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How Your Company Can Go From Good to Great: Benchmarking, Part II
by Jeff Brandenburg

In the first part of this article, we discussed the basics of benchmarking, the benefits and where to begin the benchmarking process. In this article, we will dig into three more aspects of the benchmarking process: what to measure, how to measure and with what we should be comparing.

What to Measure

This is often the most difficult part of benchmarking, but it should be the easiest. If you understand your company’s current processes and measurements, you should be able to establish a benchmarking process. Remember, benchmarking is also related to your overall strategic goals. So if your strategic goal is to increase profits, you may be measuring different attributes than if your goal was to determine a more efficient way to process accounts payable or payroll.
Let’s use an example. Say your goal is to increase gross margins in feed or fertilizer. What would you measure? While it is true that you can review selling prices and the cost of the product you are selling, it is likely that your competitors are selling the same commodities at about the same prices, with the same costs. Therefore, the first step requires you to break the overall goal into smaller, but measurable, parts.

Maybe you look at the mixing process and how long it takes to make a batch. You could determine the time needed to bag a particular item and what costs are involved in getting the product ready to go to the customer. The point here is that you need to reduce the overall goal down into the base parts to “work up” to the sales and costs of sales components. Your benchmarking project will fail if you do not break down the overall goal (to increase gross margins) into the component parts of what makes up the gross margins.
In this example, you might choose your top 10 selling items and dig into the process to determine where inefficiencies might be taking place. You might also choose your top 10 margin items and start there. In any event, you will need to work “from the bottom up” rather than “from the top down” to make the benchmarking process work for you.

How to Measure

Based on our strategic goals we have determined what we are going to measure. Now, how are we going to measure it? This really depends on the process. In the bagging and mixing example above, you might look at how many labor hours are needed to produce a batch. You could also look at how many times the product is moved or “touched” in the process and determine if the location of the component parts makes for efficient manufacturing. The amount of electricity, fuel costs for delivering the goods, delivery time and so on could all be elements of the same process that need to be measured in completely different ways.

In most manufacturing cases, the benchmarking process will look at all of the component parts to determine an overall cost per ton of production. That means you may use several different measurements to determine the overall costs. How you measure depends on the process you are measuring and what drives the parts that make up the whole. It would not be unlikely to measure several different components, in different ways, to determine the benchmark in a particular area. Again, understanding the current process and measurements in place will allow you to better determine how to measure for benchmarking purposes.

What Should We Compare?

This probably comes as no surprise, but there are many different sources of benchmarks available for you to compare. The easiest is to compare your own operations from one year to another. That way you can answer this question with certainty—“Why did I do better this year versus last?”

The next benchmark comparison usually comes from industry statistics. Be careful to make sure that the data you have and the data with which you are comparing are measuring the same things. For example, using the industry averages for the entire U.S. might not be a good benchmark if your operations are located in the Midwest. Cost of transportation, selling prices and product costs all affect the comparability of data. The more regional the benchmark, the more likely it will be a more accurate benchmark measurement. Your trade association, product supplier, banker or certified public accountant are all good resources for this type of information. You might also look at comparing information to other businesses like yours in the same area.

If you have benchmarked with yourself and with other information from your geographic region, you might then look to national averages as another benchmarking tool. Internet searches are a great way to gain access to industry data from the U.S. and around the world (type in “benchmarking statistics” on Google, for example). There also are firms that can access specific industry benchmarking data at very reasonable costs. The USDA, trade associations, bankers and CPAs might be able to assist in gathering data from a more “global” perspective. In short, the information is available as it is unlikely you are the first one to benchmark a particular process.

In the last two articles we have discussed the basics of benchmarking. We have looked at what benchmarking is, the benefits, how to begin, what and how to measure and with what to compare. Really, we have just scratched the surface of the overall process and how it might help you succeed in your operations. Benchmarking can be implemented in all facets of your operation, from increasing gross margins to making the payroll process more efficient and less time-consuming.

No matter what the business, things are very competitive. Agribusiness is certainly not immune to the same challenges that every other organization faces. Implementing benchmarking strategies just makes sense considering the environment in which you operate. Remember, it can be a very useful tool to take your operations “from good to great.”

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