Beyond Price Benchmarking: Spend Benchmarking (Part 2)

Spend Matters welcomes a guest post series from The Hackett Group's Pierre Mitchell. We strongly encourage Spend Matters practitioner readers to take advantage of the offer which Pierre will share in Part 2 of the series next week.

In Part 1 of this post, I described the potential value of using spend benchmarking as a way to identify opportunities. To recap, spend performance tracking is something that can not just be benchmarked externally, but also tracked year-on-year internally with good spend analytics. It is a 'basic' capability for any procurement organization. Additionally, by measuring spend category value objectives and spend category capabilities in a similar fashion, a firm can look at the internal variation of such objective capabilities and see to what extent they can be shared across various spend categories internally. At Hackett, we always encourage clients to perform this type of internal best practices benchmarking to augment external performance/practice benchmarks.

Still, the external benchmarking piece is not necessarily easy. Just the spend analysis by spend category requires work. Assuming that aspect is in place, the next challenge is finding external spend benchmarks. Clients are constantly asking us for this type of information. Typically, they either have to gather it from category-specific intelligence providers or spend analysis/management application providers who might use it as a diagnostic service based on their installed base; or they may have management consultants that use their experience to provide general ranges for spend and savings. We see many strategy consulting houses doing this type of analysis, and my sister business unit Archstone Consulting does this as well, but we haven't seen any one-stop shopping sources for this.

So. We at Hackett finally bit the bullet and have put together a spend benchmark (which we are calling a non-compensation expenditure benchmark) that we are initially running as a complimentary performance study. Study participants will be able to:

  • Customize the spend benchmarks by selecting from 80 specific expenditure areas in eight major spending mega categories. Only the selected categories will drive subsequent spend metric questions and related category value objectives/categories questions.
  • Evaluate demand management effectiveness through an overview of the total expenditures rather than just purchase price.
  • Identify gaps and opportunities by comparing normalized expenditure levels against peers and top performers to identify gaps and possible improvement opportunities
  • Assessing management effectiveness in: 1) the breadth of the value objectives you seek for each spend category and 2) the depth of the capabilities/practices you employ to drive improvements in each spend category. This will include some specialized reporting to show internal variances within your company across the spend categories.

Access the practitioners-only study (only firms with more than $100M in spend please) by joining our World-Class Procurement LinkedIn Group to get to the study link or to request one from our study coordinator Byron Fitch (bfitch (at) thehackettgroup (dot) com). Jason will also be publishing the study link on the Spend Matters PRO site. The only way this will work, though, is if we can get some critical mass, so we really look forward to your participation. We are also talking to a hosted spend analysis firm to give companies an easy way to collect their spend information if they're looking to do it for all spend categories (the focus is on indirect procurement primarily) – so stay tuned on that. We are hoping to collect enough data by the end of August to provide an initial readout. Luckily, the study can be taken by individual buyers/category managers in their respective categories, so hopefully we'll be able to build a strong sample size by then.

Pierre Mitchell leads Procurement research and IP development at The Hackett Group.

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