Have you ever considered the best way to identify strengths and weaknesses in your company’s supply chain management processes? Or have you focused on prioritizing opportunities to improve supply chain components? For supply chain managers, it can be challenging to set a market strategy and tactical goals, especially when there is too much information that is poorly organized or has no reference points. It is where supply chain benchmarking comes into play.
Benchmarking measures the performance of a company’s supply chain by considering quantity, value, and time. Benchmarking formulates a tangible measure of the efficiency of main processes in the supply chain and creates a solid foundation for an organization’s performance. It also measures the impact of each manager’s improvement subject to proper measurement indicators.
How to Collect Supply Chain Benchmarking Data
To start benchmarking your supply chain, first, pick an area within the supply chain to focus on. Supply chain management can be broken down into five components: planning, sourcing, manufacturing, delivery, and returning. Focusing on an individual segment of your supply chain will help you develop specific key performance indicators (KPIs).
KPIs are specific, measurable metrics within business activities. They give a quick representation of business performance. Typically, KPIs use quantitative data but can also measure qualitative data.
Quantitative Data
Quantitative benchmarking examines the supply chain by gathering data on performance metrics. Most KPIs are quantitative and focused on metrics and improving the supply chain’s bottom line. Perfect order rate, inventory turnover, and on-time delivery percentages are all examples of quantitative KPIs your supply chain should benchmark.
Qualitative Data
Unlike quantitative benchmarking, qualitative benchmarking gathers data based on best practices, not performance. Qualitative benchmarking uses the best practices of competitors or similar organizations and their data on successful techniques for improving supply chain performance. It analyzes differences in practices such as production techniques, quality testing, training methods, and morale without measuring results.
Components of a Benchmarking Study
After data and standards are projected, one can note which components of the supply chain will be benchmarked. Some benchmarking studies will measure single or multiple components.
Financial benchmarking
Financial benchmarking is the analysis of supply chain operations that are observed and recorded. For financial benchmarking, review income statements, balance sheets, and key ratios such as asset and inventory turnover.
Functional benchmarking
Functional benchmarking is the most traditional and common form of benchmarking, analyzing a single operation at one or several locations to identify where efficiencies can be improved.
Performance benchmarking
Performance benchmarking compares the efficiency of performing a task in one company location to another (branch vs. branch) or a competitor. Note that benchmarking performance against competitors can be complex since information will not be easily accessible.
Product benchmarking
Product benchmarking compares the manufactured product of one company against another or between facilities in the same company.
Strategic benchmarking
Strategic benchmarking observes how other companies compete strategically. Determines critical areas of focus amongst the competition. This can be within the same industry or outside of the company’s industry.
Levels of Supply Chain Benchmarking
Benchmarking is a continuous and fluid process where internal business practices matter just as much as external practices and competitive pressures in the industry. Therefore, three levels of benchmarking can be observed and measured.
Internal Benchmarking
Internal benchmarking is a tactical process focusing on operations. It allows companies with multiple facilities, divisions, or branches to compare how functions are performed—for example, comparing three different warehouses within one company. Smaller companies can compare shift performances amongst employees to benchmark internal data.
External Benchmarking
External benchmarking is a conscious level that takes a company outside its industry and exposes it to different methods and techniques. This exploratory research method reveals and applies the best practices in other firms to your business. Because external benchmarking requires diving into unknown industries, hiring a consulting firm to perform proper research is recommended.
Competitive Benchmarking
Competitive benchmarking compares a company’s operational performance against competitors. This benchmarking technique helps gain market share, but it can be challenging to collect data. Competitors are unlikely to share their knowledge of best industry practices, so using industry-standard metrics could be an option.
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Handling a business’s supply chain process is not an easy task. If you struggle to handle day-to-day management because of supply chain complications, consider outsourcing with a third-party logistics company (3PL).
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