Just what is benchmarking? When, why and how might it be used? When should it be not even considered? And what are the alternatives to benchmarking?

We would define benchmarking in warehousing as an examination of best practices in other warehouses, ideas that can and should be applied in your own operation.

After considering what benchmarking is, we must also consider what it is not. Benchmarking is not a mechanism for determining resource reductions. Furthermore, it is neither a panacea nor a cookbook process.

We would add that benchmarking is not a form of espionage, though some perceive it as such. Benchmarking can be performed well outside the competitive arena. Xerox Corporation, a pioneer in business benchmarking, did its most detailed study with companies that were totally noncompetitive, such as L. L. Bean. The purpose of benchmarking was to generate action and to stimulate some form of improvement.

When should one benchmark?

Benchmarking typically takes place whenever management is concerned about the need for significant improvement. This may take place at the time of a competitive crisis, or it could happen when the company is involved in something which is new and uncharted. Frequently benchmarking is stimulated by a change of management.

When new people come in, they are looking for a measure to see how well things are going. Benchmarking has also become a consulting product, and some companies start benchmarking because a consultant persuaded them that it was the thing to do.

When warehousing functions are benchmarked, the stimulus may come from the perception that the warehouse is functioning poorly and is in urgent need of improvement. It might also be stimulated by a discovery that others in the industry are offering a level of customer service that is superior to yours. Since warehousing is closely identified with customer service, benchmarking warehousing functions may provide some answers for service improvement.

When not to benchmark

If the purpose of benchmarking is to learn what competitors are doing, you might question the ethics of the process. There ae accepted ways of tracing the activities of competitive companies, but benchmarking is not one of them.

If benchmarking is really your quest to establish internal standards, you may want to take a different approach. Philip Crosby, the quality expert, had his tongue in cheek when he defined benchmarking as "the practice of finding another company that is even worse than you are." The companies you approach might have warehouses inferior to yours.

Are you sure that the company you are looking at really has "best practices" that are superior to yours? Should standards be set outside your operation or within it?

Why benchmark?

In nearly every case, the goal of benchmarking is to stimulate continuous improvement or to attain superior performance. Here are five benefits:

• Improving ability to meet customer requirements
• Establishing realistic goals
• Determining accurate productivity measures
• Obtaining a competitive position
• Searching for industry best practices

All of these points can be applied in a warehouse benchmarking situation. Benchmarking is a symbol of management's willingness to be proactive in making changes and improvements. For a company which was previously reactive in its changes, benchmarking can create a significant culture change.

In warehousing, there is a clear advantage to benchmarking outside of one’s own industry or commodity. By learning about best practices in other industries, you can frequently receive creative ideas which have never been used in your own business. Furthermore, moving outside the industry eliminates the possibility that benchmarking might be perceived as a way to spy upon competitors.

What should be measured?

In general, most benchmarking projects seek to establish comparisons in points related to warehouse productivity. Quality is another point which is frequently measured. There is also a measure for inventory accuracy. Timely performance is measured in two areas, dock-to-stock time and order processing time. Safety is another item that lends itself to comparison, usually measured in terms of days or hours between reportable accidents.

A reciprocal process

How can the researcher gain cooperation at a time when so many managers are stretched so thin? One is through reciprocity. The candidate for benchmarking should be told that information will flow in both directions.

Those companies that help you with the benchmarking process should be permitted to collect the same information regarding your operation. They will gain as much from the process as you will, and this is their incentive to cooperate with you.

Internal benchmarking

Most people assume that benchmarking is a process of looking outside your organization. Certainly most practitioners think of the outside only as they consider the process. An inside look is easier, faster and less expensive than traditional benchmarking, and it may tell you just as much about opportunities for improvement.

There are two ways to use internal performance measurements. If your company has a group of warehouses, use the measurements to compare the performance of one warehouse with the others. If you only have a single operation, use the data to compare performance over time.

For example, how did December 2014 compare with the same month in 2013? Internal measurements should highlight the quantitative processes in warehousing, such as space utilization, equipment utilization and worker productivity.

Worker productivity can be measured in pallets per hour or possibly cases, lines or orders handled. By establishing an internal benchmark, management will know if any warehouse operation is improving or deteriorating.

Other performance measures which can be readily calculated and compared are error rates, damage rates, absenteeism, accident free days, employee turnover and complaint rates. Wherever possible, these numbers should be shown as a ratio of total pieces or pounds moving through the warehouse, since a relatively inactive warehouse is likely to have less damage, fewer errors and complaints.

If you are comparing a group of warehouses, the chart shown below would allow you to track certain elements and compare warehouses in several cities.

If you are tracking the performance of a single warehouse, a similar chart could be used with months or years rather than cities in the left column. In this way, you can graphically show how warehouse performance has changed over time.

For most warehouse operators, the most reliable benchmark available may be the one which is within your own operation. The best measures may well be found with internal benchmarking.