How efficient is my company's supply chain? Is the logistics cost structure adequate? Are the logistics service level indicators close to best practices?
These are some of the questions most logistics executives would like answers to. Logistics has become a fundamental tool for reducing costs and improving the level of service. In this way, the search for logistic excellence is already part of the objectives of the highest executive of most companies.
The development of internal studies and the contracting of specialized consultants are some of the mechanisms that can allow a company to improve its processes, reduce costs and/or improve the service level of logistics activities. However, it is in benchmarking that many companies seek to quickly reach higher levels of efficiency.
Research carried out in the US with 125 companies belonging to different sectors of the economy showed that approximately 65% of them are involved in benchmarking activities. Furthermore, 34% have plans or interest in starting such a program and only 1% are not interested in benchmarking. These results are confirmed, also in the US, by the Fortune 1000, where 65% of these companies use benchmarking as a competitive strategy.
This article presents the basic structure of a benchmarking process, calling attention to the critical decisions related to the planning of this initiative.
WHAT IS BENCHMARKING
Benchmarking constitutes a systematic process of comparisons between similar processes and, based on them, the promotion of improvements that allow a certain activity to have excellence when compared with other equivalent companies in the same sector or in other sectors of the economy. Benchmarking helps companies set goals, stimulates new ideas and provides a formalized method of managing change.
To be complete, benchmarking a supply chain process should involve analyzing individual components of the chain as well as analyzing the performance of the chain as a whole.
Although the focus may vary, a standard benchmarking process necessarily involves the identification and prioritization of benchmarking target processes, the selection of performance indicators to be compared in each process, the selection of leading-edge companies in the selected processes, the comparison between the processes and, finally, by the analysis of the factors that motivated the differences found. The implementation stage must be supported by the planning of the necessary steps to modify the processes (Figure 1).
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Xerox's successful benchmarking experience in the 70s showed the world the potential benefits of this initiative. The results obtained (an increase in revenue of US$ 265 million in the first two years alone) saved the company from bankruptcy and popularized benchmarking.
At the time, Xerox was facing fierce competition from the Japanese industry, which offered low-cost, high-quality products with excellent technical support. The way out found by Xerox was the benchmarking of companies from other sectors. The first target process was order processing and since then it has not stopped. Xerox adopted benchmarking as a competitive strategy and, by the year 1983, more than 230 processes had already been benchmarked.
The benefits, however, do not come easily. It takes investment in time and resources from different areas, as many processes permeate different functions.
THE BENCHMARKING PROCESS
The supply chain benchmarking process must go through both the analysis of its overall efficiency, and the way of portraying the joint effect of all logistical components, as well as the analysis of the individual components of the supply chain, such as transport, inventory, storage and infrastructure management and information systems. In this way, it is guaranteed that the change in the way a certain logistical component operates necessarily results in a more efficient supply chain.
In general, the realization and implementation of a benchmarking process goes through the steps described in Figure 2.
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Planning is the first and most critical step in conducting benchmarking. Therefore, time and resources should be devoted to discussing this step. The content of these discussions should start from the definition of benchmarking objectives, which means, first of all, defining whether the objective is radical or incremental changes, and what type of benchmarking to use.
The next decision consists of selecting the processes that will undergo benchmarking. If the defined objective is to reduce cost and improve service, then processes should be selected that potentially have room for both outcomes. Otherwise, those with the greatest potential for cost reduction or service improvement should be chosen. Most processes will only be focused on one of the two outcomes.
The selection of indicators for each process and the selection of leading-edge companies complete the benchmarking planning stage.
The Team Selection stage must guarantee the team's commitment, the division of tasks and that the defined schedule can be fulfilled given a certain team size and number/complexity of processes to be analyzed (a problem that occurs with many companies that propose to do benchmarking).
Obtaining and analyzing data also requires some care, especially when collecting data from partners and comparing processes. Ensuring that the quantitative data collected are comparable is not usually an easy task. As a way to avoid pitfalls, it is important to evaluate not only bottom-line indicators, but also those operational indicators, which allow a better understanding of process characteristics (eg number of SKUs, orders/day, etc.) .
The Implementation of the Change necessarily requires the allocation of a leader in the areas where the process changes will be implemented. Preferably, these leaders should be involved in the previous steps, as a way of guaranteeing ownership of the initiative. The definition of objectives must contemplate the indicators that will measure the success of the implementation and the conduction of the implementation itself must be under the local responsibility of the process leader and supervision of a senior manager.
Due to the size and complexity of the subject, this article deals only with issues related to benchmarking planning (more specifically, in the activities marked in orange in Figure 2). Decisions at this stage are critical and may or may not enable good results from initiatives such as this one.
BENCHMAKING PLANNING
1) Definition of Objectives
The first decision related to the scope concerns the type of benchmarking that will be carried out.
This decision should depend on the way the company is structured, the objectives to be achieved (radical versus incremental changes) or even the degree of collaboration and stage of development of companies in the same sector or in other sectors. Figure 3 shows how these variables should be considered and the difficulties imposed on each type of benchmaking.
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There is no information available on the most used type of benchmarking. However, research shows that companies that used internal benchmarking or with competitors in the same industry did not obtain as positive results as those that selected companies from other sectors and leaders in certain processes. The collaborative benchmarking approach, however, has increased in popularity due to the greater ease of collecting information.
Internal benchmarking has already been used by companies such as Xerox, in sales initiatives in its worldwide divisions, or CARE USA, a non-profit humanitarian aid company that, after suffering a reduction in funds, invested massively in sharing successful experiences between its 37 support units around the world. As can be seen, this type of benchmarking is more used in companies with similar activities replicated in several regions.
Of course, there are different levels of difficulty for each type of benchmarking chosen, with a clear relationship between difficulty and return. An example of this is process benchmarking. Although research has shown a high number of successful cases, this type of benchmarking requires enormous dedication of time and qualified personnel in identifying companies with operationally comparable processes, standardizing performance indicators and identifying the factors that led to gaps. , in order to guarantee that the performance differences found are the result of a better way of executing the process in question, and not of differences inherent to the industry.
2) Selection of Processes
This decision is related to the definition of the supply chain components that will be the focus of the analysis. A step prior to the selection of benchmarking object processes should be mapping and understanding the functioning of current processes.
In this sense, one of the major problems with the use of benchmarking is the comparability of the processes to be evaluated. That is, how to define the boundaries of a process and its performance parameters so that the scope of analysis is the same in the company promoting the initiative and in the best-in-class company?
In an attempt to solve this problem, the Supply-Chain Council developed the SCOR Model (Supply-Chain Operations Reference Model), a model that seeks, by establishing standard processes, common metrics and presenting best practices, to enable and encourage continuous improvements in supply chain.
It is important to emphasize that this methodology is an attempt to standardize processes and, although there is no single alternative or, at least, a more suitable alternative, it is used by several large companies, including ERP development companies.
This methodology suggests dividing the company's activities into five macro-processes (Plan, Source, Make, Deliver and Return), each one of them being responsible for a set of micro-processes, as shown in Figure 4.
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The planning macro-process permeates all the others, which involve strictly operational activities related to the day-to-day operations.
Issues related to stock and storage management, for example, are part of how the Delivery macro-process will be supported. These support micro-processes are part of the macro-process called, in the methodology, as Enable.
For each of the micro-processes listed in the previous table, performance attributes are established and, when applicable, best practice tips.
The decision of which micro-processes to select goes through the analysis of questions such as:
- Importance of the process to the customer;
- Cost of each process in relation to the total cost of the supply-chain;
iii. Perception of cost reduction potential.
Grades and weights should be assigned to each of these questions so that an importance ranking can be formed. The number of processes to be chosen must be balanced against the time and number of resources available to carry out the task.
According to research carried out with North American companies, the areas most commonly selected for benchmarking are:
- Order processing (31% of responses);
- Warehousing operations (26% of responses);
iii. Transport operations (24% of responses);
- Production (21% of responses).
3) Definition of performance indicators to be analyzed
The importance of jointly analyzing the impacts of changes on individual processes and on the performance of the supply chain as a whole must be reflected in indicators for both perspectives.
The selection of these indicators should take into account two main drivers: cost and level of service. In this sense, understanding the needs and expectations of customers and the impact of certain decisions on the cost of the analyzed processes help in choosing relevant indicators.
Research carried out in Europe with 29 companies from three different sectors in five countries pointed out typical indicators for evaluating the efficiency of the supply chain and its components (Figure 5).
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The SCOR methodology, in turn, points to five groups of attributes to which the performance indicators must be related (Figure 6).
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Based on these attributes, indicators relevant to each micro-process of the supply-chain are listed.
Despite the standardization of processes and metrics guaranteeing that the performance indicators evaluated are exactly the same among the companies involved in the benchmarking, it is not enough to guarantee that their values are comparable. That is, if the best-in-class company has a transport cost equivalent to 20% of the total cost of the supply chain, it does not mean that it is possible for a company in the same sector to reach an equivalent percentage or even close to it. This is because there are variations that influence this cost, such as:
- Number of advanced deposits (shorter delivery distances);
- Fractionation level of orders;
- Agreed delivery times.
Thus, the comparability of the results found for the analyzed performance indicators depends on factors such as: the number of installations, the service level strategy, the customer profile, among other issues that depend both on the market and on the company's internal decisions.
An example of this can be seen in Figure 7, with the analysis of the variation in the costs of supply-chain components between companies in the same sector. Each circle corresponds to a researched company.
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In this context, the careful assessment of gaps and their possible motivators is, more than an interesting analysis, a necessity as a way of guaranteeing the feasibility of implementing a given solution.
The selection of benchmarking sources that are as adherent as possible to the proposing company's environment is also an excellent way to reduce the distortions inherent to any initiative in this area.
4) Drivers for benchmarking source selection
One of the questions asked in a survey carried out with American companies in 1993 sought to identify the main drivers used in the selection of companies that would be used as a benchmarking source. On a scale of 1 (least important) to 7 (most important), the following responses were obtained:
- Ease of access (average: 5.4);
- Industry leader (average: 5.35);
iii. Evidence of innovative practices (average: 5.34);
- Ease of data collection (average: 5.04);
- Costs involved in the process of the company under analysis (average: 4.82).
Still according to the research, the benchmarking source companies are, in the majority, competitors of the same sector. However, there seem to be experiences in several types of benchmarking:
- Competitors (64% of responses);
- Internal (56% of responses);
iii. Leading companies in other sectors (49% of responses) .
CONCLUSION
The wide use of benchmarking as a competitive strategy is inspired by success stories such as AT&T, which registered a 40% reduction in its cycle time, or Oryz Energy, which managed to reduce personnel and transport costs by, respectively, 21 % and 32% in operating expenses.
However, despite being known as a quick way to increase efficiency and/or improve the level of service, benchmarking requires special care in its planning stage.
The type of benchmarking (internal, among competitors, functional, by process and collaborative) to be used, the selection of processes that will be benchmarked, the definition of performance indicators that will serve as a basis for comparison between these processes and the selection of best-in-class companies, are critical tasks for the success of the initiative.
The great challenge of using benchmarking is related to the difficulty of guaranteeing the comparability of processes. This is basically for two reasons:
- Differences in the segmentation of processes and way of calculating performance indicators;
- Structural differences between companies, related to particular characteristics such as number of installations, customer profile and service level strategy, among others.
Initiatives to standardize processes and performance indicators (ERP systems are a way to standardize operational decisions) reduce the first gap. The second is more difficult to bypass. In these cases, a good dose of abstraction and analytical capacity is needed to identify what can be positively inferred in processes that should not necessarily be the same.
BIBLIOGRAPHY
ROGERS, Dale S.; DAUGHERTY, Patricia J.; STANK, Theodore P. Benchmarking programs: Opportunities for enhancing performance. Journal of Business Logistics. Oak Brook; 1995.
European Commission; Benchmarking Logistics. 1998. http://www.benchmarking-in-europe.com
Supply Chain Council. Supply-Chain Operations Reference Model (SCOR). Version 6.0. 2003. www.supply-chain.org
BAGCHI, Prabir K. Logistics Benchmarking as a Competitive Strategy: some insights. Logistics. Information Management. v. 10, No. 1. 1997.
LANKFORD, William. M. Benchmarking: Understanding the Basics. The CoastalBusinessJournal. v.1, n.1.
LETTS, Christine W.; RYAN, William P.; GROSSMAN, Allen. Benchmarking: How nonprofits are adapting a business planning tool for enhanced performance. www. tgci.com/magazine/99winter
