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Benchmarking and Performance Measurements
Benchmarking is referred to as the process of comparing performance; it is a concise form of performance measurement which not only externally evaluates the individual performance of companies against each other; but also uses the same analysis to determine the performance of different operations within the same company.
Identifying high-performance, and best-in-class operations and analysing how these are best achieved – Benchmarking can be useful data to collate, in particular to help companies better understand how their operations compare to their competition.
Whilst Benchmarking serves as a critical performance indicator within logistics and supply chain operations, such comparisons of course need to be analysed in context. Take for example when examining performance of logistics costs, as % of sales, overall cost is perceived as the average selling price as much as by logistics costs, of which both need to be fairly assessed. Accurate Benchmarking can help a business to determine whether it best to base comparisons on a cost per unit or cost per case, basis.
Our approach to benchmarking has the following elements:
• Build up a model of what the operation should cost based broadly on current practices
• Compare this to the actual cost and identify key areas of variance
• Understand the drivers behind these differences and whether change is possible or desirable
• Introduce competitor measures where appropriate to build context; create an understanding of the key differences compared to competitors (e.g. delivery frequency, singles vs case picking etc.)
Performance measurement is essential but used wrongly it can encourage wrong behaviours and perpetuate silo-based decision making. Key Performance Indicators (KPIs) to be measured should:
• Be commensurate to the scale and type of operations
• Have a strong identifiable relationship to costs and / or other metrics aligned with company goals
• Not be too numerous – concentrate on key indicators
• Not incur undue cost / effort in measuring and reporting
You should take care to consider how all the performance measurements in the business interact to move the company towards its goals. The Go Supply Chain Consulting team have successfully established effective performance measurement regimes in new and existing operations across the UK and Europe.
Benchmarking and Performance Measurement Considerations
- Our operation is unique – how can we benchmark our performance?
- What should our logistics cost be as a % of sales?
- How does this compare to our competitors?
- How do our processes match up to the best in class?
- What metrics should we be using?
- What targets should we be setting for these metrics?
- How should we review our performance and what actions should we take?
- How can we most effectively incentivise our colleagues and partners?
- Customer service overtaken by new or improving competitors
- Uncompetitive cost base due to poor performance
- Lack of good information with which to make management decisions
- Too much meaningless information
- Lack of motivation in the workforce
- Poor performance by partners (e.g. carriers, suppliers) goes unchecked
- Perverse incentives lead to unexpected consequences