Benchmarking is an important concept in business. By using benchmarks, businesses can objectively assess their performance. This can mean quantifying the performance of the business as a whole or measuring the performance of a specific process. With regards to supply chains, benchmarks are an excellent way of identifying the levels of performance that supply chain managers want to achieve based on the typical performance of a comparable supply chain or supply chains in general.
What are benchmarks?
For benchmarking to be effective for measuring supply chain performance, businesses need to identify the right benchmarks to use. Benchmarks are the metrics that the business will compare its performance against. They represent the baseline that the business is aiming for.
There are a multitude of possible benchmarks that a business can choose to use depending on their objectives and what they want to achieve with their benchmarking. Some of these are easy to identify, consisting of single unambiguous numbers that are easy to measure. However, they can also be more complex and harder to define. When using benchmarking to audit the performance of their supply chain, businesses need to think carefully about the precise metrics they will use, and how they will accurately measure them.
How to start benchmarking your supply chain
Before considering your supply chain specifically, you should first review any benchmarking your business is already undertaking. Benchmarking is a logical and natural process for measuring performance, meaning that lots of businesses use benchmarking to monitor their performance without realising it or making a conscious decision that they’re going to use benchmarking specifically. Wherever your business is collecting specific data points and comparing them against a baseline figure, you are benchmarking.
Where things start getting a bit more complicated is when there isn’t a single obvious data point you can use to objectively quantify performance. For example, benchmarking how long it takes a product or material to complete its journey through your supply chain is easy enough to measure; you just need to know when it begins its journey and when it arrives at its destination. Similarly, benchmarking the costs of moving inventory through your supply chain should be easy enough because that data is readily available to you. But what if you want to measure something more abstract and subjective? For example, you might want to use benchmarking to determine whether your supply chain is efficient and cost-effective. For this kind of benchmarking, the SCOR model can be very helpful.
Using SCOR to benchmark your supply chain
The SCOR method is used in several business contexts. SCOR provides businesses with a standardised structure for capturing data and creating databases that allow for more accurate benchmarking. For supply chain management, there are only a small number of useful databases available for businesses to access and obtain benchmarking data from. SCOR serves as an entire reference model for auditing supply chain performance and identifying areas where supply chains can be managed more effectively and made more efficient. Benchmarking is just one part of this model. However, you don’t need to use the entire model. Instead, you can take the benchmarking component in isolation and use it to assess the performance of your supply chain.
There are three ‘pillars’ at the heart of SCOR; process modelling, performance measurement, and best practices. For benchmarking, the performance measurement pillar is the most important. It essentially defines a hierarchy or key performance indicators.
Finding the right data
SCOR divides metrics into three levels. The first level metrics are the ones most commonly used for benchmarking supply chain performance, and they are divided into five key attributes. Two of these attributes, cost and assets, are internally focused metrics. The other three attributes, agility, responsiveness, and reliability, are customer-focused. The second and third level metrics require detailed data from the businesses you want to benchmark your supply chain against.
Start with internal benchmarking
To use benchmarking for a holistic analysis of your entire supply chain, you need to use both external and internal benchmarking. External benchmarking compares the performance of your supply chain against competitors, while internal benchmarking assesses your current performance based on past metrics. As a general rule of thumb, you want to begin with internal benchmarking before worrying about external benchmarks.
Internal benchmarking enables you to identify areas for improvement within your supply chain. Addressing these will strengthen your supply chain performance and enable you to perform better against your competitors when you start external benchmarking.
Another reason to start with internal benchmarking is that it encourages internal competition, which in turn encourages internal innovation, and therefore also fosters better communication and collaboration.
Before you start thinking about your external benchmarking, you should first conduct internal benchmarking across your business’s warehouses, procurement processes, transport operations, and any other areas relevant to measuring the efficiency of your supply chain.
Moving to external benchmarking
Internal benchmarking is useful for gaining insight into your business’s performance and analysing how it has evolved. However, internal benchmarking alone won’t enable you to achieve the kind of supply chain optimisation required to outclass your competitors and achieve the best results possible within your industry. Once you’ve thoroughly assessed your performance through internal benchmarking, it’s then time to move on to external benchmarking and see how your supply chain compares with your closest competitors.
The key to external benchmarking lies in finding a database of multi-level key performance indicators suitable for providing benchmarking data. Services like Benchmarking Success maintain databases of KPIs from hundreds of supply chains across numerous industries. In theory, you can gather your data for benchmarking, but this is often a resource-intensive process and impractical for most businesses.
Benchmarking is an essential technique for every business to keep in their back pocket. By combining internal and external benchmarking, businesses can gain deep, actionable insights into their performance and compare the performance of their supply chain against specific competitors and the industry average. As long as you base your benchmarking on good data, it’s one of the most powerful auditing tools available to supply chain managers.