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. I asked Steven Thacker, one of our benchmarking management experts, to explain exactly what benchmarking is. Then, we’ll look at the benefits of benchmarking your supply chain.
What is Supply Chain Benchmarking?
Benchmarking is essentially comparing; comparing one against another. When we compare different levels of sophistication and performance in supply chains, we can identify particular levels that we think are important to achieve, or that represent typical performance levels for supply chains as a whole.
Those levels are “benchmarks”. Of course, benchmarks and benchmarking can cover all kinds of different things, at work or elsewhere. Suppose you wanted to be the fastest runner in the world, for example.
The first thing you’d want to know is “what is the benchmark?” meaning “what speed do I have to beat to be the fastest?” You can benchmark for individuals and also for teams. You can also benchmark supply chains.
Sometimes benchmarks, like how fast you run, how high you jump, and so on are easy to identify. They are simple activities to measure and the figures are clear and meaningful. Elsewhere it’s more complex, as is often the case in business. It’s still just as important, though, if you want your business to improve, to know how you compare, and how good you have to be to be the best.
How Can a Business Start Benchmarking?
You can start with the things organisations frequently want to benchmark. The first of these is “How good is my service?” In fact, it’s also a good idea to go further, because these days, service provision should typically be a competitive advantage for an organisation.
So the questions are rather: “How good is my service today?” and “How good does it have to be to really differentiate my business compared to my competitors?”
A second one is then cost; For instance, “Is that level of service, whether current or planned, cost-effective?” This is a question that frustrates businesses if they only have data that is anecdotal and subjective, and lack the quantitative hard data that really tells them what’s going on.
This is where the SCOR model can be a big help, because it defines formal, structured ways of capturing data, which can then be stored in a database to provide a better guarantee of accuracy.
Using SCOR to Benchmark the Supply Chain
SCOR is a method that’s helped businesses in many different areas, such as quality circles. In the general supply chain area, however, only a few really comprehensive databases exist for organisations to access.
In fact, SCOR is actually an entire reference model for supply chain performance management and improvement, in which benchmarking plays just one part. You don’t need to apply the entire model however, to successfully benchmark your supply chain using SCOR.
The SCOR model is based on three “pillars”. These are the process modeling, performance measurement, and best practices pillars. The performance measurement pillar, which is the one used for benchmarking, is essentially a hierarchy of key performance indicators (KPIs), comprising more than 150 metrics organised into two levels.
Good Data is Key to Success with SCOR
SCOR Level 1 metrics are those most commonly used for supply chain benchmarking, and are divided among five key supply chain attributes, two of which can be said to be internally focused (cost and assets), while the other three focus on the customer (agility, responsiveness, and reliability).
It’s also possible to use level 2 and level 3 metrics for benchmarking the supply chain, provided sufficiently detailed data is available for the peer companies you plan to benchmark against.
Sometimes it’s Good to Look Inward Too
Thus far I’ve focused my answers on external benchmarking; comparing performance with peers. However, supply chain managers, especially those in larger companies with multiple business units, should not lose sight of the value of looking inside the organisation.
Sometimes the solution to a performance problem can be right under your nose. For example, are you sure that you don’t have one or two business units that excel in a performance element which, otherwise, is proving to be a weakness for your supply chain operations?
It’s possible that by finding pockets of excellence within your company, you can exploit the strengths that exist and propagate them across the business, perhaps lifting overall performance to more competitive levels. It’s a strategy worth considering before looking at external benchmarking, because it might allow you to reduce the scope of an external benchmarking exercise, and narrow the gaps between your company and its peers.
Now that you understand what benchmarking is and how SCOR fits in, let me share six key ways you can use benchmarking to transform your supply chain
6 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 benchmaring 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 chain 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. 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.
6. 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.
When I first wrote this article years ago sustainability wasn’t as relevant as it is now. In the modern day, sustainability benchmarking is the norm, commonly practiced by all 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:
- Carbon footprint tracking
- Circular economy initiatives
- ESG compliance metrics
- Supplier sustainability scores
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 six 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.
3 Good Reasons to Start With Internal Benchmarking
The internal benchmarking process, in itself, comes with several benefits, aside from the potential to improve cross-enterprise performance. For example:
- When you identify best practices that improve performance, it will be easier for your business teams to buy into and adopt them, compared to implementing practices identified externally.
- It can stimulate healthy internal competition, which in turn helps to promote and develop a more innovative business culture.
- It encourages business units/functional teams to communicate, collaborate, and share ideas.
So as a prelude to external benchmarking, why not take a look across your company’s warehouses, transport operations, and procurement functions, benchmark internal performance, and make use of the underutilised innovations driving performance leaders inside your business.
Good very helpful