Benchmarking for Beginners

AEMP defines benchmarking as "a tool that can be used by any company to measure where a company is compared to its competition in the industry." It can be used by any company to facilitate continuous improvement in its products or services. Those improvements help maintain and increase the customer base, which is essential to the life and growth of a business.

So why don't more fleet managers benchmark?

"Truth is that many fleet managers are afraid to benchmark because they're afraid it will make them look bad," says Marilyn Rawlings, CEM, fleet manager for Lee County (Fla.) 1,800 pieces of equipment.

With that attitude often comes another obstacle: Many companies have sacred cows they don't want changed—things like always doing things one way or dealing with certain suppliers because they like them best.

"What those fleet professionals forget is that sacred cows make the best hamburger," says Rawlings. "You have to look at everything you do."

Benchmarking by the numbers

Benchmarking is a process that allows a company to identify best practices used by organizations anywhere in the world and apply them in their own operations. It is a multi-step procedure that requires the fleet professional to define objectives, measure performance, collect data, and measure the organization's performance against its peers and against the industry.

Following is a step-by-step approach:

Steps one and two require defining objectives and measuring performance. Todd Perrine, CEM, at Leslie Equipment, includes seven factors in these steps.

• Suitability—This takes into account performance attributes, such as the extent of use. A performance measure, for example, would be utilization of the equipment in miles or hours.
• Availability—Here a performance attribute would be downtime, and a performance measure would be the percentage of units that are out of service per day.
• Reliability—The performance attribute would encompass the number of breakdowns; performance measure would be hours and miles per breakdown.
• Safety—This requires compiling the number of accidents over a certain period of time and comparing that number with millions of miles driven.
• Economy—The performance attributes here include capital, as well as operating and maintenance costs. The performance measure is cost per mile or hour.
• Environmental impact—If cleaning up the environment is an objective, the performance attribute would be the fuel efficiency of the unit. The performance measure would be miles or hours per gallon.
• Customer satisfaction—The performance attribute would be satisfied customers. The performance measure would be the percentage of customers who are satisfied.

Step three requires the collection of data from a variety of sources, including historical performance data, industry data, published standards, information from peer organizations, contract performance terms, and vendor prices.

Step four is measuring performance. Determining maintenance and repair costs, for example, would include labor costs. Labor costs, in turn, would encompass worker efficiency and productivity, salaries, and fringe benefits, as well as indirect maintenance costs.

Step five is evaluating conditions and practices. As part of this step, there are certain factors that drive worker efficiency and productivity. Composition of the fleet is one of them. The age and condition of fleet equipment is another, as are fleet utilization and operation, staffing levels, facilities and equipment, and maintenance management and operating practices.

Steps six and seven require surveying your peers, and comparing conditions and practices.

"Worker efficiency and practices are directly affected by circumstances," says Perrine. Such circumstances include the size and layout of the facility, how information technology is used, the classification and organizational structure, supervision, training and certification, pay for performance, parts purchasing and supply, and outsourcing.

Step eight is the implementation of improvement strategies. This can be done through time reporting, block time assignments, quality assurance, time and task standards, reporting defects, and the scheduling of work.

"Cost, quality and turn-around time are components of benchmarking," says Rawlings. "It's not enough to say you can do the job for 50 cents an hour cheaper. It's not enough to say you check lights, belts and hoses when you change the oil. Don't just look at price and quality of the job—although they are very important, compare turn-around time and how fast the fleet manager can return the equipment to service."

According to Rawlings, government fleets tend to benchmark against other government fleets, but that's not her strategy.

"If I benchmark against another government fleet it means little or nothing," she says. "Suppose I charge $1 an hour less than a neighboring county? So what? They may have extenuating circumstances that I don't have that increase their rates."

Instead, Rawlings studies the performance of the private sector.

"I look at the private sector because there are a lot of private-sector businesses that specialize in managing fleets," she says. "That's all they do. They come in and run government fleets, because they can do it better, cheaper and faster.'

She benchmarks against local repair shops.

"If I'm charging $50 an hour and local shops are charging $150 an hour, I know I'm doing well because, unlike a government fleet, the local shops have to make a profit," she says. "We only have to break even and cover our expenses."

Rawlings does, however, compare—benchmark—what her counterpart in the next county pays a vendor with what she pays.

"Knowing that, I can renegotiate what I'm paying," she says. "It's all part of the big picture: Everything is interrelated."

Rawlings uses several techniques for measuring her operation against the competition and the industry. One is an annual survey.

For that, she equips those who actually conduct the survey with a list of questions for fleet professionals in both the public and private sectors. Targeting the four surrounding counties, they place telephone calls to government fleets to collect data, such as how much they mark up their parts and how much they bill an hour.

"I also have them call the local car dealerships and other shops in the private sector to find out, for example, what their billable rates are for working on a tractor," says Rawlings. "They won't talk about their parts markup, but a lot of them will share rate information because I'm one of their major customers. If they ask why I want to know their billable rates, I tell them it's because I don't pay retail."

If a dealership charges, $84 an hour, and Rawlings is paying $84 an hour, she knows she has some work to do.

"If I spend $2 million a year with a dealership, I think I should get a better rate than someone who walks in off the street," she says.

Rawlings also benchmarks the work technicians do against flat rates.

"If a job takes two hours and a technician is spending 3.5 hours on the job, they're costing me money," she says. "I either need to take that repair to an outside vendor or spend some money training that technician to perform the repair quicker."

In some ways, benchmarking a government fleet doesn't include the same challenges as a fleet in the private sector.

"I think, as a government fleet, we have an advantage in benchmarking and I think we're better at it than the private sector," says Rawlings. "Private fleets have to be very careful about what they share. They don't want their competition to know it costs them $70 an hour or $90 an hour to run their fleets. A contractor can't call another company to find out their trade secrets, but they can find out if it's cheaper for them to do the repairs in-house or send it out. If it's costing a fleet manager $90 an hour and he can send the job to Acme Tractor and have it done for $70 an hour, he has to look at that pretty seriously."

Many fleet professionals won't outsource jobs.

"My feeling is, if somebody else can do the work cheaper than we can, I would be foolish not to take advantage of that," she says. However, the shop that does the outsourced work must provide quality service.

"If I outsource a job, I hold their feet to the fire in terms of turn-around," says Rawlings. "The point is benchmarking takes the guess work out of these types of management decisions."

In the private sector, Robert Andrade, CEM, vice president, equipment management, for Parsons, uses benchmarking to control costs, optimize the size of the work force, and evaluate overhead.

"You have to have benchmarking to establish your trends, your activities, and whether or not you need the volume of support people or expenditures you're running," he says. "A lot of factors must be considered—cost of maintenance, direct and indirect overhead and labor costs, for example. You have to track and benchmark those factors monthly, quarterly or annually. By tracking these kinds of costs, you can figure out if you're spending too much on your fleet or not spending enough."

Parsons maintains a fleet of approximately 1,100 units that Andrade characterizes as a high-utilization fleet.

"The core fleet changes along with our business activity," he says. "Since we do all types of construction, our fleet can change from year to year, depending on our utilization and project requirements. It might be road-building equipment one year and something else the next. If I can't schedule the equipment, I sell it."

Andrade doesn't benchmark his operation against other industries.

"I don't bother," he says. "My business plan, company and philosophy will be different. I may pay attention to what others are doing, but I don't give it a lot of weight. It's more curiosity about how they manage their businesses."

Because no two companies are alike, Andrade says benchmarking software is difficult to find.

"You can't find good off-the-shelf software for benchmarking, equipment maintenance tracking, or cost of ownership," he says. "There are just too many variables."

Once benchmarks have been identified, put them in writing. This provides the basis for implementation.

Then, train the employees who must use it. Once that's done and the practice is in place, compare it with the old procedure or data to verify the practice has been successfully applied.

And when all the steps are completed, start the process again.

"Benchmarking is a management tool, not a management objective," says Perrine. "When using it, don't confuse symptoms with causes, and be sure you're comparing apples to apples. And always remember better information will lead to better benchmarking."

Every business entity encompasses variables and complexities; however, those companies that do put forth the effort and commitment to benchmarking report significant increases in productivity. Still, if benchmarking is to be successful, top level management must commit time, money and people to the effort. That support is critical.