An Executive Guide to Performance Benchmarking

Inspiring
Business
Performance
An Executive Guide to
Performance Benchmarking
How to provide best-in-class service
and halve supply chain costs
Measure to improve
A healthy supply chain is fundamental
for business success. If not a
revelation, it is a realisation that has
well and truly dawned for companies
of the recession generation. Whilst the
world has certainly got much smaller,
it has also become more complex,
which means a real understanding of
your supply chain is ever more critical.
Making big decisions without full
understanding of your supply chain
is obviously a very risky business.
Performance benchmarking allows
you to identify precisely where you
are – in absolute terms, and in relation
to your competitors and peers – so
you can then plan where you want
to be, and how to get there. And
the benefits need little explanation:
improved customer service; increased
productivity and efficiency; reduced
cost, inventory and waste; lower
capital requirement; enhanced portfolio
development and management;
reduced environmental impact; and
improved competitive advantage.
Understanding the opportunity is the
first stage of realising the potential
Whatever the industry, an optimised
supply chain can be the difference
between those organisations that
succeed and those that do not. But
if you don’t know how well you are
performing, or what best-in-class
performance looks like, how do you
know where you can improve, or by how
much? Ignorance is not bliss; in fact
it’s a very dangerous practice. If your
competitor’s supply chain is delivering
better service than yours, you’ll find
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out eventually but unless you take
the initiative, it might be the hard way.
Critically, benchmarking your supply
chain performance will allow you to
identify performance gaps and provide a
financial evaluation of the gains that can
be made off the back of improvement
action. And you can expect the potential
savings to be many times the cost of
benchmarking itself; gains typically run
to £millions.
What is Performance Benchmarking?
Oliver Wight Performance Benchmarking
provides both a quantitative and
qualitative assessment of your supply
chain performance; it isn’t just a set
of numbers. It allows you to identify
opportunities for improving customer
service at the same time as dramatically
reducing supply chain costs. By
quantifying your current supply chain
performance and comparing it to bestin-class, you will see precisely where and
how big, the improvement opportunities
are. With recommendations for short,
medium and long-term improvement
actions, you can chart your journey to
supply chain excellence.
These are the things you should expect to be able to do:
•
Improve customer service
•
Reduce supply chain costs
•
Optimise your supply chain
•
Identify performance gaps
•
Quantify ‘the size of the prize’ - the real financial benefits you can gain
•
Identify how to deliver the perfect order - the ultimate measure of customer service
•
Shorten your cash cycle
•
Track your improvement over time
Oliver Wight Performance Benchmarking
is an integrated component of the Oliver
Wight Proven Path methodology. You
can measure your performance at the
very start of your journey to performance
excellence and use it to validate your
progress against the Oliver Wight Class
A milestones along the way. What’s
more, you can continue to monitor
your performance long after you’ve
achieved the coveted Oliver Wight Class
A standard, to ensure you continue to
retain your competitive edge.
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Why do it?
There are a number of very good reasons
to benchmark yourself against the
competition but chief among them is
establishing where the bar really is. Of
course if you aspire to be the best, you
need to know what the best looks like.
To use a simple sporting analogy, if you
intend to be the fastest man in the world,
you know you have to beat Usain Bolt’s
100m time of 9.58 seconds. It is an
unambiguous goal.
Benchmarking your performance is
critical if you want to defend or improve
your competitive position. And of course,
once you have made gains, it then
becomes a useful sales tool - being able
to demonstrate you are one of the top
performers in your sector has got to be
good for business.
targets to set against these measures?
Many organisations operate comfortably
on the basis they are improving year on
year but it’s no use settling for 10 per
cent growth, if your competitors are
expanding at 25 per cent, or they are
operating with a lower cost base and will
eventually overhaul you.
Oliver Wight Performance Benchmarking
places a different lens on your
organisation from an external perspective.
Business leaders typically ask their people
‘what can we do to improve?’ But with
benchmarking, the question becomes,
‘what will it take to become best-inclass?’ That establishes a very different
organisational motivation and your people
are inspired to come up with initiatives
that may well take you by surprise.
Supply chain costs as % of
gross sales
If you define your key measures
of business performance without
benchmarking, how will you know what
Industry sector
FIG 1. Supply chain costs as % of gross sales
This chart shows that irrespective of industry sector, organisations providing
best-in-class service have half the average supply chain costs.
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Achieving excellent customer service
is an imperative in all organisations, so
to improve supply chain performance,
the focus has to be on service rather
than cost reduction; the former will lead
to the latter. This may seem counterintuitive as it is often assumed you have
to increase costs in order to improve
customer service. However, the evidence
is incontrovertible - supply chain costs
in best-in-class companies are half the
average. What’s more, if you provide
better service than your competition, you
can charge more for that service, so it
becomes a virtuous circle.
Providing bestin-class service can
halve your supply
chain costs
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How does it work?
The Oliver Wight team will work with you
to establish a data set of organisations,
which match the profile of your supply
chain – by industry, supply chain
structure, company size and location,
and so on. They can be your direct
competitors and/or those with similar
supply chains, whether or not they
are in the same industry sector. Then,
using your own data, you record your
performance against the 128 criteria in
our unique online assessment tool, the
Oliver Wight Customer Order Fulfilment
Survey, or COFS. This allows us to
create a deep-dive evaluation of your
supply chain performance relative to your
specified data set.
The 128 criteria against which your
supply chain is assessed, provide
the information to determine your
performance relative to the global
standards established by the Supply
Chain Council’s SCOR® model, and
using the principle of delivering ‘the
perfect order’, the Oliver Wight COFs
tool evaluates your performance for order
accuracy, inventory availability, delivered
in full, on time (DIFOT), customer
acceptance and accuracy of invoicing.
•
Your supply chain benchmarked against the world’s best known
organisations
•
Your performance compared to your peers and best-in-class
•
Analysis tailored to your industry sector and/or supply chain type
•
Cost and service analysed by individual supply chain functions
•
Hard data and demonstrable metrics
•
Improvement plan with key recommendations for short, medium and long term action
•
The size of the prize quantified
You record your performance
against the 128 criteria in our
unique online assessment tool
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Once the results of your Customer Order
Fulfilment Survey have been assessed
and validated by the Oliver Wight team,
you will receive your Performance
Improvement Report (PIR) - a detailed
50- to 100-page analysis of your
end-to-end supply chain performance,
compared to your peers and the best-inclass from your chosen data set.
On top of the hard data, your PIR will
make recommendations for improvement
action for the short, medium and long
term. And crucially, the report will
calculate the ‘size of the prize’; the
financial gains you can make through
the performance improvement identified.
The report will be presented to you by an
Oliver Wight consultant, so the findings
can be openly debated and an informed
roadmap to improvement developed.
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Where does the data come from?
Oliver Wight are recognised globally as
the pioneers of Sales and Operations
Planning and thought-leaders for
Integrated Business Planning (advanced
S&OP). Over the past 40 years, we have
worked with hundreds of companies
- including some of the world’s bestknown brands - helping them integrate
their business processes and optimise
their supply chains. So we have an
unrivalled database of organisations for
you to benchmark your supply chain
performance against. This means you
can compare your own supply chain
with those in your industry sector, and/
or with similar supply chain structures.
Our database is growing every day and
refreshed regularly, so your performance
is measured only against supply chains
operating in the latest economic and
market conditions.
1. The data used has been collected over many years; it is comprehensive, robust and regularly refreshed
2. The Oliver Wight database includes nearly 1,000 organisations from across the globe
3. Performance Benchmarking is tailored to your organisation - the analysis is made against organisations with comparable supply chains to your own, and you can specify which types of organisations
you want to be benchmarked against, although of course, we never reveal the names of the companies in the dataset you have selected
4. You enter your own data so the results are based on your own real life and current information
Example supply chain data sets
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Automotive and machinery
Building
Distribution
Food and beverage
3PL
Exporters
Importers
Utilities
General manufacturing
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Engineering
Retail suppliers
Computers and electronics
Office equipment
Industrial suppliers
Retailers
Pharmaceutical and hospitals
Chemicals and plastics
Clothing
Who is it for?
Oliver Wight Performance Benchmarking
is a must for any organisation that wants
to improve its supply chain performance.
It is suitable for any business in any
sector, as long as it has a complete endto-end supply chain system, from order
to delivery. It is most useful for mid- to
large-sized companies.
What do I get?
The Performance Improvement Report (PIR)
Your Performance Improvement Report (PIR) provides a detailed evaluation of your
supply chain performance, relative to those in your chosen data set. The following
pages show just some of the things it includes.
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1. Strategic cost and service relationship
At the centre of your PIR report is an
analysis of the relationship between your
supply chain costs (your cash-to-cash
cycle, supply chain management cost
as a percentage of sales, stock turns
etc.) and level of service to customers
(DIFOT, inventory accuracy, and perfect
order ratio). This is mapped against all
the other organisations in your selected
supply chain group, so you see not only
your own performance but also how it
compares to your competitors (i.e. those
in your chosen dataset).
Dark blue area outlines the spread of other supply chains’ positions on the chart
FIG 2. Strategic cost and service relationship
This chart shows the performance of Company X relative to the organisations within
its chosen dataset. The dotted line denotes the trajectory of ‘best-fit’ performance of
service related to supply chain costs for the group dataset. For Company X, there is
improvement potential for both service and cost.
X-axis: Service – driven by SIFOT; DIFOT, inventory accuracy; perfect order ratio etc.
Y-axis: Cost – driven by cash-to-cash cycle; supply chain cost silos; stock turns etc.
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.
2. Functional cost benchmarking
This compares your performance against your chosen dataset in the six key functional
cost areas of:
 Purchasing administration
 Inventory management
 Inventory holding
 Warehousing
 Outbound transportation
 Customer service
FIG 3. Functional cost benchmarking
This example shows the ‘warehouse
function’ performance of company X
in terms of the cost of the warehouse
function as a percentage of gross
sales. ‘Gross sales’ includes the
revenue earned by the business.
Some of these costs are listed below.
•
Warehouse fixed costs including insurance, depreciation, rent, rates, outside storage cost etc
•
Materials handling equipment (maintance, leasing costs)
•
Variable costs including management staff, overtime and casual labour, postage, telephone, fax and power etc
•
All information technology costs; costs of third party provider, if relevant
The performance of Company X is shown by the blue bar (3- <4%). 85% of supply
chains in the comparison group have lower costs than Company X for the warehouse
function and only 6% have lower costs.
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3. Perfect order analysis
Perfect order analysis is the ultimate
measure of customer satisfaction. Using
your own data, your ‘Perfect Order
Probability’ score factors order accuracy,
inventory availability, warehouse
service, transportation, customer order
acceptance and invoice accuracy, to
provide a real statistical measurement of
your customer service, compared to your
peers.
FIG 4. Perfect order analysis
The grey arrows show where Company X achieves parity, or close to parity, with its
peer group and the yellow arrows indicate where there is a significant improvement
opportunity. For Company X, ‘Perfect Order Probability’ is below the average
(‘Parity’) for its peer group and well below best-in-class (‘Advantage’) in its group.
The company has a particular weakness in ‘inventory availability’, which is recorded
at just 80%.
4. Gross margin and turn/earn index
Business profitability is determined by
many factors. One critical trade-off is the
margin earned by each SKU and how
often that SKU turns over. For example
an antiques dealer traditionally has very
low stock turns, so needs high margin
products to be profitable. In contrast
a grocery retailer has very fast stock
turnover and can be profitable with low
product margins.
The turn/earn index (T&E) is a gross
measure of profitability, and can be for an
item, line, category or the business as a
whole; it measures the combined effects
of gross margin profitability and the
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quantity of inventory being held/turned
through the business – so, if an exporter
targets a T&E of 1,000, this equates to
25 stock turns with an average gross
margin of 40%, or 40 stock turns with
gross margin of 25%.
T&E allows you to identify stock that is
not covering its cost, so you can either
increase margin - or if that’s not possible,
reduce inventory - to ensure profitability.
As a general rule: the larger the T&E,
the better, and a low T&E indicates a
problem. On the other hand, if T&E is too
high, the item, line, category or business,
could well be vulnerable to competition.
5. Supply chain metrics
Oliver Wight Performance Benchmarking
provides a forensic analysis of your key
supply chain metrics, compared to all
the other supply chains in your selected
data set – delivery in full; delivery on time;
DIFOT (in-full x on-time); total supply
chain management costs; cash-to-cash
cycle time; and stock turns.
FIG 5. Supply chain metrics
The blue flags denote the performance of Company X. It has an excellent ‘in full’
delivery performance of 99 per cent, but ‘on time’ delivery and ‘stock turns’ are only
average (‘Parity’) compared to its competitors.
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6. Recommendations for improvement
On top of the hard data analysis,
the improvement report makes vital
recommendations on how and where
to make gains in the short, medium and
long term. These are not hypothetical
activities but real actionable proposals,
identifying the priorities for process
and behaviour change, and the training
requirements, as well as the opportunity
for quick wins.
7. Size of the prize
Your PIR report will show the financial
gains which can be made by improving
performance by one or two deciles
relative to your peers, against each of
the key supply chain metrics - from
purchasing administration through to
customer service. By definition, the
gains will depend on the business
demographics of your organisation and
its current performance, but typically the
potential gains run into £millions.
This financialisation makes performance
benchmarking a powerful tool in
justifying the cost of any improvement
activity. Financial people always want to
know what the return will be from any
investment and Oliver Wight Performance
Benchmarking makes that very clear
from the outset.
Client: International food company
$
$
$
$
$
$
$
$
$
$
$
$
FIG 6. Size of the prize
In this real life example of a food manufacturing company, Oliver Wight Performance
Benchmarking has identified a potential gain of $8.79 million in supply chain costs,
plus a further $2.70 million in other costs, for a single decile improvement in overall
supply chain performance.
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What happens next?
If you would like to know more about Oliver Wight Performance Benchmarking, please
contact us on:
T 01452 397200
E [email protected]
The potential gains
run into £millions
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Inspiring
Business
Performance
Oliver Wight has a 40 year track record of delivering business improvement
to some of the world’s best-known organisations. We believe that sustainable
improvement can only be made through your own people. So unlike other
consultancy firms, we transfer our knowledge to you, which means you can
achieve performance levels and financial results that last.
At the leading edge of management thinking and
practice, our Integrated Business Planning (IBP)
model lies at the heart of our clients’ journey
to outstanding business performance. Oliver
Wight originated Sales and Operations Planning
in the 1980s and IBP can most simply be
described as advanced S&OP; evolving from its
production planning roots over 40 years into the
Oliver Wight EAME LLP
The Willows
The Steadings Business Centre
Maisemore
Gloucester, GL2 8EY
United Kingdom
fully integrated management and supply chain
collaboration process it is today. IBP allows the
senior executive to plan and manage the entire
organisation over a 24 month horizon, aligning
tactical and strategic plans each month and
allocating critical resources to satisfy customers
in the most profitable way.
Oliver Wight Asia/Pacific
131 Martin Street, Brighton
Victoria 3186, Australia
T: +44 (0)1452 397200
[email protected]
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P.O. Box 368, 292 Main Street
www.oliverwight-eame.com
New London, NH 03257, USA
The information contained is proprietary to Oliver Wight International and may not be modified,
reproduced, distributed or utilized in any manner in whole or in part, without the express prior written
permission of Oliver Wight International.