In Charles Koch’s book "Good Profit," the concept of benchmarking is highlighted as a crucial tool for achieving sustainable success. For supply chain leaders, benchmarking offers a systematic approach to measuring and improving performance by comparing practices and metrics against industry standards or best practices. This post explores why benchmarking is essential for supply chain leaders and outlines the different types of benchmarking, along with their applications.
Why Supply Chain Leaders Should Care About Benchmarking
Benchmarking is not just a buzzword; it’s a powerful method for driving continuous improvement and operational excellence. Here’s why supply chain leaders should prioritize benchmarking:
Performance Measurement: Benchmarking provides a clear picture of your organization’s performance relative to competitors and industry standards. This helps identify strengths and areas for improvement. He describes 4 reasons and applications for benchmarking and I summarize them here:
Competitive Advantage: By understanding where you stand in comparison to others, you can develop strategies to outperform competitors and enhance your market position.
Process Optimization: Benchmarking uncovers best practices (now many call this “leading practices” ) that can be adopted to optimize supply chain processes, leading to increased efficiency and cost savings.
Innovation: Exposure to new ideas and methods through benchmarking can inspire innovation and foster a culture of continuous improvement.
Goal Setting: Benchmarking sets a baseline for performance and helps in setting realistic, achievable goals based on industry standards.
Types of Benchmarking and Their Applications
Understanding the different types of benchmarking is crucial for applying this tool effectively. Here are the main types of benchmarking and why you should use them:
Internal Benchmarking
Application: Compare processes and performance metrics within different departments or divisions of your organization.
Why Use It: Identifies best practices within your own company and fosters internal knowledge sharing and improvement.
Competitive Benchmarking
Application: Compare your organization’s performance against direct competitors.
Why Use It: Provides insights into your competitive position and highlights areas where you can gain an edge over rivals.
Functional Benchmarking
Application: Compare specific functions or processes (e.g., logistics, procurement) against those of industry leaders, regardless of their industry.
Why Use It: Helps identify best practices in specific functions that can be adapted to your own processes for improvement.
Generic Benchmarking
Application: Compare your business processes against best practices from any industry.
Why Use It: Encourages out-of-the-box thinking and the adoption of innovative practices that might not be evident within your industry.
Strategic Benchmarking
Application: Focus on long-term strategies and approaches rather than specific processes.
Why Use It: Assists in understanding strategic moves that have led to superior performance and guides long-term planning and decision-making.
Conclusion
Benchmarking, as discussed in David Koch’s "Good Profit," is an indispensable tool for supply chain leaders aiming to achieve operational excellence and strategic advantage. By systematically comparing your organization’s performance with that of others, you can uncover valuable insights, drive continuous improvement, and set realistic goals. Whether through internal comparisons or adopting best practices from industry leaders, benchmarking helps supply chain leaders optimize processes, innovate, and stay competitive in an ever-evolving landscape.
Incorporating benchmarking into your supply chain strategy not only aligns with the pursuit of good profit but also ensures that your organization is continually evolving and improving, staying ahead in a competitive market.
There is one danger to avoid when benchmarking. Many organizations will see every individual element as a stand alone process and that is hardly ever the case. You cannot pull just one thing out of a very complex and integrated system, install it in your very different integrated and complex system and think you will get the same result. You have to be very thoughtful when you decide to apply one element of your learning without understanding the entire support structure and culture that supports that learning.
Example I hear often: Amazon and their technology.
An example I hear often in the supply chain world is, "Why can't everyone deliver like Amazon"? Companies benchmark and then start implementing pieces of Amazon's structure without looking at the entire picture. So, think of this:
- Does Amazon have amazing, self evident technology that gives you answers instantly? - YES. But, does Amazon have a full sales force blanketing the US and visiting customers every day - NO.
Amazon has chosen to invest huge dollars in infrastructure and technology and little to none (relatively speaking) in a "boots on the ground" sales force. Trade offs are almost always being made and when you benchmark, you have to understand the tradeoffs you are making.
