Benchmarking with Business Analytics
Benchmarking can be a useful tool for companies to determine their standing within the industry. It offers a snapshot of both areas where you have strengths and areas where you should focus more attention as a company.
There are, however, nuances to such efforts. For example, you can compare your company to other firms in the industry; or, you can compare your own processes and how you handle your business against itself. Oftentimes, people don’t focus on benchmarking their own customers or suppliers, but this can prove to be just as beneficial a strategy in order to enhance your business.
Many in our industry tend to maintain standards put in place with long-term customers that actually need revision because they are no longer the best option for the business. A good example would be a customer that has great terms but never pays on time. If you compare that to the volume of orders and analyze that against all of your customers, you may find that such a customer should not be getting these great terms.
You can take the same metrics and apply them to pricing. For example, if you have to deliver to a customer daily, or three or four times per week, with smaller orders, you could potentially be losing profit or margins because of the added delivery expenses. Renegotiating the terms with this customer to transition into a weekly order instead could protect a lot of margin and profit for yourself. Benchmarking allows for such determinations to be made, and for any subsequent adjustments that would best benefit your business.
For our industry, there are several different areas that you might want to focus on when beginning the benchmarking process. Profit and total footage sold, for example and among others, are easy ones to remember. Other metrics that are sometimes overlooked are more accounting based, such as average days to pay, and comparing that by customers. Taking into account various metrics when benchmarking can help you develop a more well-rounded perspective on your business, which can then help you make more either holistic or specified changes, should you find it necessary.
Data Benchmarking inherently requires the collection of data. Figuring out how your business is doing, where it is doing well, and where it could use some work involves gathering and analyzing the relevant information.
To that end, there are different ways to go about collecting the information you need. If it is possible, you should see if you can control data internally before reaching out to an expert. This is important. By utilizing internal staff in the benchmarking process, you are afforded the benefit of individuals who already know the inner-workings of your business and who may be able to spot things an outsider cannot. This familiarity can lend itself to a thorough and genuinely invested benchmarking process. Moreover, if you do then reach out to an expert, your staff will be well-versed in the data, streamlining any work an outside expert will do, which can save all parties time and money.
That being said, data collection can always be a tough part of the benchmarking process. Many people see themselves getting buried in excel sheets or multiple-page reports. This is where an expert or system can come into place to help you make sense of the data. Business intelligence, for example, has been a hot topic in recent years. Technology is advancing, and there are many systems out there that can help collect your data and give your staff, or an outside expert, an easily consumable report to help you make educated decisions.
Once you start taking steps that open up your business to external evaluation, peer groups can also be a good way to assess your position within the industry. While this can be challenging, because companies may not want to share information with others, the results from a peer evaluation could potentially offer fresh insights and therefore be worth the effort. Other industry associations will also often partake in such efforts as well, so engaging with your counterparts can both provide you with information from people or companies who are familiar with the industry and may prove easier than you think.
Standards Businesses that are willing to look at their data will likely stay ahead of their peers, as they are more in tune with both the inner workings of their own companies and what their customers want and need. An awareness regarding the intricacies of all aspects of your business can help you make better business decisions. Collecting the data and making sound decisions based on your benchmarking information can help give you an edge.
In order to keep that edge, however, it is also critical to remember to abide by the necessary and relevant regulations and standards of compliance. Most importantly, if data is not meant to be shared, it should not be shared. The privacy and security of data is, as it should be, the biggest concern for businesses and business owners, particularly in today’s ever-expanding technology- and cyber-driven society. It can be extremely dangerous if your data falls into the hands of a competitor, so you need to ensure that you are taking the basic steps to protect the information you are collecting.
It is important to keep in mind that while comparing yourself to others in the industry has its benefits, it can also prove to be a challenging task, especially when you are trying to balance those efforts with the security of your data. This is why you should start off by benchmarking yourself as a company first—you are able to collect the data you need while also ensuring the information is secure.
Benchmarking can prove to be a beneficial tool for business owners looking to better their business or get ahead of the competition. It offers you a chance to see what your company is really doing, how your efforts are impacting your customers and how you compare to other companies in your industry. By collecting the relevant data, you will have an enhanced understanding of how and when to utilize your resources, and of any changes that need to be made in order to improve your company performance. Benchmarking will help you move forward with your business, and better position you for success within the industry.
Anthony is manager of Customer Service for DMSi Software.
This article originally appeared in Building Products Digest.