The value chain benchmarking process is straightforward and generally includes the following steps:
- Determine what indicators and measures should be benchmarked
- Identify the competitor value chains against which to make comparisons
- Gather and analyze the data
While it is possible to benchmark almost anything, practitioners and stakeholders need to narrow the focus by selecting parameters that will allow them to assess relative performance (i.e., outcomes) as well as critical factors that lead particular value chains to succeed (i.e., drivers of superior performance). In practice, the difference between an outcome and a driver is not always clear: for example, productivity could both be interpreted as an outcome indicating superior performance, as well as an element leading a value chain’s performance.
Usually, quantitative indicators such as the following are used for benchmarking: production costs, productivity, time to market or prices. Nevertheless, qualitative elements that are harder to measure clearly and objectively, but that can be quantified in certain circumstances through qualitative perceptions, could also be used. Such elements might include delivery reliability, supplier image, quality of producer associations, availability of services, and others. While some elements are common to many or every industry sector (such as price, quality, reliability), there are likely to be other indicators that are value chain-specific--for example, intellectual property right protection in knowledge-intensive industries such as pharmaceuticals or software development. Likewise, the relative importance of the various elements common to multiple industries will differ according to the value chain and target market. For example, time to market may be critical in certain niche apparel markets and price less important. These considerations will inform the selection of elements to be benchmarked.
The rationale for using certain parameters and elements to benchmark is typically informed by a variety of sources: industry and trade publications, consultancy firm reports, mining the internet, and undertaking primary research through key informants. Surveys, interviews and/or workshops with relevant firms and industry groups, and participants along the entire value chain are also often employed to refine the selection of elements to be benchmarked.
Practitioners must identify comparator value chains that will provide the best basis for comparison. The target comparators are typically value chains operating in other countries, or possibly in different regions of the same country when value chain performance varies considerably by location. The main objective is to choose value chains operating successfully in a competitive space that the target value chain would like to occupy.
While publicly available industry reports and websites, databases available for purchase, and other value chain analyses will provide useful information, often those conducting a benchmarking exercsie will have to supplement this with primary research. Should the necessary resources be available, study tours can allow stakeholders to conduct direct benchmarking. When study tours are combined with international tradeshow attendance, they can serve the dual purpose of completing the benchmarking exercise and promoting a value chain’s products. However, study tours can be very expensive, even if done on a cost-sharing basis or leveraging resources from an export promotion agency and from value chain participants themselves. An alternative is for key informants and industry insiders from the comparator value chains to be hired to help in the benchmarking exercise.
Once the data has been gathered, participants can carry out a careful analysis of where the gaps lie between the target value chain and its most important competitors. It should be noted, though, that while gap analysis is useful in understanding differences among comparator value chains, and helping value chain participants to identify the areas where interventions and reforms could take place, the simple existence of a gap does not immediately point to a needed action. Practitioners and other stakeholders must take into account many other factors, leading to a complete strategy and prioritized actions.
Example: In order to assess Uganda’s competitiveness in floriculture, the World Bank benchmarked the cost structure of Ugandan's producers and the value chain as a whole against Kenyan producers. Kenya was selected because it is located in the same geographic region; it has similar climatic conditions for growing similar products, and is a competitor across many industries. Below is a table, which benchmarks Uganda’s sweetheart roses production cost structure with that of Kenya.
In comparison with Kenya, Uganda currently produces more stems, but Kenya’s stems command a slightly higher price. Uganda is at a disadvantage in terms of local handling costs and labor costs. Net profit in Kenya is lower than in Uganda, despite Kenya’s premium of half a cent per stem. Understanding Uganda’s cost position relative to its competitors allows for the development of a strategy. For example, in this case, if Uganda can lower its handing costs through efficiency gains, it can sell more flowers at a slightly lower price than Kenya.