Benchmark index analytics and modelling – a buyer’s checklist

Alan Low, of Purchasing Index (PI), tells SmartProcurement what managers should be asking when they review the marketplace and choose an expenditure modeling solution for their business.

“As I write this article a double dip recession in the USA and parts of Europe hangs in the balance and the recent memory of 2008/9 sits in every manager’s mind. South African organisations are coming out of the local recession with an even more careful eye on return on investment (ROI). Employment in many industries is still on hold and cost containment is high on every Exco’s agenda.

“In this environment Benchmarking Index (BI) tools are in high demand; analytics and modeling provide a competitive advantage – and unlike the solutions of the previous decade, these systems are today affordable and flexible and take hardly any time to implement and show a return.

“I have put together a checklist of questions that managers (procurement, sales, operations and IT) should be asking when they review the marketplace and choose a solution for their business:

1. Uses. How will the solution add value to what your organisation is seeking to achieve? Will it support issues such as spend compliance, governance, risk management, for instance? Will it help to tie strategy to operational performance? Will it assist in monitoring ongoing performance against Key Performance Indicators (KPIs)?

2. Costs. What does the system cost? Here it is relevant to look at total cost of acquisition and operation (TCAO), and it is important to incorporate:
a. Purchase cost.
b. Ongoing licensing costs.
c. Implementation costs, how many consultants do you need to use to get the tool implemented and working, and for how long?
d. Infrastructure costs, i.e. servers, PCs, etc.
e. Support costs, IT personnel to write reports, create data structures, etc., and help desk people.
f. Database management costs, assuming that this needs to be set up to ‘feed’ the BI tool.

3. Data flexibility. Can the tool handle multiple layers of data from different data sources and data granularity (i.e. down to sales order or purchase order line)?

4. Data reliability. Does the tool provide information that the users can trust and rely on, always, to make the right business decision?

5. Ease of use. Does it allow the users to create reports? Can this be done in real time?

6. Speed of implementation. How quickly can the tool be implemented? 18 months or four weeks?

7. How visual are the outputs? Everyone relates to pictures rather than words and lists of numbers.

8. Features. Can it not only analyze what is going on in the organisation now but assist in modeling and forecasting for the future?

BI tools and solutions are now much more sophisticated and powerful than five years ago. With the democratisation of information, analytics is pervading all levels of the organisation, from sales to procurement and finance to operations.

In PI’s view BI tools need to provide quick wins – our experience is that many larger organisations find R5 – R20-million in savings in the first few months. This fast ROI engenders faith in the tool and allows for a modular roll-out across the organisation.

For more information on benchmarking solutions for your organisation, contact Alan Low of PI on alan@pibenchmark.co.za