The Benefits of Benchmarking Your Manufacturing Operation

When was the last time you benchmarked your manufacturing operation against your competition? Are you aware of how your revenue stacks up against your peers? In today’s business environment with COVID-19, manufacturing operations can utilize benchmarking—both internal and external—as a tool to provide valuable insight and navigate these choppy waters.


In the manufacturing and distribution sector, business owners, investors, executives, and stakeholders are driven by results as they relate to operations, finances, human capital, invested capital, and other critical business elements. Manufacturers have employed Lean Six Sigma concepts to “keep score” as a way to measure their operations. Measurable data gives manufacturers the ability to compare, or benchmark, their operations against past, present, and future prospects.

Benchmarking is not a new practice by any means and utilization of this tool can be traced back to the creation of the Egyptian pyramids.

Accurate measurements of raw materials and finished goods and analysis of productivity and finances were keys to a successful operation on one of the Seven Wonders of the Ancient World, and they are still keys to a successful operation to this day. However, it was not until the 1980s where benchmarking really took place through the pioneering of Lean Six Sigma by Toyota.

Today, manufacturing and distribution businesses use internal benchmarking tools and techniques to evaluate their performance relative to internal expectations—i.e., “Are we on track to meet this year’s budget projections?” “How does that compare to last year’s performance?” “How does this month shape up compared to last month… or the same month last year?”

External benchmarking asks many of the same questions and employs similar tools and techniques to measure performance—yet as the name suggests, the focus is on business performance relative to competitors, peer groups, and broad industries.

For your business, insights gained through external benchmarking can be worth their weight in gold. Well designed and implemented external benchmarking can help your business understand how it performs in numerous ways relative to competitors and industry peers.

Those insights, in turn, can deliver competitive advantages that may help you gain market share and boost profits. This information from external benchmarking is especially critical during times such as COVID-19 as we are experiencing a consolidation in some industries and business interruption across large economic sectors. The more information and comparable data at your fingertips, the easier it is to make hard business decisions to ensure your operational success.

Despite the benefits gained, few manufacturing and distribution businesses really execute proper benchmarking. If your business could benefit from benchmarking, here are five strategies to help you ensure success:

  1. Define business success, and then set your benchmarking goals accordingly. Business goals should propel your business toward a quantifiable end. You must understand what your key performance indicators (KPIs) are in order to understand what you want to measure, why you are measuring it, and how you plan to use the insights gained.
  2. Identify the internal resources you can apply toward your benchmarking efforts, and explore options for outside expertise where tangible gaps may exist. Do employees have the current skills to undertake business or financial analyses? Is there adequate time and/or capacity for them to do that? Are they committed to the effort and will they get the job done? Benchmarking insights are only as good as the data that drives them—and not all data is created equal. Avoid the “garbage in, garbage out” predicament by accessing up-to-date and relevant data from reputable sources.
  3. If your company does not have access to certain databases, or the time and resources to take on the required analyses of benchmarking, consider looking to subscription-based repositories for industry-specific information. The added cost of these services may provide just the insight needed to make the operational decisions to improve your company.
  4. Establish timelines, and keep all parties accountable for completing their assignments on schedule. Again, benchmarking insights are only as good as the data that drives them. If the provided data is out-of-date before it is utilized, do you still gain the appropriate and needed insight?
  5. Evaluate and recalibrate as needed. Things change, both inside your business and beyond its walls. A relevant success data metric at the beginning of the year could drastically alter within months. As noted by our current economic environment, your benchmarking metrics need to be adjustable to provide the most relevant data.

Benchmarking is a vital tool to be used by the manufacturing and distribution industry. In challenging economic times like the present, these types of tools may set you apart from your competition and ensure success down the line. Reach out to our firm to see how benchmarking can be utilized in your company.

Do you have questions about accelerating value in your manufacturing business?

We can help.


Topics: Manufacturing & Distribution

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