Benchmarking

The practice of identifying, understanding and

adapting outstanding practices from within the same
organisation or from other business or business units
to help improve 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.
 Steps in Benchmarking

Measurement, of own and the benchmarking

partners performance level, both for comparison
and for registering improvements.
Comparison, of performance levels, processes,
practices, etc.
Learning, from the benchmarking partners to
introduce improvements in your own organization.
Improvement, which is the ultimate objective of any
benchmarking study.
 Benchmark Types
Process Benchmarks where processes are
analysed for possible improvement. One may
look at the processes adopted by companies
which may not be competitors
Competitive Benchmarking where processes
of competitors are looked at for comparison
and betterment
 Continuous
Improvement
Performance

Breakthro

Continuous
Improvement

Time
Benchmarking Wheel
1
Plan

5 2
Adapt Search

4 3
Analyse Observe

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 Steps in Benchmarking
Plan: Critical success factors, select a process
for benchmarking, document the process, and
develop performance measures
Search: Find bench-marking partners
Observe: Understand and document the
partners process, both performance and
practice
 Steps in Benchmarking
Analyze: Identify gaps in performance and
find the root causes for the performance gaps
Adapt: Choose best practice, adapt to the
companys conditions, and implement
changes
 Need for
Information Integration
Vendors,
Suppliers Organization Customers
Logistics,
Distribution Purchasing Finance R&D Production Sales Distribution Services

Product development

Order fulfillment

Planning, resourcing, and control

Customer service

Business processes across functional areas and

organizational boundaries. 4-8
 Methods of Benchmarking
Internalcompares across branches or units (e.g.,
one customer team benchmarks budget set-up
time to another team)
Externalcompares one aspect across similar or
different businesses, products or services (e.g.,
personnel; IT systems)
Genericexternal across organizations with very
different products or services (e.g., client mgmt
across diverse private-sector companies)

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 Value of BM
MARKET SPACE

MARKET NEEDS ORGANIZATIONAL

CAPABILITIES

BENCHMARKING AND
MARKET NEEDS MARKET SPACE ORG CONTINUOUS
CAPABILITIES IMPROVEMENT

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Supply Chain Operations Reference
Model
SCOR (developed by McGrath, Todd et al)
attempts to
Capture as-is process and defines (articulates)
to-be state
Quantify the operational performance of similar
companies, establish targets based on best-in-
class and bench-marked companies
Describe the management practices for best-in-
class performance

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Supply Chain Operations Reference
SCOR can use process reference models as
powerful tools to improve SC operations. It
allows all the participants in a SC (suppliers,
manufacturers, distributors, retailers) to have
a reference to a framework to
Evaluate their own processes effectively
Compare their performance with others
Quantify the benefit of implementing change
Identify s/w tools best suited for the process
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Supply Chain Operations Reference
SCOR focusses on the five key processes of SC
Plan
Source
Make
Deliver
Return

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 Levels of Processes in SCOR
Level 1 - Top level - list the types of processes
(delivery reliability: delivery performance,
order fulfillment)
Level 2: Configuration level categories of
processes
Level 3: Element level

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The SCOR Model

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Collaboration and the SCOR Model

The Supply-Chain Council (SCC) is a global, not-for-profit trade

association open to all types of organizations
800 world-wide members
Multi-industry
SCC sponsors and supports educational programs including
conferences, retreats, benchmarking studies, and development
of the Supply-Chain Operations Reference-model (SCOR), the
process reference model designed to improve users' efficiency
and productivity
Promotes research and thought leadership in the supply chain
management area
Adoption of common standards for reference to process,
information and material goods flows is essential to enable
trading partner collaboration

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 Process Reference Models
Process reference models integrate the well-known concepts of
business process reengineering, benchmarking, and process
measurement into a cross-functional framework

Business Process Best Practices Process Reference

Reengineering Benchmarking Analysis Model
Capture the as-is
Capture the state of a process
as-is state of and derive the
a process and desired to-be
derive the Quantify the future state
desired to- operational
be future performance Quantify the
state of similar operational
companies performance of
and establish similar companies
internal and establish
targets based Characterize internal targets
on best-in- the based on best-in-
class results management class results
practices and
software Characterize the
solutions that management
result in best- practices and
in-class software
performance solutions that
result in best-
in-class
performance
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 SCOR Structure

Plan

Deliver Source Make Deliver Source Make Deliver Source Make Deliver Source

Return Return Return Return Return Return

Return Return
Suppliers Supplier Your Company Customer Custome
Supplier rs
Internal or External Internal or External
Custome
r
SCOR Model

Building Block Approach

Processes Metrics
Best Practice Technology

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 SCOR 7.0 Model Structure

Plan P1 Plan Supply Chain

P2 Plan Source P3 Plan Make P4 Plan Deliver P5 Plan Returns

Source Make Deliver

Suppliers

Customers
S1 Source Stocked Products M1 Make-to-Stock D1 Deliver Stocked Products

S2 Source MTO Products M2 Make-to-Order D2 Deliver MTO Products

S3 Source ETO Products M3 Engineer-to-Order D3 Deliver ETO Products

D4 Deliver Retail Products

Return Return
Source Deliver

Enable

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Examples of SCOR Adoptions

Consumer Foods
Project Time (Start to Finish) 3 months
Investment - $50,000
1st Year Return - $4,300,000
Electronics
Project Time (Start to Finish) 6 months
Investment - $3-5 Million
Projected Return on Investment - $ 230 Million
Software and Planning
SAP bases APO key performance indicators (KPIs) on SCOR Model
Aerospace and Defense
SCOR Benchmarking and use of SCOR metrics to specify
performance criteria and provide basis for contracts / purchase
orders

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 CEO

Finance Integrated
Mktg Mfg Mgt Services
Acctg SCM

Communications W/H Opns

Outbound traffic
Purchase Policies
Carrier selection
Inv Policies Plant Site Packaging
Selection
Capital Budgeting for Customer Services
SC Assets
Order Processing

Inv Control

Inbound Traffic

Demand Forecasting

Purchasing

Materials Handling
Logistics Plg
W/H site selection 21
 Logistics
Logistics management is that part of supply
chain management that plans, implements,
and controls the efficient, effective forward
and reverse flow and storage of goods,
services, and related information between the
point of origin and the point of consumption
in order to meet customers' requirements.

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 Logistics
Logistics management activities typically
include inbound and outbound
transportation management, fleet
management, warehousing, materials
handling, order fulfillment, logistics network
design, inventory management,
supply/demand planning, and management of
third-party logistics services providers.

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 Logistics
To varying degrees, the logistics function also
includes sourcing and procurement,
production planning and scheduling,
packaging and assembly, and customer
service. It is involved in all levels of planning
and executionstrategic, operational, and
tactical.

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 Logistics
Logistics management is an integrating
function that coordinates and optimizes all
logistics activities with other functions,
including marketing, sales, manufacturing,
finance, and information technology.
While originally considered a function with
little added value, and primarily focused on
cost management, logistics has evolved into a
source of competitive advantage.
Council of Supply Chain Management Professionals
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 Objectives Of Logistics Mgt
Plan and coordinate all those activities that are
required and necessary to achieve desired
levels quality and delivery at an optimal
(lowest) cost
Logistics links market place and operating
activity
 Objectives Of Logistics Mgt
Primary objective is to efficiently and
effectively move the inventory in the SC in
such a manner as to provide the maximum
level of customer service at the minimal cost
Reduce inventory to the minimum, build
long term relationship with customer,
achieve maximum economy on freight costs,
ensure minimum damage to products.
Operational Objectives of Logistics
Rapid Response: Firms ability to satisfy
customer requirements on time. Firm should
be able to keep minimum inventory and be in
a position to respond to customer needs
Minimum Variance: Variance could occur on
account of delayed receipt of materials,
disruption to manufacturing, delayed orders
from customers. Logistic operations should be
able forecast some of these
Operational Objectives of Logistics
Minimum Inventory: One of the primary
objectives of materials management function
has always been to have minimal inventory.
While zero inventory is like the holy grail, it
may not always be the reality. Logistics should
enable high inventory turnover rates for
effective utilisation of assets
Operational Objectives of Logistics
Movement Consolidation: Transportation
should ensure a balance between high cost
small lot and low cost bulk movement. One
way of achieving this is consolidate movement
Quality: In todays world of business TQM is a
mantra for success and can never be ignored.
It plays an important role in Logistics as it
demands zero defects
Operational Objectives of Logistics
Life Cycle Support: Logistics will have to
ensure that the customer is offered end to
end support for the product / service
delivered. This would require that adequate
plans are in place for reverse logistics as every
product / service is backed up by guarantees,
support, quality standards and after sales
service
 Inbound Logistics

Order Placement &

Sourcing
Follow-up

Vendor / Supplier

Receipt of goods Transportation

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 Outbound Logistics

Order Order Customer

Processing Transmission Order

Order Product Customer

Finalisation Transportation Delivery

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 Logistics Systems
Some of the approaches to analysis are:
Inbound Logistics vs Outbound. From this
perspective firms can be classified into
Balanced system: Here there is more or a balance
between the supplies received and products
despatched
Heavy Inbound system: Here there is heavy
inbound necessitating proper inventory control.
Very little need for outbound warehousing
(aircrafts)
 Logistics Systems
Some of the approaches to analysis are:
Heavy Outbound system: Here there is heavy
outbound necessitating proper storage, packaging
and transportation (chemicals)
Reverse System: Here because of the very nature
of industry, there may be a lot of returns for
service (PCs)
 Logistics Systems
Some of the approaches to analysis are:
Cost Centres: Areas of logistics such as
Transportation, Inventory, Warehousing,
Packaging may be viewed as cost centres. It
may thus be possible to see tradeoffs from a
holistic perspective
 Logistics Systems
Some of the approaches to analysis are:
Nodes vs Links: Nodes represent points where
goods are stored or processed. In other words
they are plants and warehouses of a firm. The
links represent the transportation network
connecting the nodes. The means of
transportation may be rail, road, air, sea
 Logistics Systems
Some of the approaches to analysis are:
Logistic Channels: Here we may study the
network of intermediaries engaged in the
transfer, storage, handling, communications
etc for efficient flow of goods. It may be
simple or complex depending on the number
of suppliers, manufacturing facilities,
warehouses, markets
 Logistics Management
Increased Sales Revenue
Reduced Costs
Reduction in Inventory Costs
Better Asset Deployment and Utilisation
Reducing the Current Liabilities
Reducing Debt / Equity

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 Integrated Logistics Strategy
The process of anticipating customer needs
and wants, acquiring the capital, materials,
people, technologies and the information to
meet those needs, optimising the production
and management of goods or services thro a
network, for satisfying the customer needs.

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 Integrated Logistics Model

Inventory flow

Mfg Physical
Suppliers Procurement Customers
Support Distbn

Information Flow

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 Integrated Logistics Model
Inventory Flow: move when and where
needed
Logistical Operations:
Physical Distribution: move finished goods to
customer thro a channel when and where
needed
Mfg Support: Take part in the preparation of
Master Production Schedule. Controls the supply
of requirements for the manufacturing process

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 Customer Service Level
Customer Service
Parts and Service Support
Handling Return Goods

Inventory Carrying Costs Transportation Costs

Inventory Mgt
Packaging Traffic and Transportation
Reverse Logistics

Lot Quantity Costs Warehousing Costs

Warehousing and Storage
Materials Handling
Plant and Warehouse Site
Procurement
Selection

Order Processing and

Information Costs
Order Processing
Logistics and Communications
Demand Forecasting 43
Impact of Logistics on RoI
increases
Customer Sales
Service Rev
Profit

Logistics
Efficiency Costs
decreases

ROI
Inventory

Asset Accts
Deployment Receivable
Capital
&
Employed
Utilisation
Cash

Fixed
Assets 44
 3rd Party Logistics 3PL
Organisations that do not have the core
capabilities, are engaged in outsourcing the
Logistics function to a third party whose focus
is provision of Logistics support to single or
multiple companies. Additionally outsourcing
is also driven by considerations such as cost,
skills, size of the company

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 3PL - Advantages
Core Competencies: Outsourcing to a 3PL
enables the Firm to focus on core business
areas. There is no diversion of personnel with
specialised skills
Best Practices: 3PL brings to the fore the best
practices prevalent in the Logistics function to
the engaging Firm.

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 3PL - Advantages
Technology and Flexibility: 3PLs bring
flexibility to Logistics operations. They bring in
benefits of usage of contemporary Technology
and also cover the risk of Tech obsolescence
Investment: Building the assets required for
effective and efficient management of
Logistics calls for huge investments in facilities
such as warehouses, networks, IT
infrastructure

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 3PL - Advantages
Economies of Scale: Small to medium size
firms may not have the wherewithal to
manage Logistics purely on account of factors
such as economies of scale. If they are to cater
to far flung areas, 3PL or TPL is the best

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 3PL Dis-advantages
Customer Orientation: It is not always
possible to expect the 3PL to show the same
concern and care for the Firms customer
Dependence: Outsourcing to a 3PL may result
in the Firm being very dependent. If the 3PL
takes infra on hire, there may be a risk
Cost: In some cases 3PL operations may prove
expensive. This is best addressed thro a Cost
Benefit Analysis

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 4PL
Fourth Party Logistics (4PL) provider is a
supply chain integrator that assembles and
manages the resources, capabilities and
technology of its own organization with those
of complementary service provider to deliver
a comprehensive supply chain solution.

(first defined by Andersen Consulting now Accenture )

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 4PL a few models
While 3PL targets a function, a 4PL targets
management of the entire process
A few models of 4PL are
Lead Logistics Provider.
Solution Integrator
Industry Innovator

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 4PL
A) Lead logistics provider: The 4PL provider
acts as an in house freight management
company, it might or might not have a role in
the selection of 3 PL partners. It takes care of
transport invoicing and the monitoring of the
performance of the 3 PLs.

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 4PL
B) Solution Integrator: In this variant of the
model, the 4PL acts as the integrator of
various 3PLS and as a single window for
freight negotiations, 3PL selection and freight
management on behalf of its client.

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 4PL
C) Industry Innovator: Under this model the
4PL uses its expertise and resources to create
a solution not for any single client, but for
offering 4PL services to a number of clients in
an industry.

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 4PL
The services provided by a 4PL provider are:

Freight Negotiations with 3PLs

Freight Contract Management
Transport Billing
Continuous Improvement Programs
Management of Service Providers
IT Solutions
Risk Management and Insurance
Cash-flow Management.

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