What is Supply Chain Benchmarking?

Supply chain benchmarking is a management tool companies use to measure the efficiency and effectiveness of their supply chain. Supply chain benchmarking often focuses on how companies use a supply chain to benefit consumers, the costs associated with the supply chain, and the resources used to develop and deploy a consistent level of service by way of the supply chain.

A supply chain is an organizational system companies use to move consumer products from their warehouse to consumers. Supply chains often include a variety of different companies, such as delivery companies, warehouses, distributors, and retailers. Business owners and managers use benchmarking to compare their company's supply chain with a competing company's supply chain or the industry standard. Benchmarking is a management tool that allows companies to improve their operational performance.

Supply chains increase a company’s lead time for making profits from the sale of individual consumer goods. Manufacturing and production companies often have longer supply chains because they use several other companies to deliver, store, and sell goods to consumers. Supply chains can also affect the regional or national sales of a company. The longer it takes a company to ship goods to warehouses or distributors, the longer companies must wait to earn profits. Supply chain benchmarking allows business owners and managers to compare their supply chain process to another company and determine which one is more effective. Owners and managers may also compare their supply chain performance to previous periods to see if previous changes to the supply chain incurred any improvements.

Measuring cost is a common focus of supply chain benchmarking. Owners and managers will calculate the amount of cost associated with each company in the supply chain. Each organization in the company's supply chain raises the cost of individual goods flowing through the chain. Companies will pass these costs on to consumers in order to improve their profitability. Benchmarking costs can help owners and managers discover whether recent cost increases are creating unfavorable conditions for selling consumer products.

Companies often devote copious amounts of economic resources to their supply chain process. Not only does a supply chain require the company to spend capital to pay for the services of other organizations, but it can also use a company’s labor and equipment for packaging and sending products through the supply chain. Owners and managers measure this process using supply chain benchmarking to determine the opportunity cost of using economic resources on the supply chain rather than other parts of the company. An opportunity cost represents the second best use for company’s capital and other resources. Companies benchmark use of economic resources and supply chains to determine whether they can create their own internal process for delivering goods to consumers.