Whether it’s nervousness about the complexity of the task, the belief that all benchmarking projects are large and expensive, or the inability to decide where source data should come from, many organizational leadership teams keep supply chain benchmarking efforts firmly on the back burner, while regularly remarking upon the need to “see how we compare”.
Effective supply chain benchmarking doesn’t have to be a tough exercise. Like any major endeavor, by breaking the entire process down into bite-sized pieces and taking a step-by-step approach, you can successfully take a pulse on your organizational performance. To help you get a handle on the business of external benchmarking, I thought I’d share what I believe to be five of the most important factors for effectiveness.
1: Know why You Are Benchmarking
Firstly, you need to be clear about the purpose of your benchmarking project, which might be to:
- Compare your company’s supply chain performance with that of your competitors,
- Identify best practices in your industry and consider which are most important to adopt,
- Set performance targets for your workforce or perhaps for suppliers,
All of the above are valid reasons to benchmark. However, I’ve also heard of benchmarking projects initiated because an executive team was concerned that other companies were benchmarking while they were not, or because someone heard a keynote speaker mention that transportation costs should be less than a certain percentage of sales revenue … and the list of dubious benchmarking motives goes on.
For external supply chain benchmarking to be effective, one key goal should be to learn what you do really well in comparison with your competitors and whether that performance comes at the expense of tradeoffs in other aspects of your operation. Unearthing such information will require you to benchmark your supply chain from end to end, rather than focusing on one particular aspect such as transportation costs.
2: Choose Your Metrics Wisely
If you pay sufficient attention to the first point above, you are most likely to select the right metrics to provide the benchmarking data you’re seeking.
Your metrics portfolio should not need to comprise a huge number of different measurement types, but should be sufficient to provide end-to-end supply chain coverage. Your chosen metrics should also be able to show performance as experienced externally, by your customers, for example.
3: Be Realistic About the Scope
Having said that external benchmarking should cover the entire longitude of your supply chain, there is such a thing as defining scope too broadly. For example, your company may well have more than one supply chain.
Consider for instance, a packaged food producer with both ambient and refrigerated product lines. Such a company will probably have one supply chain for the ambient products and another for those which need to be kept in controlled temperature conditions. Aggregating the ambient and refrigerated supply chains together in a benchmarking exercise would probably not provide meaningful information, especially as there may be a wide difference in transportation and storage costs between the two product types.
On the other side of the coin, defining a very narrow scope is not likely to be useful either. While there’s no way to define the ideal scope for an effective supply chain benchmarking exercise, it’s important to aggregate where it makes sense, while drawing a line between supply chains with widely differing characteristics.
4: It’s OK to Compare Apples with Oranges
One commonly held misconception about external supply chain benchmarking, is that it’s essential to compare companies that operate in the same sphere of industry. This really doesn’t have to be the case. In fact, benchmarking your enterprise against direct competitors isn’t always the best course to follow.
The important thing in determining a peer group for comparison is to look for organisations with similar characteristics to your own. Whether or not they handle the same products, or even if they are in the same industry is often immaterial.
If your company is in the business of shipping medical supplies, for example, feel free to benchmark against some companies in electronics manufacture or agricultural products, if their supply chains operate in a similar manner to yours.
5: Practice Good Project Management
Effective supply chain benchmarking requires coordination of activities, management of internal politics, a clearly defined process, and careful selection of sponsors and human resources. In other words, it should be managed like any change or implementation project.
You need a strong project manager to lead and coordinate the effort. Selecting the right person for this role is instrumental in mobilizing the exercise and preventing it from drifting off at a tangent. Needless to say, the project leader should be someone who knows your supply chain and has an understanding of the metrics you will be using.
You also need to follow a methodical process, planned out along a realistic timeline. An effective supply chain benchmarking project is not something to try and squeeze in as and when time permits. Depending on the size of your company and the complexity of the end-to-end supply chain, you might need to set aside resources to cover a period of anything from 4 to 12 weeks for externally focused benchmarking.
The benchmarking process should be broken down into steps that look something like this:
- Determine the benchmarking scope.
- Identify the peer group from which to obtain data.
- Gather and validate the benchmarking data.
- Analyze the data and evaluate the results.
- Extrapolate the key insights and turn them into a plan of action.
- ACT on the outcome of your benchmarking effort.
Step 6 is the most important one of all, yet you might be surprised at how many companies conduct benchmarking exercises, only to let the results gather dust for so long they become worthless. A similar mistake is to assume that effective supply chain benchmarking is a one-time activity. The shelf-life of benchmarking data will vary from industry-to-industry and market-to-market, but you should plan to revisit external benchmarking every couple of years as a general rule.
Don’t Procrastinate Over Benchmarking
So what of those companies which haven’t got around to benchmarking their supply chains? Have they managed to improve their businesses and reduce costs? We may never know the answer and, as far as the business improvement side of things is concerned, perhaps they don’t know either.
If those organisations have improved, it’s quite possibly by way of happy accident, because there’s truth in the oft-quoted statement, “You can’t improve what you don’t measure”. There’s no good reason to procrastinate over benchmarking. Furthermore, by following the tried and tested guidelines outlined in this article, there’s every reason for your company to complete an effective supply chain benchmarking project.