What is price benchmarking, and why is it Important?
Price benchmarking is a crucial step in identifying the ideal new suppliers and vendors, which can be a time-consuming and challenging process. Rising competition and growing markets have led to a significant change in costs, prices, strategies, and business plans. When entering a new market, searching for a new supplier, or preparing for a new initiative, companies often conduct in-depth research. Mitigating risks, reducing costs, developing beneficial business relationships, and overcoming cost fluctuations are imperative to succeeding in any industry. Price benchmarking helps companies enquire, assess, compare, and choose the ideal supplier prices by evaluating market costs, various suppliers’ offerings and assess the acceptable and comfortable budget for their business. With this process, managers can guarantee the optimal choice, provide stakeholders with evidence to support their decision, and create a valuable relationship with new suppliers. This process also gives companies the power to negotiate the right deal, understand their market, evaluate competitors’ costs, and establish a strong foothold for new initiatives or processes.
What are the main benefits of price benchmarking?
Ideal Price Range: Assessing the prices and offerings of various suppliers and vendors provides companies with insights into the price range available within the industry for their needs. This enables identifying the ideal price range within the company’s capacity while entering negotiations and noting suppliers or vendors outside their current coverage for future projects and contracts. Building a database of suppliers available within the market, their prices, offerings, and other metrics also help the company understand reasonable expectations at a certain price range. By comparing and benchmarking costs, businesses can also better understand the quality, facilities, and services available to them at a reasonable price.
Understand Supplier Costs: The price benchmarking process requires significant in-depth research regarding suppliers’ prices, quality of product, lead times, and more. However, to carry out a well-informed and accurate price benchmark, companies need to understand the market dynamics impacting these prices, including regional factors, raw material cost changes, transportation, and logistical costs. Identifying and evaluating these costs can provide companies with the data required to differentiate ideal, honest partners. Additionally, the company can then identify methods or strategies to reduce costs, negotiate better prices, and evaluate the suppliers’ organizational efficiency, structure, and ability to meet business demands.
Improved Negotiation: With relevant and crucial data regarding the market, suppliers’ incurred costs, and other crucial insights into their market, companies can set clear expectations with reasonable benchmarks. Understanding the market and the suppliers’ costs helps the company enter negotiations with empathy and establish a relevant price ceiling supported by relevant data. Additionally, suppliers will be encouraged to maintain clarity, honesty, and transparency regarding their costs and other factors influencing their prices. With this information and honesty, the company can negotiate a price that permits both parties to gain value and benefit from the partnership and ensure there is no possibility of unnecessary loss for either party.
Better Supplier Relationships: Evaluating suppliers’ costs, challenges, and other market dynamics impacting their prices, can foster an understanding, equal, and honest partnership between the parties. When a company enters negotiations with a clear idea of their goals and expectations, assesses the impact of their demands on the supplier, and accounts for the costs incurred by their potential partner, the vendors are further inclined to reciprocate the effort and understanding. This creates a transparent partnership with fair terms and enables the development of a mutually beneficial contract. On a long-term basis, the price benchmarking process helps the supplier and business maintain an understanding of each other’s needs and goals and enable growth through a well-drafted contract.
Competitive Advantage: With a highly detailed and nuanced understanding of the market, companies can identify factors impacting their suppliers’ prices, their own business, and competitors’ strategies. Additionally, the decision-makers will make better business plans with data and comprehensive analysis of all the various challenges, trends, and drivers within the market. The research involved in price benchmarking also includes understanding the costs incurred by competitors and estimating the prices offered by their suppliers and vendors. This process also helps stakeholders gain a clearer insight into upcoming changes in the market and develop stronger, beneficial, and sustainable supplier relationships.
Cost-Reduction: Developing strong business plans, fostering strong partnerships, and improving decision-making can directly propel cost-reduction efforts. With the data procured during the price benchmarking process, companies can mitigate various unnecessary costs, achieve less expensive strategic supplier partnerships, and implement changes to their strategies to reduce costs further. In procurement and sourcing, cost-reduction is a continuous effort, and all relevant market or supplier data can help support the system in place and achieve evidence-based targets. Additionally, improved supplier relationships bring down long-term costs, address various potential risks, and help stay ahead of industry challenges, significantly reducing costs.
The telecom industry has witnessed remarkable transformations in recent years, and companies are investing in new innovative initiatives, improved hardware and technology, and better software systems. A leading telecom player sought to usher in the introduction of 5G in a specific region of North America but struggled to identify the ideal supplier, price range, and approach to developing new contracts. The client approached SpendEdge to leverage our price benchmarking expertise and wanted to find the best strategic partner as they spearheaded a new market and sought to maintain a sustainable relationship that enabled rapid growth. With our experts’ insights, the telecom company evaluated, assessed, and compared the prices and offerings within the market and utilized the relevant data to scrutinize potential suppliers. Leveraging the price benchmarking process and data-driven approach helped the company identify multiple potential partners, carry out data-driven negotiations, and identify the ideal supplier for their new initiative. This partnership enabled significant growth, profits, and sales for the telecom industry player and helped them champion the 5G market in their geographic region.
Procurement market intelligence and price benchmarking solutions by SpendEdge can help you drive profits to your door. Connect with our team of specialists to align your business objectives with procurement goals.