Benchmarking Your Forecasting Data: Does it Measure Up?
Benchmarking is the process of measuring an act or performance by some means, usually in terms of time, value, or quantity. (Moving items from one storage location to another, for example, can be benchmarked through the amount of time required for a single movement or by the quantity that can be moved over a certain period.) It also lends itself to forecasting data.
Benchmarking allows a company to assess their opportunities to gain logistic control of their supply chains. In other words, benchmarking is the equivalent of goal-setting in productivity, inventory accuracy, shipping accuracy, storage density, and bin-to-bin time.
Consistently review your supply chain to identify gains that can be achieved and losses that can be eliminated. Supply chain organizations that do best in periods of disruption routinely benchmark to assess current capabilities as the beginning point for future strategies.
Importance of Good Supply Chain Forecasting
Supply chain forecasting combines past supply data with future demand understanding and insight to help you make the best possible decisions involving inventory, cargo, budget, or market expansion. Without forecasting, maintaining an efficient supply chain can be next to impossible. Forecasting supports three essential functions of a thriving business:
- Strategic planning: The strategies incorporated into decisions like market expansion, budget planning, and risk assessment can make or break a company. Forecasting provides the insight necessary to make good decisions in all of these areas.
- Inventory: Good understanding of your demand in different markets is needed to ensure your inventory levels are sufficient throughout the year. Forecasting helps minimize shortages and keep warehouse costs under control.
- Customer experience: Customers must trust that their orders will be filled on time. Demand forecasting is necessary to ensure that you’ll have adequate supply to achieve on-time fulfillment.
The bulk of forecasting efforts focuses on supply analysis, which helps you understand when you need to order exclusive products or raw materials from your suppliers. Demand analysis is necessary to know how much your customers want from you during the week, month, or quarter.
Using SCOR to Benchmark Your Supply Chain and Achieve Better Forecasting Data
Benchmarking helps incredibly at identify performance gaps. However, leading supply chain organizations use it to establish best practices. They leverage benchmarks against their capabilities, customer demands, and business priorities to expand the potential of their supply chains.
Supply Chain Operations Reference, or SCOR, is a comprehensive supply chain performance management model. SCOR is based on three pillars — process modeling, performance measurement, and best practices. The vital pillar for benchmarking is performance measurement, which contains more than 150 Key Performance Indicators (KPIs) over two levels.
SCOR Level 1 metrics primarily see use in supply chain benchmarking. These are divided into five key attributes. Two of them internally focused (cost and assets) and three of them focus on customers (agility, responsiveness, and reliability). There is also a sixth attribute that concentrates on competitive comparisons.
Internal Benchmarking (Cost and Assets)
Internal benchmarking can stimulate healthy competition, which helps promote and develop a more innovative company culture. Business teams find it easier to buy in and adopt best practices from internal sources than external ones. Internal benchmarking also encourages functional teams to communicate, collaborate, and share ideas.
Companies that benchmark their inventory accuracy, shipping accuracy, and storage density can sometimes use the results to even improve operations at all of their facilities.
External Benchmarking (Agility, Responsiveness, Reliability)
Beneficial though it is, internal benchmarking can’t take a company to best-in-class status by itself. Once you’ve exhausted the potential to lift performance company-wide to that of your leading business units, it’s time to set sights on external performance setters.
Companies that believe their processes are highly efficient often find, when pursuing external benchmarking, that the knowledge within the company limits them. External benchmarking takes a company outside of the box, so to speak, and exposes it to new and different challenges to test against.
Competitive Benchmarking (Industry Comparisons)
When a company watches a competitor gaining sales or boosting market share, they want to know why. Sometimes they will answer their questions by calling in a consultant or research firm to perform competitive benchmarking studies. These may involve analyzing finances, process, performance, product, functions, and strategies.
Using these reports, the company can identify the strengths and weaknesses of its processes. This allows them to create better improvement plans.
The Road To Better Supply Chain Forecasting Data
Regardless of how well you benchmark your data, don’t expect your supply chain forecasting to be 100% accurate. Since all forecasting is based to some degree on assumptions, there will always be something unforeseen to defy those assumptions.
However, benchmarking your data will get you much closer. Measure the quality and performance of your products, services, and processes between business units, compared to other industries, and against your competitors often. This alone will give you a strong foundation for accurate, meaningful forecasting data.