Navigating Supply Chain Success

In the rapidly evolving world of supply chain management, benchmarking has emerged as a critical tool for identifying best practices and improving overall operations. In this blog, we will delve into the purpose of supply chain benchmarking, its need, and the importance of following best practices. We will also incorporate the latest statistics from 2023-2024 to provide a comprehensive and authentic overview.

Methodologies for Assessing your Supply Chain

Benchmarking in supply chain management involves comparing an organization's performance metrics, practices, and processes with those of its industry peers or best-in-class organizations. Here are some methodologies and tools that can be employed to benchmark supply chain:

1. Supply Chain Operations Reference (SCOR) Model: The SCOR model is a cross-industry standard for supply chain management that provides a unique framework for addressing, improving, and communicating supply chain management practices. It covers all aspects of the supply chain, from supplier's supplier to customer's customer, and includes performance metrics, best practices, and organizational roles and responsibilities. For example, a company might use the SCOR model to identify inefficiencies in its supply chain and then use the model's best practices to address those inefficiencies.

2. Root-Cause Analysis: This tool helps identify the root causes of problems or issues within the supply chain, allowing for more effective solutions. For instance, if a company is experiencing frequent stockouts, a root-cause analysis might reveal that the issue is due to inaccurate demand forecasting. The company can then focus on improving its forecasting methods to prevent future stockouts.

3. SWOT Analysis: A SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis can help identify strengths, weaknesses, opportunities, and threats within the supply chain. For example, a company might identify a strength in its efficient logistics operations, a weakness in its supplier relationships, an opportunity to expand into new markets, and a threat from increasing commodity prices.

4. Gap Analysis: This tool can help identify gaps between current performance and desired performance levels. For instance, a company might conduct a gap analysis and find that its delivery times are longer than industry benchmarks. The company can then develop strategies to reduce delivery times and close the performance gap.

5. Process Mapping: Process mapping can help visualize the steps involved in different supply chain processes, making it easier to identify areas for improvement. For example, a company might create a process map of its order fulfillment process and identify bottlenecks that are causing delays. The company can then focus on eliminating these bottlenecks to improve order fulfillment times.

Implementing Effective Strategies

Adopting best practices in supply chain management can lead to increased operational efficiency, reduced costs, and improved customer experience. Effective supply chain management requires the right people, making the right decisions based on the right data and framework. Here are some best practices that businesses can follow:

1. Developing a Comprehensive Understanding of Your Supply Chain: This involves analyzing the relationships between suppliers, manufacturers, and customers. For instance, some companies have reaped major benefits—including higher revenue and customer retention—with a faster, cheaper approach. It involves assembling available data; using analytics to understand and predict customer's and supplier's behavior and optimize inventory, production, and procurement.

2. Establishing Clear Objectives: Clear objectives are fundamental to achieving efficiency, reducing costs, and delivering value to customers. For example, if a company's objective is to improve on-time delivery performance, the Key Performance Indicators (KPIs) selected should focus on metrics such as order fulfillment cycle time, transportation lead time, and warehouse processing time.

3. Standardizing Processes: Standardization is key to achieving consistency and reliability in supply chain operations. An ASQ (American Society for Quality) study indicates that process standardization reduces defects by 20% and can lower rework and scrap costs by 30%. For instance, a business can standardize its order processing procedures by developing a standard order form, specifying the required information, and defining the approval process.

4. Recruit & Develop Supply Chain Professionals: The evolution of supply chain processes is driven by emerging technology and an increasingly globalized supply chain. However, there is a shortage of skilled workers needed to run these operations. Only 38% of supply chain leaders are confident in their current supply chain team's abilities to compete in today's market. To overcome this, many supply chain leaders are hiring staffing companies that specialize in supply chain recruitment and building relationships with universities to establish a pipeline of students in supply chain, logistics, and project management programs.

5. Align the Supply Chain Team: Effective cross-business execution is integral to establishing an efficient supply chain. However, each function of the supply chain often operates like a distinct entity, separated by business units, varying priorities, disparities in time and resources, siloed systems and procedures, and even geography.

6. Implementing Effective Inventory Management: Efficiently managing inventory is paramount to cost reduction in the supply chain. Efficient inventory management allows you to maintain optimal inventory levels. It means having enough stock to meet customer demand without overstocking, which ties up capital and incurs storage costs. Addressing the issues of overstocking and understocking can help businesses achieve a significant 10% reduction in inventory costs.

7. Embrace Digital Transformation: The role of supply chains in promoting productivity has increased in significance as modern business operations become more fast-paced. Moreover, with the advent of automation, AI, and data analytics, supply chain processes can now be more streamlined than ever. However, benefits can only be seen in companies that are embracing digital transformation.

8. Using Data Analytics: Supply chain analytics uses data analytics methodologies and tools to improve supply chain management, operations, and efficiency. Big supply chain analytics uses data and quantitative methods to improve decision making for all activities across the supply chain. For instance, a few examples of supply chain analytics include demand planning (using historical data and other factors to predict what customers will order); sales and operations planning (manufacturing and/or purchasing the goods an organization needs to cover forecasted demand); and inventory management (tracking sell-through of items and which SKUs (Stock Keeping Units) it needs to replenish).

9. Use Key Performance Indicators (KPIs): KPIs such as customer order cycle time, inventory turnover rate, and perfect order delivery rate are indicators of supply chain efficiency and performance. Days Payable Outstanding (DPO) and the cash conversion cycle are indicators of working capital health.

10. Source Suppliers Strategically: Strategic sourcing in supply chain management is the process of acquiring high-quality goods, services, and raw materials, at low cost and finding a balance between them. For instance, big supply chain analytics uses data and quantitative methods to improve decision making for all activities across the supply chain. It expands the dataset for analysis beyond the traditional internal data held on Enterprise Resource Planning (ERP) and Supply Chain Management (SCM) systems.

11. Build Healthy Supplier Relationships: Building healthy supplier relationships requires timely and honest communication, a spirit of collaboration, and a similar vision for the future. According to a McKinsey survey, which included 100+ large organizations in various industries, those engaging in regular supplier collaborations showcased remarkable growth, reduced operating costs, and higher profitability than their competitors.

12. Focus on the Total Cost of Ownership (TCO): TCO includes all supply chain costs of sourcing a good or service from a particular supplier. It's not just about the initial purchase price, but also includes costs throughout the product's lifecycle. For example, U.S. buyers shifting supplier production from a local manufacturing site to Asia may report cost savings, yet fail to account for additional logistics costs in expedited freight needed to cover demand fluctuations. According to a report by Aberdeen Research Group, best-in-class organizations achieve up to 80 percent more savings than others through a clearly defined contract compliance process.

13 Move Contract Management to the Supply Chain: Effective supply chain management requires effective contract management, as contracts govern the relationships and interactions between suppliers and customers. Some ways that contract management is important in supply chain management include establishing clear contractual agreements with suppliers to manage expectations and mitigate risk. By prioritizing contract management in supply chain management, organizations can build stronger and more resilient supply chains that can withstand unexpected disruptions and achieve better outcomes.

14. Adapt to Changes Promptly: The COVID-19 pandemic caused moderate disruption for 56% of retailers. This highlights the importance of being able to adapt quickly to changes in the market and the global economy.

These practices can help businesses improve their supply chain management, increase operational efficiency, reduce costs, and provide a better customer experience. It's important to note that the effectiveness of these practices can vary depending on the specific circumstances and needs of each business. Therefore, businesses should carefully evaluate and adapt these practices to fit their unique requirements.

Latest Statistics on Supply Chain Management (2023-2024)

The global supply chain management market size accounted for USD 25.74 billion in 2022 and is projected to hit around USD 72.1 billion by 2032, poised to grow at a CAGR of 10.9% during the forecast period from 2023 to 2032. Advanced technologies such as generative AI, data analytics, automation, machine learning, Internet of Things (IoT), and blockchain are shaking up the supply chain world. With quickly evolving capabilities, the 'smart' supply chain is well on its way to becoming the new normal.

Conclusion

Benchmarking is a fundamental tool in supply chain management that helps organizations assess their performance, improve processes, reduce costs, and enhance overall competitiveness. By embracing benchmarking and following best practices, organizations can strive for excellence and continuously evolve to meet the ever-changing demands of the supply chain industry.

Navigating Supply Chain Success

Methodologies for Assessing your Supply Chain

Implementing Effective Strategies

Latest Statistics on Supply Chain Management (2023-2024)

Conclusion

Get in Touch