There is a lot of benchmarking information available to the typical SEMA-member company.

Customers are sometimes a good source of information. Checking for customer satisfaction, and finding out how you stack up against the competition, may be as easy as making a few phone calls, or may require a full-blown survey.

Former employees are a great, and underused, source of information. They usually have a lot of valuable information from a new, outside perspective.

There are thousands of ways to use the Internet. For example, publicly traded companies are a good source of information. If you’re a manufacturer benchmarking gross margin, Edelbrock Corporation (NASDAQ: EDEL) had better than a 36% gross profit margin in their last fiscal year [2002]; Standard Motor Products (NYSE: SMP) had about a 26% gross profit margin. If you’re a retailer, AutoZone (NYSE: AZO) had a 44% gross margin. Find out what these companies include in their cost of goods and see how you compare.

There are a lot of other benchmarking statistics that can be found, classified by industry or SIC code, using a good search engine.

Your local library has a lot of information, too. Look for business publications at the reference desk, such as The Risk Management Association’s Annual Statement Studies report, or the Almanac of Business and Industrial Financial Ratios.

Magazines can be a good source. CFO magazine has an annual Cost Management Survey classified by industry. Manufacturers should look at IndustryWeek magazine’s annual Census of Manufacturers survey for stats that include on-time delivery, sales per employee, and new product development. Both magazines have additional information available on their web sites

Use Benchmarking to Increase Profits.

Reprinted from SEMA News magazine, September 2003

by Jon Hedges

Benchmarking is a simple way for a company to measure its way to higher profits. Consultants and authors have made millions of dollars making it appear complex, but a simple 4-step process can work in any SEMA-member business.

Done correctly, benchmarking is a great tool to improve a company's performance, and it can make the task of managing easier.

At its core, benchmarking relies on a secret quality-minded companies involved with continuous improvement have known for decades: anything that is measured is bound to improve.

In its basic form, benchmarking is simply identifying the important things to track, or “metrics,” at your company, finding out the performance of those metrics as well as “best practices” at other companies, and comparing, or benchmarking them, against your own company. Best practices are procedures and methods that are considered to be the best in a given industry or a type of company.

Step 1: Identify the Metrics

The first step is to identify which company metrics are important enough to measure and improve. Most metrics will probably have something to do with costs, time, or customers, and will be measured weekly, monthly, or quarterly.

Don't get carried away—pick eight to 12 metrics that, if improved, will make a significant impact to the operation and profitability of the business.

Metrics from different functional areas of the company should be included for balance. For example, important customer-focused metrics to track could include on-time delivery, the lead-to-order cycle, or customer contact. Examples of financial metrics could be inventory turns or gross margin. Don't forget quality related areas such as customer returns or scrap rates, or employee metrics for safety or training.

As an example, take a hypothetical $10 million piston manufacturing company, Pareto Pistons. The Pareto management team has made on-time delivery, improved communication with key accounts, and reduced worker's comp costs their top priorities. To track these goals the team will benchmark these metrics: the number of shipments delivered on time, the number of key account contacts per month, and lost time accidents in the plant. In this example the team feels that if these three metrics improved it would have a significant impact on company profits.

Step 2: Research The Benchmarks

This second step is just like planning a trip: it requires a starting point, a driver, and a destination.

Once the metrics have been picked, it is a critical part of the benchmarking process to know the current status of those metrics. Timely and accurate data must be available. In the trip planning analogy, this is the starting point. In some companies this is a big hurdle due to a lack of data or standardized reporting, a problem that must be solved before proceeding.

But what should the benchmarking goals be? Back to the trip planning analogy, it is necessary to know the destination. This is one of the key strengths of the benchmarking process. To know the destination, in this case the best practices that apply to each of the metrics the team identified, it is necessary to do a little research.

Don't be too scared with the research process. It can be as simple as spending an afternoon in a library, looking on the Internet or talking to customers. At the local library, business statistics are available, as are privately published statistics. A business’s customers may be willing to talk about what they consider to be good examples from other suppliers. Maintain a relationship with former employees, who can provide a wealth of information.

Back to the Pareto Pistons example for a moment: In this case, the Pareto Pistons management team has their starting point and destination: They discovered that world-class companies that manufacture auto parts for OEMs have 98% on-time delivery, but they are currently around 80%. The top Pareto Piston accounts have said two visits per month is adequate because that's what Juran Cams and Deming Ignitions is doing and it works well. Similar businesses in Pareto's hometown are experiencing about two accidents every three months and the management team wants a goal of one.

To ensure success at this stage, it is also necessary to have an individual responsible for a goal. In some companies this person might be called the champion or project leader. In the trip planning analogy, this is the driver.

Back to the example: The management team has divided the benchmarks as follows: the operations manager will be responsible for on-time delivery; the sales manager will have accounts contacted per month; and the human resources manager will have lost time accidents (which will be prevented through training).

Step 3: Create The Plan

In Step Two, having a starting point, a driver, and a destination were important. But what about knowing where to go? This third step is about the plan to reach the benchmarking goals. It's a wasted effort, after all, to have a goal without a plan to reach it. This is the roadmap.

For every metric there must be a reachable benchmarking goal, and there must be a plan to reach the goal.

At Pareto Pistons, each of these managers will need to formulate a process improvement plan, either individually or as a team, to reach each goal. It may seem obvious, but a plan can't have a negative impact on another department's goal. So, the Pareto operations manager can't simply demand an extra month lead time to assure on-time delivery, and has to allow the human resources manager enough access to plant associates for safety training to reduce lost time accidents.

Step 4: Measuring Progress

It is critical to measure the progress of the benchmarking process, and to provide the support necessary to ensure success.

Each champion/project leader/manager must also be responsible to report on the status of the benchmark plan, on the time interval that was set up, weekly, monthly, or quarterly. This is also a good time to troubleshoot any problems or remove any roadblocks. It may be helpful to have mid-term goals set up so it can be determined if the plan is on track or not.

This step of the benchmarking process will simplify the job of managing, too. With each plan and benchmarking goal assigned to an individual, it has been delegated to others in the organization.

Conclusion

This has been a simplified four-step benchmarking process, and much less complicated than benchmarking has been made out to be. Remember the two basic concepts: Anything that is measured is bound to improve, and you’re planning a trip so you need a starting point, destination, road map, and a driver.

This benchmarking process is a good way to make process improvements that increase profits and make customers happier. Hopefully, this four-step process is helpful, but don’t stop after the first goals have been met. The benchmarking philosophy is part of continuous improvement. A company has to continue to improve; otherwise it will be at risk of being beaten by the competition.

Copyright 2003 Jon Hedges, all rights reserved. Limited reproduction crediting the author is permitted. Jon Hedges is not affiliated with or performing services for any of the companies or organizations mentioned in this article.

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