Supply chain management
Supply
chain management is often explained with reference to Porter’s value chain and
value systems. According to a leading authority (Christopher, 1998): “ The
supply chain is the network of organizations that are involved, through
upstream and downstream linkages, in the different processes and activities
that produce value in the form of products and services in the hands of the
ultimate consumer.
Benchmarking
Definition:
CIMA
defines benchmarking as: “The establishment, through data gathering, of targets
and comparators, through whose use relative levels of performance (and
particularly areas of underperformance) can be identified. By the adoption of
identified best practices it is hoped that performance will improve”.
Purposes
of benchmarking:
q
A sales variance may indicate to what extent
a fall in revenue is due to a fall in sales volume and how much to a fall in
price. It does not indicate why people are less inclined to buy our product or
are now only prepared to buy it at a lower price.
q
A variable overhead variance may show us that
factory overheads are rising. It does not tell us why we need to hold a greater
stock of inventory than before.
q
An analysis of our sales returns may show
that products are being returned more than before. It does not tell us what is
wrong with them or why people are buying a competitor’s product.
The
purpose of benchmarking is to help management understand how well the firm is
carrying out its key activities and how its performance compares with
competitor and with other organizations who carry out similar operations
In its Management
Accounting: Four types of benchmarking
1. Internal benchmarking: A method of
comparing one operating unit or function with another within the same industry
[assume it means ‘firm’ rather than industry].
2. Functional Benchmarking: Internal
functions are compared with those of the best external practitioners of those
functions, regardless of the industry they are in.
3. Competitive benchmarking: Information
is gathered about direct competitors, through techniques such as reverse
engineering [decomposition & analysis of competitors’ products].
4. Strategic benchmarking: A type of
competitive benchmarking aimed at strategic action and organizational change.
Stages
in setting up a benchmarking programme:
1. Gain senior management commitment to the
benchmarking project. To ensure that the programme enjoys the
co-operation and commitment of managers it is essential that the senior
management publicly and unequivocally endorse the benchmarking programme.
Senior
managers should be informed of:
q
The objectives and benefits of benchmarking;
q
The likely costs of the programme;
q
The possibility that sensitive data may be
revealed to outside organization;
q
The long-term nature of a benchmarking
programme and the likelihood that business improvements will take time to
achieve.
2. Decide
the process and activities to be benchmarked. To work properly this
should commence by identifying the outcomes which drive the profits, sales and
costs of the business. Factors which might be considered are:
q
Activities which generate the greatest costs;
q
Processes which have been the subject of
customer complaints;
q
Processes essential to delivering the firm’s
competitive advantage.
Practitioners
recommend that benchmarking considers entire processes rather than individual
departments.
Rank Xerox
identified a number of processes which could be measured and improved to ensure
that clients enjoyed ‘best in class’ reliability from their machines. One of
these was the quality and reliability of the service engineers.
3. Understand
the processes and develop appropriate measures. Mapping the processes
involves three sorts of activity:
(a) Discussion
with key stakeholders in the process. Obviously this will include the process
managers but also should include the operative staff, customers and suppliers.
(b) Observation
of the process. The benchmarking team should be prepared to walk through the
process, observing and documenting the activities and any problems they see.
(c) Experimental
approaches involve making adjustments to the process or trying to force it to
make mistakes in order to understand how it works better.
Rank
Xerox discovered that a major source of customer frustration was the length of
time that machines were out of action. Discussions with engineers revealed that
a major problem was the sheer diversity of machines and parts and the
difficulties in getting these parts in good time.
In
the short term attention was focused on the processes of:
o
Conducting routine preventative maintenance;
o
Allocating engineers to breakdown calls;
o
Inventory management of spare parts;
o
Delivery of spare parts to engineers on site;
o
Quality of technical back-up to engineers on
site.
The actual
KPIs used by Rank Xerox remain confidential, but the following might be
suggested as helpful:
·
Incidence of call-outs which could have been
avoided by better preventative maintenance;
·
Length of time between receipt of service
request and arrival of the engineer on site;
·
Length of time taken to fix the machine;
·
Length of time needed for parts to arrive
with the engineer;
·
Inventory levels in the service depots (and
particularly stock-outs);
·
Number of call-outs delayed due to need for
engineer to gain assistance from colleagues.
4. Monitor
the process measurement system. The measures will need time to bed down.
There are two aspects to this:
a) The need for data capture systems to
become reliable. For example, for operatives to learn to fill out the forms
correctly.
b) The need to establish the reliability
of the measures themselves. In new control systems it is quite common to find
that some key performance indicators do not relate to the strategic outcomes
very well. This is usually because management misunderstand the drivers of
their business success.
Consultants
recommend that the system be operated for at least a year before its measures
are taken as reliable. As the above Motorola example shows, benchmarking is not
limited to numerical performance. Recognition of differences in organizational
structures and staffing procedures in often a valuable outcome of the exercise.
5. Choose
appropriate organizations to benchmark against. There are four sources
of comparative data:
a) Internal
benchmarking: These are other branches within the same organization. The
basis of this approach is to identify which branch conducts each measured
activity the best to enable best practice to be identified and transferred to
other branches.
b) Competitive
benchmarking: This involves comparing performance with rival companies.
This presents problems with data access and hence is usually carried out
through a benchmarking center.
This will be a central authority such as an industry association or
professional body. It will collect data from each participant, then supply an
analysis to each firm showing its relative performance against the ‘best in
class’ under each activity as well as its overall relative position in the
industry.
c) Activity
(or process) benchmarking: The firm may share operations in common with
noncompetitive external organizations. For example, Rank Xerox in the USA is known to have compared several aspects of
its inventory management with Texas
d) Generic
benchmarking: This is benchmarking against a conceptually similar
process. It is unlikely that this will result in comparison of detailed
measures but rather the observation of methods and structures. Motor
manufacturers are known to have studied the pit-crews of Formula one racing teams
to help them reduce the changeover times on their factory production lines.
Rank Xerox studied the US
6. Obtain
& analyse data. For example, John Welch, Quality Mangers of Rank
Xerox writes:
‘We
compared our distribution against 3M in Dusseldorf, Ford in cologne,
Sainsbury’s regional depot in Herefordshire, Volvo’s parts distribution
warehouse in Gothenburg and IBM’s international warehouse and French
warehouse.’
7. Discuss
results with process management and staff: Benchmarking is not supposed
to be a process which pinpoints people to blame for poor organizational
improvement. Rather it is an opportunity for improvement. For this reason, any
instance of below-par performance should trigger detailed consideration of ways
forward with this management and staff involved. Factors to watch out for here
are:
a) Differences in the operating environment.
For example, call-out time is bound to be higher in sparsely populated areas
due to the need to travel greater distances.
b) Differences in factor endowments.
Frequently the very high labour productivity of one plant is compared with the
poor performance of another without considering that the former has the benefit
of much greater mechanization of processes.
c) Differences in product or customer mix.
Management
should have every opportunity to explain possible reasons for deviations in
performance. It helps no one to set targets which are intrinsically
unattainable.
8. Develop
and implement improvement programmes. Benchmarking simply monitors
relative process performance. It cannot improve it. Once the management accept
that there are serious deficits in certain processes, it must look for ways to
improve things. This can include: Benchmarking simply monitors relative process
performance. It cannot improve it. Once the management accept that there are
serious deficits in certain processes, it must look for ways to improve things.
This can include:
a)
Visiting the best-in-class to see how they do
things;
b)
Work study and process improvement
programmes;
c)
Capital investment in R & D and better
production and information processes;
d)
Product redesign;
e)
Management and staff training;
f)
Outsourcing;
g)
Organizational restructuring
Evaluation
of benchmarking:
The main
benefits of benchmarking are:
1. (a) Increased customer satisfaction;
(b) Reduced waste and costs of poor quality;
(c) Reduced overhead through business simplification;
(d)
Transmission of best practice between
divisions;
2. It can assist in overcoming complacency and
drive organizational change.
1.
It
provides a way to monitor the conduct of competitive strategy.
4. It
provides advance warning of deteriorating competitive position.
5. It
improves management understanding of the value-adding processes of the business.
Gap
analysis
Definition: A comparison between an
entity’s ultimate objective (most commonly expressed in terms of demand, but
may be reported in terms of profit, ROCE etc.) and the expected performance of
projects both planned and under way. Differences are classified in a way which
aids the understanding of performance, and which facilitates improvement.
Example of a gap analysis diagram
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