Benchmarking – How to Drive Performance in Volatile Times

“How are you doing?” is a conversational question we often ask friends and colleagues. But, “How are we doing?” is a more critical question companies must ask themselves. The problem is that too often companies look only at internal metrics for the answer. However, to get a complete picture of their performance, companies also need to know how they’re doing compared to others in their industry. And that’s where benchmarking comes in. What does benchmarking mean, particularly in transportation? Is there a standard approach? How can companies use benchmarking to drive improvements in transportation? Those are some of the key questions I discussed with Stephen Husk, QA Manager, Managed Analytical Services at BluJay Solutions, during a recent episode of Talking Logistics.  

Defining Benchmarking Terms

Anytime you have a serious discussion, it’s important that everybody understands the basic terms being addressed. Therefore, I began our discussion by asking Stephen to explain the basic terms of benchmarks, indicators, and indices. Stephen notes that benchmarks are reference points used when measuring performance, while indicators are specific benchmarks for a particular segment of the market, such as transportation. He says indices, or indexes, are compilations of indicators over time such as the consumer price index.

Stephen goes on to point out that indicators are particularly important in transportation because this market is always changing, especially since the pandemic began. “You may think you’re doing well, but without comparing yourself to external benchmarks, you don’t really know,” he says. “There are a number of good transportation indexes out there that people can use to compare themselves to the market. There is plenty of good data out there, but it’s all in how you use it.” BluJay offers its own set of data, including its BluDex freight rate index and Freight Market Index Report. 

Employing Benchmarks

So, how can you employ benchmarks to create actionable information? Stephen comments that to be useful, benchmarks must be methodical, trusted, and relevant. To be relevant, the benchmarks should be specific to your transportation situation. “For example, the benchmarks may be quite different for van vs. reefer modes, as well as between different industries. Geographic regions have important differences too. You also must match the KPIs you’re measuring to your business.

“The benchmarks must be methodical as well,” continues Stephen. “We have to get away from tribal knowledge to more objective indicators. And it has to be repeatable because transportation is changing constantly.

“As far as being trusted, if the benchmark process is clear and transparent, it will build trust, but it also depends on how it is used. If used for punitive purposes it will destroy trust. Instead, it should be used to find opportunities for future improvement. Trust is where we see the benchmarking process most often break down. If the data isn’t trusted, it won’t be useful.”

Stephen goes on to explain that the best way to use the data is to look at your company’s performance variances to the benchmarks. He suggests looking at the top five positive and negative variances from the benchmarks and examining the reasons for those variances to better understand where your improvement opportunities lie.

Common Benchmarking Mistakes

Stephen notes that the biggest mistake companies make is looking for the “perfect” benchmark or indicator for their situation because no such thing ever exists. He says people tend to get defensive about why they don’t match a particular benchmark and try to discredit it instead of using the variances to uncover opportunities for improvement.

Stephen explains that another mistake is when companies don’t consider how indicators are related to each other, such as the tradeoffs between service and cost. For example, setting a goal of improving on-time performance by X percent may come at a cost that is inconsistent with corporate cost containment strategies.

Communicating Results

Benchmarking data is only useful if it is trusted and used by the organization to improve operations. The critical factor, then, is how the results are communicated to both upper management and frontline staff. Stephen had a number of great suggestions on this, as well as insights on future demand for real-time, embedded benchmarks and sustainability data. Therefore, I recommend that you watch the full episode for all of his insights and advice. Then post a comment and share your perspective on this topic!