you can learn something from them.” According to Walden, the key to benchmarking is understanding what you're measuring as well as why you're measuring it. “If you're not measuring from the standpoint of the customer,” he says, “then you're not measuring the right things.”
The right things, Walden explains, include customer order cycle time, dock-to-stock time, fill rates, personnel turnover, training programs, and reverse logistics. “Benchmarking is not industrial tourism,” he says, noting that if your sole motivation is to learn what your competitors are up to, you're missing the whole point. Benchmarking should be used to identify how your industry defines best-in-class, and then to perform a gap analysis. Once you're able to determine the difference (i.e., gap) between where you are and where best-in-class is, then you can take the necessary steps to improve your performance.12
Setting Your Sights High
Although companies typically benchmark themselves against competitors or at least similar companies within their industry, sometimes it's possible to gain that competitive advantage Tompkins mentioned by looking completely outside the usual suspects. ConAgra Mills, for instance, one of the largest grain producers in North America, looked well beyond the agricultural industry to improve its customer service by studying the airline industry.
When he was promoted to president of ConAgra Mills in 2010, Bill Stoufer's background included stints managing the company's transportation and logistics, sales, and supply chain operations. So being well versed in best practices within various departments of his own company, he found a way to better maximize production capacity by looking completely outside of process manufacturing.
As Stoufer (who has since retired) notes, agriculture and air transportation aren't necessarily completely dissimilar. “If a plane leaves with empty seats, they miss the opportunity to maximize their business. It's the same within the milling business.” ConAgra's “empty seats” problem was that some of its flour-producing plants were operating at capacity, while others were not. Since both industries share the same goal—minimizing unused capacity without overcommitting resources—ConAgra turned to an airline best practice of using analytics to predict future market conditions. The solution has allowed the company to focus on producing its most profitable products, and has increased capacity utilization by 3% to 5%.13
Predictive analytics can also pay off while benchmarking transportation. As Kevin Zweier, vice president of transportation with supply chain consulting firm Chainalytics, explains, “Benchmarks that are modeled in a predictive software platform allow [companies] to assess the difference between transportation rates they are paying, on a lane-by-lane level, against the overall market's rates for the same lanes.” Having access to freight market intelligence, which offers companies deeper insights into the freight transportation markets, allows companies to operate more effectively by ensuring their products “are moving at the best rate for the desired service level.” These model-based benchmarks, Zweier points out, give supply chain and transportation managers key information that can help them negotiate better rates when going to bid.14 (See Chapter 4 for more discussion of freight market intelligence.)
Supply Chain Checkup
How do you know that you need help in the first place, though? Benchmark studies and process maps are both expensive and time-consuming, and many companies whose earnings put them well outside of the Fortune 500 realize that their supply chains aren't all they ought to be, but they are still hesitant as to what to do about it. Consultant Mike Donovan of R. Michael Donovan & Company offers a relatively short but challenging checklist that provides a basic assessment of how healthy your supply chain might be. If you answer “no” to any of the following questions, or even worse, if you don't even know the answers to some of these questions, then the time to get serious about fixing your supply chain problems is right now:
1 Do your order fill rates meet management's specific and measured customer service strategy?
2 Are your delivery lead times competitive and predictable?
3 Do all of your supply chain departments agree on which products are made-to-stock and which are made-to-order?
4 Do sales and manufacturing share equally in determining the mix and investment in inventory?
5 Are the appropriate calculations being used, rather than “rules of thumb,” to establish the desired mix and levels?
6 Are management's inventory investment plan and customer service objectives being compared against the actual results that are achieved?
7 Are short-term forecast deviations being monitored and adjusted, and is long-term forecast accuracy continuously improving?
8 Is your inventory accuracy consistently above 98%?
9 Are you able to avoid carrying excess safety stock buffers?
10 Are your excess and obsolete inventories being measured, and are they less than 1% of total inventory?15
Learn the SCOR
The best-known and most detailed supply chain performance metrics are encompassed in the Supply Chain Operations Reference (SCOR) model, which was created in 1995 and has been continuously refined ever since by APICS' Supply Chain Council. The SCOR model provides an industry-standard approach to analyze, design, and implement changes to improve performance throughout six integrated supply chain processes—plan, source, make, deliver, return, and enable—spanning the full gamut from a supplier's supplier to a customer's customer and every point in between. The SCOR model is aligned with a company's operational strategy, material, workflows, and information flows.
As explained by Peter Bolstorff and Robert Rosenbaum in Supply Chain Excellence, a handbook on using the SCOR model, the six SCOR processes encompass the following measurable activities:
1 Plan: Assess supply resources; aggregate and prioritize demand requirements; plan inventory for distribution, production, and material requirements; and plan rough-cut capacity for all products and all channels.
2 Source: Obtain, receive, inspect, hold, issue, and authorize payment for raw materials and purchased finished goods.
3 Make: Request and receive material; manufacture and test product; package, hold, and/or release product.
4 Deliver: Execute order management processes; generate quotations; configure product; create and maintain a customer database; maintain a product/price database; manage accounts receivable, credits, collections, and invoicing; execute warehouse processes, including pick, pack, and configure; create customer-specific packaging/labeling; consolidate orders; ship products; manage transportation processes and import/export; and verify performance.
5 Return: Defective, warranty, and excess return processing, including authorization, scheduling, inspection, transfer, warranty administration, receiving and verifying defective products, disposition, and replacement.
6 Enable: Manage all supply chain processes and activities, including business rules, data and information, assets, contracts, human resources, regulatory compliance, procurement, risk, and technology.
The SCOR model provides a supply chain scorecard (or SCORcard, if you will) that companies can use to set and manage supply chain performance targets across their organization. Given the attention and scrutiny Wall Street applies to the supply chain's impact on a company's financial performance, being able to measure exactly how well each process is doing is one of the key steps on the road to developing a best-in-class supply chain. Therefore, one of the main roles of the SCOR model is to provide a consistent set of metrics a company can use to