In 2019, the company at the top of the list was consumer packaged goods manufacturer Colgate-Palmolive, whose inventory turns were strictly average at 5.0, but whose return-on-assets score was one of the very best among the Top 25, at 19.9%. Illustrating how the supply chain metrics landscape has changed in just 10 short years, one of the key metrics propelling Colgate to the top spot was its perfect 10.0 CSR score, earned in part due to its “no deforestation” policy.
According to Gartner, following are the top 10 supply chains of 2019:
1 Colgate-Palmolive
2 Inditex
3 Nestlé
4 PepsiCo
5 Cisco Systems
6 Intel
7 HP
8 Johnson & Johnson
9 Starbucks
10 Nike8
Measure Satisfaction
When it comes to measuring overall supply chain performance, companies typically focus on benchmarking metrics, such as those established in the Supply Chain Council's SCOR model, which we'll look at later in this chapter. Delivery performance, fill rates, perfect order fulfillment, cash-to-cash cycle time, inventory turns—these are some of the standards by which supply chains are judged, to determine whether they're best-in-class, fair-to-middling, or knocking on death's door. So let's take a look at how some top-performing companies are tracking their supply chains.
Automaker Hyundai, for instance, uses its parts distribution operation to build customer loyalty. The company's goal is to provide high levels of customer service while keeping its costs as low as possible. In this case, the customers are Hyundai dealers, and through dealer satisfaction surveys the company has learned that order fill rate is the number-one driver of satisfaction among its dealers.
So to ensure that it's keeping its customers happy while keeping its costs down, Hyundai measures the facing fill rate, which is the order fill rate from the warehouse assigned to the dealer. The higher the fill rate, the higher the level of dealer satisfaction. Concurrently, the company can reduce its transportation costs—the goal is to ship parts out of an assigned warehouse on a dedicated delivery schedule. If Hyundai needs to ship parts from another warehouse outside that delivery route, it most likely will need to use an expedited carrier, which is much more expensive.
Hyundai's facing fill rate on orders is about 96%, which is considered good for the automotive industry. The automaker also measures the fill rate for its entire warehouse network, which is 98%, also a high score for automakers. But the company wants to get that fill rate even higher, to reduce its use of premium transportation.
Transportation costs, however, are just part of the total supply chain cost, which also includes inventory and productivity costs. Hyundai monitors the amount of inventory it carries at any given time, with the understanding that best-in-class for the automotive industry won't necessarily equate to another industry's goals, such as the high-tech industry. Automakers carry a deep inventory of parts because their vehicles are designed to last for years. Computer makers, on the other hand, have comparatively small inventories of parts since high-tech products are often considered obsolete after just a few months.
To stay on top of current automotive industry trends, Hyundai belongs to an independent automotive and heavy equipment group that collects performance and cost metrics from member companies and provides benchmarking services.9
Everybody's Talking About Benchmarking
Hyundai has recognized two crucial facts that many companies unfortunately tend to gloss over when they try to evaluate their supply chain performance: (1) It's important to benchmark your supply chain against your peers to get a real-world evaluation of how good (or bad) you're doing, and (2) it's just as important that you recognize the limitations of a benchmark.
The biggest danger in benchmarking is assuming too much from any single study. Many benchmarking studies encompass companies and organizations of all shapes and sizes. Typically, if a company is better than the average, it declares victory and moves on. And if it's worse than the average, the usual rationalization is that it's being benchmarked against other industries, so it's not going to do as well in comparison. In short, the metrics end up being dismissed as irrelevant. This happens more often than you might think because while a lot of attention has been given to the idea of benchmarking, there's not much evidence that many companies are actually doing it.
Penn State's Center for Supply Chain Research, one of the nation's best-known supply chain programs, once sent out a survey to more than 1,200 supply chain executives asking how satisfied (or unsatisfied) they were with their supply chain benchmarking efforts, and they received barely a 10% response. Even members of the Supply Chain Council's SCOR board—a group whose very existence revolves around promoting the adoption of supply chain standards—initially ignored the survey, presumably because they thought they were being asked to fill out another benchmarking survey.10
According to the Penn State study, the number-one reason why companies don't undertake supply chain benchmarking actually isn't that these efforts take a lot of time to conduct (that was the number-four reason)—it's due to a lack of resources. Without enough people (and the right people) to participate in benchmarking activities, and without a sufficient budget, a company's efforts to benchmark its supply chain are doomed before the project even gets started.
The number-two reason is that internal measures and processes are difficult to define. If you don't know what you want to measure, then how can you discern if what you're doing is up to industry standards? As the saying goes, you can't manage what you can't measure. The third most prevalent deterrent to benchmarking is the difficulty in identifying proper benchmarking partners.
The prevailing attitude toward benchmarking is that the whole exercise falls somewhere in between “optional” and “pointless,” observes Jim Tompkins, chairman of supply chain consulting firm Tompkins International. But nothing, he emphasizes, could be further from the truth.
“While traditional, backward-looking ‘rate and rank' benchmarking is marginalized by the speed and scope of change, the need for process benchmarking—the identification of global best practices and adapting them to a different product or industry—is more important than ever,” Tompkins says. “These ideas are the potential disruptors that each company must either defend against or adapt in order to gain competitive advantage and create a disruption of their very own.” While some companies think of benchmarking as an exercise in continuous improvement, forward-thinking companies now look upon it as “the source for ongoing, transformational change.”11
Do the Right Things
Looking again at the Penn State study, it turns out that more than 90% of the companies who do benchmark are using the results to encourage improved supply chain performance. Reduced operating costs, improved customer service, and improved productivity top the list of accomplishments tied to benchmarking.
“Benchmarking is the process of identifying, sharing, and using knowledge and best practices,” observes Joe Walden, executive director of the University of Kansas's Supply Chain Leadership Center, “which means you've got to admit