Logistics & Supply

chain
Unit - III
 Unit III:
Benchmarking and Managing the Supply chain --- 16 Hrs
Meaning of benchmarking-Benchmarking the logistics process

Mapping supply chain process

Supplier and distributor benchmarking

Setting benchmarking priorities

Identifying logistics performance indicators

Managing the Global Pipeline

The trend towards globalization in the supply chain

The challenge of global logistics

Organization for Global logistics-The future.

 Benchmarking-Benchmarking the logistics process
The intense level of competitive activity encountered in most markets has led to a new
emphasis on measuring performance not just in absolute terms, but rather in terms relative to
the competition, and beyond that to ‘best practice’.
In the past it was usually deemed to be sufficient simply to measure internal performance. In
other words, the focus was on things such as productivity, utilisation, cost per activity and so
on. Whilst it is clearly important that such things continue to be measured and controlled it
also has to be recognised that such measures only have meaning when they are compared
against a relevant ‘metric’ or benchmark. What should be the metric that is used in assessing
logistics and
supply chain performance?
There are in fact several dimensions to the measurement problem. The first key point to make
is that the ultimate measuring rod is the customer, hence it is customers’ perceptions of
performance that must be paramount. Secondly, it is not sufficient just to compare
performance to that of immediate competitors. We must also compare ourselves to the ‘best in
the class’. Thirdly, it is not just outputs that should be measured and compared but also the
processes that produce that output. These three ideas lie at the heart of what today is termed
competitive benchmarking Competitive benchmarking might simply be defined as the continuous measurement
of the company’s products, services, processes and practices against the standards of best competitors and other
companies that are recognised as leaders. The measures that are chosen for the comparison must directly or indirectly
impact upon customers’ evaluation of the company’s performance.
One of the earliest firms to adopt benchmarking was the Xerox Corporation which used it as a
major tool in gaining competitive advantage. Xerox first started benchmarking in manufacturing
activity with a focus on product quality and feature improvements. Following success in the
manufacturing area, Xerox’s top management
directed that benchmarking be performed by all cost centres and business units across the
Initially there was some difficulty in performing benchmarking in departments such as repair,
company.
service, maintenance, invoicing and collection and distribution, until it was recognised that the
‘product’ was, in fact, a process. It was this process that needed to be articulated and compared
with that used in other organisations. By looking at competitors’ processes step-by-step and
operation-by-operation, Xerox was able to identify best methods and practices in use by
competitors. Initially benchmarking activities were concentrated solely on competitors until it
became clear that Xerox’s objective in achieving superior performance in each business function
was not being obtained by looking only at competitors’ practices.
The objective of creating competitive advantage involves outperforming rather than matching
the efforts of competitors. This, together with the obvious difficulties in gaining all the
information required on competitors and their internal systems and processes, led to a broader
perspective on benchmarking being adopted.
Thus benchmarking was expanded from a focus solely on competitors to a wider, but selective,
focus on the processes of top performing companies regardless of their industry sector. Xerox
has successfully used this broader perspective on benchmarking as a major element in
increasing both quality and productivity. Collaborative co-operation between firms in non-
competing industries offers significant opportunity in this regard. For example, in the Xerox
logistics and distribution unit, annual productivity has doubled as a result of benefits obtained
from non-competitive collaborative benchmarking.
Camp2 has identified a number of benefits that a company
derives from benchmarking.
These include the following:
• It enables the best practices from any industry to be
creatively incorporated into the processes of the
benchmarked function.
• It can provide stimulation and motivation to the professionals
whose creativity is required to perform and implement
benchmark findings.
• Benchmarking breaks down ingrained reluctance of
operations to change. It has been found that people are more
receptive to new ideas and their creative adoption when those
ideas did not necessarily originate in their own industry.
• Benchmarking may also identify a technological breakthrough
that would not have been recognised, and thus not applied, in
What to benchmark?
One useful framework for benchmarking is that devised by a cross-industry association
– The Supply Chain Council.3 Their model, known as SCOR (Supply Chain
Operations Reference), is built around five major processes – Plan–Source–
Make–Deliver–Return – and covers the key supply chain activities from identifying
customer demand through to delivering the product and collecting the cash. The
aim of SCOR is to provide a standard way to measure supply chain performance
and to use common metrics to benchmark against other organisations.
Identifying logistics performance indicators
One benefit of a rigorous approach to logistics and supply chain benchmarking is that it soon
becomes apparent that there are a number of critical measures of performance that need to be
continuously monitored. The idea of ‘key performance indicators’ (KPIs) is simple. It suggests that,
whilst there are many measures of performance that can be deployed in an organisation, there are
a relatively small number of critical dimensions that contribute more than proportionately to
success or failure in the marketplace.
Much interest has been shown in recent years in the concept of the ‘Balanced
Scorecard’. The idea behind the Balanced Scorecard is that there are a number of
key performance indicators – most of them probably non-financial measures – that
will provide management with a better means of meeting strategic goals than the
more traditional financially oriented measures. These KPIs derive from the strategic
goals themselves. Thus the intention is that the balanced scorecard will provide
ongoing guidance on those critical areas where action may be needed to ensure
the achievement of those goals.
These ideas transfer readily into the management of logistics and supply chain strategy. If suitable
performance measures can be identified that link with the achievement of these strategic goals they
can become the basis for a more appropriate scorecard than might traditionally be the case.
A logical four-step process is suggested for constructing such a scorecard:

Step 1: Articulate logistics and supply chain strategy

How do we see our logistics and supply chain strategy contributing to the overall achievement of
corporate and marketing goals?

Step 2: What are the measurable outcomes of success?

Typically, these might be summarised as ‘Better, Faster, Cheaper, Closer’. In other words,
superior service quality, achieved in shorter time-frames at less cost to the supply chain as a
whole, built on strong relationships with supply chain partners.

Step 3: What are the processes that affect these outcomes?

In the case of ‘Better, Faster, Cheaper, Closer’, the processes that lead to ‘perfect order
achievement’, shorter pipeline times, reduced cost-to-serve and stronger relationships need to be
identified.
Step 4: What are the drivers of performance within these processes?
These activities are the basis for the derivation of the key performance indicators. Cause and
effect analysis can aid in their identification.
In this framework the four key outcomes of success are suggested to be:

Better, Faster, Cheaper, Closer. This quartet of interconnected goals are almost universal in their
desirability. They are significant because they combine customer based measures of performance in
terms of total quality with internal measures of resource and asset utilisation.
The idea behind the logistics scorecard is to produce a number of measures against each of the four
broad aims. There should be no more than 20 measures in total since the aim is to focus on the
major drivers of excellence in each area.
Like any dashboard or cockpit, there is a need for simplicity and to focus on the ‘mission critical’
measures. Figure summarises this idea.
Creating the logistics scorecard
As the old cliché reminds us: ‘What gets measured, gets managed.’ Hence it is important to
ensure that the logistics scorecard is designed to encourage the actions and behaviour that will
lead to the fulfilment of the ‘logistics vision’ that we earlier described. Indeed it can be argued
that if organisational change is necessary, the place to begin that change process is with a review
of the performance measures currently in use. Many companies seek to be responsive and market
facing and yet they still use performance metrics that relate to internal efficiencies. As a result
they are unlikely ever to change.