Regardless of the industry or profession with which you are involved, you need to know how you stack up against the competition and whether your current practices work effectively. As far as supply chain professionals are concerned, benchmarking is a fantastic way to determine competitiveness in the field.
Benchmarking is the practice of analyzing supply chain performance as compared to similar organizations in the industry, both in terms of qualitative metrics and quantitative KPIs, also known as Key Performance Indicators.
If you polled most supply chain professionals, they would probably argue that the practice of benchmarking is an instance of the “juice not being worth the squeeze” or that they benchmark occasionally.
But benchmarking is an incredibly valuable tool for supply chains. In this blog post, we will outline why this is the case, when you should perform supply chain benchmarking, and give you a few tips for how to most effectively integrate the practice into your business strategy.
Why Should You Perform Supply Chain Benchmarking?
Monitoring progress as compared to previous accomplishments is vital to the success of anyone in any field. Athletes benefit from seeing how far their 40 yard dash times have improved in response to training. Medical patients benefit from seeing improved blood labs in response to medication.
Likewise, supply chain professionals benefit from seeing how KPIs, such as their inventory turnover, has improved over the years.
This practice of analyzing changes as compared to your own previous data is known as internal benchmarking. While this data is incredibly meaningful for self-improvement goals and is a great place to start, it's essentially useless if you don’t know how you stack up against your competitors. What good is a 5% improvement in profit from your stats last year if your biggest competitor is experiencing a 20% improvement through using better business practices?
Knowing where you stand in comparison to where you once were, and where your competitors are (known as external benchmarking), both provide incredibly vital pieces of information to your supply chain.
When Should You Benchmark Your Supply Chain?
Benchmarking should be a regular occurrence for your supply chain. While there is no hard and fast rule for when you should perform external benchmarking, you’ll want to consider doing so when:
Your supply chain undergoes any major changes.
You become aware of new practices that competitors are implementing.
Your profits start to level off.
You perform in-depth internal benchmarking within your own supply chain.
It’s unnecessary and unrealistic to monitor your competitors every minute of every day, but benchmarking after any of the above situations occur is a good rule of thumb.
Supply Chain Benchmarking Tips and Best Practices
Now let’s look at how you can implement it all most effectively.
As with anything you do in life or in business, it is always ideal to follow a logical, step-wise process when benchmarking:
Identify any problem areas in your supply chain. This includes areas that can be qualitatively and/or quantitatively measured. Having an overview of what areas you already believe could use more attention will help you easily pinpoint the gaps, that if filled, could have some impact on your area(s) of concern.
Consider the competition. These include the supply chains that seem to be performing better than yours who also operate either in part or in whole in the same industry as you.
Collect Data on the KPIs and Information of Interest. Based on step one, you’ll want to see how these other entities perform in areas where you struggle or feel you could improve. The first real groundwork you will lay will be based on the data that you collect regarding your current position in relation to either a milestone that you have set or in comparison to how well your competitors perform in those same areas.
Analyze Gathered Data. Once you’ve collected the KPIs and data you're interested in, it’s time to get down to the nitty-gritty. How do your competitors' practices compare to your own? What gaps exist that you could close?
Make the Necessary Changes. All of this data is great to have, but only if you leverage it and put it to work for your supply chain.
Which KPIs and Metrics Should You Analyze When Benchmarking?
While the industry in question may prioritize certain measurements over others, a few of the important ones to consider include:
Perfect Order Rate. This metric is fairly self-explanatory. Did the order get there when it was supposed to? Was it delivered in the correct quantity? Lastly, was there any damage to the shipment?
Material Turnover. An excellent way to measure your material (aka inventory) turnover provides quantifiable data regarding your order fulfillment processes.
Employee Retention. Keeping your employees happy is essential to running a successful business of any kind. Having to constantly train and hire new employees is a financial strain and has a negative impact on companies overall.
Your Benchmarking Efforts Should Help You Grow
When it comes time to benchmarking your supply chain, the important thing to keep in mind is that you should not only try to find and maintain a healthy balance, but to improve overall. For internal benchmarking, you aim to improve as compared to how you performed in the past. With external benchmarking, you attempt to improve based on how others in your field are performing when compared to your progress.