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Measuring Up: Is Supply Chain Benchmarking Worth the Effort?

Deloitte Debates

Benchmarking can provide deep supply chain insights and help leaders identify performance gaps and improvement opportunities. But is it really worth doing?

Supply chain benchmarking is kind of like going to the doctor for a check up. Although everyone knows they should do it, most don’t bother unless they think there’s a problem. And even then, they may not be sure they really want to know the truth about how things are going.

When done right, benchmarking can provide deep insights about a company’s supply chain performance and help leaders identify performance gaps and improvement opportunities. But it requires some time and effort. Is it really worth doing? Or should companies focus their limited resources elsewhere? Here’s the debate that supply chain executives and business leaders are wrestling with:

  Point Counterpoint

Just do it.

“No more guess-work. Let’s see how we really stack up.”

A business strategy only works when the supply chain supports it. Benchmarking can tell us if our supply chain capabilities fit our strategy. Managing a supply chain is both art and science. Benchmark data is no substitute for experience and intuition.
We’ll see how our operations compare to our competitors—and where we need to improve. Where else can you get insight like this? Shouldn’t we strive for supply chain capabilities that are world-class across the board? We don’t need a study to tell us what to focus on.
Cold, hard facts will help put a stop to the finger-pointing and endless debate. Then we can focus on taking action. Our supply chain managers may still get defensive about their performance. Benchmarking is useful, but it needs to be part of a larger improvement effort.
  Point Counterpoint

Thanks, but no thanks.

“Our metrics are good enough. We have bigger fish to fry.”

Sure, it’s a nice idea, but we don’t have the time or resources to do it. With the right tools and knowledge, collecting benchmark data takes less than a week. And the next year, it’s even easier.
Been there; done that. I have a 10-pound report from a study we conducted three years ago that’s collecting dust. The real value comes from analysis and strategic thinking—not the raw data. If all you have is a report, you didn’t get your money’s worth.
Our business and supply chain are unique, so meaningful benchmarking is impossible. Although high-level metrics might not be comparable, detailed supply chain benchmarks can be calibrated to address the nuances of your specific business’s supply chain.

Our Take

Scott SopherRichard RothScott Sopher, Principal, Manufacturing Operations Service Line Leader, Deloitte Consulting LLP
Richard T. Roth, Principal, Deloitte Consulting LLP; Leader, Global Benchmarking Center, Deloitte LLP

Today’s supply chain executives face unprecedented challenges and complexity. Increased globalization. Rapidly shifting markets. Customer demands for speed and flexibility. And, of course, never-ending cost pressure. In this demanding environment, companies should find ways to improve their supply chain capabilities and use their supply chain as a strategic weapon. Yet the right approach varies from one business to the next.

In our experience, many companies are unknowingly suffering from a critical disconnect between their supply chain capabilities and business strategy. For example, a business owned by a private equity firm might need to maximize cash flow and asset efficiency, but its supply chain might be designed for revenue growth. Conversely, a company that is aggressively positioning itself for rapid growth might find itself saddled with a supply chain designed to minimize costs or maximize asset efficiency at the expense of flexibility. Supply chain benchmarking can help you identify and close the gap between your business strategy and supply chain capabilities. It is also a highly effective way to identify performance problems and generate new ideas for improvement.

Here are a few leading practices to keep in mind when benchmarking your supply chain.

  • Don’t settle for generic, high-level benchmarks. Effective supply chain benchmarking requires detailed data and metrics that cover the core activities in every phase of the supply chain: strategy, plan, source, make and deliver. These detailed metrics are needed to get the deep insights your business needs. They also enable valid comparisons between different types of businesses because they focus on supply chain fundamentals at the product, market, or even process level.
  • Collect data based on how your business is organized. For example, if your business is primarily organized around geographies, then that’s how the benchmark data should be collected. This approach can improve accountability and make the findings more meaningful and actionable.
  • Get support from the top. Supply chain benchmarking can deliver far-reaching insights that affect your entire enterprise. To overcome defensiveness and organizational inertia, you need strong and visible support from senior leadership. Without that kind of deep commitment, you could be wasting your time.
  • Make supply chain benchmarking a standard operating practice. In today’s fast-paced business world, change is the only constant. What constitutes world-class performance today could be table stakes tomorrow. Don’t think of benchmarking as a one-time event, but as an annual health check.
  • Consider benchmarking as a starting point, not an end result. Collecting and analyzing the benchmark data is just a means to an end. The real value comes from discussing the results across business functions, generating hypotheses and working together to figure out how to improve.

In our view, every company needs to understand how its supply chain measures up to other companies in its industry and to top performers in other sectors. Ignorance might be bliss, but it’s no way to run a supply chain.

A view from the Life Sciences sector

Joe Slota, Director, Deloitte Consulting LLP

Health care reform is a real game changer for companies in the life sciences industry. In the future, pressures on the supply chain to respond faster and cut costs will only intensify. That’s where benchmarking your company against industry leaders can make a real difference – as long as you’re comparing apples to apples. For example, an orthopedic company’s inventory levels are very different from inventories held by a medical device company delivering a retail product. For results to be meaningful, the comparative base must be aligned with your company’s products, markets and processes.

But it’s not just about the numbers – it’s also about thinking. Companies that get the most value from benchmarking dedicate a full day to a playback meeting where they study and interpret the findings. This discussion among leaders from supply chain, human resources and finance may well be the most important part of the benchmarking process. And since companies often learn that their supply chain and business strategy don’t match up, it’s important to invite the commercial planning folks to the table as well.

During a well-run meeting, everyone works together to determine how the supply chain can lift revenue, contribute to operating margin and improve asset efficiency. Yes, it’s important to get the numbers right, but that’s only half the battle. Most of the value comes from the thinking, discussions and strategies that follow.

A view from the Consumer Products sector

Adam Mussomeli, Principal, Deloitte Consulting LLP

Consumer products companies never sit still. Intense competition requires constant innovation, lower costs, improved service and high quality. Of course, none of this is new. What is new is the surge in food and product safety issues – and recalls – over the past two years. What’s behind this alarming trend? Globalization is one key factor. When raw materials are sourced from around the world, it’s hard to keep tabs on quality.

Benchmarking can help you pinpoint potential problem areas before they become a crisis. For example, one consumer products company learned that their procurement managers were responsible for raw materials contracts with dollar amounts that were four times higher than their peers at competing companies. These levels might have been appropriate when materials were purchased from a local, well-known supplier, but as their supply chain extended overseas, closer oversight was needed. The benchmark study gave leadership insight into how their competitors stayed on top of quality.

Benchmarking is not the end-all solution to supply chain problems. But it allows you to see your company from the outside in. Done right, benchmarking can allow you to make more effective decisions. Target new opportunities. Set priorities. Uncover solutions. And deliver results. Who can argue with that?

Related Content:

Library: Deloitte Debates
Services: Consulting, Strategy & Operations 
Industries: Consumer Products and Life Sciences

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