What is Benchmarking? Save Supply Chain Costs. VIDEO
Benchmarking your Supply Chain can be the first step to driving real bottom line improvement. Watch and find out why? Benchmarking Success is part of the Logistics Bureau Group and has been Benchmarking business performance since 1992 across most industries. We hope you enjoy these tips and use them to improve your own business performance.
“Hi, my name is Steven Thacker, director of Benchmarking Success. The topic for discussion today is why benchmark your supply chain. This is enough asked question, “What benefit is there in benchmarking my supply chain?”
Let me suggest the three answers to this question, firstly, before embarking on any business improvement journey, it’s essential to understand what the destination is. Where am I going to end up? What’s my target, and what is the outcome?
As Steven Covey put it in his book, The Seven Habits of Highly Effective People, habit number two is to begin with the end in mind. So how do we determine the end when approaching the subject of supply chain performance? The end or the target can be set by comparing the performance of your supply chain to, firstly, other similar supply chains and more importantly, to the best in class. If we truly aspire to be the best and to provide an example of service that our customers acknowledge really is the best, then we need to know how good that is. We really need to know how high is the bar.
To use an analogy, if your goal was to be the fastest man in the world, that is the fastest time over a hundred meters, what is the first thing that you’d need to know? The answer is you’d need to know the time. You would need to know that 9.58 seconds is the current world record, the best. With this knowledge, all the necessary planning, training and preparation would be aimed at beating that record time. This is benchmarking against best in class. If, however, you did not have this information, and will simply be competing against yourself, looking inwards so to speak, you might be seeing improvement with training over time but you would always be oblivious to and very unlikely to achieve best in class performance. And so it is with supply chain performance benchmarking.
So, reason number one is so that you can understand what best in class is and use this as a basis of determining the end so that you too can begin with the end in mind.
Reason number two, why benchmarking supply chain is the analysis of benchmarking success database suggests the best in class supply chains operate at half the cost of their peers, half the total supply chain cost.
Have a look at the chart behind me no matter what the industry sector, and there are six on the chart, those that provide best in class service operate at half the cost of those that provide an average service. In this case, total supply chain cost is measured as percentage of sales. So here is the counter intuitive truth about supply chains: the better the level of service provided, the lower the cost. I say counter intuitive because typically, we associate a higher cost with a bit of a level of service. For example, we pay more for a better level of service on airplanes. We pay more for the improved standard of service in selecting a hotel. But this is not the case of the supply chains, but why? How can this be explained? Well there are three primary reasons for this, as provided by our customers when we ask them that question.
1. They get things right the first time, and they get it right the first time almost every time. As a consequence of that there is no rework, there is no expediting, and there is no wasted cost in the process that is unnecessary.
2. Customers tell us you can’t focus on the service and not see the cost. A good example of that from one of our clients was where they required their warehousing operators to deliver irregardless of the level of service that was required. There’s a consequence of understanding that and seeing that level of service they very very quickly understood the cost implications of doing that as well. So you can’t look at the service and not inherently see the cost of providing that service.
3. Most of our clients of our clients claim there’s a consequence of providing customer an excellence in customer service, they are able to charge more as a result. That more comes either additional service for the cost or in a lot of cases, it came from simply increasing the unit cost to the market.
Finally reason number three comes from the supply chain mantra that you can’t improve what you don’t measure. Benchmarking is about comparing and understanding a performance. And therefore, measurement is a critical ingredient in that process.
Measurement comes first and improvement may then follow once performance gaps are identified and plans made to bridge those gaps are put into place. Comparing your supply chain performance to other organizations with similar supply chains provides insight into where you need to improve. It also provides numerical data, reports and other details of what is best in class performance and how high is the bar.
As a result of the process improvement report provided by Benchmarking Success, organizations are provided with such details as: how my supply chain performs compared to other supply chains, the areas identified for improvement, improvement plan, and identified savings.
So to summarize, the reasons to benchmarking supply chain are:
1. To understand how hard high the bar is: What is the 9.58 seconds equivalent for your business? How good do we have to be to demonstrably be best in class?
2. Best in class supply chains operate at half the cost of their peers.
3. You can’t improve what you don’t measure.
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You might want to learn more about these techniques at Supply Chain Leaders Academy, also available online at Supply Chain Secrets.
i wish to know the origin of the word ‘benchmarking’.
how did the word get evolved ? why ‘bench’ ? why ‘marking’ ?
Well, the origin of the word comes from Carpenters, who would mark their workbench. Then against this mark they could measure other pieces of wood to ensure they were all the same length.
The term is now used when talking about comparative measurements.
I am in search of the industry benchmark of the gross profit per employee per department in the commercial vehicle industry.
I’m not sure where you would find that Trevor. Maybe an industry association?
How the Benchmarking system may be made and implement in the personnel management in a manufacturing Industry.I have not only hope but utmost confidence that you would help me in this matter,at the earliest.
Your confidence may be misplaced! 🙂
As with all KPIs, start with the end in mind.
What is the outcome you need?
Then pick a KPI that will measure that outcome!