Benchmarking in The Supply Chain

Supply chain ops within your company should be constantly reviewed

Two employees at a computer in a large logistics warehouse benchmarking the product flow.
•••

Luis Alvarez / Getty Images

Benchmarking, or goal setting, allows a company to assess the opportunities they have for the logistic control of a number of areas in its supply chain. These areas include productivity, inventory accuracy, shipping accuracy, storage density, and bin-to-bin time. Using a logistic benchmarking process can provide a company with some estimate of the benefits achieved by the implementation of any improvements.

Supply chain operations within an organization should be constantly reviewed to identify where improvements can be made or deficiencies eliminated. One method that helps to do this is to perform a series of benchmarking tests on supply chain processes.

History

The popularity of benchmarking was spearheaded by the Xerox Corporation in the 1980s and is now used in corporations throughout the world. Benchmarking is the process where an assessment of an act, or performance, is measured by some means. The analysis can be a measurement of time, value, or quantity.

For example, an assessment of moving items from one storage location to another can be measured by time for a single movement, or by quantity if the performance is over a set period. A benchmarking project will gather the assessments and develop a plan of action to improve the process that was assessed.

Types of Benchmarking

There are three types of benchmarking that can be identified. Each type provides useful and valuable information to the business process.

  1. Internal benchmarking focuses on the processes of a single company.
  2. External benchmarking examines processes outside of a company’s direct industry.
  3. Competitive benchmarks examine processes at firms within the same industry.

Internal Benchmarking

The internal benchmarking process allows a company with a number of facilities that operate the same supply chain processes to compare and contrast the ways in which the process is performed in those facilities. For example, if a company operates five distribution centers in the U.S. and Canada, the benchmarking process can examine a number of operations that take place at each of the distribution centers. Here, the process will compare how each center performed and what improvements can be made after comparing the benchmarking results. If a company benchmarks the processes around inventory accuracy, shipping accuracy, and storage density, the results of the assessments of the facilities can help a company to improve on those processes at all of the facilities.

External Benchmarking

As stated earlier, external benchmarks allow the examination of areas outside a company's direct industry or sector. This process adds value for companies that have performed internal benchmarking and want to investigate new ways in which to improve their internal performance. External benchmarking can produce significant improvements.

Many companies believe that their processes are as efficient as possible. However, quite often, the efficiencies are limited by the knowledge within the company. The external benchmarking process takes a company outside of its own industry and exposes them to different methods and procedures.

For example, a manufacturer and distributor of electrical components have internally benchmarked their warehouses for a number of years and have exhausted ideas on improving efficiencies. They approached a successful retail company to visit their central warehouse and benchmark the processes that occur there to compare to their own warehouse processes. The external benchmarking allowed the manufacturer of the electrical components to assess the processes seen in the retailer’s warehouse and develop an improvement plan for their own facilities based on the results.

Competitive Benchmarking

All companies hope to provide better service or perform better than their competitors. When a firm sees a competitor gaining market share or boosting sales they may wonder what secret formula they are using to reach that success. Since it is unlikely that the competitor will invite your firm into their warehouse to benchmark, it is necessary to hire an outside consultant to do some research.

Consulting and research firms can perform competitive benchmarking studies for companies. This research will identify the strengths and weaknesses of their processes based on those of their competitors. The company can then produce improvement plans based on the results of the competitive benchmarking.

Components of a Benchmark Study

There are a number of components to a benchmarking study. Not every benchmarking project will incorporate all of these components. Companies can use a combination to examine different aspects of the entire business process.

Financial Analysis

Financial analysis helps a company compare themselves to competitors. This involves a financial analysis of the operations that are assessed. This process may look at business income and expenses from the external, internal, or competitive direction. For example, a company can compare the cost of storing a component in each of its warehouses.

Process and Performance

A company can compare its processes and performance in many places but is most useful in examing administrative and business support methods. Perhaps the firm will investigate if outsourcing back-office functions will provide a quicker or less costly result. Customer service may be less costly to perform on a remote worker basis rather than having an in-house staff. This method can compare the cost efficiencies of performing a task across portions of the same company, to the industry, or competitor’s practices.

Product Benchmarking

Product benchmarking will compare the product of one company against another using the same or a similar product. A firm may get insight into upgrades or product configurations that will improve their current offerings. A large manufacturer may use this process to compare the production of unacceptable products between different plants.

Functional Examination

Here, a company will investigate a single function within the business. Perhaps it will review how customer orders are processed after they arrive at the order desk or the logistics involved in moving a product between the warehouse and the end customer. This is considered to be traditional benchmarking and can be done using a single process at a location or a number of locations to identify where efficiencies can be made.

Strategic

This method observes how other companies compete. This can be within the same industry or outside of the company's industry.