Price Benchmarks are believed to be an indispensable and critical tool for Strategic Sourcing. Yet, benchmarks are often ‘fool’s gold’, as they ignore critical factors, including
– Product SKU and/or Service scope
– Product / Service complexity and availability of alternatives
– T&Cs including pricing terms, and fulfillment requirements
– Product and/or Service demand volume
– Term commitment (e.g. off contract vs 1-year deal vs 5-year deal)
– Vendor wallet-share and exclusivity (e.g. distribution of spend across vendors within a category)
– Sourcing team’s expertise in creating sustainable value
There is only way to establish a true market price — through a detailed RFP to a diverse set of vendors based on insights extracted from spend analysis and future demand forecast. This price discovery is invaluable to establish a true benchmark, which in our experience (along with the utilization of other advanced Strategic Sourcing techniques) consistently generates 15% – 20% savings for broad spend categories (result that is 3x – 10x greater than industry average).