Like many folks, there are a number of things I enjoy about the game of golf.
There’s the beauty of the surroundings, the fresh air, the camaraderie of my playing partners, but perhaps most of all, golf is a game that’s never mastered and there is always something that can be done to get better, shoot lower scores, and take it to the “next level”.
The key to improving is to invest the time in practice. This is obvious, but there are only so many hours in the day and in order to make the most improvement, that practice must be focused on the right part of the game. But how do I know which parts of my game I need to work on, and how much benefit I might expect to get from that investment? Maybe two hours of work on the driving range will help lower my score one stroke, but 30 minutes of time on the putting green could yield even bigger benefits. Fortunately, there are programs available to help answer these questions.
The same is true for wholesale distributors. With limited resources, you must focus your investments on the areas that will yield the most results. The question, though, is how does a wholesale distributor know where to invest his precious resources to get the most “bang for the buck”. The answer is benchmarking.
Benchmarking allows distributors of all sizes to measure their performance against a group of their peers. This group may be defined by size, geography, or some other property. Regardless, the point of defining a representative peer group is to gain an understanding of the range of values that are possible. For example; let’s say that a food service wholesale distributor with about $2B in annual revenue has a cost of goods sold (COGS) of 80%. By defining the peer group of other $2B companies of all industries, we might find that the value of 80% places our company below the average. However, if we define the peer group to be other food service wholesale distributors, we might find that we are in the top quartile. Finally, if we define our peer group as food service wholesale distributors with annual revenues of around $2B, we might find that our performance is about average. It’s important to select the appropriate peer group if you want accurate performance benchmarking results.
The benefit of benchmarking our performance against our peer group is not just to see how we stack up against the competition, but rather, to identify areas to invest. So, we must take each area where we identified potential improvement and measure it. In our case, we find that each 0.1% improvement in cost of goods sold (GOGS) for a distributor our size would result in incremental annual increase in operating income of about $2.4M. If we believe we can improve our COGS from 80% to 79%, we could expect annual improvements of about $24M. We can compare investments in this area to investments in other areas that may yield even greater results.
By participating in performance benchmarking against a well selected peer group and evaluating the potential benefits, we can make sure that we’re really focusing on what’s going to make us better and not just banging away at range balls.
The SAP Value Engineering Performance Benchmarking practice was founded in 2004. This practice was founded as a complimentary service to SAP and non-SAP customers. Today, this practice is thriving and continues to grow. The SAP performance benchmarking database contains submissions from over 15,000 participants from over 4,000 companies. It includes over 1,200 Key Performance Indicators, 1,500 Best Practices and over 300 peer groups. Supporting this database is SAP’s proprietary, cloud-based, end-to-end benchmarking platform – The Value Management Center (VMC). The VMC offers unmatched customer experience through the use of a web-based portal and an online survey catalog of over 50 business processes. It offers self-service survey completion, flexible peer-group selection, and on-demand high performance assessments and insights. This set of world-class content and tools is one of the industry’s largest databases of metrics (KPI’s) best practices, and high impact strategies. It is built around a question/KPI centric model and contains a management dashboard and business user survey authoring.
Hopefully you have found this information helpful. Please contact me if you are a wholesale distributor interested in discussing performance benchmarking or in playing a quick 18 holes.
Matt Petersen is the Industry Value Advisor for Wholesale Distribution at SAP America. He is a wholesale distribution technology expert with over twenty five years of international experience in enterprise software including the last ten years focusing on the Wholesale Distribution industry. When not focusing on that, he’s practicing his putting.