L5M4 Tutor Slides 4.3

CIPS Level 5 Advanced Diploma in
Procurement and Supply

Module: Advanced Contract and Financial Management
[L5M4]
Leading global excellence in procurement and supply

Learning outcome 4: Analyse and Apply financial
Performance Measures that can Affect the
Supply Chain
All rights reserved. These slides are provided exclusively to CIPS Approved Study Centres for the sole purpose of teaching CIPS Professional Qualifications, they are not to be
used for any other purpose and may not be altered, copied, sold or lent to other parties. Copyright ©2018 CIPS
Slide 28
• Analyse and apply financial and performance
measures that can affect the supply chain
• Analyse approaches to benchmarking that can be

applied to measuring the performance of the supply
chain

4.3 Benchmarking
• “Benchmarking is a technique which an organisation measures its
performance against that of the ‘best-in-class’ to determine how those
organisations achieved their performance levels and uses the acquired
information to improve its own performance.”
• Benchmarking is a systematic comparison of an organisation’s methods or
performance with those of other relevant organisations.
• It is designed to provide insights about how another organisation achieves
specific results, to enable the organisation to better assess its own
methods and make improvements.
• Common features of benchmarking;
o Identifying
o Measuring
o Comparing
o Learning
oused forimproving
any other purpose and may not be altered, copied, sold or lent to other parties. Copyright ©2018 CIPS

4.3 Benchmarking
• While benchmarking is achieved by specific reference to
and comparison with other organisations and industry best
practice, benchmarking does not involve simply adopting
the same methods, policies, procedures etc as those of a
more successful competitor.
• The central pillar of benchmarking is understanding how
another organisation achieves a specific result.
• The questions it addresses are as follows:
o Who is better?
o Why are they better?
o What actions must be taken to improve our own performance?

4.3 The use of Benchmarking in Supply
Chains
• A key benefit of benchmarking supply chain performance is that
it helps to contextualize the organisation’s performance
against industry standards.
• Benchmarking needs the commitment of top management in
order to be effective as a tool for performance improvement.
• Elements necessary for benchmarking success:
o Unqualified support for the project by senior management
o A clear definition of the scope of the benchmarking effort
o A clear definition of objectives
o A solid data foundation in the areas to be benchmarked
o Understanding of the company’s historic performance in the
areas to be benchmarked

4.3 Elements for Benchmarking Success
(cont.)
o Good and frequent communication across each of
the different levels of the organisation and its
departments
o Adequate resources and training given to the
benchmarking team.
o Any recommendations agreed rather than
imposed, with agreement by all affected
departments and as many stakeholders as possible.

4.3 Reasons for Benchmarking Failure
• Lack of sponsorship
• Employee resistance
• Team issues
• Lack of long-term management commitment
• Focusing on the numbers rather than on the organisation’s
processes
• Failure to position benchmarking within a larger strategy
• Failure to understand organisational mission, goals, and
objectives
• Unnecessary site visits
• Failure to monitor progress
• Failure to view benchmarking as an ongoing process

4.3 Supply Chain Operations Reference
(SCOR) Model
• The SCOR model is a widely used benchmarking
framework.
• It is a management tool used to address, improve, and
communicate supply chain management decisions
within a company and with suppliers and customers of a
company.
• The model describes the business processes required to
satisfy a customer’s demands.
• It also helps to explain the processes along the entire
supply chain and provides a basis for how to improve
those processes.

4.3 SCOR Model
• The model addresses five (5) supply chain attributes being:
Reliability, responsiveness, flexibility, costs and asset management.
• Each attribute has metrics that can be selected to suit an
organisation’s supply chain.
• There are total of 250 metrics with three levels of analysis:
o Level 1 - organisation and hierarchical structure
o Level 2 - process level
o Level 3 - diagnostic level
• Level 1 metrics are designed to provide a view of overall supply chain
effectiveness.
• Level 2 metrics serve as diagnostic measures to determine key
performance elements to achieve level 1 metrics.
• Performance metrics at level 2 explain performance gaps or
improvements for level 1 metrics

4.3 SCOR Processes
There are six key processes in the SCOR model:
•Plan – demand and supply planning
•Source – acquisition and management of inventory
•Make – production activities
•Deliver – delivery activities including; order
management, warehousing, receiving, invoicing etc.
•Return – handling returns such as containers, packaging
•Enable

4.3 Benefits of Using the SCOR Model
• Increased speed of system implementations
• Improved business agility – quick response to changes
in the market
• Accelerated business process effectiveness – lead to
improvements in cost efficiency and responsiveness
• Improved inventory turns – high stock turnover
• Support for organisational learning goals
• Improved overall operational performance

4.3 Comparison of Business Units,
Competitors or Other Industry Players
• An organisation can benchmark itself against any
other organisation or target that has been identified
as best-in-class.
• Benchmarking can consider business units,
competitors, and other industries.
• Benchmarking can be either of the following:
• Internal – conducted within the large organisation,
e.g., to compare and contrast the ways in which each
(business units, sites, project teams) performs with
regard to policies, processes and procedures.

• Benchmarking by comparing internal operations (i.e.
business units) is termed internal benchmarking.
• This is typically conducted by large organisations with
a number of different divisions, branches and business
functions spread across different locations.
• By comparing different business units, sites, project
teams, etc., an organisation can compare and contrast
the ways in which they perform with regard to
policies, processes and procedures.
• See examples page 306…

Figure 4.51 A classification of benchmarking types
Slide 35
4.3 Internal Benchmarking -
Advantages
• Promotes a culture of continuous improvement
• Ease of communication
• Data sharing within the organisation (minimum
security risks)
• Require less resources to acquire data (available in-
house)
• Lessons learned will employ the same systems and
culture already in place in the organisation (need no
change management)

4.3 Internal Benchmarking -
Disadvantages
• Can create complacency and too ‘inward looking’
• May not be comparing the ‘best-in-class’ and solely on
existing operations.
• May create unhealthy competitive within the
organisation.
• Internal bias may result in adopting the wrong
measures

• External Benchmarking – conducted against
competitors and other industry players:
o Competitive benchmarking – comparison by reference to
competitors and against industry leaders, e.g., CSR reports.
o Generic benchmarking – comparison against organisations
in different industries. For example, a hospital’s
management might compare the hospital admission process
to the check-in process at a hotel chain, examining systems,
processes and timeframes.
o Functional benchmarking – comparison of functions, e.g.,
purchasing and supply, finance, etc., with similar functions in
other, possibly dissimilar, organisations.

4.3 Competitor benchmarking -
Advantages
• Enlightens an organisation on its competitors’
performance in relation to their own (processes,
attaining competitive advantage etc).
• It enables better understanding of competitors. It
creates an understanding of where competitive
advantage may be located and whether efforts to
improve upstream or downstream operations are
required to compete effectively.
• May facilitate partnerships in the near future.
• Enables organisations to assess different approaches to
regulatory issues.

4.3 Competitor benchmarking -
Disadvantages
• Difficult legal issues such as issues on confidentiality
intellectual property rights.
• Benchmark against a competitor who may not be
significantly better and could have very similar processes
• Data obtained may be limited by trade secret.
• The reluctance and cooperation of the competitors
• There is a risk that data sharing with competitors could later
enable them to capitalize on any areas of weaknesses.
• Direct competitors may see no value in taking part, or may
wish to protect their supply chain from external scrutiny.

4.3 External Benchmarking Methods
• The type of benchmarking an organisation selects (competitive,
generic or functional) will affect the decision it makes about which
companies to benchmark against.
• Selecting a suitable benchmarking partners is important.
• Selection of external benchmarking partners usually involves one of
three possibilities:
• Direct approach – a company (the best-in-class) is contacted directly.
• Benchmarking club – members of a specific sector collaborate to
share information.
• Database benchmarking – organisations compile and supply
information in a specified format to a third party who then compares
the information and re-issues it to the originator in such a format as
to make it impossible to identify the original contributor.

4.3 Problems with Benchmarking
General problems with benchmarking include the
following:
•It can be difficult to identify suitable benchmarking partners.
•It can be difficulty to persuade suitable benchmarking
partners to participate.
•There may be internal opposition to participation in a
benchmarking process
•Prioritisation issues may arise from the inability to
benchmark all processes simultaneously
•It may be difficult to distinguish between those processes
which need to be benchmarked and those which do not.

4.3 Gap Analysis
• The analysis phase of benchmarking identifies the gaps.
• In simple terms, the gap in a benchmarking activity is the
difference between the benchmarked measurement and the
actual measurement of current performance within the
benchmarking organisation.
• Gap analysis methods include graphical methods, such as
spider or radar diagrams, and Z charts.
• These are easy to understand and can show more than one
dimension.
• They provide an overall impression of the organisation’s
current performance against achievable benchmarks.

4.3 Performance Improvement
• Performance improvement can be seen as a journey.
• It is never ending as performance can always be improve.
• The starting point is to improve processes that in turn
improve metrics and eventually lead to improvements in the
bottom line.
• In public sector, to bottom-line equivalent would be better
value for money.
• Performance data is information that is intended to help the
organisation make sense of its own activities, what it wants
to do, and how and why it will do it.
• These questions have to be systematically integrated into the
organisation’s strategy making.

Learning exercise: Confidential Waste Disposal
As part of Taylor’s role, he had to ensure that the local authority
were getting a fair quality service in regard to having their
paperwork collected and destroyed. With GDPR high on
everyone’s agenda, he had to be certain the supplier was
performing well. Taylor spoke to another local authority to
compare their service. He also instigated an external audit.
1.What type of benchmarking did Taylor undertake?
2.What type of feedback did he get?
3.How could Taylor gain understanding of how his internal
customers found the service?

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CIPS Level 5 Advanced Diploma in

Procurement and Supply

Leading global excellence in procurement and supply

• Analyse approaches to benchmarking that can be

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply

Figure 4.51 A classification of benchmarking types

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply

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