As you’ll know if you read our recent post on common supply chain knowledge gaps, supply chain benchmarking is one of those areas in which companies sometimes lack sufficient knowledge to avoid costly mistakes. That’s why we decided to publish this post, containing some important tips every supply chain leader should know before embarking on a benchmarking exercise.
Even if your company already has some experience with benchmarking, or you aren’t planning an imminent supply chain benchmarking project, you might find the following seven mini-guides worth your attention, if only to help you fill some knowledge gaps within your organisation.
7 Things You Really Should Know About Supply Chain Benchmarking
1. Why You Want to Benchmark
Companies that struggle with supply chain benchmarking, sometimes do so because they fail to define a clear scope for their projects. Instead, they set out to benchmark the entire supply chain from end-to-end in one fell swoop, which honestly, is not a good idea. In many cases, the task becomes simply too vast to complete effectively, and the anticipated insights remain elusive.
Determining scope is an important step for successful supply chain benchmarking, but you might struggle even to do that if you don’t first define exactly what you want to achieve.
There are numerous reasons to benchmark supply chain performance, each of which will drive the shape and size of your project, as well as the way it will be executed. Some of the most commonly cited purposes of supply chain benchmarking are:
- To understand how the supply chain performs in comparison with competitors’
- To identify and adopt internal best practices
- To develop accurate measures of productivity and customer service
- To compare performance and practices of specific business functions within an industry sector
- To identify best practices within one’s industry or among enterprises with similar supply chain characteristics
A project to benchmark perfect-order performance of a warehousing and distribution operation for instance, would have a very different scope and set of goals than one focused on supply chain cost-effectiveness and asset utilization.
While it might seem tempting to benchmark the entire supply chain and break down the results to suit specific purposes, in reality this approach can easily lead to confusion and even adoption of inadequate performance measures. Better results will be assured if you set a specific goal for your benchmarking exercise, plan the project scope and timeline to meet that objective, and then execute accordingly.
2. What You Want to Benchmark
When you are clear on why you want to conduct supply chain benchmarking, it will be easier to decide what to measure.
In this section you’ll find some brief, hypothetical benchmarking scenarios for supply chain and logistics operations. But first, consider some circumstances which might prompt your company to benchmark logistics performance:
- If you are an asset-based third-party logistics provider, your operational existence depends 100% on the ability to offer shippers the best possible service.
- You might be concerned about improving environmental practices and therefore wish to benchmark your operation on sustainability performance.
- If you are a retailer or manufacturer with in-house warehouse and transport operations, benchmarking can help you decide how to differentiate your business through service excellence.
So now let’s look at some possible supply chain benchmarking targets in a little more detail:
Warehouse Performance: How productive are your company’s DCs and warehouses? Are your warehousing costs comparable with the best? If not, what best practices can you implement to reduce operational expenditure? Warehouse benchmarking can help you get a handle on issues such as labour costs, occupational and property costs, order fill performance, and inventory management.
Transport/Fleet Performance: Whether you are a manufacturer, retailer or service provider, it’s critical that any transportation assets you own are utilised effectively. Transport benchmarking can show you how efficiently your fleet is operating compared to leading fleet operators, as well as helping you understand cost performance in areas such as fuel consumption, maintenance and tyre wear.
Sustainability Performance: Sustainability is a relatively new element of supply chain operation and therefore, one about which plenty is still to be learned. At the same time, pressure to operate in a carbon-neutral and environmentally friendly manner is mounting constantly. Benchmarking can help you compare your organisation’s sustainability performance and costs against other supply chains.
When managed properly, sustainability efforts can reduce costs and increase efficiency, even while improving corporate responsibility, so there has never been a better time to know where your company stands in this growing area of potential competitive advantage.
3. The Importance of the Right KPIs
Once you know what areas of the supply chain you wish to benchmark and why, you will be in a good position to determine the measurements you’ll use to compare performance with that of a peer group (or to compare internal operations, if you are conducting an internal benchmarking exercise).
This is another area in which mistakes can be made, particularly if your team lacks knowledge and isn’t engaging an external partner to guide the benchmarking process. However, errors are less likely if your project scope and purpose has been clearly defined, as described in the first few paragraphs of this post.
You might choose either to use end-to-end supply chain metrics, such as:
- Delivery performance KPIs
- Inventory management KPIs
- Supply chain cost metrics
- Cycle times
Alternatively, you might be interested in benchmarking specific processes, such as planning, procurement, manufacturing, or logistics. End-to-end KPIs tend to be more customer-focused, while individual-process KPIs typically monitor internal efficiency and financial performance, although there are exceptions to both these rules.
Unless you have a very compelling case for focusing on one over the other, it’s a good idea to choose a range of KPIs that provide a balance of internal and customer-facing measurements. Apart from balance, a few other golden rules apply to the selection of supply chain benchmarking KPIs:
- Avoid having metrics which duplicate or overlap one another
- Make all KPIs simple and understandable to everybody in your organisation
- Strive to get the full picture of performance with as few KPIs as possible
4. How to Choose a Benchmarking Peer Group
If your company is conducting an internal supply chain benchmarking project, you’ll be spared the effort of peer selection, which is probably one of the trickiest elements of external benchmarking to get right. If you are going to measure your supply chain against others though, the following tips will help you to avoid some of the pitfalls of peer group selection.
Peer group selection can be taxing from the very outset, which is why many organisations choose to work with a partner specialising in benchmarking data.
To be successful, benchmarking must be a collaborative process (more on that later). Without active collaboration, available data is likely to be scant; restricted to that which other companies are prepared to make public. A benchmarking partner can help by connecting you directly with an active peer group or by providing access to databases from which you can select metrics and choose organisations against which to compare performance.
When benchmarking, a lot of companies gravitate towards performance comparisons with competitors, or (if competitor data is not available) with non-competing companies within their own industry sector. Seldom though, is this the best way to derive value from supply chain benchmarking.
By comparing your supply chain with those of other industries instead, you are more likely to find ideas and opportunities to differentiate service from that of your competitors. Regardless of the industries you target however, it makes sense to look for a peer group with supply chain characteristics similar to that of your own business.
5. How to Keep Supply Chain benchmarking on Track
The previous sections of this post are intended to draw your attention to those benchmarking principles which companies most often miss (or at least fail to appreciate sufficiently). If you get those points right, you greatly increase the likelihood of benchmarking success.
That said, it’s also worth discussing the need for a systematic and methodical approach to benchmarking. In reading this post, you will hopefully have noticed the frequent references to benchmarking as a project. This is no accident.
Benchmarking is not a task to be squeezed into gaps in day-to-day business management activity. It should be treated as a continuous project, with resources dedicated to the necessary activities, and a timeline which ensures momentum until end goals are met.
For best results, break your supply chain benchmarking project down into the following steps:
- Establish why you wish to benchmark your supply chain and which elements/processes will be studied.
- Determine the scope of the benchmarking project.
- Map the “as-is” state of your processes to be benchmarked.
- Develop the KPIs you will use to measure performance.
- Select a “benchmark” company or peer group (if yours is an external benchmarking project).
- Gather the benchmarking data.
- Analyse the gaps in performance between your supply chain and that of the benchmark.
- Identify the best practices driving success of peer group top performers.
- Determine how best practices can be adapted and used to drive supply chain improvement.
- Prepare and present business case/action plans for improvement.
After completing these ten steps, you should effectively be transitioning from benchmarking to a business improvement process, assuming the business case is approved by your executive team.
6. Don’t Confuse Benchmarking with Other Forms of Information-gathering
As part of a list of things you really should know about supply chain benchmarking, it seems prudent to warn against another common error arising from a lack of knowledge. That error is to confuse benchmarking with other information-gathering techniques such as research or data acquisition through so-called benchmarking surveys.
That’s not to say that surveys and research are any less credible methods of gathering data, but they are less effective than a full benchmarking project as catalysts for improvement.
For sure you can find companies which, for a fee, will provide you with current performance statistics for a range of organisations.
However, unless such a provider is willing and able to share the information behind the numbers, you will know only where you stand in the rankings, not why you stand there or how you might improve.
“Benchmarking surveys” and benchmarking is not the same thing, although thanks to the terminology, you could be forgiven for assuming that they are.
So how about research, and why does that get confused with benchmarking? Typically, that happens when a company researches best practices, but stops short of correlating those best practices with their potential to improve performance. Make no mistake, best practice evaluation is an important part of benchmarking, but researching and then implementing best practices is little more than imitation.
Supply chain benchmarking on the other hand, with its dual emphasis on measurement and best practice, is a process of understanding what works for whom, and more to the point, why it works. This helps to nurture the understanding of how a certain practice might impact your own logistics operation.
7. Collaboration: The Secret Sauce of Supply Chain Benchmarking
The previous section of this post highlights the differences between benchmarking and other ways of gathering performance intelligence, such as surveys and research. What both of these other methods lack is the one thing which makes benchmarking more successful in driving change and improvement.
That ingredient is called collaboration, and it’s also the reason why benchmarking can be a difficult activity without sufficient knowledge, energy, and expertise to make it work.
That’s why it can be hard to establish a peer group, because you need to find other organisations willing to share in the exercise and make it a two-way effort. To that end, engaging a benchmarking service provider can pay dividends.
For example, a benchmarking firm will do the legwork of matching your company with compatible benchmarks. It will also facilitate the collaborative activities needed to get the most from benchmarking investment.
Unless you are content to find only one or two other companies to share in your benchmarking exercise, third-party assistance can be an invaluable time and money saver. Benchmarking services can help you to quickly identify and join a substantial peer group of compatible companies—a task which might be formidable without a service provider’s ready-to-access network.
Network for Supply Chain Benchmarking Success
If you’re planning a benchmarking project, it can pay to talk to your professional peers and even to actively network at supply chain events such as seminars, conferences and conventions. In fact, our very own Supply Chain Leaders Insights event, coming up on 26th October, 2016 might be just the ticket for sharing your benchmarking plans with other logistics professionals—and that’s just one of the benefits of attendance.
This unique round table day will also afford you direct access to experts in supply chain benchmarking—along with authorities in many other fields of supply chain and logistics expertise—who will answer your questions, coach, and advise you impartially on the finer details of launching, managing, and ensuring success of the benchmarking process.
There’s a lot more to learn about supply chain benchmarking, and this blog post has addressed but a few of the key considerations. So if you want to close your company’s benchmarking knowledge gaps, why not register today and secure your ticket for our 2016 Supply Chain Leaders Insights event?