A Better Way to Benchmark (page 2)
-- Supply Chain Management Review, 4/1/2005
Page 2 of 5
On the business-performance side, management tools such as the Balanced Scorecard have helped to provide a standardized prescription on what companies should measure to “balance” the financial perspective. In terms of the supply chain, practitioners have applied the Supply-Chain Operations Reference (SCOR) model as a cross-industry standard to address, improve, and communicate supply chain management practices within and between all interested parties. And recently CSCMP has published a set of Supply Chain Process Performance Standards in six handbooks,1 which outline qualitative best practices and suggested process standards across more than 200 supply chain-related processes. While these process standards are a great start, companies must benchmark both quantitative and qualitative benchmarks to obtain a complete picture of their performance.
These well-thought-out frameworks and models have helped thousands of organizations to expand their use of performance data beyond financial elements. But there has never been a good source for measuring quantitative operational performance, according to the research firm Gartner.2 While many quantitative benchmarking studies do exist, there have been few opportunities to benchmark continually against up-to-date information.
The problem is twofold. The first concern centers on basic communication. As the examples above show, organizations have neither a common language nor a standardized set of definitions and calculations for benchmarking. Organizations often find themselves comparing apples to oranges in their benchmarking efforts. This confusion is especially evident when companies try to collaborate more closely with their supply chain partners. As enterprises focus on core competencies and outsource other activities, the integration of business processes between suppliers and customers is becoming more critical.3 When each organization uses its own terminology to describe component processes and performance, it creates confusion and inefficiency.4
The second major obstacle has been the lack of a widely accepted source for benchmarking data. At the start of their performance-data research, CSCMP and APQC found nearly 50 sources that provide various forms of such data. But most have significant drawbacks—or come with costly strings attached. There are plenty of one-time studies, but they do not work as ongoing sources for measuring performance. There are aggregated data, but they are not granular enough to allow organizations to look at the differences among industries or regions. And there are trends-focused benchmarking data (such as the growth of the third-party logistics market), which do not include best or average performance against a certain metric. Of the few benchmarking sources that did offer promising content, almost all were managed by for-profit organizations that charge subscriber-based fees—more than $15,000 in some cases.
The Allure of a Participatory Approach
Since May 2004, APQC has spearheaded a research program, called the Open Standards Benchmarking Collaborative (OSBC), that includes a confidential online database of standardized process measures and benchmarks. The database provides measures for more than 100 processes and functions to help organizations compare performance across all business, health care, educational, and governmental sectors.5 Organizations of all industries and sizes may access and use these standards, which are identified in the APQC Process Classification Framework (PCF). (The PCF can be downloaded at no charge at www.apqc.org.) This framework serves as a high-level, generic enterprise model that allows organizations to see their activities from a cross-industry process viewpoint.
The OSBC research looks at areas such as finance and accounting, human resources, customer service, information technology, and supply chain management. APQC and CSCMP define supply chain management as the planning and management of all activities involved in sourcing and procurement, conversion, and logistics management. Importantly, it also includes coordination and collaboration with channel partners such as suppliers, intermediaries, third-party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies.6
In late 2004, a working group comprised of APQC and CSCMP professionals assembled to determine which supply chain processes and measures should be used in the OSBC research. The joint working team culled through more than 300 measures, narrowing them down to 150 defined metrics to be used in the supply chain area of the OSBC database. These 150 metrics spread across the following five critical process areas and functions: new-product development, procurement, customer order management, manufacturing, and logistics. During the working group’s sessions, each process category and its associated measures were scrutinized to ensure that they would be practical to apply. Both APQC and CSCMP also recognize that universal practices are evolving in each of those sections of the supply chain and released updated supply chain surveys in March 2005.
Continued...
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