Uses and misuses of benchmarks in supply chain management

Uses and misuses of benchmarks in supply chain management






January 8, 2019

There are lies, damned lies and statistics.

Benjamin Disraeli

Benchmarks are a peculiarly virulent form of statistics which can be used to make a positive change, or misused to make a dodgy sale. On one hand a benchmark, such as a world record in 100m race, can motivate an athlete to perform better and better each time they train. It gives something to aim towards, sets an expectation that if others can do it, then why you cannot, and leads to search for better ways of achieving the results.

But all that happens only if the benchmarks have credibility.

When you find out what Lance Armstrong has been doing to achieve his miraculous results you lose faith in the benchmark, and start suspecting other benchmarks too. You test every benchmark extremely carefully, and use it sparingly lest you get dodged again.

An example is in freight rates benchmarks. Costs of operating a truck, a train or a ship are, by now, indexed to nth degree. One can quite easily benchmark prices to these operating costs without any consideration of the local market conditions, your peculiar service requirements, and the balance between the supply and demand -which changes from moment to moment.

When a ship is full, it is full. The only way to get your container on board that ship would be get someone else’s container knocked off. That will require a lot more price incentive or market power than most buyers are willing to muster. This is another way of saying that supply chain infrastructure suffers from highly inelastic pricing paradigm, and as such price benchmarks are useful only to compare the changes in the market conditions from moment to moment.

When analysts start using these kind of benchmarks for performance reviews, or assess cost savings potential – they are not only missing the point, they are really using dodgy statistics to make a sale.

In our work, we use benchmarks many times but we are extremely careful to use the right benchmark for the right purpose and state its limitations. Most executives who are not close enough to the benchmarks or the markets can easily miss the fine print to their regret later.

Here is a lighter view to this discussion (for copyright reasons I will not post the dilbert cartoon directly):

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Our Quick Notes On Five Flows Of Supply Chain Management

Part of our new “Quick Notes” series – this report answers your most pertinent questions of the topic.

  • What are the five flows of SCM?
  • Why are they important TO YOU?
  • How can you map, track, and optimise these flows to serve YOU?
  • What is the importance of difference between "Supply Chain" and "Value Chain"?
  • What are the stellar case studies of each of the five flows?


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  • If we talk about the misuse of supply chain management In Companies risk fines for labor abuses lower on the supply chain.

    the company’s Canadian presence was plagued with difficulties from the start. Even before the grand opening of Target Canada, managers explained that the systems in place were not working. In many cases, the company’s supply chain was breaking down — moving products from distribution centers to the stores themselves turned out to be a significant issue.

    “Worse, the technology governing inventory and sales were new to the organization; no one seemed to fully understand how it all worked,” Castaldo wrote. “The 750 employees at the Mississauga head office had worked furiously for a year to get up and running, and nerves were beginning to fray.”

    As Castaldo stated, one of the biggest issues that Target Canada faced was the use, or misuse, of technology within its operations — the solution chosen proved to be too cumbersome for employees to learn in the relatively short amount of time before launch…[]

  • When I looking for a few important points for Supply chain management, I found this blog which described benchmark in SC. I found an interesting fact about SCM in this blog. I recommend to other to read it out especially for SCM.

  • Benchmarking, or goal setting in the supply chain, allows a company to assess the opportunities they may have for improving a number of areas in their supply chain including productivity, inventory accuracy, shipping accuracy, storage density, and bin-to-bin time. The benchmarking process in the supply chain can provide a company with some estimate of the benefits achieved by the implementation of any improvements.

  • As the company can receive some sort of benefits from these supply chain benchmarking processes, but there are some misuses of benchmarking too. Most of the company compares their working environment and supply chain processes with another company which is earning quite well in a similar field of work. After finding out the reason for the improved success rates, the company can incorporate those processes of that company to improve their productivity. And eventually, they stabilize their supply chain standard to that one aspect, without its course of action.

  • Good article Vivek. The uses of benchmarking are numerous. The information gained from benchmarking can be used to develop or redefine the short- and long-term operational and sales policies of growing businesses. Pinpointing principles used by leading companies and adapting them to varying business models allows an organization to develop customized and efficient policies, projections and business plans that streamline future operations, resulting in a more efficient and profitable business.

  • Balancing supply and demand requires constant monitoring of markets, technological changes, and production. Benchmarking for supply and demand allows a business to compare its supply chain operations against those of leaders in other fields or markets. Entrepreneurs study methods to avoid the overproduction of items that become obsolete quickly; they also study warehousing design and inventory tracking to develop customized supply chains in their businesses. Efficiency is optimized by reducing wasted resources.

  • Small businesses worldwide increasingly use benchmarking as a tool to maximize success. By analyzing and comparing the supply chain processes of successful organizations in different industries and of varying sizes, entrepreneurs use the steps as a benchmark and adapt the processes to their own businesses to operate more efficiently in the short term and to assist in their long-term planning.

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