Total cost to perform the process "develop sourcing strategies" per $1,000 purchases

This measure calculates the total cost per $1,000 purchases to perform the "develop sourcing strategies" process, which involves clarifying purchasing requirements, matching needs to supplier capabilities, analyzing a company's spend profile to identify high-opportunity categories, matching the most effective sourcing strategy by category, seeking opportunities to improve efficiency and value, and collaborating with suppliers to identify sourcing strategies. It is part of a set of Cost Effectiveness measures that help companies understand all cost expenditures related to the process "develop sourcing strategies."

Benchmark Data

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Measure Category:
Cost Effectiveness
Measure Id:
103644
Total Sample Size:
998 All Companies
Performers:
25th
Median
75th
Key Performance
Indicator:
Yes

Compute this Measure

Units for this measure are dollars.

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Total cost to perform the process "develop sourcing strategies" / (Value of all materials and services purchased * .001)

Key Terms

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Process Cost Components

Total cost for a process, process group, or function consists of the following five components.

Internal/In-house operating cost consists of the first four components (personnel, systems, overhead, and other).

Personnel Cost

Personnel cost is the cost associated with personnel compensation and fringe benefits of employees (i.e., those classified as FTEs which includes both full-time and salaried/hourly employees) contributing to each respective process. Personnel cost should include all of the following costs.

Employee Compensation: Includes salaries and wages, bonuses, overtime and benefits.

Fringe: Includes contributions made towards the employees' government retirement fund, workers compensation, insurance plans, savings plans, pension funds/retirement plans, and stock purchase plans. This should also include special allowances, such as relocation expenses and car allowances.

Systems Cost

Systems costs include all expenses, paid or incurred, in conjunction with:
Computer hardware or computer software acquired by the organization or provided to the organization through service contracts.

Any related costs to process, service and maintain computer hardware or computer software. The costs of providing and maintaining services for each applicable process (e.g., computer system(s) processing (CPU) time, network/system communication charges, maintenance costs for applications and data storage). This includes the costs related to LANs, WANs, etc. This does not include one-time costs for major new systems developments/replacements. Consultant fees should not be included in depreciation of new system implementations. Include only those costs that occur more than six (6) months after implementation, as normal system maintenance costs. Any systems cost (e.g., maintenance) which is outsourced to a third party supplier should be captured in the separate cost category labeled outsourced cost.

Systems cost should include all salaries, overtime, employee benefits, bonuses or fees paid to full-time, part-time or temporary employees or independent contractors who perform services relating to computer hardware, computer software, processing or systems support.

Overhead Costs

For the purpose of this study, provide the total actual overhead costs for the year related to the specified process. These are costs that cannot be identified as a direct cost of providing a product or a service. Include the primary allocated costs such as occupancy, facilities, utilities, maintenance costs, and other major costs allocated to the consuming departments. Exclude systems costs that are allocated, since these will be captured separately as systems cost.

Other Cost

Other costs are costs associated with the specified process, but not specifically covered in personnel cost, systems cost, overhead cost and outsourced cost in this questionnaire. These other costs include costs for supplies and office equipment, travel, training and seminars. Include the cost of telephones, except for that portion captured in systems cost.

External/Outsourced Cost

In determining outsourced cost, include the total cost of outsourcing all aspects of the specified process to a third-party supplier. Exclude one-time charges for any type of restructuring or reorganization. Outsourced costs should also include costs for intracompany outsourcing (i.e., reliance on a shared services center or other business entity).

Cost Effectiveness

Cost effectiveness measures are those in which two related variables, one of which is the cost and one of which is the related outcome related to the expenditure are used to determine a particular metric value.

Median

The metric value which represents the 50th percentile of a peer group. This could also be communicated as the metric value where half of the peer group sample shows lower performance than the expressed metric value or half of the peer group sample shows higher performance than the expressed metric value.

Measure Scope

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Cross Industry (7.2.1)

  • 4.2.1.1 - Develop procurement plan (10281) - Creating a plan for procuring materials and services. Plan what to buy, when, and from what sources. Include project requirements, the procurement team, the justification for the procurement, a timeline of events, and an explanation of the supplier selection process. Outline specific actions to start and complete purchases in order to adhere to best practices.
  • 4.2.1.2 - Clarify purchasing requirements (10282) - Defining the purchasing requirements for materials and services. Specify the exact inventory required for the production process. Create a specific quotation for all the sources in order to avoid any duplication or overlap.
  • 4.2.1.3 - Establish materials management contingency plans (10283) - Developing a strategy to deal with issues projected to arise during implementation of the inventory plan. Identify how to react to issues that arise and require changes to the inventory plan, such as a vendor failing to deliver materials on time. Collaborate with production and suppliers to prepare solutions to projected problems.
  • 4.2.1.4 - Match needs to supply capabilities (10284) - Synchronizing the requirements of materials and services and the capacity of suppliers for providing these materials and services. Revamp the procurement needs of the company in consideration of the capabilities of the suppliers.
  • 4.2.1.5 - Analyze organization’s spend profile (10285) - Evaluating the spend profile of the organization. Collect, cleanse, classify, and analyze the procurement data with the purpose of reducing procurement costs, improving efficiency, and monitoring compliance.
  • 4.2.1.6 - Seek opportunities to improve efficiency and value (10286) - Seeking the most efficient sourcing and procurement opportunities.
  • 4.2.1.7 - Collaborate with suppliers to identify sourcing opportunities (10287) - Collaborating with the suppliers of materials and services in order to determine new opportunities for sourcing.