Benchmarking is a proven method for identifying underperforming areas of a business so they can be improved and optimized.
ERP distribution software is a tremendous asset when it comes to benchmarking. You need to track the historical information that you want to measure, and it’s hard to do that without technology that can help with gathering all the data and presenting it in an accessible format, such as dashboards and reports.
When it comes to benchmarking, the first thing you should do is determine what areas you want to review and where you want to see improvement. If that information is not already in the ERP system, you’ll need to add it to the system.
Consistency is critical when it comes to benchmarking. You must be persistent in gathering and analyzing data. You can’t measure a key performance indicator (KPI) one month and then skip it the next. The information won’t be useful if you’re unable to analyze it at regular intervals over a specific period of time. It’s important to be able to identify outliers in data, as well as what the standard performance is.
There are two types of benchmarking: internal and external. Here’s a closer look at each.
- Internal benchmarking: The place to start benchmarking is within your organization. You want to do an assessment of your own operations to see how you’re performing and then get an understanding of where you’re improving (or not improving) in certain areas. After you’ve gone through that exercise, you can isolate the areas you want to optimize using data from ERP distribution software. Set KPIs that measure your performance, and then measure that against how you perform over time. For example, say you track inventory turnover for a year and get a specific value set. The following year you would measure inventory turnover again and see how it compares to the year before. Essentially, you’re comparing against your own performance so that you can make improvements. You can use a variety of benchmarks, including performance and strategic. It’s a matter of asking yourself where you want to see improvement.
- External benchmarking: Look toward similar industries and competitors to see how your performance stacks up against others. For instance, if you measure sales and associated costs, you could measure that ratio against other companies to see how you compare. It’s not always easy to get information about competitors, but it can be done. There are studies with anonymous participants who provide data about their operations. You could also commission a study by a marketing company or research firm that would go out and interview other companies. Trade associations often do this kind of research. Benchmarking for distributors is really no different than how athletes train. For example, athletes keep tabs on how much weight they can bench press, how high they can jump and how fast they can run. Over time, they can see where they improve in those specific areas. If they don’t see the results they would like in one area, such as their running time, they can do drills to help increase their speed. They can also take their stats and compare them to other athletes to see how they match up. This kind of information is useful for coaches so they can decide which players to use depending on the circumstances and how the competition performs in certain areas.
The concept is the same for distributors, albeit a little more complicated. That’s why it’s critical to have ERP distribution software that brings all of the information together for effective analysis.