How does Supplier Benchmarking in Logistics Improve Operations?
The logistics industry is the spine and lifeline for various industries, and often serves as the determinant of success or growth for companies, particularly since the rising demand for delivery services, the overwhelming need for convenient couriers, and consumers’ changing preferences. There has also been a steady increase in the reliance of major logistics companies on trustworthy and reliable suppliers for various purposes, leading to the need for data-driven decision-making, supply market intelligence, and supplier benchmarking. Identifying, attracting, and collaborating with the ideal suppliers is crucial to attaining and maintaining success in the rapidly growing and challenging supplier benchmarking industry. Therefore, market leaders are relying on the effective process of supplier benchmarking and utilizing data to determine the best fit suppliers, optimal strategic partnerships, and ideal terms of the contract by comparison. The benchmarking process helps companies compile a set of key criteria and compare potential partners’ performance with ongoing or previous partnerships, to choose the ideal addition to their team and strategies.
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What are the Five Key Criteria Used for Supplier Benchmarking?
Quality:
To successfully conduct supplier benchmarking, companies must maintain a scorecard to measure, evaluate, and compare potential partners’ performance as per their chosen Key Performance Indicators (KPI). In a growing and highly demanded industry, ensuring the quality of products and services is imperative to maintaining high customer satisfaction levels, gaining a competitive edge, and differentiating services from other companies. Procurement in the logistics industry can include transport vehicles, storage containers, employees and service personnel, machinery and loading equipment, financial services, legal services, and various other major products or services. The quality of these procured products and services directly impacts the quality of offerings provided by the company to its customers and is a crucial determining factor for the selection or elimination of a potential partner.
Delivery:
When choosing suppliers and potential strategic partners, companies must be sure of an alignment pertaining to timelines, deadlines, expected quality, and as the listed purchase order. Ensuring that products and services are procured, produced, and distributed within a stipulated timeline is essential to maintain high customer satisfaction levels, engage major clients, and expand operations. The logistics industry is challenging, and failure to adhere to timelines can lead to significant backlash and customer attrition. This particular KPI also includes ensuring that delivered products are in optimal condition, undamaged, and functioning as intended and that all orders are received in full. Any missing components, damaged or broken pieces, or unexpectedly delayed deliveries can signify future complications, disagreements, or delays, and must be considered during the decision-making process.
Cost:
As industries have expanded, predicting and determining the ideal costs and prices has become increasingly challenging, and companies often struggle to make the right choices for their operations, saving strategies, and expense budgets. Therefore, procuring and studying data regarding costs incurred by suppliers is important. Additionally, it is crucial to compare the prices and costs being offered and incurred with other industry benchmarks, including past contracts, current partnerships, and industry benchmarks. Supply market intelligence has become an imperative tool in making the ideal decisions pertaining to supply chains, procurement, and sourcing, and determining the right prices and costs is one such crucial purpose of this tool.
Service:
Interactions, service exchanges, and transactions with potential partners must be well-handled, easily resolved, and lead to sustainable dynamics between both parties. Creating a collaborative, supportive, and mutually beneficial relationship is crucial to the growth of the company, successful delivery of procured products and services, and sustainable future relationships. The quality of customer service and collaboration of potential partners should be determined as per compliance rates, responsiveness to company needs, and ability to cooperatively address and resolve issues easily. This KPI can have a major impact, and while high-quality, fast delivery, as well as impressive scores on all other metrics, are highly crucial, a lack of customer service must be given priority above the rest, as it can lead to non-compliance, losses, and other financial or relational challenges.
Risk:
Across industries, risks continue to rise as demand and competition increase, and companies often fail to address the importance of risk assessment and mitigation, particularly when identifying and accepting potential partners. Industry risks can be predicted and planned for, if companies remain vigilant. When addressing supply chain risks and complexities, companies often utilize supply market intelligence and must ensure the same tool is applied when attempting to find a potential strategic partnership. It is important to assess the suppliers’ knowledge of potential or current risks, risk assessment efforts, and approach to current or upcoming risks. This KPI also includes evaluating the suppliers’ risk mitigation and management attempts, and their ability to appropriately mitigate future risks, and minimize the impact of inevitable risks.
Benefits of benchmarking in logistics
Performance Improvement:
Benchmarking allows logistics companies to compare their performance against industry peers or best-in-class organizations. By identifying performance gaps, organizations can set specific improvement targets and develop strategies to enhance their logistics processes. This can lead to increased efficiency, reduced costs, and better overall performance, ultimately contributing to improved customer service and satisfaction.
Cost Reduction:
Through benchmarking, organizations can identify areas where they are overspending or where their costs are higher than industry averages. By pinpointing these cost drivers, logistics companies can implement cost-saving measures, such as process optimization, route planning, and inventory management improvements. This can lead to significant cost reductions and increased profitability.
Continuous Learning and Innovation:
Benchmarking encourages a culture of continuous improvement and innovation within logistics organizations. By analyzing best practices and performance metrics from benchmarked peers, companies can learn from others in the industry and adapt new approaches and technologies to enhance their logistics operations. This promotes the adoption of innovative solutions and ensures that logistics operations remain competitive and adaptable in an ever-changing market.
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Success Story
In the highly demanded and rapidly transforming logistics industry, many companies are faced with the significant challenge of identifying and partnering with the best-fit suppliers to help them achieve their targets and efficiently deliver consumers’ needs. A leading logistics service provider in North US aimed to choose the best partners for their business as they expanded their business to more states, and wanted to ensure sustainable success for future strategic partnerships. Therefore, the company chose to leverage SpendEdge supplier benchmarking solutions and choose the ideal partners for their rapidly expanding business. With guidance from our experts, a proper understanding of the right KPIs and metrics, and comprehensive insights into requirements from future partners, the company successfully identified and chose new suppliers to work with. By utilizing supply market intelligence and supplier benchmarking, the company chose a partner that met all requirements, helped the business grow at an exponential rate, enabled cooperation and communication, and assisted in streamlining the supply chain.
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