Macro-Benchmarking: An Industry Perspective
Benchmarking has been a popular management practice for almost two decades. Benchmarking
seems to be a management practice with a half-life of almost infinite span. Even
before it was called benchmarking, aggressive executives looked to leading-edge
firms for sound business practices. The process was less formal than the process
described in the benchmarking books and articles during the 1980s and early 1990s.
However, the intent of both the formal and informal benchmarking activity was
to identify and migrate best practice to the firm.
As with most management tools, in the rush to adopt, the benchmarking process has often been corrupted in intent to outcomes. For example, firms frequently look for a number as a benchmarking outcome rather than searching for the process that yields the number. Defining a management process requires much more time and skill than simply looking for a number. Numbers such as cost-per- order, logistics cost, order-cycle time, percent of returns, and cost-to-sales become the trophy outcome of a benchmarking exercise. The intent of the benchmarking exercise offers another example of the corruption of the benchmarking process. Management shops different firms until they locate one or more with lower numbers than their firm and then publish a report for senior management announcing what a great job they are doing. These are but two examples of how the intent and outcomes of the benchmarking process can be thwarted.
Objectives
In the past two efforts for this publication, the theme of the paper was "Connectivity, Collaboration, and Customization." This theme remains as the central focus of this paper, but in a modified way. In this paper the focus is on best practice by industry. We use the term "macro-benchmarking" to describe current and future directions of four different industries. We are attempting to look at differences between industries in current practice and perception of future practice. This subsample was drawn from the data collected for our annual Career Patterns study of logistics and supply chain executives during late summer 2002. A total of 32 percent of the respondents were vice presidents, 45 percent were at the director level, and 23 percent were managers. A detailed statement of methodology can be found on the Fisher College of Business Web site (http://fisher.osu.edu/supplychain) under Career Patterns Study. The four industries chosen for this presentation are: retail/ wholesale; computers/electronics; food products/consumer packaged goods; and chemicals/plastics. We believe that these are representative of four different types of industries.
The data are presented as general trends rather than specific forecasts accurate to two decimal points. The first two data points are reported as actual data for past and current performance. The second two data points represent estimates of future activity in specific areas of best practice. These data are not presented as "magic numbers" but as a more macro estimate from qualified executives in the specific industries.
Findings
The findings are presented in a series of five charts that span the theme of "Connectivity, Collaboration, and Customization." In Figure 1, the central focus is the relationship of upstream supplier connectivity and collaboration. The reader will note that all of the charts except Figure 5 slope upward to the right. In Figure 1, the computer/electronics industry sector reports the highest level of relationship with key vendors and is followed by the food industry/consumer packaged goods industry sector. The retail/wholesale sector and the chemicals/plastics are both below all industry average.
Figure 1: Strategic Partnerships With Key Suppliers
Source: Career Patterns, 2002
In Figure 2, the computer/electronics sector leads the four industries by overtaking the retail/wholesale sector in 2002 and continuing its leadership through estimated level of strategic partnership with key customers in 2003 and 2005. The only industry sector below the all-industry average is the chemical/plastics industry sector. It is interesting to note that all industry totals for strategic partnership with key customers doubles in from 2000 to 2005. Even the laggard chemical /plastics industry sector shows a doubling in this relationship between 2000 and 2005. Note also that the retail/wholesale industry sector moves to a strong second place on this dimension from being a laggard in Figure 1.
Figure 2: Strategic Partnerships With Key Customers
Source: Career Patterns, 2002
The computer/electronics industry sector dominates the outcomes on Figure 3. The electronic connection with all key accounts outcomes in 2005 are at least 10 percentage points higher than any outcome from Figures 1-4. All industry sectors except chemicals/plastics are tightly grouped above the all-industry average. The chemicals/plastics industry again lags the pack by a considerable margin. The typical explanation for this outcome by the chemicals/plastics industries would probably be that they have very large customers compared to other industries and are in daily contact with all of their key customers either in person or by telephone.
Figure 3 Strategic Partnerships With Key Third-Party Providers
Source: Career Patterns, 2002
Collaboration (CPFR) with supply-chain partners is the focus of Figure 4. While the 2005 estimates are generally lower than the totals for Figures 1-3, Figure 4 shows the overall highest rate of increase for Figures 1-4. The computer/electronics sector that doubled between 2000 and 2005 and was the clear leader in CPFR among the four industries. The other three industries increased by a factor of 4 to 10 in the period 2000 to 2005. The all-industry average for CPFR increased by a factor of 4 between 2000 and 2005.
Figure 4: Co-Design of Products With Key Suppliers
Source: Career Patterns, 2002
Unlike Figures 1-4, the trend lines in Figure 5 slope downward to the right. The focus of Figure 5 is to present trends in logistics actual and estimated cost as a percent of sales by industry sector. The evidence suggests that all industries are trying to wring as much cost as possible out of the system. The all industry profile suggests that the target reduction in logistics cost as a percent of sales for the period 2000 to 2005 is almost 20 percent. The computer/electronics industry has almost flat logistics cost to sales and the retail/wholesale industry expects more modest cost reduction than the all-industry average. The industry sectors with the highest expectation regarding logistics cost reductions as a percent of sales are chemicals/ plastics (31 percent) and food products/ consumer packaged goods (23 percent).
Figure 5 Short-Cycle Manufacturing
Source: Career Patterns, 2002
Conclusions/Implications
The first and most obvious conclusion from this brief analysis is that the industry classification is an important factor in determining the level of commitment to selected best practices. This conclusion therefore suggests that macro-benchmarking across industries should be done very carefully. This is not to imply that all cross-industry benchmarking should be avoided. Functional or process-oriented cross-industry benchmarking remains a high-yield opportunity for many firms.
In the analysis, Figures 1-3 project a doubling in the metric for: strategic partnership with key suppliers (Figure 1); strategic partnership with key customers (Figure 2); and electronic connection to all key accounts (Figure 3) between 2000 and 2005. In Figure 4, between 2000 and 2005 the respondents project a fourfold increase in collaboration. These data suggest a steady increase in each of these metrics, but with collaboration being the winner in terms of increase over baseline 2000. It is interesting to note that almost regardless of where the actual data points for each industry in 2000 and 2002 are, the projections for 2005 suggest a doubling of the metric on Figures 1-3, a fourfold increase for Figure 4.
The presentation on industry cost experience and projections are presented in Figure 5. The patterns in Figure 5, which slope downward to the right, are different from the patterns in Figures 1 thru 4. These data suggest a continuing pressure on logistics/supply chain cost-cutting as a continuing effort through 2005. This could suggest that difficult economic times require that all of the firm's functions must share the pain. On the other hand it could also suggest that the respondents feel that there is more "fat" in the logistics/supply chain network and that they expect to work on these cost-reduction opportunities over the next several years.
Based on these finding, we can attempt to draw some general threads that seem to run through the data presented in Figures 1-5.
- The computer/electronics industry segment appears to be most innovative,
and the chemicals/plastics industry segment appears to be least innovative
in the best practices presented in Figures 1-5.
- In Figures 1-4, all past, current, and future data points slope upward to
the right. This is particularly true for the forecast data segments. This
suggests that the respondents to the survey expect strong growth in these
selected supply chain best practices in the future.
- In Figures 1-4, each industry segment reported gains in the selected best
practices, some of them significant, for the period 2000 to 2002. While the
forecast gains were higher for most industry segments, the actual data points
for 2000 and 2002 indicate that respondents were already working on improving
these selected best practices.
- All industry results in Figure 5 indicate that most firms in the total respondent base expect to reduce costs by about 20 percent in the period 2000 to 2005. It is interesting to note that Figure 5 is the only figure where all of the target industry segment data points fall below the all-industry totals. Figure 5 indicates that all industries will be under continuing pressure to reduce costs at least until 2005 and perhaps longer.
We have presented these data as macro-benchmarking metrics. The single number for the last two years represents a high-level strategic goal for the respondent companies. It is subject to all the bias of small sample size, respondent definition of terms, and CLM-only respondents. On the other hand, there is little research on supply chain best practices by industry sector, and this effort represents an exploratory effort to provide up-to-date forecasts of future directions. As hockey great Wayne Gretzky said: "I always skate to where I think the puck will be."
