Benchmark performance against the best-in-class
Staff -- Purchasing, 5/15/2003 2:00:00 AM
When considering investment in supply management software, first take a pulse of your organization's performance. No matter where you think you are, conduct benchmarking with comparably sized companies in a variety of different industries. Benchmarking not only establishes a baseline of your organization, it determines the gap to world-class companies. Even winners of PURCHASING's Medal of Professional Excellence fall short of world-class best practices in some spots. Make sure you're at least above average in all important categories and approaching world class in one or two.
The Hackett Group, a research company that measures supply performance, defines world class as those companies scoring in the top 25% both in efficiency (cost and productivity) and effectiveness (quality and value).
Hackett examines world-class performance in five broad categories: strategic alignment, partnering, process, technology and organization. "Process" alone covers 14 topics and more than 200 best practices. Your analysis need not be so comprehensive. Within process, pick just five or so topics that are most important to your company or market sector.
Sourcing processes are a good place to start. For example, three best practices for sourcing strategies are:
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Development of a common commodity management strategy framework that includes strategy plans developed for all major commodity areas;
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Annual review and update of sourcing strategies to reflect linkage to your company's strategic growth plans, markets, production plans and business ventures.
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Backup suppliers for all strategic plans.
Those three items seem obvious and basic, but are sadly lacking even in many Fortune 1000 companies. A well-known telecommunications manufacturer, for example, shut down production lines for a week last year because a single-plant manufacturer of a simple product (not even classified as strategic by the company) was shut down by a flood in France. In a best-practice scenario, a design engineer could not have locked a manufacturer into a sole source. Purchasing oversight would have included a back-up source or a supply chain contingency, such as safety stock held at a distributor on a consignment basis.
Many famous companies are just starting to develop commodity teams. They were slow to jump on the bandwagon because corporate culture forbid centralized purchasing. Today, center-led purchasing is a hot trend. If you're just starting this process, don't reinvent the wheel. Use technology to benchmark where you stand versus best-in-class and identify where to start. Be sure your technology partner has the ability to support your best practice efforts.
For more information on Hackett benchmarking standards go to www.thehackettgroup.com. The issues were reviewed in a Webcast that can be viewed at /drivingvaluewebcast.
Fill out a survey on benchmarking at www.purchasing.com/peoplesoftsurvey and win a chance at a $500 gift certificate from The Sharper Image.
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