When employed properly and for the right reasons, external benchmarking can be the catalyst for valuable cost savings and progress toward supply chain excellence. Yet plenty of organisations have not achieved the benchmarking ROI their leaders had hoped for. In many cases, misguided use of results—not the external benchmarking process—lies at the heart of the problem.
Don’t Play Follow-the-Leader
After investing money, time and resources into an external supply chain benchmarking project, it can be hugely disappointing when subsequent improvement efforts fail to close the gap between your operation and that of the best-in-class.
The first question that will probably spring to mind is “What did we do wrong?” But if you based your improvements on emulating best-in-class peer organisations, you already have your answer.
External Supply Chain Benchmarking is a Snapshot
External benchmarking can show you how specific elements of your supply chain measure up against best-in-class performers. You can learn for example, how your current perfect order percentage compares to that of the top-performing organisations. Once you know where you stand, you get an idea of how far behind you are, set a target for improvement and get to work on meeting that target.
If your goal is to reduce costs, improve service, and possibly increase your company’s market position, this approach is fine, but it’s unlikely to put you at a competitive advantage–and here’s why.
Supply chain benchmarking can only provide a snapshot of how other enterprises are currently performing. So unless the results show that you are already close to the top of the heap, you’ll need to develop a strategy for improvement. That strategy will probably involve efforts to increase performance incrementally, over a period of time. Let’s say three years, for argument’s sake.
Unless your benchmarking results show that you are already close to the top of the heap, you’ll need to develop a strategy for improvement.
Innovation is the Foundation for Excellence
Whether you aim to close the gap, match the best-in-class, or even become a top performer, the chances are that three years from now, those against which you compared performance will either have improved further, or will have changed focus.
That’s because best-in-class supply chain operators don’t compare themselves with others. Instead, they achieve their competitive advantage through innovation.
The only way to obtain a competitive advantage is to innovate. If after your external supply chain benchmarking project, you set out to emulate the leading supply chains, you will always be at least one step behind.
The Futility of Emulation
Consider the following question: If the DIFOT performance of a best-in-class organization in your industry is 99%, and your company is achieving 94%, what does your company need to do to catch up with the leader?
The answer will probably elude you. Of course it’s possible that some research will give you a general idea of what your peer is doing to achieve high DIFOT performance, but you won’t know the specifics.
Even if you could get into the detail, there is no guarantee that your company will get the same results from doing the same thing.
Even within a single industry, supply chains’ characteristics are very diverse, so unless your operation is very similar indeed to a best-in-class peer, it may not even be possible to emulate the methods being used so successfully.
Instead of directly targeting best-in-class metrics to match or to beat, try using the results of external supply chain benchmarking to highlight areas in which to innovate. Identify where innovative thinking might be applied to differentiate your supply chain from that of the competition.
Go Your Own Way
External supply chain benchmarking is a very worthwhile exercise to undertake, and if you want to improve visibility into your organisation’s strengths and weaknesses, there is possibly no better way to do so. However, you must think carefully about the improvement goals you focus on once the benchmarking results are in.
Remember that meaningful performance improvement is often achieved by capitalising on strengths and thinking outside of the box, rather than fretting about weakness and catching up with industry leaders’ KPIs.
If you want to ensure a return on benchmarking investment, focus on the results which compare most favourably with the peer group. That’s where your supply chain’s strengths are. That’s where you will be poised to innovate, setting new standards that others can choose only to ignore, or follow.