Supply chain benchmarking is one of the best options available to businesses looking to optimize their supply chain. I’ve personally experienced the impact of realizing where your supply chain is underperforming compared to industry standards and the hidden opportunities to improve.
To do this, you analyze key metrics, research best practices and execute specific improvements. In other words, you remove bias from evaluating your supply chain and focus on data to make it more efficient and competitive.
Defining Supply Chain Benchmarking
Supply chain benchmarking is a systematic process of evaluating your organization’s supply chain performance against industry standards or competitors. It’s an effective strategy to identify improvement opportunities and achieve supply chain operational excellence.
In today’s rapidly changing business landscape, supply chain benchmarking is essential. It ensures companies remain competitive by pinpointing industry best practices and performance opportunities. By benchmarking your supply chain, you can uncover hidden inefficiencies and growth opportunities.
There are several different types of supply chain benchmarking:
- Internal benchmarking
- Competitive benchmarking
- Functional benchmarking
- Industry benchmarking
The primary goals of benchmarking are to identify performance opportunities, set improvement goals and discover best practices. It’s about learning from others and implementing those insights into your supply chain.
I’ve seen benchmarking completely transform supply chains. One of my manufacturing clients lowered their inventory costs by 15% by benchmarking themselves against the best in the industry. It’s not just about the data though. It’s about gaining a deeper understanding of your supply chain’s specific strengths and weaknesses.
To truly optimize your supply chain, it’s crucial to consider last-mile logistics, as it plays a significant role in overall efficiency and customer satisfaction.
Key Performance Indicators (KPIs) for Supply Chain Evaluation
Selecting the right KPIs is essential to effective supply chain benchmarking, as these metrics give you a clear understanding of your supply chain performance and where you can improve it.
Key KPIs to benchmark your supply chain performance include:
- On-time delivery rate
- Inventory turnover
- Order fulfillment accuracy
- Cash-to-cash cycle time
- Supply chain costs as a percentage of revenue
Defining benchmark KPIs requires some thought, as the on-time delivery rate or on-time delivery might mean something different to different industries. Therefore, you need to ensure that your definitions of these KPIs are industry standard definitions to benchmark your supply chain performance fairly.
It’s also important to select KPIs that are specific to your industry. For example, the KPIs that matter most to a retail supply chain might be slightly different than that of a manufacturing supply chain. Therefore, ensure the KPIs that you’re benchmarking your supply chain performance against are unique to your industry’s primary KPIs.
Balancing both quantitative and qualitative KPIs is important, as many supply chain companies only focus on quantitative KPIs. While quantitative benchmark KPIs should be the majority of them, there are specific qualitative KPIs (like supplier relationships or customer relationships) that we also encourage our customers to benchmark their supply chain performance against.
For example, one of our consulting clients ran a food distribution business with zero qualitative KPIs. They only benchmarked their supply chain performance against quantitative KPIs, and eventually, we helped them realize that they had no qualitative benchmarks to provide context to any of their quantitative benchmark KPIs.
By adding qualitative KPIs to benchmark their supply chain performance and overall performance as a business, they continually benchmark KPIs against many of our qualitative benchmark KPI recommendations.
Supply Chain Benchmarking Process
A supply chain benchmarking study typically follows these steps:
- Define objectives and scope
- Select benchmarking partners
- Collect data
- Analyze data
- Identify improvement opportunities
- Develop and execute action plans
- Monitor and adjust
Defining scope and objectives is essential. Choosing the right benchmarking partners is also key. Even if they’re not in the same industry, benchmark companies that you believe have excellent supply chains. You’ll learn something from all of them.
Data collection methods range from surveys to interviews to industry reports. To overcome data privacy concerns, some companies participate in benchmarking consortiums. Just be sure the data you collect is apples to apples with your company to ensure accurate benchmarking.
Analyzing benchmarking data requires both qualitative analysis and quantitative data analysis. You need to look for the broader themes that emerge from the benchmarks, so it’s not just a numbers exercise.
Of course, the most important step is taking action on the findings from the benchmark study. The best companies don’t try to do everything in the report, but they identify a few key actions to take.
In my experience, the process of benchmarking is really a process. One of my clients in the automotive space made it a quarterly event, and they always bested their competitors.
Industry Standards and Metrics
Supply chain KPIs can look slightly different from industry to industry. However, there are some universal KPIs for supply chains:
| KPI | Definition |
|---|---|
| Order cycle time | Time from order placement to order delivery |
| Perfect order rate | Percentage of orders with no mistakes |
| Inventory days of supply | Average number of days’ worth of inventory you hold |
| Fill rate | Percentage of orders you can ship immediately from stock |
It’s important to establish achievable performance targets. You want your targets to be somewhat of a stretch though. Use your current performance, industry averages, and best in class data as you set targets.
Industry benchmarks are important because what’s acceptable in one industry might not be in another. For example, lead times in the aerospace industry are longer than those in consumer electronics. This context helps you set reasonable targets.
Make sure to adjust KPIs for company size and scale. A small e-commerce business is not the same as a large retailer, so it doesn’t really make sense to compare yourself against the same benchmark data. Use common sense as you look at benchmark data.
For example, I once spoke with a mid-market manufacturer who initially used benchmarks from the largest companies in their industry. As you can imagine, the targets seemed impossible, and they basically accepted that they didn’t stand a chance. However, when they changed their benchmark comparisons to companies of similar size, they felt more confident setting targets and still made significant improvements.
Best Practices from Leading Companies
Studying successful supply chain benchmarking examples can provide excellent insights. One global retailer used benchmarking to lower inventory costs by 20%. They benchmarked best-in-class demand forecasting and replicated it across the entire company.
Many of the highest performing companies in supply chain benchmarking often have the same strategies:
- A culture of continuous improvement
- Data driven decision making
- Collaboration across teams
- Investing in technology and automation
- Strong supplier relationships
The lessons learned from supply chain best practices are powerful. Many companies will highlight the importance of end to end visibility in supply chain. Others will discuss agility and the ability to quickly pivot based on market changes.
However, blindly adopting best practices from another company is dangerous. Just because a strategy works for another company doesn’t mean it will work for you. Evaluate each benchmarking supply chain strategy in the context of your specific company.
For example, I once worked with a consumer goods company that borrowed lean principles from the automotive industry. They then applied these principles across their entire supply chain. This reduced waste and increased efficiency. The key here is to identify relevant benchmarking supply chain strategies and then customize them to fit your specific business.
One area that’s gaining significant attention is last mile automation, which can dramatically improve efficiency and reduce costs in the final stages of delivery.
Tools and Frameworks for Comparison
There are various supply chain benchmarking tools and frameworks. The Supply Chain Operations Reference (SCOR) model is a popular choice. It’s a standardized framework to assess supply chain performance across industries.
SCOR categorizes supply chain operations into six core processes: Plan, Source, Make, Deliver, Return, and Enable. This structure makes it easy to compare specific operations within the supply chain.
There are a plethora of digital platforms for supply chain analytics. These tools automate data collection and analysis, making benchmarking more scalable. Many offer real-time insights and predictive analytics.
The best tool for you depends on your specific use case and resources. Think about ease of use, data integration, and cost. Some companies build their own solutions, while others leverage off the shelf software.
In my consulting experience, some companies overcomplicate the benchmarking tool. Sometimes, a simple spreadsheet is more effective than a fancy piece of software. The key is to select a tool that aligns with your benchmarking goals and capabilities.
Common Benchmarking Methodologies
Process-based benchmarking: This type of benchmarking is process based. You document your processes and compare them to best practices. This reveals where each step of your supply chain process is inefficient. Functional benchmarking: This compares a particular function in your industry with the best performers in that function in other industries. This is an effective strategy because you can learn best practices from other industries. Competitive benchmarking:
This compares the supply chain directly to another company. This is another effective way of getting the best practices supply chain process in your industry. Collaborative benchmarking: This is collaborative benchmarking where you work with partners to improve process.
This can create a win-win solution where you and your partners all much improve the process. However, this only works with very open partners, and the process is very well documented to ensure that it’s fair. I’ve found that a combination of benchmarking processes is most effective.
For example, one electronics manufacturer process benchmarked their production line and competitively benchmarked their distribution process. The electronics manufacturer then improved the process, and distribution by replacing the lowest performers in the process with the best performer in the industry.
Benefits of Supply Chain Benchmarking
There are many benefits of supply chain benchmarking. Often, the most immediate benefit is improved operational efficiency. By identifying and addressing inefficiencies, you can make your supply chain more efficient and reduce waste.
Another key benefit of supply chain benchmarking is cost savings. You can optimize inventory levels, negotiate better terms with suppliers, reduce transportation costs, reduce waste in production, and so on.
Another benefit you may enjoy after benchmarking your supply chain is improved customer satisfaction. As you optimize your supply chain, you’ll be more likely to meet customer expectations around delivery speed, accuracy, and dependability.
One of the longer-term benefits of benchmarking your supply chain is achieving company-wide optimization. If you consistently benchmark your supply chain against the industry’s best, you can scale the business into the industry’s lowest cost, highest quality, and most responsive player.
Supply chain benchmarking also fosters a culture of continuous improvement, as it trains your team to look for the best available solutions and innovate. This mindset can help you generate ongoing improvements in your company’s performance.
I’ve seen all of these benefits firsthand in my business. For example, one of my retail clients cut their order fulfillment time by 30% after benchmarking against the best in their industry, which not only reduced costs, but also increased customer satisfaction scores significantly.
Challenges in Supply Chain Benchmarking
Benchmarking has its own set of challenges, though. Data accuracy and data availability are the most common challenges. You can only benchmark something meaningful if you’re positive the data is accurate.
Selecting the right benchmarking peers can be difficult. You likely want to benchmark against the best of the best, though their best practice may not be applicable to your business or at your scale.
Change management is arguably the number one challenge of implementing benchmarking insights. People at your company may be attached to the way things have always been done, or simply skeptical that a new way of thinking will work. To combat this, you have to be skilled at change management.
Comparing apples to apples with different business models is another common challenge. A lean, just in time inventory company will look very different from a high stock level, quick fulfillment business.
Sustaining benchmarking momentum is another common challenge. It’s easy to make initial progress from benchmarking, though sustaining it will require ongoing resources and a commitment from your team.
In my experience, the best way to overcome these challenges is to simply address them. One manufacturing client had data accuracy challenges in the beginning. They simply invested in better systems to collect data and defined their KPIs more clearly, which made their benchmarking studies much more meaningful.
Data Collection and Analysis Methods
Collecting accurate data is the foundation of any effective benchmarking effort. Common data collection methods include surveys, interviews, site visits, and analyzing public financial data. Some companies rely on data from third-party data providers or participate in industry benchmarking studies.
Data analysis for benchmarking can be data quantitative or qualitative. Quantitative analysis typically involves applying various statistical methods to data sets to identify trends, correlations, and outliers. Qualitative analysis involves understanding the story behind the data, often through case studies or interviews with industry experts.
Advanced analytics, particularly machine learning and AI, are becoming more common in benchmarking data analysis. These tools can process analyze large data sets more quickly and often identify patterns that traditional data analysis methods might overlook.
Protecting data security and confidentiality during data analysis is critical, especially when dealing with proprietary data. Many companies use data anonymization techniques and engage third-party intermediaries to ensure that their data is kept anonymous.
I previously worked with a company that operated a highly inefficient data collection process. However, when the company implemented a new ERP system, it streamlined and made data collection more accurate. It was a significant upfront investment, but it dramatically improved the quality of the company’s benchmarking data analysis, as well as its overall business decision-making.
Implementing Benchmarking Insights
The action step of translating benchmarking data into improvement plans is truly where the rubber meets the road. Start by ensuring you clearly communicate the benchmarking results to all relevant stakeholders. Call out what your business does well and where you have opportunities to improve.
Prioritizing improvement opportunities is key. Consider which improvements will allow you to achieve your strategic purpose and which will have the highest ROI. Think about both quick wins and longer-term, strategic improvements.
You must have change management plans in place to ensure that the improvements are actually adopted. Involve people at all levels of the organization when making changes. Provide the necessary training and resources to make it easy for people to transition to new processes or technologies.
Measuring the impact of your changes is also key. Define specific KPIs you expect to move with each improvement and remember to celebrate the wins. Also, remember that benchmarking is not a one-time event. It’s a continuous cycle of benchmark, compare, improve, and re-benchmark. Build it into your business as usual operations.
In my years of management consulting, I’ve seen companies make massive strides through effective benchmarking. For example, a logistics company reduced delivery times by 25% after using the insights from a comprehensive benchmarking study. It’s a powerful strategy when done right.
To ensure you’re getting the most out of your supply chain optimization efforts, consider conducting a thorough supply chain analysis. This can help identify areas for improvement and guide your benchmarking efforts.
Wrapping Up
Supply chain benchmarking is one of the most effective supply chain analytics for businesses. It reveals performance insights, where a business can improve, and how to make the supply chain more efficient. However, remember that effective benchmarking demands meticulous planning, precise data collection, and strategic analysis.
The key is then taking the data and using it to make significant changes in your business. Whether it was my experience on the shop floor or through consulting, I’ve seen benchmarking literally turnaround operations. It’s not just about the data, though. It’s also about building that culture of continuous improvement that will drive your supply chain forward.
