Benchmarking in Supply Chain Management

In the ever-evolving landscape of supply chain management, staying ahead of the curve requires more than just instinctual decision-making. It demands a data-driven approach that leverages insights from key metrics to optimise processes and enhance performance. This is where benchmarking becomes indispensable. By comparing your organisation's performance against industry standards and competitors, benchmarking allows for informed decision-making, strategic planning, and continuous improvement.

Supply chain management is a complex ecosystem with numerous interconnected processes, stakeholders, and variables. To navigate this complexity effectively, Supply Chain Managers need access to reliable data and metrics that provide actionable insights. Benchmarking serves as a powerful tool in this regard, enabling organisations to evaluate their performance objectively and identify areas for improvement.

Understanding benchmarking in supply chain management

Benchmarking involves comparing your supply chain processes, performance metrics, and practices with those of other organisations to identify areas for improvement. This practice enables companies to gain insights into their strengths and weaknesses and learn from the successes and failures of others in their field.

There are three main types of benchmarking, each offering unique insights and opportunities for improvement:

1. Internal benchmarking: Internal benchmarking involves comparing performance metrics across different divisions or branches of your own organisation to identify best practices and areas that need improvement. For example, a company may compare the performance of its distribution centers to identify opportunities for standardization and optimization.

2. Competitive benchmarking: Competitive benchmarking involves comparing performance metrics against direct competitors or industry peers, to help understand your organisation understand it’s position in the market and identify areas where it may be lagging behind or excelling relative to competitors. For example, a retailer may compare its pricing strategy, product assortment, and customer service metrics against competitors to gain insights into its competitive position.

3. Functional benchmarking: External benchmarking involves comparing performance metrics and practices with organisations outside of your industry or unrelated to your organisation's business. This type of benchmarking allows you to gain fresh perspectives and identify innovative practices that can be adapted to you own operations. For example, a furniture manufacturer may benchmark its raw materials inventory management and waste reduction strategies against a leading apparel manufacturer to understand how they achieve high level of efficiency and productivity.

Key metrics for informed decision making in supply chain management

While benchmarking can involve a wide range of metrics, not all are equally relevant for every business. The choice of metrics largely depends on your organisation's goals, industry, and specific challenges. There are, however, some universally important supply chain metrics to consider when benchmarking:

> Inventory turnover ratio - This metric measures how efficiently inventory is being managed by calculating the number of times inventory is sold or used in a given period. A high inventory turnover ratio indicates efficient inventory management, whereas a low ratio may suggest excess inventory or poor sales performance.

> On-time delivery performance - On-time delivery is crucial for maintaining customer satisfaction and loyalty. This metric measures the percentage of orders delivered to customers on or before the promised date. It reflects the efficiency of your production, distribution, and logistics processes. Tracking this metric helps identify any bottlenecks or inefficiencies in the supply chain that may be causing delays. It also provides insights into the reliability of suppliers and carriers.

> Order accuracy - The accuracy of orders is another vital metric that directly impacts customer satisfaction. By measuring the percentage of orders fulfilled accurately, your organisation can identify opportunities to improve picking, packing, and shipping processes.

> Supply chain cycle time - This metric measures the time it takes for a product to move through the entire supply chain, from raw materials procurement to delivery to the customer. A shorter cycle time indicates greater efficiency and agility in responding to customer demands.

> Cost per order - Understanding the cost associated with each order is essential for optimising operational expenses and maximising profitability. This metric takes into account various costs, including procurement, production, transportation, and warehousing, to provide insights into cost-saving opportunities.

> Return rate - This metric measures the percentage of products returned by customers due to defects, incorrect order fulfillment, or other issues. A high return rate of could indicate product defects, incorrect orders, damaged goods during transit, or dissatisfaction with the product.  Benchmarking the return rate metric is important for several reasons – quality control and product improvement, cost management, customer satisfaction and loyalty, and supply chain efficiency.

> Supplier performance - Evaluating the performance of suppliers is critical for maintaining a reliable and efficient supply chain. Key metrics to track include on-time delivery, quality of goods, lead times, and responsiveness to issues or changes.

How to benchmark key metrics

Benchmarking involves comparing your organisation's performance against industry benchmarks, best practices, or direct competitors. Here's how you can effectively benchmark key metrics in supply chain management:

1. Identify relevant benchmarks: Begin by identifying benchmarks and metrics that are relevant to your industry, geography, and business model. Industry publications, trade associations, and market research reports can provide valuable benchmarking data.

2. Gather data: Collect data on the key metrics identified earlier, both from internal sources (e.g., ERP systems, logistics software) and external sources (e.g., industry reports, competitor analysis).

3. Normalise data: Normalise the data to ensure comparability between different organisations. This may involve adjusting for factors such as company size, industry segment, or geographic location.

4. Conduct analysis: Compare your organisation's performance against the benchmarks identified, highlighting areas of strength and areas for improvement. Look for patterns or trends that may indicate underlying issues or opportunities.

5. Set targets and action plans: Use the insights gained from benchmarking to set realistic targets and develop action plans for improvement. Collaborate with cross-functional teams to implement changes and monitor progress over time.

Now that you have the steps on how to benchmark key metrics in supply chain management, it’s only useful if you leverage this information and put it into action. To effectively leverage benchmarking for informed decision-making, your organisation should continuously monitor performance metrics and benchmarking results to track progress and adjust strategies as needed. Benchmarking is an iterative process, and organisations should regularly revisit and refine their benchmarking practices to drive ongoing improvement and innovation.

Incorporating insights from benchmarking for strategic planning

Benchmarking provides invaluable insights into performance gaps, identifies areas for improvement, and informs strategic decision-making. It’s a foundation for strategic planning and effective supply chain management, however, to translate these insights into tangible results, organisations must integrate benchmarking into their strategic planning processes.

Strategic planning in supply chain management involves setting clear objectives, defining actionable strategies, and aligning resources to achieve desired outcomes. It encompasses a holistic approach that considers various factors, including market trends, customer demands, technological advancements, and organisational capabilities. By incorporating insights from benchmarking, your organisation can develop informed strategies that capitalise on strengths, address weaknesses, and capitalise on emerging opportunities.

Using a trusted partner to help with benchmarking

Informed decision-making is essential for driving efficiency, reducing costs, and enhancing customer satisfaction. By being part of the uTenant ecosystem, you gain access a team of warehousing experts with a valuable pool of data from our network of 3PL providers and industrial property research through JLL.

Benchmarking key metrics provides your organisation with the necessary insights to identify opportunities for improvement, optimise processes, and stay ahead of the competition. By leveraging benchmarking as a strategic tool, your organisation can achieve greater operational excellence and sustainable growth. Whether you're comparing performance metrics, identifying best practices, or seeking innovative strategies, uTenant provides the support and resources you need to stay ahead of the game. Reach out to the uTenant team today.

Published: 27 March 2024