics managers of different enterprises gives valuable ideas and knowledge for business, which can lead to the introduction of new forms of management of goods movement, stocks, modern software products using new logistic methods.

The main benefit of benchmarking lies in the fact that the implementation of logistics and related marketing and production functions becomes more efficient as the best practices and technologies of other enterprises or industries are researched and implemented. This will have a beneficial effect on reducing costs (especially logistics), will lead to better satisfaction of customer needs, which will create the preconditions for increasing business profitability, creating useful competition in the market.

In the absence of the necessary resources to conduct benchmarking on our own, it is advisable to involve third-party organizations - consulting firms in the field of management and, in particular, logistics consulting. There are not enough of them yet, but it is obvious that this unfilled niche of the market for KIBS for business will soon begin to fill.

About what prevents the purchasing department from becoming a full-fledged tool for increasing the company's profits.

Each of the factors mentioned in the previous article reduces the efficiency of the purchasing department. If you find similarities in several positions in relation to your company at once, the situation can be considered critical.

The question arises →

What should the head of the company and CFO do in such a situation?

Practice shows that it is possible to get out of the crisis only through thoughtful step-by-step transformations.

So, let's begin.

Step one. Evaluating the effectiveness of the purchasing department

Conduct an audit and create an objective picture of what is happening in Procurement:

• study the current document flow;
• highlight the TOP-20 categories and the amount of costs for them;
• designate the persons responsible for the procurement of these categories;
• specify the number and functionality of employees involved in the procurement process;
• evaluate the level of expertise in procurement by category.

Step two. Focus of procurement on strategic issues

Free Procurement from non-core work by focusing employees on strategic issues:

1. Sourcing:

• market analysis;
• preparation terms of reference;
• holding a tender / negotiation;
• preparation and implementation of the contract.

2. Supplier Relationship Management:

• evaluating the performance of suppliers by interviewing internal customers and analyzing the market;
• establishing feedback;
• recommendations to suppliers on how to make their service more efficient;
• implementation of innovations.

• the procurement and consumption process;
• commercial terms;
• specifications.

2) Creation of a long-term categorical strategy and new procurement schemes. For example, switching to operating leasing or car rental instead of buying a vehicle.

Ensure full procurement coverage of strategic cost categories

Strategic categories- categories that critically affect your business. These categories (packaging, raw materials, transport, goods and services for marketing), as a rule, account for the majority of budgetary expenditures.

Spot(one-time purchases with a small cost - buying 10 laptops, finding an office for rent, buying office furniture, etc.) and operational procurement(processing applications for office supplies, expendable materials for stores, placing and tracking orders with suppliers) into a separate operational function. To do this, create service center in a region with low labor costs, or outsource operational functions.

If these processes are left to the initiators, there is a high probability of zeroing the savings achieved in the course of sourcing.

The reasons for such losses:

Move the table

Step three. Strong expertise

Focus procurement expertise on strategic cost categories.

Important:

• hire specialized specialists for each specific categories;
• fire the "tired" - those who cannot be motivated;
• train employees (trainings, reference visits, etc.);
• accumulate knowledge gained from suppliers and companies from the same industry.

Step four. Clear goals

Set a clear goal for Purchasing: to optimize costs for specific purchasing categories. Achievement economic indicators entrust to Finance. And to make effective use of the savings from sourcing activities, adjust your budget on a quarterly basis.

Important:

Finance does not take into account the estimated, but actually obtained savings

Step five. Sourcing event plan

Agree with the purchasing department a plan for sourcing events for a year, or better for the next two years. This will allow you to assess the scale of the savings and use the necessary labor resources.

Step six. Signing and tracking SLAs (service level agreements)

Be sure to develop and sign an SLA between Procurement and other company divisions.

Measure the effectiveness of the purchasing department quarterly.

Feedback can be obtained through surveys to help clarify →

• Are the initiators satisfied with the service providers?
• How satisfied are the department heads with the purchasing department service?
• What are the pros and cons of running a procurement service?

We use the surveymonkey.com resource in our work.

Regularly discuss emerging problems between the initiators and the Procurement, monitor the implementation of the planned activities. This will reduce the time required to agree on tender decisions and procurement, and will also help to achieve savings in accordance with the sourcing plan.

Step seven. Taking purchases out of your comfort zone

Take your purchases out of your comfort zone!

Try to find new opportunities to reduce costs.

One such opportunity is the creation of procurement consortia with other companies. Unfortunately, today many companies do not consolidate purchases even within their own organization / group of companies or even one division, which affects their results.

With the support of management, procurement specialists can consolidate all volumes of the group of companies and conduct a sourcing event at a higher level

Suppliers will meet halfway: they are interested in signing a contract for a larger volume within one event.

Step eight. Use benchmarking

Conduct benchmarking - comparing the current conditions of the company with the conditions of other market participants. For example, in the case of mobile communications, you need to compare the costs per user per month.

Benchmarking helps stimulate Purchasing and allows you to assess the potential for cost savings. In addition, it provides guidance when negotiating with suppliers: what level of cost should you strive for.

Step nine. Involve Purchasing in the coverage of all inquiries

Require Procurement to cover all procurement categories - direct and indirect.

Participation of Procurement in the process of making strategic decisions increases their efficiency and competitive advantages, and allows initiators to formulate requests more correctly and clearly

The purchasing department is involved from the very beginning in the company's projects, where high costs are planned.

Step ten. Control by the finance function

Finance Tasks:

• involve Purchasing in the budgeting process;
• set aggressive budget savings targets for Procurement;
• monitor the achievement of these goals;
• participate in a procurement audit.

Finances should set the goal of saving and for the initiators. This forces initiators to cooperate with Procurement when selecting suppliers, even in those categories in which Procurement has not previously participated.

Step eleven. The head of the company is the main stakeholder

You understand like no one else that the results of the procurement service directly affect the company's achievements. Therefore, it is in your best interest to become the main stakeholder, sponsor of the procurement function.

The CEO must regularly (quarterly):

• evaluate the results of the Procurement activities together with other functional managers;
• receive a reliable report on the achievements / problems in the field of procurement;
• receive a report on the results of Procurement in comparison with similar companies.

Important:

procurement concerns the activities of the entire company and all functional leaders, therefore control and interest from the CEO is necessary. For this reason, in international companies the head of the Supply function often reports directly to the CEO

Let's summarize

If you want to get the most out of the purchasing department, create a competitive environment in which Purchasing competes within your team, with other services within the company and with the purchasing services of other organizations. Otherwise, the Procurement activity will remain chaotic and will not bring tangible results.

In international companies, the CEO and CFO are involved in strategic procurement management issues. This is explained by the fact that purchases increase the company's profits along with sales.

In Russia, purchases have long remained on the sidelines, since the last 15 years have seen an increase in consumption and sales. Inefficiency in procurement was not taken into account by management in the pursuit of excess profits and due to the lack of competition.

Procurement becomes competitive if the company's management is interested in this, puts it in front of Procurement strategic goals and monitors their implementation

It's time to change focus. You can surely change a lot and usefully in the procurement function of your company! If you need practical advice, .

Hello dear purchasers!

In this post, we continue our review of various purchasing tools from the excellent Purchasing chessboard by A.T.Kearney consultants. Today we will consider one of these instruments , how benchmarking the composition of the product.

Increasing differentiation, shrinking life cycle product and the growing variety of commodities are making sourcing increasingly complex. As a result, it becomes more and more difficult to apply volume consolidation techniques or achieve economies of scale. Therefore, the first step in this case will be the use of appropriate tools to bring order to the resulting chaos. Using analysis and benchmarking, it is possible to identify potential improvements that can be realized with the joint efforts of R&D and production departments.

A selection of competing products is sent to multiple vendors for component analysis. Suppliers provide proposals both for the product as a whole and for its components. By combining best offers, the best concept is chosen, while the buyer gets an understanding of the production costs of the suppliers.

Benchmarking product composition includes seven steps:

1) coordination of the approach with suppliers: it is necessary to identify new potential suppliers (except for existing ones) based on their portfolio, competencies and abilities;

2) identification of relevant competitive products;

3) preparation of appropriate costing templates;

4) receiving updated templates from suppliers;

5) evaluation of proposals;

6) determination of potential savings:

Determination of the supplier with the lowest price for each of the products within the existing cost estimate;

Reconfiguring the product using the lowest cost components;

Determination of the lowest production costs

7) determination of target costs

The result benchmarking product composition is a reliable analysis of comparable competitive products.

Good an example of benchmarking product composition is an example benchmarking mirrors from the automaker

The car manufacturer decided to benchmark the composition of the rearview mirror product after four suppliers (2 existing, 2 new) agreed to participate in the process. A team of engineers and procurement personnel decided to include two products from direct competitors and two products from competitors from low-cost countries in this process.

The following components were used for the costing templates: body, hinge, adjusting knob, suspension, frame, and mirror glass. Parts and materials have been specified for each individual item. Suppliers were asked to determine the costs of the main product elements and development services, including overhead costs. A joint meeting was held with suppliers to better understand the benchmarking procedure.

A few weeks later, the results were available with corresponding potential savings, optimal functionality and effective production processes... Minor functional differences between competing products were identified and financially evaluated. Negotiations and follow-up feedback was provided to each of the suppliers.

Potential savings of 27% were identified for the entire product, with the following breakdowns: 5 to 10% for the body, 15 to 25% for the hinge mechanism, 5 to 15% for the frame, 25 to 30% for mirror glass, from 30 to 35% - for additional indirect costs.

Thus, as the considered example shows, product composition benchmarking is a fairly effective procurement tool that allows you to get up to 30% savings.