Many of us have a bit of a competitive streak in us — whether it is pitting ourselves against some friends in a friendly game of cards, hitting the links on the local golf course with some acquaintances, bowling at the alley on league night or cheering for our favorite NFL team in the playoffs. We like to compare and compete against others — in fact, this is the psychological basis of the free-market system: Competition will best serve the needs of society.
A useful and productive method for implementing this concept in your feed or grain business is through the process of “benchmarking.” Benchmarking is the process of collecting performance metrics including cost, cycle time, productivity, profitability or quality measures for your business, and then comparing these to your historical performance and/or industry standards or best practices. The term “benchmark” originates from the chiseled horizontal marks that surveyors made in stone structures, into which an angle-iron could be placed to form a “bench” for a leveling rod, thus ensuring that the leveling rod could be accurately repositioned in the same place in future. These marks were usually indicated with a chiseled arrow below the horizontal line. These notches, or marks, represented a given altitude and against which other heights could be calibrated or “benchmarked.”
How can benchmarking be used?
Benchmarking is best used as part of your feed and grain business’ annual or strategic plan (or both). These metrics, some of which we will discuss in further detail, allow you to make improvements or adapt best practices with the aim of increasing your firm’s performance. Benchmarking may be a one-off event, but is better treated as a continuous process where you continually seek to improve your practices — like strategic planning.
Many performance measures can be grouped into one of the following five general categories. We will give some examples and ideas for metrics that fall into each of these categories; however, you may find developing your own additional measures may also be useful:
1. Efficiency: A process characteristic indicating the degree to which the process produces the required output at minimum resource cost.
2. Quality: The degree to which a product or service meets customer requirements and expectations, and/or legal requirements.
3. Timeliness: Measures whether a unit of work was done correctly and on time. Criteria must be established to define what constitutes timeliness for a given unit of work. The criterion is usually based on your customer’s needs and requirements.
4. Productivity: The value added by the process divided by the value of the inputs used (labor and capital consumed).
5. Safety: Measures the overall health of your organization (literally) and the working environment of your employees.
(Note: These categories are paraphrased from the “Performance-Based Management Handbook, put together by the Performance-Based Management Special Interest Group, a Department of Energy funded group interested in this area. It can be found at http://www.orau.gov/pbm/pbmhandbook/Volume%202.pdf)
The primarily focus of this column is to get you to think about benchmarks and how to track them, rather than on how to improve the measures. We know that there are lots of “roadblocks” to improving business performance — if it was easy anybody could do it. Our thought (and that of many others) is this: “What gets measured, gets done.” Intuition definitely has its place in managing, but performance measures provide a meaningful yardstick for evaluating and improving our work.
Efficiency focuses on getting the largest output at the least cost. Many efficiency measures can come from your income statement (almost every cost/expense measure can be divided into your outputs — i.e. bushels of grain or tons of feed or dollars of profit — to be analyzed as benchmark measures. You will find that some of these measures are inverse calculations of a few of the productivity measures discussed in more detail below.
Calculations useful in the feed and grain industry might include things like: labor cost/ton of feed produced; labor cost/dollar of profit; advertising dollars/ton of feed; or miles per gallon for delivery/transportation vehicles.
Some business experts also measure efficiency as: Efficiency = [100% * (Actual Output/Standard Output)]
Standard Output in the equation above is a number that is arrived at by looking at historical data for the job and by experience. One would hope this number is not an arbitrary one, but a number derived by looking at a historical time series. You might use this to measure key “volumes.” For instance, on some of your best days — when everything was running “in-sync,” and your business was “firing on all cylinders,” you might have produced 300 tons of feed, or took in 20,000 bushels of grain — these can be used as your “standard,” and other days or periods can be measured against these.
In the feed and grain business example, quality measures might be things like a 16% dairy ration for a feed mill, or Number 2 yellow corn for a grain elevator. These measures may be required legally by the government to meet a particular standard or label requirement. Others might be characteristics that are more “perceptual” in nature, e.g. for example, rather than ground oats, using rolled oats in a feed ration to give the visual and textural appearance of quality — though the nutrition in the feed using either ingredient may be the same. Quality may be influenced by the use of “higher grade” inputs, items which clearly provide superior performance — feedstuffs which supply higher protein or higher energy (more so in the feed business than the grain industry).
Incoming feed ingredient quality is also sometimes used as an indicator of quality — what percentage of incoming feedstuffs are rejected or turned away? Other quality measures can relate to how product is handled, and the attention paid to cleanliness and grain condition (moisture, pest control — insects and rodents, percent fines or damaged kernels, dockage and foreign material, or tramp metal). Any or all of these standards can be set and/or used as benchmarks.
Measures of timeliness focus on meeting deadlines and measures that look at capacity. Often these are driven by customer needs, and/or providing quality customer service. Industry examples here might include: tons of feed manufactured/hour or day or month, percent of customer deliveries made the same day as order (or the next day — depending on your policies), percent of phone calls returned within two hours of when call is taken (or whatever is appropriate for the size of your staff), turnaround time on railcars or barges (obviously avoiding demurrage is good, but goals can assist you in achieving them), length of time for hires (from listing position to hire), or others of your own choosing.
At its most basic, productivity is all about getting the most output per unit of input. In your feed and grain business, inputs are one of two types: labor (your people) and capital (everything else — dollars invested, and assets that dollars purchase). To increase productivity, we need to either increase the numerator of this equation (output), or decrease the denominator (labor or capital) — or other combinations that improve the ratio (keep output constant and reduce inputs, etc.).
Accomplishing the above feat is not rocket science; however, the “devil is in the details,” and is all about how you manage your business. This is the art part of management — making the trade-offs that pay off. We know different employees have different productivities: some work quickly with no mistakes (which enters into the quality measures discussed above), others may work more slowly, and yet others may work fast but make mistakes.
How do you impact employee productivity? There are whole books that are written on this topic, but the executive summary says: Hire good people; give them appropriate incentives; and give them good and continuous training.
The second input is capital — the assets you use. Improvements in technology can provide significant improvements in productivity; however, these bumps in productivity come with a cost. New equipment is not inexpensive. You have to weigh this expense against the expected productive life of your existing feed mixers, trucks, grain dryers, etc. Analysis methods include payback calculations and tax implications. Many new technologies also come with labor savings — and these have to be factored in as well.
Examples of these types of measures in the grain and feed business include: tons of feed produced/employee; bushels of grain marketed/employee; tons of feed marketed/delivery truck; tons of feed manufactured/feed mixer; or bushels of grain shipped/storage bin.
The safety of your employees and customers is of paramount importance. Fortunately, feed and grain products do not pose particularly challenging safety hazards for customers (unlike products like a lawn mower or chain saw); however, safety is always a significant concern due to potential downtime, lawsuits and loss of goodwill, repair costs for equipment or tools and spoiled or damaged products.
Education is a key component, and management’s ability to help employees from becoming complacent with routine jobs that have inherent risk is the challenge. Safety also spills over into maintenance of data and computers, i.e., updated virus software and backup of data.
Benchmark measures can include the number of CPR certified employees; accidents/thousand hours worked; safety meetings held/year; smoke detectors/building, number of fire drills held/quarter; the percentage of computers backed up daily or weekly; the decibel level of equipment (can be a standard to work toward reducing); or the grain dust levels (measured as g/m3 or oz/ft3).
Management dashboards and other sources of comparison
A relatively new method of tracking benchmarks or standards on a real-time basis is to utilize the power of computers, combined with the value of looking at things visually. This approach has been put together in new management “dashboard” software programs.
According to idashboards.com: “A management dashboard offers simple graphs, charts and maps that make it easy to track progress and follow trends.”
If you can track data regularly, real-time reporting using a management dashboard can mean that as manager you can take action at the first sign of a problem, instead of waiting for a monthly or quarterly report.
It is also important to realize that dashboards are not a panacea. You need good data and reporting systems to prevent inputting faulty data. It is also important to input the “right” data, and this is your call as a manager — what information provides you the best view so that you can make the proper decisions? A good dashboard should also pare down items so that you do not have too much data. Given their intuitive design and visual nature, a dashboard program might be worth looking at for your company.
Industry benchmarks are sometimes hard to come by. While not an endorsement of their product — you might check out Pennent Systems (www.pennent.com). Created by Cargill, in collaboration with Feed Management Systems, Pennent is a program which helps managers improve efficiency in their feed mills by establishing a cost standard against which to benchmark. Its approach allows for customization of a cost model based on a firm’s equipment and product mix. Another key component, which helps provide functionality, is the software’s ability to do “what-if” scenarios.
Benefits of benchmarking
Benchmarking provides a relatively quick and easy method to track standards or goals you have for your feed or grain business. As a manager, you are certainly aware of the benefits of performance measurement. Appropriate benchmarks can be used to:
• Set goals and standards
• Document accomplishments
Tracking benchmarks can allow you to detect and correct problems as well as manage, describe and improve processes. All of these are functions of management, and benchmarking is a tool which can be used to make you a better manager. In fact, by tapping into that competitive streak we talked about earlier, setting benchmarks can be fun and motivating. ¦