Supply Chain Security, Benchmarking, and 3PL Logistics

Benchmarking Methodology and Objectives

A benchmark is defined as an agreed-upon or standard reference point used to measure quality or value. In the business environment, the benchmarking process is one through which a company agrees upon standards to measure its progress. This process can be used both externally and internally. There are two fundamental parts of a benchmarking process: performance assessment and continuous improvement. There are also three basic types of benchmarking: the first involves comparison using internal data, the second has the company assess relative service performance, and the third involves evaluating the supply chain performance of various organizations, even those that may not necessarily be competitors. The benchmarking process makes use of supporting processes such as data analysis and reporting. When done properly, benchmarking can help bring about product innovation, which can in turn help a company achieve significant growth, establish a competitive edge, and create new customer value. Benchmarking is also important because it helps organizations move forward decisively and meet new challenges head on. One challenge that can arise when implementing benchmarking processes is a lack of cross-functional cooperation across a company. This challenge can, however, be overcome by forming cross-functional management teams that encourage collaboration and support decisions for product innovation (Gilmour, 1999).

Benchmarking can also be defined as the measurement of the quality and value of a company's products, strategies, policies, and programs, and the comparison of these with internal data or with similar data from organizational peers. A benchmarking process has three key objectives: first, to determine whether any improvements are needed and where they are required; second, to determine how an organization's peers are achieving high growth levels; and third, to use this data to enhance the company's own performance or growth. A properly executed benchmarking process identifies and puts into practice the best industry practices. Leaders contrast the performance of their processes or products with those of their top competitors, and then adapt the processes they find are driving the most growth among 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 own performance by integrating those superior processes — not through outright imitation, but through improvisation or innovation. Organizations typically engage either in best practices benchmarking, where 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 related aspects such as product specifications, software solutions, management practices, and operational performance in order to benchmark a supply chain business effectively. When used together with improvement programs, a benchmarking process is a useful tool for measuring performance, determining best practices, identifying which improvements need to be implemented, and evaluating a business's performance 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, managers should translate those 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 consist of a wide set of goals, including quantifiable ones. If the organization is a publicly owned firm, these objectives are communicated to stakeholders through an annual general meeting and an accompanying annual report, which may include specific quantifiable deliverables such as return on assets or sales growth. Underlying these quantified measures are several implied business-unit or company-level goals that must be 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 managers engage their superiors and other stakeholders, several major strategic objectives ought to start emerging. These identified strategic objectives often lack specific details about how they will 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 achievement, the objectives might never be realized. The next phase in the supply chain benchmarking process is to develop targets for improvement. This entails determining the current baseline performance for all defined measures and then contrasting this performance with that of competitors. When evaluation metrics are used in conjunction with continuous improvement, a competitive edge can readily be gained (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 and Continuous Improvement

The addition of the second phase — continuous improvement — represents an advancement over the traditional benchmarking process, since many such processes often terminate at the assessment stage. However, to gain the most from a benchmarking process, 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 develop a strategy for collecting and incorporating data to improve results. In identifying benchmarking partners, one must select only those organizations that exemplify high performance (O'Dell, 1993). If the benchmarking peers are competitors, they may be reluctant to share their data, and thus different approaches must be explored to collect this information. When the data is collected, the "learning points" should be integrated into the company's strategic plan and implemented through its performance improvement processes. The gains made must be fully embedded in the organization so as to achieve performance equal to or better than that of the benchmarking peer.

A benchmarking process can be conducted 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 collective progress toward strategic goals. 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 toward its best-ever performance. In the current competitive business environment, organizations must constantly improve their performance to remain viable. The significance of the benchmarking process has been recognized by many organizations and industries — especially those that must change quickly and learn continuously from one another, such as the oil and gas industry, where firms must adapt rapidly to ever-changing regulatory, technological, and business demands. Many oil companies participate in organized benchmarking conducted by OPEC (Organization of Petroleum Exporting Countries).

Benchmarking is not simply an analysis of one's competition. It goes much deeper, establishing what a competitor does that the company under review does not, and how that can be incorporated into the company's own operations. Simply put, benchmarking goes beyond market research by examining deliverables and determining how to induce changes in one's systems and processes to realize significant growth, improvement, and differentiation (Wood, 2009).

To make an informed decision on prioritization, the following steps should be taken:

1. Identify and completely define the issue or problem, and also define the information to be searched.

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

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

4. Use 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 adding the weighted values for all the elements in the level below to obtain global or overall priorities. The process of weighing and adding should continue until all the weights for all elements in the decision hierarchy are obtained (Saaty, 1982).

A double Analytic Hierarchy Process (AHP) is developed to split the benchmarking process into two parts: performance assessment and continuous improvement. Both quantitative and qualitative aspects must be taken into account. The first part — performance assessment — aims to measure and compare the performance of the benchmarked firm against its peers, while the second phase — continuous improvement — aims to identify the best industry practices from improvement alternatives derived from data obtained in the first phase. This framework can be used to assess the performance of a case company against its competitors and to help executives choose the best improvement alternatives to enhance performance on its weakest metrics. Although the double AHP process allows for measurement of both quantitative and qualitative aspects, the measurements may differ across companies (Chan, Chan, Lau, & Ip, 2006).

Third-Party Logistics (3PL) in Supply Chains

Services provided by third-party logistics (3PL) companies represent an alternative to services offered by first- and second-party logistics providers. Smaller suppliers may purchase access to supply chain management (SCM) resources based on cost and sales data. Hinson (2005) argued that management assistance and services can be relatively inexpensive when purchased alongside product items and services such as transportation. A small retail company may utilize a 3PL company to procure and transport its produce, which might greatly increase the company's efficiencies. A produce wholesaler might also use a 3PL company as a transport service provider; the 3PL firm may then use its client's sales data to harmonize inventories for individual clients and thereby reduce transportation costs through better utilization of its hauling capacity.

The two most common types of supply chain relationships are horizontal (collaborations or parallel) and vertical (buyer-seller). With regard to intensity of involvement, inter-organizational relationships may range from relational to transactional and may take the form of strategic, partner, or vendor alliances. Third-party logistics companies can be understood as external suppliers engaged in carrying out their clients' logistics functions. It is important for 3PL companies to offer multiple services and to integrate those services in terms of management and delivery. There are different types of third-party logistics providers, including: information-based; financial-based; forwarder-based; distribution/warehouse-based; and transportation-based suppliers.

Clients have substantial IT-based expectations from their third-party logistics providers and believe these service providers prioritize such requirements. Over 66% of clients engage third-party logistics firms in their global supply chain activities. Although most clients are satisfied with the current level of 3PL services, many believe there is considerable room for improvement. Collaborative relationships have been identified as vital to the attainment of long-term supply chain goals. The "Seven Immutable Laws of Collaborative Logistics" offer a framework for establishing and implementing a successful supply chain. Contracting 3PL firms for value aims to enhance not only service delivery but also financial performance — not to add costs to the consumer and thereby risk the buyer-seller relationship. Activity-based contracting and profit sharing can create effective third-party logistics relationships (Hinson, 2005).