Composite Benchmark
Every company is interested in knowing what lies beneath the skin of competing products so that it can make its own products even better and win over customers. However, many companies lack the resources and knowledge to perform the necessary analysis of a product and its components. The idea of composite benchmark is to send a choice of competing products to several suppliers for expert examination. These analyses are often intensive, revealing information about a supplier's production costs. The result is a cost model of “the best product from the best supplier with the best production processes. "
This approach is suitable for products consisting of a number of different (but not overly complex) components, insofar as a sufficient number of existing and potential suppliers can be recruited for the composite benchmark process.
A crucial factor for success is the make-up of the supervisory team, which should include specialists with both technical and commercial expertise. Composite benchmarking is carried out in seven steps:
Agree on the approach with suppliers: First, identify new potential suppliers (besides the existing ones) on the basis of their product portfolios, competencies, and capacities. To motivate suppliers to take part, offer individualized incentives. These may include exchange of technical information , opportunities for more business, or the establishment of new business relationships. It is also crucial to talk with the suppliers in advance about methodology, allocation of tasks, and expectations.
Identify appropriate competing products: An internal procedure should be used to identify competitors ’products suitable for comparison. On the basis of functional comparability, select and purchase the best products.
Produce standardized cost-calculation sheets: The various factors that go into cost calculations are materials, individual components, and other processing steps.
Have the questionnaires completed by suppliers: Send the cost-cal¬culation sheets to participating suppliers along with the competitors' products. Ask the suppliers to disassemble each product and evaluate the individual components along with the production steps needed to make them. At the end of this key phase, you will have questionnaires completed by the suppliers, and offers for each product and its components.
Evaluate the offers: Incoming offers should be carefully compared with one other; it is essential to clarify any discrepancy with suppliers right away as only then will the offers be genuinely comparable.
Identify potential savings: On the basis of the offers and the information provided by the suppliers on the cost-calculation sheets, procurement can now identify potential savings on three levels:
Identification of the supplier with the lowest price for each of the products in the existing configuration.
Reconfiguration of a product using components with the lowest costs.
Identification of the lowest production costs. The optimum production costs for each combination of products are determined. To this end, the benchmark costs of the "best of the best" (with optimum functionalities and lowest manufacturing costs) are identified for the original product.
Implement the target costs: As a last step, the target costs are implemented with the aid of suppliers. Each supplier is provided with individual feedback as to where it stands in terms of target costs. In addition, improvements at both the component and production- process levels are identified and discussed in detail.