¶ … Logistics Case

Benchmarking methodology

A benchmark is defined as an agreed upon or standard reference point that is utilized to measure quality or value. In the business environment, the benchmarking process is a process through which a company agrees upon standards to measure its progress. The benchmarking process can be used both externally and internally. There are two fundamental parts of a benchmarking process, namely: performance assessment and continuous improvement. There are also three basic types of a benchmarking: the first is where comparison is done using internal data, the second is where the company assesses relative service performance and the last is where one evaluates supply chain performance of various organizations, even though the organizations may not necessarily be competing ones. The benchmarking process entails the use of other processes such as data analysis and reporting. When done properly, benchmarking can help bring about product innovation. Product innovation can in turn help a company to: achieve significant growth, establish a competitive edge and create a new customer value. The benchmarking process is also important since it helps organizations to forge ahead strongly and to meet new challenges head on. The types of challenges that can be faced when implementing benchmarking processes include: lack of cross functional cooperation across a company. This challenge can, however, be overcome by forming cross functional management teams which can be used to encourage collaboration and to make decisions for product innovations (Gilmour, 1999).

One can define benchmarking as a measurement of the value/quality of a company's products, strategies, policies, programs and the comparison of these with internal data or with similar data from the organization's peers. A benchmarking process has three key objectives. The first, is to determine if there is a need for any improvements and then to establish where they are needed, the second is to determine how an organization's peers are achieving high growth levels, and lastly to utilize this data to enhance the company's own performance or growth. A properly executed benchmarking process is that which identifies and puts into use the best industry practices. Leaders contrast the performance of their processes or products with those of their top competitors and then adapt the processes that they find to bring about most growth in their peers. In other words, a benchmarking process seeks superior performance and then tries to understand the policies, programs or processes driving that performance. Organizations then seek to enhance their performance by integrating the superior processes and programs into their own processes, and not through outright imitation but through improvisation or innovation. Organizations typically engage either in best practices benchmarking whereby the focus is on how best processes should be executed or results benchmarking where the focus is on quantitative performance assessments.

There is a need to incorporate all the components of a global supply chain and to focus on other related aspects such as product specifications, software solutions, management practices and operational performance to benchmark a supply chain business effectively. When used together with improvement programs, a benchmarking process is a useful tool to measure performance, determine best practices and which improvements need to be implemented and to evaluate the performance of a business against its internal standards. In measuring supply chain deliverables, managers must first fully understand their organization's main objectives and their stakeholders' demands and desires. Once this has been done, the managers should then translate the demands and objectives into specific functional, process, or facility deliverables, which should then in turn be defined in metrics (Matthews, 2006). Organizational objectives are often set by executives and are made up of a wide set of objectives complete with quantifiable objectives. If the organization is public-ownership firm, the objectives are communicated to the firm's stakeholders through the firm's AGM whereby an annual report will be released. The report may consist of specific quantifiable deliverables such as returns on assets or sales growth, and so on. Underlying these quantified measures are several implied business-unit or company unit level goals that have been achieved to support those results. The main objective of the first phase of developing a benchmark is to establish several functional strategic goals including supply chain and business-unit level objectives (Suri, n.d.). As supply chain mangers engage their superiors and other stakeholders in the supply chain several major objectives ought to start emerging. These identified strategic objectives often don't have specific details of how they are going to be attained. Thus, at this stage the process is not complete. Unless supply chain managers specifically define their strategic objectives and set milestones for their achievements, the objectives might...

The next phase in the supply chain benchmarking process is to come up with targets for improvement. This entails determining the current baseline performance for all the measures defined and then contrasting this performance with that of competitors. Thus, when evaluation metrics (benchmarking processes) are used in conjunction with continuous improvement, one can easily gain a competitive edge (Handfield, 2015).
A detailed opportunity assessment in supply management calls for a careful evaluation of improvement opportunities in areas such as Return on invested capital, cash flow, profits and capital intensity (Rudzki, 2008).

Two Stage Benchmarking

The addition of the second phase -- continuous improvement -- symbolizes an improvement of the traditional benchmarking process, since many such processes often terminate at this stage. However, to gain the most from a benchmarking process companies must do more; company executives must understand what enables their peers to achieve better results. Continuous improvement is based on collecting data. During this phase one must identify benchmarking peers, thoroughly investigate their best practices and come up with a strategy of collecting and incorporating data so as to improve results. In identifying benchmarking partners one must only select those organizations that exemplify high performance (O'dell, 1993). Thus, the purpose of this phase in the two-phased benchmarking process identifies benchmarking partners. Definitely, if the benchmarking peers are competitors they may not feel like sharing their data and thus different approaches should be explored to collect this data. When the data is collected, the "learning points" ought to be integrated into a company's strategic plan and implemented through its performance improvement processes. The "learning points" gained and the performance improvements made should be completely integrated into the organization so as to achieve a performance similar to or better than that of the benchmarking peer.

A benchmarking process can be done at the functional, operational or corporate levels of an organization. It is crucial to ensure that these organizational levels are linked through a hierarchical series of interrelated objectives so as to guarantee a collective progress towards strategic objectives. The improvement phase is a powerful tool that can considerably improve a company's ability to control its performance. The second phase forces executives to take into account the wider perspective and to learn from the best. By adopting the best industry practices, an organization can propel itself towards its best ever performance. In the current competitive business environment, organizations must constantly improve their performance if they are to remain in business. The significance of the benchmarking process has been recognized and used by many organizations and industries, especially those which must change quickly and learn continuously from each other, for example, the oil and gas industry whereby oil firms has to change very rapidly to the ever-changing regulatory, technological and business demands. Many oil companies participate on organized benchmarking done by OPEC (Organization of Oil Exporting Countries).

Benchmarking is not simply an analysis of one's competition, instead it goes much deeper and establishes what the competitor does additionally, that the company in the process of benchmarking does not do, and how can this be incorporated into the company under consideration. Simply put, benchmarking goes beyond market research by looking at deliverables and determining how to induce changes one's systems / processes to realize significant growth improvement and differentiation (Wood, 2009).

Second Stage Benchmarking as a tool of Differentiation

To make an informed decision on prioritization there is a need to take the following steps:

1. Identify and completely define the issue or problem and also define the information to search.

2. Structure the decision hierarchy beginning with the top priority (the objective of the decision) followed by the broad perspective of the objective, then the elements on which these broad objectives depend and finally the lowest level in the hierarchy which represents alternative decisions.

3. Come up with a set of paired comparison measures. Each component on an upper level of the decision pyramid is compared with components in the level immediately below it.

4. Utilize the priorities found in the comparisons to measure the priorities in the level immediately below. This should be done for every element. This is followed by the addition of the weighed values to all the elements in the level below and then getting global or overall priorities. The process of measuring/weighing and adding should continue until all the weights for all the elements in the decision hierarchy are obtained (Saaty, 1982).

A double Analytic Hierarchy Process (AHP) process is developed to split the benchmarking process…