Why benchmarking is so important? (Part 2)
Some companies think benchmarking is only about the question “how are we doing?”. This is an important question, but it tends to emphasize only a certain part of the problem: quantitative results. Therefore, the question “how are we doing?" could be translated as “how much is our company currently paying too much for its overhead costs?” This is important to know, but it is only a part of the problem. A focus on readily-measured output data and purchasing prices is only the beginning of a benchmarking exercise.
Let’s translate this into an example. Imagine you are a company which produces air conditioning systems. Once your products are produced, your company transports them to local retail chains and lets a third party logistics supplier transport them to south-European countries. Increasing fuel prices hurt your profits. You ask yourself whether you are not overpaying your fuel supplier and logistics provider compared to other suppliers. This would seem the basic question, which is discussed in the first paragraph.
When benchmarking your costs, there are other starting questions which address the core of the problem and lead towards larger savings potentials. These questions offer better solutions and tend to be more interesting.
For example: “Why are we in this [cost-structure] position?” When your company asks this question, you are more likely to compare your (strategic) processes with your competitors. When doing this, benchmarking can lead to the observation of best practices and the creation of new ideas. If you aim for substantial cost reduction ideas, this is the way to go.
If we apply this question to our air conditioning systems example, we get more fundamental options. You can then start to question whether it wouldn’t be more cost-efficient to also outsource the transportation in your own country, or to change from road transportation towards inland navigation with ships. Maybe it would even be more cost efficient to move a production site towards Spain or Southern France to decrease transportation costs overall.
This example shows how asking the right questions during a benchmarking exercise will lead to the core of the problem en could eventually lead to an overall change in strategy and lower costs.
