27 Aug Benchmarking to Improve Manufacturer’s Competitiveness
Many players in the manufacturing industry are exceptionally cost-sensitive and constantly strive to find new ways to optimize the cost and performance of their assets. We all know that product pricing and margins can make or break a business in a highly competitive market. This is why it is important to maintain a competitive cost position. In this blog, we highlight the ways in which benchmarking can be used to improve a manufacturer’s competitiveness.
While utilizing industry benchmarks are important it is tough to decipher whether a certain benchmark is valid for your operations given the fact that there is a multitude of differences in production inputs and enterprise configurations throughout the industry. It’s important to overcome the cost challenge and unlock the value of utilizing available data.
Table Of Contents
The Search for cost optimization
The search for the most efficient production volumes is a never-ending pursuit. Implementing an ERP that can integrate your manufacturing PLC to the accounting and inventory backend is a game-changer and many manufacturers have yet to unlock this potential.
3 Fundamental issues affecting manufacturers today
- As a result of the current COVID 19 pandemic, many manufacturers need to consolidate and reduce capacity. As much as it may be uncomfortable, you may need to consider production joint ventures, even possibly closing down underperforming plants. Having the data available to analyze the cost of production is invaluable when making these difficult decisions.
- There are many options you can choose to command a price premium and also increase customer loyalty.
Differentiation is at the core of commercial success. Incorporating more digital solutions will allow you to serve the right customers through the right channels.
Manufacturers need to be customer-centric to maintain their market position. It may be time to integrate value-added services to product and offer-specific offerings.
- The pressure to reduce costs is becoming more and more important and many companies have had to find creative ways to reduce costs further and prioritize continuous optimization to remain cost-competitive.
- It’s also not enough to just focus on production volumes. You need systems in place to ensure that you deliver finished products on time, at the desired quality, at the optimal cost, and with the highest efficiency. And you can do exactly that if you invest in an integrated ERP solution.
Many manufacturers don’t quite believe in the concept of benchmarking. They believe that it is not possible to identify truly reliable points of reference to assess their operational performance against what is deemed to be the industry “Best practices”.
Benchmarking, however, can be a great eyeopener. It gives management a perspective on how well their company and equipment are performing compared to their competitors. It helps find areas of opportunity that you may not have thought of had you only focused on your practices.
For your main activities, you need to define your reference period, collect operational KPIs and cost data, and ensure a consistent definition of KPIs.
For your end products, manufacturers need a real, representative, and consistent historical baseline for operational KPIs and production costs.
- Normalization and Benchmarking
Create transparency about the differences between your equipment and the benchmark you have chosen to use.
Normalize your KPIs and split the gap to benchmark between structural differences and performance.
- Opportunity Sizing and Prioritization
Define KPI targets. You can select to do this with or without capital expenditure.
Ensure you get buy-in from the relevant stakeholders and roughly quantify the financial opportunity. You will need to prioritize improvement areas. Make sure you have a clear understanding of the priority areas.
Even though many manufacturers are caught in between. It doesn’t take away from your business to benchmark yourself and compare performance with your competitors. It opens up the opportunity to improve processes which improve manufacturer’s competitiveness.