Six Steps to successful Supply Chain Benchmarking
The need to benchmark supply chain performance runs deep in many companies. The quest for data is critical, and can help answer questions like “what is the average and best-in-class forecast accuracy in high tech,” or “how much inventory do pharmaceutical companies hold,” or “what are typical transportation costs as a percentage of sales in consumer packaged goods (CPG)?”
Although companies are in desperate need of data, they often struggle with how to use it effectively and struggle when it comes to what constitutes valid benchmark data, how to compare their own data to the benchmark data and, most importantly, what conclusions they should draw from it? Once they understand the data, companies struggle with how to translate those conclusions into decisions and, ultimately, into prioritized projects to achieve company goals.
For many companies, the search for benchmarking data becomes the end in and of itself, rather than the means to an end.
Completing a supply chain benchmark successfully, while important, is not enough by itself to ensure ongoing effective performance management. Often, companies go through the trouble of completing a benchmark, only to then let the results collect dust on a bookshelf. Research shows that a small proportion of companies that benchmark can effectively use the results and the lessons from the benchmark process on an ongoing basis.
Six key factors
Below are six key factors to help companies make benchmarking and measurement sustainable over time:
- Leadership — Strong leadership at a senior level is essential because supply chains often cross organizational boundaries and must deal with cultural issues and the change management challenges associated with individual and departmental performance. Invariably, there will be naysayers, and it is critical to have a strong leader who can encourage the debate that is necessary for buy-in. The leader also keeps his or her eye on the end-to-end goal, managing the outcome across the end-to-end supply chain.
- Ability to change — While leadership is critical, the right attitude must exist within the organization. Being able to embrace bad news, make data transparent to all, eliminate a culture of blame and reward people for identifying opportunities for improvement has to be part of the “corporate DNA.”
- Power through process — One of the major challenges to longevity of the benchmark results is a change in leadership. Like many initiatives, benchmarking can be driven by a strong leader, but only live as long as the leader’s term. The point of benchmarking is to provide information to be used in decision making and action. Institutionalizing the use of the results of a benchmark exercise by embedding it in a process minimizes the impact of executive churn. The S&OP process and meetings, in which supply chain trade-offs are assessed by a group of cross-functional business leaders, are natural places in which to embed the results of a benchmarking exercise, and to ensure that the improvement projects coming out of it get executed over time. And while benchmarks should never be used as targets, the results of a benchmarking exercise should be used directionally as input to the supply chain strategic planning process.
- “North-South” goal alignment — Anchoring the results of an end-to-end supply chain benchmark in the context of the business is key to its sustainability. One high-tech leader asked its strategic customers to rate it on five key dimensions. The supply chain group identified where their actions and initiatives impacted each of those key dimensions, drawing a clear line between their contributions and the company’s goals. That kind of alignment helps not only to communicate the importance of supply chain to the wider organization, but also to provide a “burning platform” for their own continued incentive.
- “East-West” process performance — Similar to vertical alignment to business goals, connecting the dots across the component processes is critical to the sustainability of results. Keeping an eye on the end-to-end goal, and managing the interdependencies across functions of the supply chain and beyond, continue to be important after the benchmark exercise is over to sustain performance improvements over time.
- Measurement aptitude — Many companies go through the process and set up queries, spreadsheets and dashboards, only to toss them once the benchmark is over. Applying the lessons about measurement from the benchmarking process and reusing them over time, along with the tools, are keys to making the results “sticky.”
Debashis Tarafdar is Research Director at Gartner