A Yale University management professor once commented on Fred Smith’s paper proposing a new business for a reliable overnight delivery service: “The concept is interesting and well-formed, but in order to earn better than a ‘C’, the idea must be feasible.”
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Measure up: a system or a device for measuring. After investing millions of dollars in IT and focusing on continuous improvement, I worry that there is no answer to the question,” Is your supply chain working at full potential?” We have no good yardstick.
Yes, I know there are benchmarking practices; and that benchmarking is a frequent activity for supply chain leaders. <This old gal did not fall off the turnip truck yesterday. I have conducted and participated in over 80 benchmark assessments.>
Let me start with what I have learned in benchmarking. It is a flawed and imperfect process; yet it could be so valuable. So, in this post, I propose a way to mitigate the obstacles and unleash the potential. It is an answer that will feel uncomfortable. In fact, many supply chain professionals may treat it the same way that the Yale University management professor commented on Fred Smith’s paper for a concept that later became Federal Express. I am willing to take that risk.
The Fallacies of Benchmarking
In today’s system, I do not know how to get around these five benchmarking fallacies:
1. Supply Chains are Dynamic. Benchmarking is static. When you get the answer, the data is old. Companies want a continuous assessment of peer groups and the potential of the sector to market changes.
2. It needs to Compare Like against Like. The trick in benchmarking is to define like peer groups and to obtain data for that peer group for a similar period. This is no small feat. <Defining supply chains is an art all unto itself.>
3. Hard Work with little Reward. Getting a true benchmark–an apples to apples comparison –requires hard work. In these times of tight cash, few companies have the funds to do it right, and as a result, it is a tough business for a solution provider.
4. Pockets of Data. Too little Good Data. There are only a few sources of benchmark data that I respect in the industry. When data is self-reported and not scrubbed (data like in APQC, APICS, IBF, SCOR data bases) it needs to be taken with a grain of salt. Self-reported data is just not reliable.
The best benchmarking happens when the data is collected, scrubbed and compared for a similar time frame. There are pockets where this happens within the supply chain. Chainalytics does a great job on transportation benchmarking and just opened up a new service to evaluate demand/forecasting benchmarking. Hackett Group works with CFO magazine each year to share annual working capital and inventory data. Terra Technology invests time in an annual study based on data of companies using their software. PRTM has one of the deepest benchmarking data bases in the industry. Each provides a great service to supply chain leaders, but it is not holistic.
5. Excellence is about more than Pockets. The pockets do not tell the whole story. They only tell the story of what they are measuring. It is analogous to competing in a decathlon without a scoring system. (The decathlon is a combined event in athletics consisting of ten track and field events. Events are held over two consecutive days and the winners are determined by the combined performance in all. Performance is judged on a points system in each event, not by the position achieved.)
Why is this important? Supply chain leaders are running their own decathlon. When supply chains benchmark functional metrics in isolation, they run the risk of rewarding one function over another and throwing the supply chain out of balance. The key to supply chain excellence is looking at the results in aggregate and making the right trade-offs. Let me give you an example. I once benchmarked a supply chain that had defined supply chain excellence as the shortest cycle time. Their supply chain response was quick. However, it was 25% higher cost, and their inventory levels were 40% higher than their competitors. I believe that the best supply chain results can happen when supply chain performance–across sell, deliver, make and source– can be viewed and adjusted together in near-real time. Unfortunately, this is not possible today.
The answer?
I think that the answer lies in redefining Software as a Service (SaaS) to be about more than delivery. It could be SO much more. I think that it is the answer for holistic, end-to-end benchmarking;. I just don’t think that it would not take that much effort to collect aggregate benchmark data for use by a peer group using a similar system on a hosted system.
SaaS is growing in popularity. Five years ago, less than 5% of supply chain executives wanted SaaS solutions, today, based on qualitative interviews, it is desired by over 80% of supply chain executives. So here is my question: “What if every SaaS solution was designed to provide benchmark data?” The data models and peer groups could be controlled, the data would be near real-time, the data service could be a value-added service, and the approach would be holistic. Now that, Fred Smith, sounds like a winning combination! <I even think it is feasible. Do you?>
There has to be a better way. The issue, in my opinion, is that we have not demanded it as part of the standard offering. If you agree, start pressuring software companies to move to Software as a Service software solutions and to add benchmarking data to the solution when installed.
Up, Up and AWAY!
I am on a plane again. Traveling this time to the Kinaxis Conference in Phoenix, AZ. Look for my tweets. I am also busy at work on my presentations for two upcoming conferences for S&OP IE Inventory Management Conference in Dallas, October 26 http://www.theiegroup.com/Inventory_Optimization/Overview.html
or the Chief Supply Chain Officer Conference, Chicago, November 3 http://www.theiegroup.com/CSCO/Overview.html. <Don’t you JUST LOVE the term Chief Supply Chain Officer?> I hope to see you there!
