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Benchmarking Your Way To Success

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Bench Marking

What is bench marking all about? Benchmarking is the process of observation and validation of procedures and practices that the most successful companies employ. They set the standard for success. Who has the best customer service, inventory management, pricing systems, logistics, warehouse management or sales effectiveness process? Any business process can be benchmarked. Once we identify the winners, benchmarking is the means to figure out how the winner got to be the best. This provides insight to help determine what we have to do to reach those standards. Bench marking is a best practice. Best practice is not about opinions. You have a bunch of opinions on best practices, I have opinions on best practice and I have the confidence of my convictions. I am an old sales guy. I know that I am right. Why? Because it just feels right. That is not what Best Practice is about. Best Practice bench marking says -- I am going to go out and compare myself to businesses that are similar to mine and look at somebody that does better then I. I am going to take a look at what they do and if I find a Best Practice, I’ll bring it back and apply it. Most business processes are common and very similar throughout wholesale distribution.

“Benchmarking is a best practice tool. It is the process of identifying, understanding and duplicating proven practices from organizations that have consistently performed in the upper quartile of performance to improve your own businesses performance.”

So, who do you bench mark against?

A common mistake many people make when beginning a bench marking initiative is that they only look within their own industry to find a benchmarking candidate. This in itself will not negate your effort to the point of making it valueless. You already have a tremendous amount of knowledge about your own industry. The benchmarking objective should be to find a company or companies that have a proven record of success specifically in the area that is the subject of your benchmarking activity. This means that you must focus on a specific area, process or practice that you are trying to improve. Bench marking an entire company, although interesting and helpful, will not allow you the time or focus to specifically address issues, processes and practices that are specific areas of desired improvement within your company.

Peter Drucker described Wholesale distribution as a dark continent of the American economy. It is the main thing that made us different then communism. Wholesale distribution wasn’t even legal in the Soviet Union or Russia until Boris Yeltsin was elected president. Seven percent of our GDP, 1 out of every 20 jobs in the United States is an employee of a wholesale distributor. So, don’t go thinking that distribution is like some little second string thing, just the middle man, Five percent of all the employment in this country is involved in wholesale distribution. Distribution is not in the backwater of the economy. We are the Dark Continent. We aren’t some invisible thing because wholesale distributors touch everything.

There are 300,000 firms with an average size of $8 million in revenue. The companies that you need to bench mark against should be companies of comparable size. It is not the product, it is not the industry, it is companies in wholesale distribution of similar size and scale. You have very different problems once you have multiple branches then you do when your warehouse is staffed by a man and a dog. So, first of all if you are going to do bench marking, against what do you bench mark yourself? Secondly, out of 300,000 firms, how do you decide who are the good guys and who are the bad guys? ROTA is probably one of the measurement terms that cuts across all lines of wholesale trade. ROTA is the Return On Total Assets. In other words, you could grow sales a lot if you doubled your inventory. How about if you made your terms 30/60/never? You would probably get a lot more sales, but what happens to your assets? Your assets explode. The effectiveness of a wholesale distributor fundamentally is measured by their financial return.

If you plan to initiate a bench marking process in your organization your biggest return in the shortest period of time might be to focus on three specific areas that are generally the most complex for distributors that are growing. Those three areas are:

* Markets

* Customers

* Segmentation

Much can be learned about operations, logistics, technology, purchasing and inventory management but the biggest bang for your buck on your first bench marking adventure lies in focusing on the three categories listed.

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