CASE STUDY

The Importance of Deal Benchmarking in the Logistics Industry | SpendEdge

Apr 22, 2021

What is meant by deal benchmarking?

Rising competition and the increasing need for unparalleled offerings, sustainable strategic partnerships, and unlimited exposure to changing consumer demands have caused companies to rely heavily on benchmarking. When entering into new contracts and determining terms, many organizations utilize deal benchmarking to identify whether the services, prices, products, and support provided by their potential partners are truly competitive and valuable. This includes benchmarking all necessary KPIs for determining the best deals in the market and comparing the same with competitors’ deals or other suppliers’ deals within the market. These KPIs can include price, quality of product, lead time, delivery time, suppliers’ targets, certifications, and major benefits provided to the company. Though some KPIs are difficult to quantify, benchmarking is imperative to identify the best within the industry and continuously review and improve performance, terms, or expectations as per the industry benchmark. To conduct fair deal benchmarking, companies must have a comprehensive understanding of their market, their competitors’ deals, the benchmarking process, and their potential partners’ needs and offerings.

How to Establish a Benchmark?

Determine Metrics: When aiming to benchmark a particular process, product, price, service, or performance, it is imperative to determine the metrics utilized and their impact on the overall deal and future business dealings. Identifying the most critical key performance indicators (KPIs) is essential to this process and can include growth rate, pricing targets, quality of products, and different timelines. Having a clear idea of expectations can limit the number of viable options, improve supplier identification, and help establish better negotiation levers. Finding your best fit suppliers and establishing KPIs helps evaluate potential partners’ performances while establishing the ideal metrics for the deal benchmarking process.

Conduct Research: Without an in-depth, comprehensive, and well-researched understanding of the market, efficiently finding, establishing, and implementing a benchmark is highly improbable. Companies must conduct a substantial amount of research, understand the factors impacting their chosen KPIs, identify potential risks and how they influence business, study market dynamics that change prices, evaluate suppliers’ strategies and organizational structures, and assess changing data. Additionally, this process requires companies to assess their performance, consider factors that need improvement, evaluate competitors’ strategies, systems, and shortcomings, and formulate new strategies to improve performance. Further, when deal benchmarking, limited research can lead to inaccurate or ineffective benchmarks and hamper growth for the organization or lead to a subpar contract negotiation and management process.

Set the Benchmarks: Once the research has been conducted and KPIs have been established, the company can identify the benchmarks for each term of the contract and gain a clearer idea of their expectations. Finding the best fit suppliers requires robust deal benchmarking and can include various benchmarks for each term or a singular deal benchmark to refer to when establishing contract terms and negotiation levers. Setting these benchmarks helps companies ensure they enter into the right deals, create a strong and reliable content management plan, and propels supply chain resilience. Additionally, companies can move forward with the established benchmarks in the supplier negotiation, signing, and production processes, driving growth and enabling stronger partnerships.

Identify Targets: During the supplier negotiation, deal benchmarking, and contract management processes, transparency is crucial. All stakeholders, parties involved, and relevant departments must be informed of the stipulated benchmarks and set their expected targets accordingly. Therefore, when establishing contract terms with the potential suppliers, both parties have a transparent idea of the expectations, standards, and benchmarks behind each discussion and aim to deliver accordingly. Communicating these targets clearly, and correlating their relevance following the benchmarks is imperative to ensure that the deal benchmarking process is complete and effective. Failure to communicate clearly can cause the contract terms to not match the organization’s requirements or expectations and lead to further business complications at a later point.

Assess and Evolve: Once the deal benchmarking is complete, expectations and targets are communicated, contract terms are determined, and the contract is signed, companies must track the performance of both parties and all departments involved and ensure that their benchmarks are being properly met. Continuous reviewing and tracking performance can help companies improve performance, propel faster growth, and mitigate challenges before they arise. Additionally, companies must maintain a comprehensive understanding of their market and regularly evaluate competitors’ strategies, suppliers’ costs and prices, and other imperative dynamics to improve benchmarks and performance. Evolving and transparency can propel companies to the top of the industry and help them meet and surpass their standards.

Success Story

The logistics industry has witnessed many changes over recent years. Companies within the market often struggle to keep pace with the rising competition, increasing demand, changing costs, and other impactful market dynamics. Recently, experts at SpendEdge helped a renowned American logistics company identify significant shortcomings in their supplier contracts, supplier negotiation process, and a complete lack of relevant benchmarks. This led to substantial losses, reduced savings, problematic business partnerships, and major operational challenges due to performance issues and lack of efficient investment. Our experts helped the company identify and terminate detrimental associations, improve performances, find ideal suppliers and vendors, and set better expectations and higher targets with deal benchmarking. With clear insights into the market, a comprehensive understanding of the industry benchmark, their expectations, shortcomings, and performance, the company revamped its contract management approach and found the best fit suppliers for their business in America.

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