In the Bain and Company report Management Tools and Trends 2009, which surveyed nearly 1,500 executives on the most important business tools, benchmarking came out on top, higher even than strategic planning.
In the recovering global economy, benchmarking against your peers appears to be more popular than ever. Jerry Shanahan, a partner at business improvement specialists Oliver Wight, says his company is phenomenally busy as more organisations want to benchmark themselves against the world’s best.
There are several good reasons to benchmark your company against the competition, but chief among them is establishing where the bar really is for a range of metrics.
Companies typically are good at defining what the key measures of business performance need to be, but without benchmarking they will struggle to understand what targets the business needs to set against these measures, says Shanahan. “Many organisations operate comfortably on the basis they are improving year-on-year,” he says. “But it’s no use settling for double-digit growth, if your competitors are expanding at 25 per cent and you are losing market share, or they are operating with a lower cost base and will eventually overhaul you.”
“Benchmarking places a different lens on a company from an external perspective.” He believes benchmarking can fundamentally change the vision of the organisation. “Business leaders typically ask their people ‘what can we do to improve’,” he says. “But the question becomes, ‘what will it take to become best-in-class’. That establishes a very different organisational motivation and people start to come up with initiatives they otherwise wouldn’t have.”
Oliver Wight is well known for its Integrated Business Planning (IBP), or advanced S&OP model, and in helping organisations optimise their supply chains. The consultancy firm has worked with hundreds of companies and can offer customers a substantial database of organisations against which they can benchmark their supply chain performance. There is sufficient critical mass in the database for companies to be able to select which types of organisation and/or supply chain to be measured against, according to their size, sector and nature of manufacturing and distribution.
With the guidance of Oliver Wight and using their own data, companies use an online benchmarking tool, comprising 128 criteria, to perform a deep-dive evaluation of their supply chain performance relative to their specified competition.
The measures against which supply chains are assessed are the global standards set by the Supply Chain Council’s SCOR® model, and using the principle of delivering ‘the perfect order’, the Oliver Wight tool evaluates performance against: order accuracy, inventory availability, on-time in-full delivery (OTIF), customer acceptance and accuracy of invoicing.
The resulting ‘improvement report’ reveals, in financial terms, precisely where and how big the improvement opportunities are. The gains can easily run into millions of pounds. The opportunities are identified across individual supply chain functions, from purchasing administration through to customer service, and targets are set to show the performance level required for decile unit improvements relative to the organisations’ peer group.
“Delivering on service will naturally reduce cost,” says Shanahan. “And the data proves that supply chains providing best-in-class service do so at half the costs of their peers.”
On top of the hard data analysis, the improvement report makes recommendations on how and where to make gains in the short, medium and long term, identifying the priorities, the training needs and the opportunity for quick wins. The ‘financialisation’ makes benchmarking a powerful tool in justifying the cost of any improvement activity. “Financial people always want to know what the return will be and benchmarking in this way makes it clear from the outset,” he adds.
Which type and size of companies use the tool?
“As long as it has a complete end-to-end supply chain system from order to delivery, any company could use it,” Shanahan says. “But they tend to be mid-size to large, and/or publically-listed companies.” Why is supply chain benchmarking increasing in popularity? “Because it is critical if you want to defend and improve your competitive position. And of course once you have made gains it then becomes a useful sales tool. Being able to demonstrate you are in the top decile for your sector has got to be good for business.”
To use a sporting analogy, if you intend to be the fastest man in the world, you know you have to beat Usain Bolt’s 100m world record time of 9.58 seconds. It is an unambiguous goal.
Will Stirling
