Has your company discovered how to really turn knowledge into power? If not, you might be surprised at the many ways supply chain benchmarking can be used to understand performance, identify areas for improvement and actually turn those improvements into reality.
You don’t have to wait any longer to learn why supply chain benchmarking is increasingly winning advocates in the commercial arena. Read through this post and you will learn all the most important reasons, and if your company hasn’t considered supply chain benchmarking before, you’ll probably wonder why.
8 Most Beneficial Uses of Supply Chain Benchmarking
1. Set Your Targets for Business Success
Let’s begin with one of the most commonly cited uses for supply chain benchmarking. To illustrate that use, I’ll apply one of the most commonly cited analogies, which comes from the world of sport.
The goal of many world-class athletes is to gain a name as the very best in their chosen discipline. A runner wishes to be the fastest, as does a swimmer. A weightlifter wants to be the strongest; known for lifting a weight heavier than anyone else can manage.
Before any of these dreams can be turned into reality, athletes must know the target they need to aim for. They need to be aware of the time in which they need to run 100 metres, or 1,000. They need to know the weight, or the distance, or the height toward which they must aim to be named as the best.
The same is true in industry and business. If you want your company to be known as the best in its industry, commercial sector, or even in its niche, you must gain awareness of the only goal that matters—the one which none of your competitors have yet surpassed.
Of course, you can set that goal, or rather, that set of goals (because being the best in your business normally means you must beat the competition in a number of disciplines) yourself, but if it’s to exceed that of the very best today, you must know how well the very best is performing.
External supply chain benchmarking will show you which companies are the best-in-class among those which utilise supply chains similar to yours. It will also show you the metrics at which those companies excel along with their actual results, giving you the ability to set a new, higher target.
2. Know Your Distance to Target
Of course it’s all very well to know the target your company must beat in order to differentiate itself from others, but you also need to know how far you are from that target. External benchmarking can provide you with that information, enabling you to plan your journey to supply chain excellence.
Using supply chain benchmarking, you can determine the target you wish to attain, identify how far away you are from that target, and make plans to close the gap.
Now here is one very important point to bear in mind: you may notice I mentioned setting performance targets which exceed that of the best among your peer group of companies. This is the only way to leverage supply chain benchmarking effectively to become a performance leader.
There is one problem inherent with aiming to match current best-in-class supply chains. It’s likely that after establishing the gap to be closed, planning initiatives, and executing them, you’ll find that the best have already gotten better, leaving your company as a supply chain follower, rather than a leader.
By setting a more ambitious target, you may have a wider gap to close, but you also stand a better chance of being at the very front of the pack if you can successfully implement the necessary improvements.
3. Learn How to Develop a Best-in-Class Supply Chain
Taking the journey to a best-in-class supply chain will mean different things to different companies. Your supply chain strategy should support and align with that of your business generally. So for example, if you plan to offer greater product availability than your competitors, you will want to establish a different set of supply chain benchmarks than a company that wants to compete successfully on product pricing or on quality.
External supply chain benchmarking can help you to isolate the supply chain elements you need to work on, to develop a best-in-class reputation in your industry or commercial sector.
In order to achieve this, you should benchmark your supply chain performance against companies with similar supply chain characteristics to your own. By doing so, you will be able to identify metrics highlighting where and how the best supply chains excel, and use those same metrics to measure your own supply chain improvement.
This is perhaps one of the most important benefits of external supply chain benchmarking. Not only can you identify where you must get to for your supply chain to lead the field, and how far you have to go, you also gain the intelligence needed to plan exactly how you will get there.
4. Reduce Your Supply Chain Operating Costs
In the first three sections of this post, we’ve focused very much on supply chain benchmarking as a way to become best-in-class. Of course you may not consider it necessary to be the very best. There are many other good reasons for supply chain benchmarking, not least of which is the opportunity afforded to begin a cost-reduction journey.
The fact is, best-in-class supply chains operations incur far lower costs than their less-capable peers—in some cases, they are able to operate at as little as half the cost of the laggards.
So while you may not aspire to be the best, there is a lot to be gained from every step taken towards fulfilling best-in-class potential. As counterintuitive as it may be, improving the service provided by your supply chain is a sure way to reduce the costs incurred in its operation, provided of course, that you make the right improvements and do so effectively.
External supply chain benchmarking gives you vital information about what your best-in-class peers are doing to stay at the front of the field, enabling you to compare your own supply chain performance using the right metrics. Armed with this information, you can identify ways in which to improve both service and cost—a rare and valuable double benefit.
5. Build a Baseline for Continuous Improvement
Whether you need to improve cost, service or other aspects of supply chain performance, both internal and external supply chain benchmarking exercises are a great way to identify, set, and work toward continuous improvement goals. You may not wish to benchmark your entire supply chain, but perhaps have a need to improve performance in discrete functions, such as warehousing, distribution centre processes, or transportation.
Benchmarking can be used to focus on cross-functional work-streams like order-to-cash, procure-to-pay, or similar cycles. Alternatively you can choose a number of very specific improvement areas.
Whatever your chosen purpose, supply chain benchmarking will enable you to set an initial baseline from which to start, identify exactly which way is up, and to embark upon continuous improvement programs such as lean or Six Sigma, through which a step-by-step approach can be taken to attain supply chain excellence.
Of course you don’t have to restrict benchmarking exercises to a single event at the start of a continuous improvement program. By benchmarking on a regular basis, you can review where you stand every couple of years and set new baselines to ensure continued forward momentum.
6. Identify the Metrics that Matter
The adage “what gets measured gets done” has long been a mantra for supply chain leaders and, slowly but surely, operators around the world are recognising the need for meaningful, objective performance indicators, and are applying them accordingly. Supply chain benchmarking is an ideal way to identify the metrics that matter to your supply chain.
There is no rule that says you must benchmark your supply chain against the same KPIs as other organisations.
In fact, a good benchmarking partner will work with your team to first identify the most appropriate metrics to meet your improvement objectives. These measurements can then be applied to a group of peer companies to provide visibility of comparative performance.
Some supply chain benchmarking services even make it possible to check specific KPIs against other organisations without the need for an expensive and time-consuming (although very beneficial) project.
These service providers maintain databases containing thousands of KPIs, along with the benchmarking results for many participating companies. They offer online access to this data, enabling you to choose your preferred metrics, select a peer group to benchmark against, and review your results.
7. Select and Implement Supply Chain Best Practices
While it’s good to know how your supply chain compares with others, and to identify the best metrics to monitor performance improvement, supply chain benchmarking can help you take a step further, especially if your company collaborates with peers through a benchmarking and best-practice peer group.
Benchmarking peer groups provide a forum through which you can compare performance with other supply chain operators, and also learn from them, as they share ideas and best practices you can adapt and implement within your own operation.
It’s for this reason that benchmarking against your competitors might not be the best course of action. Choosing a group of peers with similar, but non-competing supply chains provides the benefit of information shared more freely than would be possible among a group of competitors.
If you are more interested in finding out what’s already working within your own logistics operations, you might prefer to conduct an internal supply chain benchmarking project. Instead of benchmarking your company’s supply chain against others, internal benchmarking follows a similar format, but compares the performance of different business units within your organisation.
Internal supply chain benchmarking can be useful if your company has a number of similar operations in multiple countries or regions, or when you want to benchmark functional performance across a number of functional units, which might be warehouses, distribution centres, or transportation fleets for example.
By identifying the most effective processes being used in different arms of your company, you can implement them as best practices on an enterprise-wide basis, standardising supply chain activity to maximise performance regionally, nationally, or even globally.
SEE ALSO: Benchmarking for Better Supply Chains
8. Develop a Sustainable Supply Chain
Supply chain benchmarking needn’t be used only as a measure of general supply chain performance. You can also employ it to help solve very specific challenges, such as those associated with supply chain sustainability.
Sustainability initiatives have something in common with service improvements, in that when they are implemented effectively, they can deliver significant cost savings in the course of achieving their primary environmental goals.
As an increasing number of supply chain leaders become aware of sustainability benefits, they are also recognising that measurement is just as critical in sustainability improvement as it is in other areas of performance. Hence sustainability benchmarking has grown up and come of age. It’s now commonly practiced by companies wishing to reduce environmental impact and strengthen corporate responsibility credentials.
Sustainability benchmarking can help you keep any number of environmental initiatives on track and moving in the right direction. You can benchmark and monitor pretty much any facet of sustainability including:
- Water consumption in plants and warehouses
- Transportation fuel consumption
- Energy consumption
- Waste produced in manufacture, storage and transportation
As with other forms of supply chain benchmarking, you can choose to conduct internal or external sustainability benchmarking, depending on whether you wish to compare your environmental performance with other organisations, or simply want to set some standard internal improvement measures.
The Benefits of Supply Chain Benchmarking: Can You Afford to Ignore Them?
The eight sections above cover just a few of the reasons you might undertake a supply chain benchmarking project. Each of them comes with their own specific benefits, but to summarise, the primary advantages of benchmarking are:
- It provides a true view of your supply chain performance compared with similar operations
- It helps you identify and set realistic but stretching objectives
- Benchmarking can be used to set a baseline for continuous improvement
- You can identify metrics to suit your specific improvement requirements
- Benchmarking can help you identify best practices for adoption
- It also highlights gaps separating your operational performance from that of best-in-class supply chains
Without the valuable knowledge gained from supply chain benchmarking, you can but surmise how well your supply chain is really performing.
Knowledge after all, is power, to coin another oft-quoted adage. By leveraging the power of today’s sophisticated benchmarking techniques and the data they provide, you can take definitive control of your operation, make better-informed choices for performance, service and cost improvements, and perhaps even chart a course to the very forefront of supply chain excellence in your industry.
At Logistics Bureau, we love to hear about the experiences of our readers, so if you have a supply chain benchmarking tale to tell, feel free to reflect on your successes and challenges in the comments section below.