Benchmarking is one way to improve your supply chain's competitive advantage. And following these easy guidelines will help over any challenges benchmarking may present
If you want to reduce your organization's operating costs or decrease cycle time, then you should be benchmarking. Although there is no guarantee of improvement in these areas, benchmarking will identify a starting point. As noted by Lynne Taylor, senior marketing manager of manufacturing for PeopleSoft Inc., "You can't improve what you can't measure. And unless you benchmark, you don't know what is a realistic measure."
Benchmarking is about identifying realistic performance targets and tracking improvement over time.
Supply chain in particular is well suited for benchmarking because it incorporates the core operating functions of an organization, is easy to measure, and can translate into bottom-line savings for an organization. "In a sense," said Taylor, "it is easy to benchmark supply chain because there are so many things you can measure." Organizations can look at how long it takes to fill a customer order, how fast inventory turns over, the costs per customer, and cycle time among other things — all of which translate into bottom-line dollars.
Chris Gardner, a benchmarking expert at the best practices research firm APQC, agrees. "Supply chain provides a wide area for benchmarking and goes to core functions of the business." Gardner said he finds that many organizations benchmark supply chain because they want to get a good sense of how they fare compared to industry peers.
"Benchmarking takes the guesswork out of how an organization is doing performance-wise and provides realistic improvement targets," said Gardner.
Gardner highlighted several reasons to benchmark supply chain. In addition to helping an organization identify baseline performance levels, it also helps assess operational progress over time. "Assessing progress on a periodic basis is critical," said Gardner. "If you can track your progress through benchmarking, then you will have a good indication whether improvement initiatives are working." From an internal perspective, benchmarking focuses attention on desired behaviors and results. When done correctly, it can also help an organization determine possible reasons for performance gaps and establish a business case. And, of course, tracking and implementing performance measures over time enables organizations to measure and realize financial benefits.
Although the benefits are clear, benchmarking presents significant challenges for many organizations. This is partially because valuable process measures and benchmarks are often nonexistent, proprietary or costly to uncover. "In addition," said Taylor, "it's not always clear which metrics will impact business performance."
Gathering data that enables an organization to achieve an apples-to-apples comparison is also a significant challenge for most organizations. And unless an organization is able to translate data into meaningful results, it is not adding value. "If you are not adding value," said Taylor, "then there is no reason to do it."
Apples to Apples
One of the most common benchmarking mistakes is to compare what Taylor describes as "apples to Maseratis." She said: "Everyone says they want the performance levels of top-notch companies. But directly comparing measurements may be like comparing apples to Maseratis — they have very little in common, and the comparison has no relevance."
Ideally, an organization wants to benchmark against a peer group that shares similar features. This is because a number of characteristics impact organizational performance. For example, the size of an organization, its geographic location and a regulatory environment may all affect its demographic composition and may be outside the control of management.