an executive guide to performance benchmarking

7/26/2019 An Executive Guide to Performance Benchmarking

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InspiringBusinessPerformance

How to provide best-in-class serviceand halve supply chain costs

An Executive Guide to

Performance Benchmarking


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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 ofyour 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; reducedcost, inventory and waste; lower

capital requirement; enhanced portfolio

development and management;

reduced environmental impact; and

improved competitive advantage.

Measure to improve

Whatever the industry, an optimised

supply chain can be the difference

between those organisations that

succeed and those that do not. But

if you dont know how well you are

performing, or what best-in-class

performance looks like, how do you

know where you can improve, or by howmuch? Ignorance is not bliss; in fact

its a very dangerous practice. If your

competitors supply chain is delivering

better service than yours, youll find

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 potentialsavings to be many times the cost of

benchmarking itself; gains typically run

to millions.

Understanding the opportunity is the

first stage of realising the potential


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Oliver Wight Performance Benchmarking

provides both a quantitative and

qualitative assessment of your supply

chain performance; it isnt 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 best-

in-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.

What is Performance Benchmarking?


is an integrated component of the Oliver

Wight Proven Path methodology. You

can measure your performance at thevery start of your journey to performance

excellence and use it to validate your

progress against the Oliver Wight Class

A milestones along the way. Whats

more, you can continue to monitor

your performance long after youve

achieved the coveted Oliver Wight ClassA standard, to ensure you continue to

retain your competitive edge.

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


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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 Bolts

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.

If you define your key measuresof business performance without

benchmarking, how will you know what

targets to set against these measures?

Many organisations operate comfortably

on the basis they are improving year on

year but its 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.


places a different lens on yourorganisation 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-in-

class? That establishes a very different

organisational motivation and your people

are inspired to come up with initiatives

that may well take you by surprise.

Why do it?

FIG 1. Supply chain costs as % of gross sales

This chart shows that irrespective of industry sector, organisations providingbest-in-class service have half the average supply chain costs.

Supplychaincostsas%

of

grosssales

Industry sector


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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 counter-

intuitive 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. Whats more, if you provide

better service than your competition, you

can charge more for that service, so it

becomes a virtuous circle.

Providing best-

in-class service can

halve your supplychain costs

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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 chainstructure, 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 yoursupply chain is assessed, provide

the information to determine your

performance relative to the global

standards established by the Supply

Chain Councils 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.

How does it work?

Your supply chain benchmarked against the worlds 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 PerformanceImprovement Report (PIR) - a detailed

50- to 100-page analysis of your

end-to-end supply chain performance,

compared to your peers and the best-in-

class 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 willcalculate 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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Oliver Wight are recognised globally as

the pioneers of Sales and OperationsPlanning 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 worlds best-

known 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 youcan 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.

Where does the data come from?

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, wenever reveal the names of the companies in the dataset you have

selected

Automotive and machinery

Building

Distribution

Food and beverage

3PL

Exporters

Importers

Utilities

General manufacturing

Engineering

Retail suppliers

Computers and electronics

Office equipment

Industrial suppliers

Retailers

Pharmaceutical and hospitals

Chemicals and plastics

Clothing

Example supply chain data sets

4. You enter your own data so the results are based on your own real

life and current information


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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 followingpages show just some of the things it includes.

What do I get?


is a must for any organisation that wantsto improve its supply chain performance.

It is suitable for any business in any

sector, as long as it has a complete end-

to-end supply chain system, from orderto delivery. It is most useful for mid- to

large-sized companies.

Who is it for?

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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 costas 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 itcompares to your competitors (i.e. those

in your chosen dataset).

This chart shows the performance of Company X relative to the organisations withinits chosen dataset. The dotted line denotes the trajectory of best-fit performance ofservice related to supply chain costs for the group dataset. For Company X, there isimprovement 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.

.

1. Strategic cost and service relationship

FIG 2. Strategic cost and service relationship

Dark blue area outlines the spread of other supply chains positions on the chart


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2. Functional cost benchmarking

This compares your performance against your chosen dataset in the six key functional

cost areas of:

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

This example shows the warehousefunction performance of company X

in terms of the cost of the warehousefunction as a percentage of gross

sales. Gross sales includes therevenue earned by the business.

Some of these costs are listed below.

FIG 3. Functional cost benchmarking

Purchasing administration Inventory management

Inventory holding

Warehousing Outbound transportation

Customer service

The performance of Company X is shown by the blue bar (3-


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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

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 thats 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.

The grey arrows show where Company X achieves parity, or close to parity, with itspeer group and the yellow arrows indicate where there is a significant improvementopportunity. 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%.

FIG 4. 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.

3. Perfect order analysis


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The blue flags denote the performance of Company X. It has an excellent in fulldelivery performance of 99 per cent, but on time delivery and stock turns are only

average (Parity) compared to its competitors.

FIG 5. Supply chain metrics


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.

5. Supply chain metrics

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In this real life example of a food manufacturing company, Oliver Wight PerformanceBenchmarking 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 overallsupply chain performance.

7. Size of the prize

Your PIR report will show the financial

gains which can be made by improving

performance by one or two decilesrelative 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 injustifying 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.

FIG 6. Size of the prize

6. Recommendations for improvement

On top of the hard data analysis,

the improvement report makes vitalrecommendations 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 processand behaviour change, and the training

requirements, as well as the opportunity

for quick wins.


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The potential gains

run into millions

If you would like to know more about Oliver Wight Performance Benchmarking, please

contact us on:

T 01452 397200

E [email protected]

What happens next?

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Oliver Wight EAME LLP

The Willows

The Steadings Business Centre

MaisemoreGloucester, GL2 8EY

United Kingdom

T: +44 (0)1452 397200

[email protected]

www.oliverwight-eame.com

Oliver Wight Asia/Pacific

131 Martin Street, Brighton

Victoria 3186, Australia

Oliver Wight Americas

P.O. Box 368, 292 Main Street

New London, NH 03257, USA

Oliver Wight has a 40 year track record of delivering business improvement

to some of the worlds 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

fully integrated management and supply chain

collaboration process it is today. IBP allows thesenior 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.

InspiringBusinessPerformance

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.

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