Beware the Industry Benchmarks

BBF Industry averageOften, I’m asked the question ‘what is the industry average’ for certain business metrics, such as inventory days on hand or out of stocks as a percentage of sales.

The answer is that it doesn’t really matter. 

Most industry benchmarks or averages are a watered down collection of companies that bear no resemblance to our company.  The markets or demographics that these other companies serve may be entirely different than ours, and therefore a comparison of our performance with theirs is not valid.

What does matter is how well we are doing compared to our previous performance.  If we are measuring product mis-pick percentage or cases picked per hour for example, let’s benchmark against ourselves.  Start by measuring the result that we have achieved over a certain time period and set a goal to improve.  If last month we averaged 110 cases picked per hour let’s identify ways that we can improve and set a new goal for ourselves.

What gets measured gets managed, and improved.  This is an old business adage that generally holds true.  The basic premise is that if you measure the outcome of a business operation, and pay attention to the results, you give yourself the opportunity to improve.  This process of measuring puts some ‘science’ behind the ‘gut feel’ or hunches that we have about our business operations.  At times, our gut feel is confirmed by measuring results, and other times we find our hunches were way off base.

Choose the right metric to measure and improve upon.  Each department in our organization should have one or more key business metrics to follow.  Choosing what to measure will require some thought about what is critically important to the success of the department and the organization. 

For example, in the warehouse the accuracy and speed of picking product is critically important to our mission of excellence in customer service.  We need to ensure that the right products are picked in a timely fashion so that customers receive their orders on time.  Therefore, mis-picks as a percentage of total picks and products picked per hour should be measured.  Each department manager should conduct a similar exercise – identify what is critically important to their department, determine how the results can be measured, and start tracking the numbers.

Share the information Ideally, these numbers should be readily available or visible to everyone in the department.  The team should understand how the number is calculated, and most important they should understand how they can impact and improve upon the number.  Let these metrics show employees how they impact the success of the department and organization as a whole, and how they truly make a difference.

Forget the industry averages and industry benchmarks and begin to measure against your own performance. Select a critical business metric for each department, measure the results, share the information and watch as your bottom line improves.