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SCM and Benchmarking

Shaibin K. R.

School of Management Studies


Cusat, Kochi-22
Email: shaibink.r@gmail.com

Abstract- Organisations are using benchmarking mainly as a strategic tool for continuous
improvement. The SCM benchmarking assessment shows managers where they
currently are in supply chain management maturity and guides them toward the future.
Identifying areas of improvement in a supply chain and making efforts to tackle them is a
continuous process. One of the methods to do this is through a series of benchmarking
tests, which allows the organization to identify those areas and prioritize the effort. These
areas can be productivity, inventory positioning, inventory efficiency, supplier
performance, and supply chain risk.Benchmarking has proven itself as a tool of
management, not belonging to the typical management fads. Well-known both in research
and business practice, employing benchmarking as a means of increasing the
competitiveness goes along with considerable problems and challenges.

1.0 INTRODUCTION
SCM and Benchmarking
The essence of benchmarking is the process of identifying the highest standards of excellence for
products, services, or processes, and then making the improvements necessary to reach those
standards, commonly called best practices. Benchmarking was begun in the late 1970s by Xerox
Corporation. During this time, Xerox was losing market share and feeling a lot of pressure from its
competitors. In an attempt to try and get back into the game, Xerox decided to compare its
operations to those of its competitors. After finding quality standards with which to compare itself,
Xerox began one of the greatest trends in the business world today (McNair and Leibfried, 1992).
Benchmarking has been gaining popularity, especially in the last five years.The process of
benchmarking is more than just a means of gathering data on how well a company performs
against others. Benchmarking can be used in a variety of industries, both services and
manufacturing. It is also a method ofidentifying new ideas and new ways of improving processes
and, therefore, being better able to meet the expectations of customers. The ultimate objective of
benchmarking is process improvement that meets the attributes of customer expectations.Robert
C. Camp headed up the now-famous study at Xerox in which the buzzword benchmarking was
coined in late 1980. When asked whether the best work practices necessarily improve the bottom
line, he replied: the full definition of benchmarking is finding and implementing best practices in our
business, practices that meet customer requirements. So the flywheel on finding the very best, is
Does this meet customer requirements? There is a cost ofquality that exceeds customer
requirements. The basic objective is satisfying the customer, so that is the limiter .
Benchmarking is a standard of measurement where you analyze and compare the cost,
productivity and the whole cycle of process with another called as Benchmarking. Benchmarking
helps your company to take you to the next level, whether you are the top of all or not, you will
receive lot of useful inputs which will make your company on top . Mostly we use the word
Benchmarking in business to compare the standard of another business, we use benchmarking
for high quality standards.Benchmarking is the process whereby an assessment of an act or
performance is measured by some means, whether this is by a measurement of time, value or
quantity. For example, an assessment of moving items from one storage location to another can be
measured by time for a single movement or by quantity if the performance is over a set period. A
benchmarking project will gather the assessments and develop a plan of action to improve the
process that was assessed. The popularity of benchmarking was spearheaded by the Xerox
corporation in the 1980s and is now used in corporations throughout the world.

2.0 Reasons and perceived benefits of benchmarking


Benchmarking is the process by which companies look at the best in the industry and try to
imitate their styles and processes. This helps companies to determine what they could be doing
better. The decision to begin benchmarking is valuable to companies by opening up many different
ideas to processes,approaches, and concerns (Allan, 1997).
2.1Increasing productivity and individual design
Companies are benchmarking for a variety of reasons. The reasons can be broad, such as
increasing productivity, or they can be specific, such as improving an individual design. By simply

looking outside itself, a company can identify breakthroughs in thinking. A similar process used in a
different way can shed light on new opportunities to use the original process.

2.2 Strategic tool


Leapfrogging competition is another reason to use benchmarking as a strategic tool. A companys
competitors may be stuck in the same rut as the company deciding to benchmark. It would be
possible to get a jump on competitors by using new-found strategies. This opens up an opportunity
for growth that the competitors may not be aware of.

2.3 Enhance learning


Another reason to benchmark is overcoming disbelief and enhancing learning. For example, selling
or hearing about another companys processes and how they are working will help employees to
believe that there may be a better way to compete.

2.4 Growth potential


Benchmarking may cause a necessary change in the culture of an organization. After a period of
time in the industry, an organization may become too practised at searching inside the company for
growth. The company would be better off looking outside its walls for potential areas of growth. An
outward looking company tends also to be a future oriented company. This often leads to a more
enhanced organization and increased profits

2.5 Assessment of performance tool


Benchmarking is defined as the process of identifying and learning from best practices anywhere
in the world (Allan, 1997). By identifying the best practices, organizations know where they stand
in relation to other companies. The other companies can be used as evidence of problem areas,
and provide possible solutions for each area. When companies benchmark, they use partners to
share information with and learn from each other. Benchmarking allows organizations to
understand their own administrative operations better, and marks target areas for improvement. It
is an ideal way to learn from other companies who are more successful in certain areas.
Additionally, benchmarking can eliminate waste and help to improve a companys market share .

2.6 Continuous improvement tool


Benchmarking is increasing in popularity as a tool for continuous improvement. Organizations that
faithfully use benchmarking strategies achieve a cost savings of 30 to 40 per cent or more.
Benchmarking establishes methods of measuring each area in terms of units of output as well as
cost. In addition, benchmarking can support the process of budgeting, strategic planning, and
capital planning

3.0 The Benchmarking Process


Benchmarking is a very structured process that consists of several steps to be taken. These steps
are often provided for in a model. It should be noted that even though the process is very
structured, it should not add complexity to a simple idea. Basically, the structure should not get in
the way of the process.Most models of benchmarking process include the following steps,
according to Bateman (1994) .
According to The Nuts and Bolts of Benchmarking, written by Margaret Matters and Anne Evans
(1997), there are five stages included in the benchmarking process which are discussed below:
Planning the exercise: this step involves identifying the strategic intent of the business or process
to be benchmarked. Many times this information can be obtained by looking at the companys
mission statement which summarizes its main purposes. Then selection of the actual processes to
be benchmarked must be chosen. This consists of identifying various products produced by the
benchmarked company

and asking your own company if using this process will create positive results in the organization.
Then the customers expectations must be identified. Finally, the critical success factors have to be
determined in order to benchmark. These factors are links to successful business results.
Form the benchmarking team: the first step is to select overall team members. These members
should be chosen from various areas of the organization. All members should cooperate and
communicate with one another in order to get the best results out of the benchmarking process.
There are three main teams comprising the overall group. The lead team is responsible for
maintaining commitment to the process throughout the organization. The preparation team is
responsible for carrying out detailed analysis, and the visit team must carry out the benchmarking
visit.
Collect the data: this step involves gathering information on best practice companies and their
performances. Before a company identifies best practice companies, they should first identify their
own processes, products, and services. This step will allow a company to fully realize the extent of
improvements available. Site visits are also an important factor in collecting data because they
allow for a more in-depth understanding of the processes.

Fig .1. Benchmarking Process

Analyze data for gaps: this step involves determining how your company relates to the
benchmarked company. It allows identification of performance gaps and their possible causes.
Take action: this step involves determining what needs to be done in order to match the best
practice for the process. Not only should determination of changes be made, but they also should
be implemented.
Different companies have their own benchmarking methods, but no matter which method is used,
the major steps involved are as follows: first, measure the performance of the best-in-class relative
to critical performance variables such as cost, productivity, and quality; second, determine how the
levels of performance are achieved; and third, use the information to develop and implement a plan
for improvement.

4.0 Types of Benchmarking


The most obvious and simple form of benchmarking is to buy your competitors product or service.
Many companies have used this technique, also known as reverse engineering, in design and
manufacturing where they strip down the competitors product to examine the design,
manufacturing methods, sources of component supply and other relevant factors. However, Xerox
is usually credited as being the first to see the real potential for benchmarking. They started in 1979
by stripping down products but went on to experiment with the concept in other areas. There are
now several different ways to carry out benchmarking comparisons
Internal benchmarking: This is where operations within one company are compared. For
instance, in a large group several strategic business units (SBUs) might make similar products or
use similar processes. Benchmarking of performance between country operations in multinational
companies is also an example of this.
Competitive benchmarking: The next step might involve going outside the company to direct
competitors. There are many aspects of supply chain performance which can be usefully
benchmarked in this way. Access to appropriate data can be a problem between direct competitors
but there are ways of overcoming this obstacle.
Functional benchmarking: Comparisons are still made within the same broad industry using
similar functions. The classic example of this involves printed circuit board (PCB) assembly. Many
industries assemble PCBs, so rather than making a comparison with a direct competitor, a
company in another market (or making a different product but with the same technology) is chosen.
Naturally, non-competitors are more likely to be a fertile source of useful information.
Generic benchmarking: Here comparisons are made with totally unrelated industries. For
instance, it is said that the founder of just-in-time (JIT), Taitchi Ohno of Toyota, based his thinking
on supermarket operations in the USA.The relatively low levels of stock in these operations
provided the foundation for the JIT pull system.
Through benchmarking, a company is continually looking for new ideas, methods, practices and
processes which can be adapted to suit the company.
The basic philosophy involves the following stages:
(i) Identify what? This involves identifying the critical success factors (CSFs) which the
benchmarking exercise will focus on.
(ii) Identify who? This is concerned with deciding on the form of benchmarking to be used (e.g.
internal, competitive, etc.) and on the SBU, company or companies to work with.
(iii) Plan how? This stage involves planning the detail of the exercise. Ensuring that the required
data is collected efficiently is a key consideration.
(iv) Analyse: At this stage the data collected is analysed with specific reference to the identification
of appropriate supply chain best practices and benchmarks.

(v) Use: This is when the information generated is actually used to develop new and innovative
practices. It must be emphasised that, as all companies are unique, it is imperative that the
appropriateness and applicability of any practice to ones specific operation is considered in detail.
Benchmarking is not about copying other companys approaches; rather it is about learning and
adapting appropriate practices so that they can be usefully adopted in an effort to improve
efficiency and/or effectiveness

4.1 Internal Benchmarking.


The internal benchmarking allows a company with a number of facilities that operate the same
supply chain processes to compare and contrast the ways in which the process is performed in
those facilities.For example,if a company operates five distribution centers in the US and Canada,
the benchmarking process can examine a number of operations that take place at each of the
distribution centers and compare how they are performed and what improvements can be made by
comparing the results of the benchmarking. If a company benchmarks the processes around
inventory accuracy, shipping accuracy and storage density, the results of the assessments of the
facilities can help a company to improve on those processes at all of the facilities.
Here are six simple steps to start an internal benchmarking process
1) Identify the process to benchmark. For example, production, warehouse management, receiving,
shipping, or quality controls.
2) Managers of the process identified in step one agree to a set of key performance indicators
(KPI) such as changeover time , receiving time standard deviation, shipping accuracy, average
lead time for quality test, or fill rate. In this step, managers also need to agree to a standard way to
calculate the KPIs to avoid confusion down the road.
3) Collect the KPIs agreed to in step two and compare the results.
4) Organize a collaborated effort to understand the reason why one process is better than the other
based on the results from step three. In many cases, a manager from one of the processes will visit
the other process with the goal of discovering a better way to do things.
5) Prioritize the findings and turn them into improvement projects to adopting the best practices.
6) Execute the project and realize the results.
While the benchmarking steps above will yield some improvement, the major improvement can be
found when you benchmark your current process against the theoretical optimum. By developing
an end-to-end supply chain optimization model, you will be able to identify the efficient frontier and
benchmark your current position relative to it. In practice, the results from benchmarking using
theoretical optimum on average reduce total inventory by 25% to 40%.

4.2 External Benchmarking


In external benchmarking, one can compare the strategic KPIs such as inventory turnover,
revenue, profit, or any other industrial specific KPIs. Companies that do not have supply chain
processes that are as good as their competitors naturally want to know the reasons behind it.
Unlike internal benchmarking, your competitor is unlikely to share their wisdom on how to improve
inventory turnover, reduce total landed cost, or any other industry specific KPI.In this case, the best
approach is to employ research and consulting firms to perform performance studies to know what
you are doing wrong (or what the competitors are doing right). This lets the company identify the
areas of weakness and it can then work at coming up with a plan to improve the situation.For
companies that have performed internal benchmarking and want to investigate new ways in which
to improve performance of their internal processes, external benchmarking can produce significant
improvements. Many companies believe that their processes are as efficient as possible, but quite
often, the efficiencies are limited by the knowledge within the company. The external benchmarking
process takes a company outside of its own industry and exposes them to different methods and
procedures. For example, a manufacturer and distributor of electrical components have internally
benchmarked their warehouses for a number of years and have exhausted ideas on improving
efficiencies. They approached a very successful retail company to visit their central warehouse and
benchmark the processes that occur there to compare to their own warehouse processes. The
external benchmarking allowed the manufacturer of the electrical components to assess the
processes seen in the retailers warehouse and develop an improvement plan for their own facilities
based on the results.

4.3 Competitive Benchmarking


For companies that are not performing as well as their competitors they may want to identify the
reasons why their processes are not as efficient. Consulting and research firms can perform
competitive benchmarking studies for companies that will identify the strengths and weaknesses of
their processes based on those of their competitors. The company can then produce improvement
plans based on the results of the competitive benchmarking.

5.0 Components of Benchmarking


There are a number of components to a benchmarking study. Not every benchmarking project will
incorporate these components, but a combination of these can be used.Financial benchmarking
involves a financial analysis of the operations that are assessed. For example, a company can
compare the cost of storing a component in each of its warehouses.Performance benchmarking
can compare the efficiency of performing a task in one company location to another, or to a
competitors. Product benchmarking method compares the product of one company against
another, or comparing between facilities in the same company.Strategic benchmarking method
observes how other companies compete. This can be within the same industry or outside of the
companies industry.Functional benchmarking is considered to be traditional benchmarking where a

company will benchmark a single process at a location or a number of locations to identify where
efficiencies can be made.

6.0 Benefits of benchmarking for an organisation


Benchmarking is the process of studying industry or competitive practices, functions and
products and finding ways to meet or improve upon them. Companies from all different industries
use benchmarking to gauge their successes and pinpoint their shortcomings. The general process
of benchmarking involves identifying problem areas, selecting top competitors who excel where a
company falls short and making the necessary changes. There are several key advantages to
using benchmarking in an organization.

6.1 Lowering Labor Costs


One advantage of benchmarking may be lower labor costs. For example, a small
manufacturing company may study how a top competitor uses robots for several basic plant
functions. These robots may help the competitor save a significant amount of money on labor
costs. Company managers may obtain information on these robotics systems through the
competitor's website or online articles. They may also identify the company that sold the competitor
the robots. Subsequently, the company using benchmarking may call the robot manufacturer to

help set up its own system.


6.2 Improving Product Quality
Companies may also use benchmarking to improve product quality. Engineers sometimes
purchase leading competitors' products. They may then take them apart, study them and determine
how the competitors' products outlast or outperform others in the industry. Chemical engineers may
study food or cleaning products in a similar manner. They can then compare various elements
contained in competitive products to their own product line. Subsequently, improvements can be
made to product quality.

6.3 Increasing Sales and Profits


A company that uses benchmarking to improve its functions, operations, products and services
may enjoy increases in sales and profits. Customers are likely to notice these improvements. The
benchmarking company may also promote is improvements through company brochures, its sales
reps, magazine and television ads. These efforts are likely to increase sales, especially among
core customers. Companies that operate more efficiently due to benchmarking can drastically lower
their expenses. These savings can be lead to greater profits.

6.4 Considerations
Some organizations use internal benchmarking to improve performance in different
departments. Department managers may study and emulate the best practices of one particular
department. These changes may spark improvements among all departments. Internal
benchmarking has its limitations, however. The company's top department may not be functioning
as efficiently as others in the industry. This means the other departments were not truly
benchmarking against the best departments out there.Benchmarking at its best is used as a tool to
help companies evaluate and prioritize improvement opportunities. Benchmarking can be as
comprehensive or as simple as a business requires and can draw on many tools and systems. The
insights it provides into a business are invaluable, especially in the competitive franchising arena.

Benchmarking allows a true insight into the state of your business and a clearer understanding of
where it could improve. Benchmarking has become a popular adopted procedure and is used to
gain competitive advantage. Over time the procedures used to benchmark have been improved
and modified. Many companies are becoming interested in benchmarking for the continuous
improvement it allows. Benchmarking is growing in appeal to organizations due to the cost savings
achieved in executing operations. It also supports the organizations budgeting, strategic planning,
and capital planning.
Benchmarking is a structured process consisting of several steps. When implementing the steps of
the process, a company must be aware of ethical and legal issues. These issues serve as
guidelines for both benchmarking partners to ensure mutual achievement of objectives. As
benchmarking continues to grow in popularity, the process is evolving in new and improved
directions. Benchmarking can aid any company into success just as long as it is applied correctly.
Benchmarking makes it easy to identify the gap between where the organization would like to be
and where it actually is. This gap provides a measure of the improvement an organization would
like to make . In the short run, avoiding this gap and refusing to change will decrease the
opportunities for survival in the long run. It is an excellent tool because it involves everyone,
including the management and the workers. The kind of benchmark a company should undertake is
dependent on the companys characteristics and circumstances . It is up to the top management
whether they prefer to benchmark focusing on diverse internal functions, competitors, industry
performance, or best-in-class targets.
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