May 1, 2005
Column | measuring up

How'd they do that?

Effective benchmarking isn't just about comparing end results. You also have to look at the entire process.

By Kate Vitasek

Editor's Note: No two successful performance management programs are the same, but all successful performance management programs share common principles. To shed some light on what separates a good company from a great company with regard to performance management, DC VELOCITY will publish a column on one of the 12 Commandments of Successful Performance Management each month. This month we will drill into the ninth commandment: Benchmark!.

The Ninth Commandment
Benchmark!: Find out how they got there

An executive reads in an article profiling best-in-class companies that, say, Dell is achieving inventory turns in excess of 52 per year. Not to be outdone, he orders his logistics staff to increase their inventory turns. The managers have no trouble making that happen—maybe they ask key suppliers to set up "near-site" locations, which can ship in smaller quantities just in time. Inventory turns immediately improve, but what have they really accomplished? All they've done is shift the inventory burden to someone else, and their suppliers will most assuredly pass those costs right on to them.

The 12 Commandments of
Performance Management

1 Focus: Know your goals
2 Balance: Use a balanced approach
3 Involve: Get employees engaged
4 Apply: Be metrics "users," not just "collectors" or "posters"
5 Beware: Know the point of your metrics
6 Anticipate: Use metrics as your headlights
7 Integrate: Layer your metrics like an onion
8 Listen: Pay attention to what your customer is saying
9 Benchmark: Find out how they got there
10 Be flexible: There's no such thing as the holy grail of metrics
11 Lead: Practice what you preach
12 Be Patient: Crawl before you walk (or run!)

That story illustrates a classic case of benchmarking gone bad. Benchmarking—the practice of comparing your company's products and practices against a competitor's—can tell you many things, of course. And it's becoming very popular with companies today. But effective benchmarking isn't just about comparing end results, contrasting "quantitative benchmarks" like Dell's 52 inventory turns to your 27. You also have to look at the entire process. Those best-in-class companies that report such dazzling numbers have invariably invested in dazzling processes as well. And it's what are known as "qualitative" or "process" benchmarks that can help you identify those processes.

Unlike quantitative benchmarks, which reveal performance gaps, qualitative metrics get into the "whys." Take Peyton Manning's impressive record of completing 49 touchdown passes in a single season. That number (49) may tell a rival quarterback how much his own performance falls short. But it doesn't tell him much about how he can improve his performance. For that, he needs to look at what makes Manning better than the rest: Does he train longer? Does he have better teammates? A superior playbook? It's the same in business. You know Dell's inventory turns far surpass everybody else's. What you want to find out is what makes the company soar above the field? Is it the build-to-order business model? Its inventory visibility tools? Its demand management strategies? Where do you find benchmarking data on processes? One option is to develop your own. You can team up with one or more partners and conduct a side-byside comparison of internal operations to identify which behind-the-scenes processes produce the desired results. If your operation is large enough, you can even dispense with the outside partner. In a company that operates eight regional DCs, for example, benchmarking teams can easily identify the DC with the best fulfillment process and then determine what's driving that DC's success.

Another source of benchmarking data is trade groups and industry associations. The Warehousing Education and Research Council (www.werc.org) and APQC (www.apqc.org) publish comprehensive studies throughout the year, which they make available at no cost to their members. The Council of Supply Chain Management Professionals (www.cscmp.org) has published Supply Chain Process Performance Standards handbooks that review more than 200 supply chain processes, identifying the "typical best practice" for each process.

With quantitative benchmarking, the numbers show you where you are. Qualitative benchmarking looks behind the numbers to show you how to get where you want to go. Used together, they can provide a game plan that helps you outplay your competition and move to the head of the league.

Kate Vitasek is a member of the faculty at the Center for Executive Education, University of Tennessee and founder of the consulting firm Supply Chain Visions. She is a regular blogger for DC Velocity on the topic "You might have a bad warehouse if ..."

More articles by Kate Vitasek

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