Key points
- A benchmark must be normalised for quality and delivery basis to be meaningful.
- Track realised landed cost, not quoted price, as the budget reference.
- Separate market movement from negotiation performance when reviewing results.
Choosing a reference basis
Useful references include published origin quotations, freight cost for the same route and lane, and your own realised landed cost for comparable lots. Each needs the same quality and Incoterm normalisation as the offer being judged.
Separating market from performance
If the market rose ten percent and the paid price rose six percent, procurement performed even though the budget was exceeded. Reporting that distinguishes market movement from negotiated outcome produces better decisions than a simple variance figure.
Budget structure
Build the budget on expected landed cost per delivered nutrient with an explicit volatility allowance. A single-point budget for a volatile commodity guarantees variance reporting that carries no information.
What to verify
- Benchmark normalised to the same quality basis and Incoterm
- Realised landed cost recorded per lot, not just contract price
- Volatility allowance stated in the budget assumptions
Risks to manage
- Benchmarking against quotations for a different quality grade
- Judging performance purely on budget variance during market swings
- Using stale references in a fast-moving market
Common mistakes
- Comparing a delivered price to an origin quotation without adding freight
- Ignoring quality differences between benchmark and purchase
- Building a single-point budget for a volatile ingredient
Frequently asked questions
What is the most reliable internal benchmark?
Your own realised landed cost history for the same ingredient, origin and quality, because it already reflects your logistics, testing and losses.
How often should benchmarks be refreshed?
As often as the market moves materially. For volatile commodities, a monthly refresh is usually the practical minimum.
Related reading
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