Benchmarking

BBA IVth Sem

Veeresh Tripathi, Assistant Professor, SMS - Varanasi
 Benchmarking
❖Benchmarking is the process of continuously measuring and comparing one’s business
performance against comparable processes in leading organizations to obtain
information that will help the organization identify and implement improvements.

(Benson, 1998)

❖The continuous process of measuring our products, services and business practices
against the toughest competitors and those companies recognized as industry leaders.

(Xerox definition of benchmarking)

 Benchmarking Supply Chain Performance
❖Benchmarking is the practice of being humble enough to admit that someone
else is better at something, and being wise enough to learn how to match them
and even surpass them at it.
❖This definition captures the essence of benchmarking, namely learning from
others. The core of the current interpretation of benchmarking is as follows:
❖Measurement of own and the benchmarking partners’ performance level, both for
comparison and for registering improvements.
❖Comparison of performance levels, processes, practices and so on.
❖Learning from the benchmarking partners to introduce improvements in your own
organization.
❖Improvement, which is the ultimate objective of any benchmarking study.
 Scope of Supply Chain Benchmarking
❖Supply chain performance and process benchmarking provide useful
comparisons with other companies. In addition, it can also help organizations to
identify the following areas:
❖Performance improvements
❖Interdependencies and relationships between KPIs
❖Better business trade-offs
❖Opportunities for cross-industry best practices
❖Baseline information for goal setting, prioritization and ongoing performance
measurements
 Reasons
for
benchmarking

Source: Camp (1989)

 Processes That Need to Be Followed for an Effective
Benchmarking
❖Determine the scope of the benchmarking exercise covering planning, procurement,
manufacturing and logistics
❖Decide on a set of KPIs under each identified areas for measurement and comparison
❖Zero in on the companies to be benchmarked which can be immediate competitors, best in
class and best performers in the category
❖Develop reporting templates and formats and frequency of measurement
❖Work out a plan of implementation and action
❖Identify resources required and data collection plan
❖Ensure agreements and involvement of stakeholders on its objective, process and benefits
❖Collect and validate the data
❖Analyse and interpret data collected
❖Compare with companies’ own performance and identify the reasons thereof to plan for the
future.
 Key steps to benchmarking
❖Step 1: Senior management commitment
❖Step 2: Set objectives
❖Step 3: Choose benchmarking partners
❖Step 4: Choose a mixed-discipline team
❖Step 5: Getting acquainted with your partner
❖Step 6: Exchange of information
❖Step 7: Analysis, interpretation and implementation
❖Step 8: Continuing the process
 Key steps to benchmarking
❖Step 1: Senior management commitment - As with any major project, senior
management commitment to the exercise must be secured at the outset. This is
necessary not only to ensure that resources are made available for the project but
also because any potential improvements identified by the benchmarking team will
need senior management support to progress them satisfactorily.

❖Step 2: Set objectives - Clear objectives need to be set for the project. It is a mistake
to attempt to do too much too soon. It is much easier to identify a specific process
or activity and concentrate on this one area before moving to the next one.
Therefore, a list should be prepared of specific processes and performance criteria
that the company wishes to benchmark in order of their importance and value.
 Key steps to benchmarking
❖ Step 3: Choose benchmarking partners - The next stage involves deciding whom to benchmark against. There are several
options.
❖ Internal departments or divisions: this is the easiest form of benchmarking to conduct, as the information should be
readily available and accurate. Different divisions in the same organization may be compared easily. The problem with
this approach is that if performance is generally poor in the company then any benchmarking project is unlikely to
improve competitive performance.
❖ Industry benchmarking: it may seem unlikely that a competitor would wish to engage in an exercise that might lead to
a loss of competitive advantage, but some organizations are very open with their information so it is possible. The
desire of many companies is to be the best-in-class or world-class for their industry and they often join benchmarking
clubs to pursue this end. Companies who already engage in benchmarking activities should make good benchmarking
partners.
❖ Non-competitive benchmarking: this type of benchmarking involves benchmarking against other companies in
different industries. This has the advantage of excluding market competition from the process of comparison, but it
may make it more difficult to identify specific areas of comparison between different industries. However, what they
may have in common is processes such as purchasing or supplier appraisal. In addition, many logistics activities such as
warehousing, inventory management and transport will also be in common despite the difference in goods handled.
 Key steps to benchmarking
❖ Step 4: Choose a mixed-discipline team - Having decided on objectives and benchmarking
partners, it is necessary to identify what disciplines are required in the team. Clearly, one member
of the team should be intimately acquainted with the process to be benchmarked. Other useful
disciplines might include an accountant for financial information and an information systems
expert, if that is appropriate.
❖ Step 5: Getting acquainted with your partner - It is highly likely that a number of visits and
meetings will be required as requests for information from both sides are processed after each
round of meetings. Early meetings are likely to include tours of facilities. In some cases,
confidentiality agreements are exchanged between the participating companies.
❖ Step 6: Exchange of information - Information is unlikely to be forthcoming from the
benchmarking partner in a format that matches the company format. Time will have to be spent
configuring and sifting the information from both sides to allow meaningful comparisons to take
place. Mapping out the steps in a process by producing a process flow diagram is also very useful.
 Key steps to benchmarking
❖Step 7: Analysis, interpretation and implementation – It focused on ‘Benchmarking
distribution operations’, a more detailed guide to analysing and interpreting
benchmarking data. This is logistics specific.
❖Step 8: Continuing the process - Really effective benchmarking becomes a continuous
activity and not just a one-off exercise. There are several ways of continuing the process:
❖Allocate staff on a permanent basis to engage in continuous benchmarking activities.
❖Identify long-term benchmarking partners. Perhaps, join a benchmarking club (see
‘Formal benchmarking systems’ section). There is also a benchmarking exchange
website on the internet.
❖Use benchmarking as part of a continuous improvement culture.
❖Use industry-specific trade association figures; for example, the UK Freight Transport
Association produces The Manager’s Guide to Distribution Costs every year
 Formal benchmarking systems
❖ Quality function deployment (QFD): this benchmarking approach was developed in Japan. It
takes the customer’s requirements as the starting point and aims to improve performance
by converting customers’ perceptions of suppliers’ performance into an improvement
agenda.
❖ ISO 9004-2009: as part of the ISO 9000 series of quality management frameworks, ISO
9004-2009 provides a framework of constant comparison for any type of business.
❖ The Malcolm Baldridge National Quality Award benchmarking framework: this is an award
for quality awareness started in 1985 in the United States by the American Productivity and
Quality Center (APQC). It is enshrined in law and constitutes the only official recognition of
outstanding performance by companies in the United States.
❖ The CILT (UK) Logmark Supply Chain Benchmarking Group: members complete an online
survey that covers a broad spectrum of areas from inventory to the environment and
transport to customer service. Each member receives a tailored report and holds meetings
on a quarterly basis.
 Supply Chain Performance Metrics
for Benchmarking
❖service levels required (and achieved!)
❖lead time
❖stock availability
❖minimum delivery/order size policy
❖order and delivery frequency
Distribution audit: general approach
 Distribution audit: general approach
1. Identify major elements. These are the major activity centres that best represent the flow of product
through a distribution centre.
2. Identify important categorizations. These should consist of any major categories that are
fundamental to the operations under review. For grocery distribution, this typically means different
product categorizations – chilled, ambient, fresh, etc.
3. Identify resources, costs and activity measures. All resources and their associated costs need to be
included. A classic breakdown covers buildings, building services, equipment and labour. In addition,
some key activity measures need to be made. These are likely to include throughput in an
appropriate unit of measurement. Examples may include: receipts in outer storage in pallets, picking
in line items, the number of orders, the number of picking list, the number of lines per picking list,
etc.
4. Collect and collate data. This is ideally undertaken using a spreadsheet format. This shows the main
activities across the top of the spreadsheet and the main cost elements along the side of the
spreadsheet.
 Distribution audit: general approach
5. Determine allocation rules. This is an important aspect of the process. A typical
example might be how to allocate main storage costs across a number of different
product groups where products are randomly located. Most rules will follow a logical,
common-sense approach – in this example, allocate main storage on the basis of the
number of pallets stored per different product group.
6. Allocate resources and their costs to centres and categories. Use the allocation rules.
7. Derive comparative cost and performance indices. Many of these will be common to
most DC operations (cases picked per hour, etc); others may be particular to one type
of operation (units returned and reprocessed in a mail order depot, etc).
8. Derive relevant secondary factors. These are the elements of the logistics
‘environment’ that might help to explain the main results. For example, some products
may be of non-standard size and require special handling.
 Distribution Benchmarking
❖Single task benchmarking: covering single distribution activities such as goods
inwards, order assembly, etc.
❖Function-wide benchmarking: where all the tasks in a distribution function are
reviewed with an aim to improving overall performance. For example, this might
include all the processes from goods receipt to vehicle loading in a given distribution
centre.
❖Management process benchmarking: covering broader cross-functional issues such
as quality, information systems, payment systems, etc.
❖Total operation (logistics) benchmarking: where the complete logistics chain is
reassessed, from procurement and supply through to end-user delivery.
 Improving Performance
❖The ultimate aim of benchmarking is to incorporate the best practices within the
company to improve performance and to become more competitive in the marketplace.
That is how a company can ensure its survival and growth.

❖The analysis of the data collected to create a meaningful and actionable process
improvements plan holds the key. This needs great care.

❖The best practices can be captured from benchmarking exercises from various partners
and then an agreed practice and process can be prepared for implementation
considering the other constraints and limitations that a specific business can have.
 Some Common Misconceptions in
Benchmarking
❖Participating in an industry survey covering a category of industry on the basis of
certain parameters is not benchmarking. This is too general and does not give any
actionable standards of performance, and they are too broad.
❖Businesses should also be careful about undertaking some action plan based on
pre-existing benchmark. A narrow focus on cost parameters overlooking the
customer service delivery and satisfaction will only serve as part of the story.
❖Benchmarking too many companies at the same time should be avoided as it will
only complicate the whole exercise and diffuse the focus.
❖Not aligning the business goals with benchmarking criteria will also not be
effective and meaningful.
❖After all, the ultimate goal is to improve end-to-end performance of the business.
 Major Problems and Potential Pitfalls
❖ Data availability. It will always be necessary to compromise. The data required will never be available in
their entirety. This is especially so where several companies are involved.
❖ Sampling. It is likely that some sampling will be required. Care must be taken to ensure that sample sizes
are sufficient and that samples are adequately representative.
❖ Data consistency. Again, especially where cross-company analysis is to be undertaken, care must be taken
that allocation rules and procedures are common. Most companies have different accounting practices, so
there is ample opportunity for error due to inconsistent classification. It is likely that a uniform or
generalized allocation procedure will need to be designed and used.
❖ Appropriate categories and groups. Any categorization needs to be relevant for all participating companies.
An example might be where different companies have different product groups or unit load devices.
❖ Time periods. Clearly, these need to be common for all distribution centres. Any sales cycles, seasonality
and so on need to be taken into account.
❖ Units of measure. These may differ from one company to another, and will be especially important when
drawing comparisons across industry sectors.
 References:
1) Vinod V. Sople : Supply Chain Management – Text & Cases (Pearson-2012).

2) Sunil Chopra, Peter Meindl & Dharam Vir Kalra : Supply Chain Management
- Strategy, Planning, and Operation (Pearson-2022).

3) Rushton, Alan., Croucher, Phil. & Baker, Peter –The Handbook of Logistics
and Distribution Management (Kogan Page-2017).

Veeresh Tripathi, Assistant Professor, SMS-Varanasi.

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Veeresh Tripathi, Assistant Professor, SMS-Varanasi.

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