Why are Benchmarks Important?
Benchmarking is a common business practice and sensible exercise to establish baselines, define best practices, identify improvement opportunities (contract rates and terms) and create a competitive environment within the organization. Integrating benchmarking into your organization can result in valuable data that encourages discussion and creates new ideas to improve processes and practices as well as relationships with providers. In benchmarking the data is what is most important! Documenting rates and terms to further compare and improve is a benefit of benchmarking and a feature of a vendor management solution.
Simply put, benchmarking is a process to discover what is the best standard of performance seen in a specific company, by a particular competitor or by a completely different industry.
Benchmarking is one of a manager’s best tools for determining whether the company is performing particular functions and activities efficiently, whether its costs and rates are in line with those of competitors, and whether its internal activities and business processes need improvement. Benchmarking Helps Organizations to stay in sync with the market and customer needs. Thus, benchmarking and then taking corrective actions is not simply emulating competitors. Rather it is the process of understanding what top standard is, and making changes within the organization in order to meet & transcend that standard.
A benchmarking strategy can:
• Clearly identify specific areas of opportunity
• Validate assumptions
• Prioritize improvement opportunities
• Set performance expectations
• Monitor company performance
• Manage change using vendor management tools and analytics
• Improve understanding of the real opportunities and their priority
• Minimizes resistance to change and support for action
• Fosters a spirit of enthusiasm to do better than the external benchmark
• Promotes discussion based on data rather than assumptions or emotion
How benchmarketing Increases Sales and Profits
Benchmarking enables managers to determine what the best practice is, to prioritize opportunities for improvement and to enhance performance relative to customer expectations. It also helps managers to understand the most accurate and efficient means of performing an activity, to learn how lower costs are actually achieved, and to take action to improve a company’s cost competitiveness. As a result, benchmarking has been used in many companies as a tool for obtaining a competitive advantage. A company that uses benchmarking to improve its functions, operations, products and services may enjoy increases in sales and profits. These efforts are likely to increase sales due to improved processes, efficiency among departments and improved product quality. Companies that operate more efficiently can drastically lower their expenses.
Benchmarking has several other benefits as well:
Improved Quality: Benchmarking helps organizations to continuously improve the quality of their products & services. Organizations observe the current standard, and then try to surpass that.
Better performance: Benchmarking helps organizations overcome complacency. They continuously strive to improve their performance standards in order to stay relevant in the market.
Cost efficiency: Benchmarking provides organization with valuable data on the last technology, and processes followed in the business environment. These are aimed at increasing productivity while reducing cost. For example, a manufacturing company might learn about a certain machine used by its competitor, which can do the work for five workers. This company might also adopt similar technology to lower its labor cost.
Prioritizing areas of improvement: While organizations understand the importance to develop continuously, they might be unsure at times about where to start the improvement from. Benchmarking helps organizations to identify the areas where the gap between their standard and that of the industry is the largest. This helps organizations to prioritize the areas that they need to work on.
Leveraging strength areas: Benchmarking can also throw light on the areas where the organization is doing much better than what is observed in the market.
If you have questions regarding benchmarking strategies or about any of the other benefits of our Vendor Management Solution contact LIMITLESS.
