Benchmarking in Supply Chain: Xerox Corporation’s Strategy

Benchmarking is a systematic process used by organizations to compare their performance with that of others, particularly industry leaders or direct competitors. This method helps organizations identify best practices, learn from external successes, and apply them to improve their own processes and systems.

In 1979, Xerox Corporation began using benchmarking to analyze and reduce unit production costs in comparison to its Japanese competitor, Fuji-Xerox. This initial step in benchmarking led to broader applications within Xerox, improving functions beyond manufacturing​​.

Xerox remarkably reduced its cycle time by 70% through effective benchmarking

The company achieved a $1 billion cut in its worldwide supply chain inventory

This strategic move led to a substantial saving of about $200 million in asset carrying charges.

Following these changes, there was a notable increase in customer satisfaction, reaching 90%.

Objectives of Xerox Logistics

• Primary Objective: To provide processes that consistently meet end-user needs and ensure customer satisfaction.
• Secondary Objective:
  • Minimize working capital devoted to inventory assets.
  • Reduce logistics expenses.
• Overall Goal: Achieve a balance between reduced costs, increased profits, optimized assets, and service-level achievement to enhance business performance goals, particularly return on assets, while maintaining 100% customer satisfaction.
• Supply Chain Challenges: Addressing fragmentation in logistics and integrating the supply chain across various divisions (product development, manufacturing, service, and marketing) for effective utilization of inventory assets.

Initial Operations at Xerox (Before Benchmarking)

• Process-Oriented Approach: All work defined in terms of processes, encompassing 14 major high-level processes and numerous sub-processes.
• Initial Benchmarking Findings: Identified significant disadvantages in key financial ratios, especially return on assets, compared to competitors.
• Response Strategy: Formed a task force to examine best practices in asset and inventory management.

Steps Taken for Benchmarking:

• Formation of CLAM Team: Central Logistics and Asset Management team established to examine and improve inventory utilization and develop a worldwide integrated supply chain.
• Team Composition: 36 members from various sectors within Xerox, focusing on both supply and demand sides, along with other internal and external experts.
• Strategic Vision:
  • Prioritize continual customer satisfaction.
  • Develop a demand-driven supply chain.
  • Reduce time to deliver and respond to order information.
  • Standardize nomenclature for products and components.
  • Simplify internal processes to be customer-friendly.
  • Recycle assets for environmental sustainability.

Benchmarking Overview:

• Xerox conducted benchmarking to evaluate and improve its practices, focusing on key product performance attributes, work processes, and output performance measurements.
• Collaborative studies were carried out with both domestic and international organizations, encompassing industry peers and exemplary organizations outside the industry.
• This approach helped establish unbiased performance targets based on world-class standards.

Current Process Analysis

• Xerox’s existing process involved buying parts, assembling them into machines, inserting software, delivering products on time, and providing installation support.
• The CLAM team identified this process as overly complex, involving excessive steps, too many people, multiple handoffs, and numerous decision-makers.
• A need for simplification and reengineering was recognized to streamline operations and improve efficiency.

Process-to-Process Analysis

• Internal benchmarking revealed variations in how Xerox managed service and repair parts across different regions.
• European operations demonstrated a more efficient service parts replenishment process, leading to improved service levels and reduced inventories.
• In contrast, the U.S. operations had a decentralized approach, with service engineers individually deciding inventory items, resulting in higher inventory levels and inefficiencies.
• Adopting the European model in the U.S. and other regions led to substantial savings, streamlined inventories, and improved customer satisfaction.

Process Improvement Outcomes:

• By adopting best practices and reengineering processes, Xerox achieved significant financial savings and a payback period of less than two years in the U.S.
• These improvements also positively impacted customer satisfaction, as reflected in periodic customer satisfaction surveys.

Benchmarking Partners:

• The CLAM team benchmarked companies with similar structures to Xerox, including industry leaders in integrated supply chain management like Apple, Digital Equipment Corporation, DuPont, Hewlett-Packard, IBM, NCR, Siemens, and other significant players in various industries.
• Key Improvement Areas Identified:
  • Increasing inventory turnover.
  • Elevating service levels.
  • Reducing logistics costs.

Best Practices Found

Shift in Supply Chain Strategy

Transition from a push system to a pull replenishment system for more efficient supply chain management.

Diverse Supply Chain Structures

Different product types necessitated varied supply chain configurations to meet specific customer requirements, with six product types identified: Commodity products, Ship-to-order products, Build/configure-to-order products, Spare parts, Consumables, and Paper.

New Supply Chain Processes

• Consideration for channel selection, market customization, recycling and disposal strategies, and tactical competitive response.
• Flexibility in the supply chain process for different product types.

  Optimizing Spare Parts Management

  Previously, the multilayered structure for spare parts was inefficient. The new strategy involved holding spare parts in two primary locations: service engineer’s trunk and the hemisphere logistics center, leading to more efficient overnight replenishment and reduced inventory levels.

  Overall Improvements

  Significant cycle time reduction, inventory reduction, and cost-effective logistics, with a focus on near-perfect process execution for supply chain success.

  Process Improvement Approach

  Identified processes were benchmarked against best practices from other exemplar organizations to ensure world-class standards.

Implementation

Gradual Process Transformation

Xerox chose to implement new processes gradually with the introduction of new products, allowing old processes to be phased out naturally.

Shift to Demand-Driven ISC

The focus shifted from merely reducing logistics costs to emphasizing cycle time reduction as a major competitive advantage.

Major Process Changes

Implementation involved significant changes in operating practices, aiming to make Xerox an organization that’s easy to do business with.

Empowered Supply Chain Discussions

The new implementation strategy included regular team meetings for production plan updates, execution signals for new production plans, finished goods availability outlook, feedback to customer operations and business divisions, and updates on financial and performance measurements​​.

Results of Benchmarking

Cycle Time Reduction

The implementation resulted in a 70% reduction in the traditional cycle time from acquiring parts to installing them in machines at the customer’s site.

Inventory Cost Reduction

This efficiency led to a reduction in worldwide supply chain inventory assets by $1 billion, decreasing asset carrying charges by about $200 million.

Enhanced Customer Satisfaction

Customer satisfaction targets were raised from 70% to 90%, with an ultimate goal of 100%. Improved satisfaction levels were expected to increase customer loyalty and revenue for Xerox​​.

Reference: Robert C. Camp, (1992), “Learning from the Best Leads to Superior Performance”, Journal of Business Strategy, Vol. 13 Iss 3 pp. 3-6