Vendor Management: The Importance Of Benchmarking
By: Expense Management Solutions Printed in: EMS Newsletter
This is the seventh article in a series that provides insight into the key steps and success factors associated with good vendor management. Prior issues defined a good program, skill-sets required, and how to measure performance and compliance. This issue addresses the vital role benchmarking plays in a solid vendor management program.
Why benchmark?
Let’s take the ideal situation: You went through the best RFP process, selected the best provider who’s providing the best services and is performing as required by the best contract ever drafted by your company and to top it off, you’re receiving the best feedback by your internal customers on the quality of the service provided by the vendor you selected. Would you believe you may still be paying too much and you could be receiving even better service from your provider? Seems doubtful, right? If the vendor has met all your expectations things couldn’t be better…or could they?
A competitive bid process is a great way to obtain benchmark data at a single point in time. Key performance indicators (KPI’s) developed as part of the performance management plan and the contract will help to ensure that your objectives as they were initially defined within the SLAs are met. But unless you have defined provision of valid benchmarking data on an ongoing basis as one of your KPIs you may have no programmatic method built in to assess ongoing performance relative to the market.
As your company is dynamic, so too is the provider’s organization and the market. Effective vendor management cannot occur within a vacuum. Good market knowledge, solid market data and competitive supplier information enable the vendor manager to continually evaluate the services provided by his/her vendor and positions both parties to pursue best-in-class service delivery.
What is benchmarking?
Benchmarking involves measuring key metrics relative to the competitive marketplace. True benchmarking is far more than completion of a survey and review of the resulting data to assess where your organization ranks. It involves researching and explaining the significant differences between your vendor’s performance and the market, interpreting the results in light of industry trends, the participants, and any unique circumstances that influence performance, and understanding and adapting outstanding practices and procedures to produce superior performance. There are often very good reasons for a variance. However, where costs are high and no anomalies exist in the services provided within your company, potential cost reduction opportunities may exist.
Where can I find information against which I can benchmark?
In today's environment of lean staffing, cost containment pressures, and increasingly shortened delivery cycles, finding the time and the resources to pursue valuable benchmarking efforts is challenging but must not be overlooked. In some instances, published industry benchmarks are available (such as BOMA and IFMA for building operating costs, or ISM and CAPS for material costs) however, in other cases, average unit costs for services such as project management, mail services, and tenant support services may not be published or readily accessible. This information can be obtained by contacting peer organizations, participating in benchmarking forums, or using other resources such as vendors and consultants. It is important to make sure that you are comparing apples to apples. To do this the cost components and service levels included within your internal metrics must be consistent with the cost components within the benchmark unit costs. If they’re not, you may well end up with a roadmap that takes you somewhere you have no desire to go.
How can I maximize the value of the benchmark findings with my current vendor?
Share the findings with your vendor. For areas where improvement is needed define desired targets or goals. Ask the vendor to identify actions required to bring performance into target range and build an integrated implementation plan to achieve overarching strategic goals. Whenever possible incorporate benchmarking into the framework of your vendor program. Many vendors are willing to do this mid-contract cycle in order to demonstrate the strength of their offering and to solidify the relationship.
Our next newsletter will focus on another important piece of good vendor management: At risk compensation – linking vendor compensation to performance. This is also a good way to ensure the vendor continually incorporates the best-in-class findings from the benchmarking you’ve conducted.
Please let us know if there are other topics of particular interest that you would like to see in our newsletter. If you have any questions about this topic or Expense Management Solutions, please contact us at (508) 460-7014.
