Price Benchmark
Price benchmarking is a flexible and comparatively simple method of analyzing the price situation for different components or material groups. It involves comparing the prices of a company's sourcing category with the prices paid by other companies under similar conditions and with the same specifications. As with every comparison, the improve¬ment potential is indicated by the difference between the two figures.
Price benchmarking is only possible for identical or similar products. If differences are found, the values have to be “normalized.” The price benchmark can be applied not only to unit prices or price distributions, but also to contract conditions. Unit price benchmark consists quite simply of comparing unit prices. To take account of price discounts or other allowances (as customary with software), unit price benchmarks are often also compared on the basis of price corridors. Price distribution benchmarking is especially suited for services of all kinds—for example, IT services.
TTo perform the comparison, distinctions are made between different levels of skills or services. A project manager, for instance, needs to have different abilities than a technical assistant or a consultant. Benchmarking of contract terms is done by comparing the individual parts of agreements. The aim is to analyze contracts with regard to pricing options and search for references to possible price adjustments. To this end, comparisons can be based on external price indices or information provided by suppliers with regard to their cost structure. New contracts can then be negotiated using the resulting data and benchmarks.