The Value of Benchmarking
Some recent discussion with an FIA staff member about the organization’s new salary benchmarking program prompted me to take a closer look at the benchmarking process and how it can be used to advantage in our industry.
According to Wikipedia, benchmarking “is the process of comparing one’s business processes and performance metrics to industry bests or best practices from other companies.” This is a rather general definition applied on a macro level, though in practice benchmarking can also occur within a company or single plant. But regardless of the size of the benchmarking universe, parameters that are typically measured are production, quality, time and cost. The benchmarking process seeks to identify best practices that improve any one or more of these variables, but in order to determine improvement, some metrics must be in place to which individual results can be compared.
Often, through the professional associations that represent them, entire industries can contribute data on costs, time and motion trials, production levels, asset allocation, and any number of physical and financial areas. Managers are then able to identify how well something is going in their plant by comparing to industry-wide data that targets the same process or parameter being studied.
Benchmarking can measure performance by examining a specific indicator, such as cost per unit, unit production per hour or other measures. The data generated can result in performance values that, in the aggregate, can be used as a performance metric and a tool to guide the decision-making of managers and corporate strategic planners. The process allows a participating company to compare its results against industry data and prompt further study to determine the cause if a significant deviation is found.
The drawback to benchmarking is that data from participating companies must be collected as consistently as possible to make the summary meaningful. Doing so makes it possible to more clearly determine discrepancies relative to industry norms and identify best practices within the industry.
This brings us to an inherent difficulty in establishing benchmarks on an industry-wide basis. How exactly are we to sensibly and meaningfully compare operations in different plants on different presses of different capacities for different parts of different materials in different conditions?
The answer, of course, is that you can’t … or you can only with great difficulty. The more general your data collection, the less accurate or helpful the benchmarking process becomes.
That’s the bad news, but the good news is that there are some measures that can be benchmarked for the industry as a whole. The FIA salary benchmarking program, for example, can be easily, blindly and uniformly conducted across a large number of participants. Other things that can be accurately benchmarked include annual tonnage per production worker (providing they are processing the same metal), some balance-sheet ratios, dollar shipments per employee and other quantities as the industry sees fit.
What this all comes down to is that benchmarking is a management tool that, when properly executed, can help executives identify where or how they may need to improve their operations or where they beat the industry as a whole.
Anything that helps increase performance efficiencies – be they physical or financial – at reasonable cost is worth considering.
Dean M. Peters, Editor