Benchmarking in the context of supply chain management involves comparing your company’s performance and processes against those of other organizations in order to identify areas for improvement. When we, Bisham Consulting, are asked to perform a benchmark study, (often as a panacea solution to help solve many ingrained inter-connected supply chain issues), our first task is to explain the inherent problems with benchmarking.
In summary here are some of the common errors we have seen over our many years of supply chain consulting:
Comparing Apples to Oranges (Making a Valid Company selection)
It is essential to benchmark against companies that are similar in terms of industry, size, and operational complexity. Comparing your supply chain to that of a much bigger or smaller company won’t yield meaningful insights, nor will comparisons across different sectors, where different constraints may apply.
Ensuring a Level Playing Field (Ensuring a Valid Metric Comparison)
Different companies often use different methods to compile KPI’s and financial ones particularly may be impacted by varying cost inclusions and exclusions. To make a valid comparison a detailed analysis of measurement methods and financial practices that underpin the metrics needs to be understood.
Superficial Process Understanding (Understand What You’re Measuring in Detail)
You cannot make meaningful comparisons if the underlying processes are not mapped and understood in detail. There may be external factors impacting on productivities, (there often are) or local constraints, coming from specific customer requirements, IT based constraints or related to the physical infrastructure in which the operations are performed.
Lack of Clear Objectives (Choosing the Right Metrics)
Define what aspects of your supply chain you want to benchmark and improve, whether it’s reducing lead times, optimizing inventory levels, improving order accuracy or most commonly attacking logistics costs. There is always a trade-off between cost and service that needs to be matched to the company’s general business strategy. For cost reductions concentrate on those process areas that derive the highest logistics costs.
Foundations Built on Sand: (Poor Data Collection)
It is obvious that accurate benchmarking requires reliable data. We are often presented with KPI’s that are inaccurate because the data they are derived from is also inaccurate. This could be due to poor data management regime in the logistics operations or logistics costs not been accounted for correctly and spread around various categories in the P&L. So, the first step in any benchmarking exercise is to validate the accuracy of what you are starting with.
When implementing your conclusions from the benchmark study, ensure you are not just copy and pasting processes in, which are not entirely appropriate for your business environment – blind plagiarism should never be a policy. Make sure you are addressing the root causes of any inefficiency and don’t set targets for improvement that are not underpinned by physical changes. Headline grabbing targets that are not underpinned by a detailed implementation plans will not lead to success.
Bisham Consulting has a wealth of experience in this area so if you would like an infomal chat please contact us