SAP Performance Benchmarking in Supply Chain Management

SAP briefed ARC a while ago on its benchmarking services, the company’s version of the benchmarking metrics offered by the Supply Chain Council (SCC) and the Warehouse Education Resource Council. In fact, SAP tells us that it is “compliant” with the SCC’s Supply Chain Operations Reference (SCOR) model. This basically means that many, but not all, of SAP’s metrics come from the Supply Chain Council, the gold standard for supply chain management metrics.

As with SCOR, SAP uses predefined metrics, and users enter their data into the survey tool and then they can see how they compare on a given metric to others who have used the tool, including others from their industry.

SAP’s benchmarking tool is user friendly. For example, if you put your cursor over a metric, its definition appears. SAP also claims that every survey is validated to ensure accuracy.

SAP offers benchmarking in many functional areas, not just in supply chain management. In the supply chain arena, it offers benchmarking around transportation and warehouse management, supply chain planning, lean, manufacturing, and procurement.

SAP told us that it has three hundred “value engineers” and that it has helped to develop about 1,500 business cases since the end of 2004 when this program started. A value engineer is someone who gets existing or potential customers to use the benchmarking tool and then uses the results to help the customer develop a business case and roadmap for their business transformation. The benchmarking is free, but SAP hopes that in cases where companies are performing below average — are “laggards” in benchmarking jargon — the prospect will understand that investing in supply chain software can be part of the solution to achieve better performance.

For example, let’s say you are a prospective customer and “Inventory Days of Supply” is an important metric for you, a metric where you are a laggard and if you can improve your performance on it you could save a lot of money. SAP’s value engineers have templates that contain best practices or strategies to improve on that metric. In this case, one of the four high-level strategies to improve Inventory Days of Supply is to implement a collaborative demand planning process. There are four things SAP associates with collaborative demand planning, including gaining visibility into customers’ demand and actual sales. And a best practice around understanding a big customer’s demand is forecasting at the SKU/location level.

While there are many KPI’s where a company might be a laggard, the value mapping exercise helps a company understand where improvement will have the highest value in terms of ROI or in fitting with its core strategies. That in turn can help companies engage in more intelligent implementations. If the timeline starts to slip, the company understands the functionality that is most important in driving strategic alignment and ROI and so it doesn’t skimp in those areas.

Much of the value of benchmarking depends on the number of participants. The more companies that have entered data, particularly in your industry, the better the benchmarking data is. SAP told us that there have been 10,000 submissions of benchmarking data. This sounds like a lot, but when you divide that number by the 31 operational areas that SAP benchmarks, and then by 8 main industry groupings, the sample size is actually not that large. Indeed, SAP showed us the KPIs for transportation in the CPG industry. Certain metrics, like “transportation spend as a percentage of company revenues,” varied substantially from what I believe is the true average for that industry. The SCOR metrics, based on sheer numbers of supply chain participants, are probably still more accurate for many industries. However, because of SAP’s massive installed base, and because this service is free, these numbers will continue to scale.

What I like most about the SAP benchmarking/value management service is that it provides a good tool for measuring the success of an IT project. In my role as an industry analyst, I’ve had many conversations with logisticians about what kind of payback period they have experienced implementing a WMS, TMS, or other supply chain application. Almost always the logistician I’m talking to says they didn’t measure the ROI after the fact but that they think, based on how smoothly the implementation went and other factors, it was “probably about X”.

SAP says that 37 percent of the companies that go through its value management program are now measuring the business value from their IT-enabled projects after the fact. That is fabulous! It is what everyone should do.

(Note: SAP is an ARC client)