Logistically Speaking: The trouble with benchmarking

May 31, 2005
Everybody talks about benchmarking, but hardly anybody is actually doing it. Consider this: Penn State's Center for Supply Chain Research, one of the

Consider this: Penn State's Center for Supply Chain Research, one of the nation's best known supply chain programs, recently sent out a survey to more than 1,200 logistics executives who are members of the Council of Supply Chain Management Professionals. If ever there was a group who presumably "gets it" when it comes to supply chain, that would be the group. The goal of the survey was to determine how satisfied (or unsatisfied) these executives were with their supply chain benchmarking efforts.

And yet, according to Penn State's Dr. Skip Grenoble, the survey barely got 10% response. "Nobody has the time to participate in benchmarking studies any more," Grenoble explains. Even members of the Supply Chain Council's SCOR board — a group that exists for no other reason than to promote the adoption of supply chain standards — initially ignored the survey, Grenoble notes, "because they thought we were asking them to fill out yet another benchmarking survey."

Eventually, once Grenoble and fellow Penn State researcher, Dr. Bob Novack, reached the 10% response rate, they were able to identify exactly why companies don't undertake supply chain benchmarking. The number one reason, surprisingly, wasn't time (that finished at number four) — it was a lack of resources. Without enough people (and the right people) to participate in benchmarking activities, and certainly without a sufficient budget, companies' efforts to benchmark are doomed before they even get started.

The number two reason was that internal measures and processes are difficult to define — If you don't know what you want to measure, then how can you ever discern if what you're doing is up to industry standards?

And the third most prevalent deterrent to benchmarking is the difficulty in identifying proper benchmarking partners.

All told, 40% of the companies surveyed have never conducted benchmarking — and this level of ennui is even more alarming when you consider that all of the companies had revenues over $100 million, and nearly half of the respondents (49.3%) work at companies with $1 billion or more in annual sales.

Is it any wonder, then, that so many supply chain initiatives seem doomed before they're even begun?

Let's look at the bright side, though (and yes, there is a bright side). According to Grenoble, nearly 91% of the companies who benchmark use the results to encourage improved performance. Topping the list of improvements were: reduced operating cost, improved customer service and improved employee productivity.

"Benchmarking is the process of identifying, sharing and using knowledge and best practices," explains Joe Walden, principal of the Supply Chain Research Institute, a consulting firm. "It takes admitting that someone else does something better than you, and that you can learn something from them."

The key to benchmarking, Walden points out, is to understand both what and why you're measuring. "If you're not measuring from the standpoint of the customer," he says, "then you're not measuring the right thing."

What are the right things? Walden cites the following metrics as being particularly important to the supply chain: customer order cycle time, dock-tostock, fill rates, personnel turnover, training programs and reverse logistics.

"Benchmarking is not industrial tourism," Walden notes, emphasizing that simply learning what your competitors are doing is only one facet to the process. The goal, he says, is to identify what "world-class" is for your industry, and then to perform a gap analysis. In other words, once you can determine the difference between where you are and where world-class is, then you can take the necessary steps to improve your performance.

It's not necessary to confine your benchmarking to within your own industry, Walden adds. When Southwest Airlines wanted to get better at refueling their planes and getting them back into the air, they didn't study other airlines — they benchmarked themselves against NASCAR drivers and their pitstop proficiency. As a result, today the other airlines are benchmarking themselves against Southwest.

Returning to the Penn State study, when asked for advice on how to help the Supply Chain Council improve the results of their benchmarking efforts, by far the most frequently offered suggestion was: Publicize the results. To that end, we have several articles throughout this issue devoted to the topic of measuring supply chain performance.

As Grenoble freely admits, benchmarking is not easy. But the results are definitely worth the trouble.

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