Several years ago when I worked at Compaq Computer, I watched as our new CEO, Michael Capellas, briefed managers on the company's financial results. The people around me were whispering in surprise as the numbers were revealed. Though profitability had been eroding amidst fierce price wars, our cash position was somehow growing—and growing dramatically. Despite profits that in 1999 had fallen nearly 70 percent from two years previously, some $3 billion had flowed into our treasury since 2000. Of that, $300 million in cost of capital savings had gone directly to the bottom line.

The source of the newfound wealth was a mystery to many in attendance…but not to me. It followed a supply chain benchmarking program that we launched in 2000, the first benchmark that I had done using a tool called the SCOR (Supply-Chain Operations Reference) Model from the Supply-Chain Council. SCOR let us quickly compare the supply chain practices of Compaq's internal divisions against each other, an exercise that would have otherwise taken months or perhaps years to complete.

The benchmarking program also enabled us to pinpoint the most important bottlenecks in our supply chains and to identify needed performance improvements. One by one, we began fixing these supply chain operations. Very quickly, substantial savings in cost, cycle time, inventory and working capital began flowing in, as reported in the CEO's financial review to most everyone's astonishment. The reality is that benchmarking one's supply chain operations internally or against external operations can generate hundreds of millions—and sometimes billions—of dollars in cost savings and revenue improvements.

Another important reality is that benchmarking brings a necessary level of objectivity to performance evaluation. The subjective notion that “We think we're pretty good” isn't really good enough. That was the trap we fell into at Compaq when it came to order cycle time until the benchmarking told us otherwise. The reality is that self-opinion doesn't truly matter to customers, who are comparing you against other suppliers.

My benchmarking experiences at Compaq gave me good insights into the challenges most companies must face in comparing their operational performance across the organization and against external entities. Since that time, I have been part of the Supply-Chain Council's effort to help companies benchmark their supply chains internally and externally. With our partner APQC, one of the world's premier benchmarking and best practices organizations, we launched our benchmarking program, called SCORmark, in 2007.

This article describes the evolution and core components of that benchmarking initiative. It outlines the recurring challenges managers face in attempting to benchmark their supply chain operations and explains how the SCORmark approach addresses those challenges. Finally, we describe some real-world experiences of the benchmark's users.

Click here to continue to: Some Basics of Benchmarking

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