A doctor might take your pulse, temperature and blood pressure, and use those tests to tell you about your health.
Similarly, benchmarks can give a kind of personal health assessment of an organization. You might track net sales dollars per day, units produced per day, manufacturing overhead per unit, labor cost per unit or any number of metrics to determine how your organization is doing.
According to a post on the CornerStone Dynamics website, many companies are asking for trouble because they feel they are too busy to benchmark. “You need to know where you stand before you can map out your strategy for future growth,” according to the post.
Manufacturers can create benchmarks and use metrics to gain different perspectives on what’s happening in an organization. Here’s a closer look at three of these metrics.
1. Materials cost per unit: Some manufacturers spend time trying to drive down labor costs without taking materials costs into account. But if the majority of your unit cost is in materials, why focus on labor?
Many companies are finding this out the hard way as they begin to look at reshoring. In the process of outsourcing products to other countries, companies may have seen their labor costs cut in half, but now they’re faced with the costs of shipping the product back.
ERP systems can help businesses lower costs by tracking them in detail. According to a post on the Global Vision Technologies blog, ERP systems help companies to “analyze the forecasted budgets versus those made or in execution, thus obtaining higher control over the financial parameters of [the] business.”
2. Sales dollars per square foot: Typically, the facility is one of the most expensive assets for a company; your goal is to safely get as many sales dollars into that building as possible. If you’re thinking about doubling or tripling your square footage, you first need to understand what type of space is profitable.
Before you spend money on a new facility, look at your product families and determine whether some products are less profitable than others. You may be able to outsource less-profitable products and replace them with items with higher returns. This eliminates the need to take on the depreciation and capital assets associated with a larger facility.
3. Units per square foot of building: Analyze how much floor space your product families consume. Maybe you have a product that doesn’t have good profit margins but fills your warehouse with parts. Buildings can cost from $75 to $125 a square foot to construct, without any type of maintenance. That space is almost like beachfront property in the warehouse.
Decide if you really need the product taking up so much space or determine the cost of storing the product somewhere else. The key is to figure out how to use your space as efficiently and profitably as possible.
In the end, benchmarking comes down to proper tracking and data visibility. But it’s important to keep in mind the same benchmarks don’t work for everyone. Rather than using established benchmarks, you may want to simply monitor your own operations. Agree on what’s important to measure and use that as the starting point to benchmark yourself on rate of improvement. Ultimately, benchmarking is all about improving your own business.