Benchmarking – A Tool for Better Business Management - SPUTNIC

CORPORATE MANAGEMENTInternal BenchmarkingThis type of benchmarking looks at internal business practicesand compares them, thereby helping to identify thebest practices within an organisation. Internal benchmarkingassumes that work processes will differ due to geography,local organisational history, the nature of managers andemployees in different locations, etc. The aim is to identifythe most effective or efficient work processes in differentparts of the organisation and to share them, so that thesebest practices become widely used throughout the organisation.This internal understanding becomes a baseline whenexamining other companies.Competitive benchmarkingThis type of benchmarking examines the products, servicesand work processes of an organisation’s direct competitorsand compares them with the company’s own. This helps thefirm to position products, services and processes relative toother companies in the market. Sometimes practices observedelsewhere can easily be applied by an organisation,while occasionally companies that have already undertakentheir own benchmarking are willing to exchange informationwith others. Companies sometimes join forces to benchmarkin non-proprietary areas.Functional/generic benchmarkingThe type of benchmarking learns about high-quality products,services or processes by identifying the best practices ofan organisation with a reputation for excellence in the areabeing benchmarked. For instance, Xerox used L.L.Bean as anexample of excellent warehousing and order-fulfilment. Thistype of benchmarking can contribute to a“paradigm shift”inwhich a company’s approach to certain issues or problems isradically changed. When undertaking this type of benchmarkinga company needs to look outside its own industryfor ideas and keep an open mind.In principle it is possible to benchmark any function or characteristicthat can be observed or measured. Typically, themain categories used in benchmarking are as follows:• Products and services – Including finished goods and featuresthat account for product differentiation.• Work processes – Including design processes, R&D practices,workplace design, production processes, methods,distribution arrangements and manufacturing equipment.• Support functions – Including the finance, human resourcesand marketing departments.• Organisational performance – Including a look at specificperformance indicators, such as yields, asset turnover anddepreciation rates.• Strategy – Including short- or long-term plans and theplanning process.Benchmarking is a continuous process that provides informationa company can use or adapt to improve virtually anycorporate activity. The process takes considerable time, effort,discipline and labour. It is not a one-time, quick and easy activitythat supplies simple answers. The idea of benchmarkingis to learn, understand, assimilate and apply (not copy) what islearned in a pragmatic way that suits the company at hand.Methodology – How to usebenchmarking properlyTo benchmark successfully, a process model is needed thatprovides structure and a common language as a basic frameworkfor action. The basic requirements for performing suc-Clearing and harmonising of the data is essential for a realistic comparisonIncomparebledataM io currencyrangeof serviceComparabledatax %capitalcostsa-periodiceffects12structure cost driverclearingharmonisingbasic cost driversBASIC DATAcleared costsstep 1 step 2CLEARED DATAcleared harmonisedcosts and spectrumCLEARED ANDHARMONISED DATASPUTNIC (Strategies for Public Transport in Cities) is a project funded by the European Commission under the 6th Framework Programme.SPUTNIC is dedicated to challenges faced by local and regional public transport systems in transition. These challenges include the emergenceof a competitive environment, changing institutional frameworks and increasingly scarce financial resources. SPUTNIC seeks to help makepublic transport systems more attractive and efficient by providing: support to stakeholders to anticipate and prepare for emergingchallenges; an overview of state-of-the-art knowledge and research; and specific guidelines and practical tools.

CORPORATE MANAGEMENTReference numbers and key performance indicators for all areas of the value chainDriver costManagement services Vehicles Revenues• Cost per km• Duty - roster, timetableand staff productivity• Absence - analysis• Labour cost level analysis• Cost per km• Cost ratio analysis• Overhead ratio analysis• Detailed analysis of mainfunctions• Cost per km• Productivity analysis• Absence analysis• Labour cost level analysis• Reserve level• Revenues from market perpassenger• Average travel distance• Passenger km per km ofservices offered• Cost-covering ratioCustomer management Traffic management Infrastructure• Cost per km• Distribution channels• Overhead ratio analysis• Ticket control efficiency• Cost per km• Overhead ratio analysis• Productivity and outputanalysis• Cost per station• Hours per km overheadcatenary• Cost per track kmAt the given circulation speed target costs are around one euro per kilometreHarmonised comparison of driver costs (Euro/NWkm)Market levelchange 6-16%1.091.031.16Market span0.87Referenceundertaking1.31TU 1TU 2 TU 3 TU 4 RUValues of impactØ disposable driver hours (h/a) 1,657 1,690 1,610 1,660 1,603Ø Labour cost per networking time (euro/h) 62.60 57.50 64.30 52.40 69.60Duty roster productivity 89% 91% 82% 94% 81%SPUTNIC (Strategies for Public Transport in Cities) is a project funded by the European Commission under the 6th Framework Programme.SPUTNIC is dedicated to challenges faced by local and regional public transport systems in transition. These challenges include the emergenceof a competitive environment, changing institutional frameworks and increasingly scarce financial resources. SPUTNIC seeks to help makepublic transport systems more attractive and efficient by providing: support to stakeholders to anticipate and prepare for emergingchallenges; an overview of state-of-the-art knowledge and research; and specific guidelines and practical tools.

CORPORATE MANAGEMENTExample: Results and performance indicators for maintenance of busesHarmonised comparison of driver costs (Euro/NWkm)Productivity(FTE/VU)Overhead(%)0.130.12Market level0.07-0.100.070.080.090.1025.818.823.014.918.318.4TU 1TU 2 TU 3 TU 4 TU 5TU 6Factors of influenceAdministration 4.2 3.8 6.5 3.4 8.6 8.2(no. of adm. staff)Vehicle units (standardised) 185 164 246 169 288 269Third Party volume 42% 20% 22% 33% 35% 19%cessful benchmarking are as follows:• Determining what to benchmark (exact descriptions anddefinitions).• Identifying the benchmark partners and informationsources.• Collecting and analyzing the gathered information. (Thisdemands an advanced methodology in order to avoidbenchmark comparisons between “apples and pears.”)• Taking action based on the benchmarking investigation.Since the proper analysis of the gathered information is themost important step, more details are provided below.The difficulty in benchmarking is to make data comparablewithout ignoring the specifics of each company (organisation)involved in the benchmarking process. Benchmarkingresults are only accepted by management, employees andtrade unions when real comparability of data is guaranteed.This can be assured by taking two essential steps in thebenchmarking process, based on strictly defined figures:1. Clearing of data:Data has to be checked to see whether the same content isexpressed by the benchmarked figures. If, for example, thecost of driving hours is to be compared, the overall cost willhave to include the same cost elements, such as personnelcosts (including social costs and all fringe benefits). Also, thedriving hours must be standardized: for example, net drivinghours at the steering wheel without breaks and withoutramping up and down times. Special items which only occurredin a specific year have to be eliminated in order to expressthe long-term cost level.2. Harmonising of data:In order to compare“apples with apples,”data have to be harmonisedaccording to the same cost driving factors for all ofthe benchmarked organizations involved. If, for example, theproductivity of a workshop is to be benchmarked against thevehicle fleet for comparison purposes, the fleet of individualvehicles which includes standard and articulated buses withdifferent numbers of doors and technical equipment (air conditioning,traffic control units, etc.) has to be converted intoa fictive standardised fleet of vehicle units. Therefore a definedvehicle with its basic equipment is set as an index of100 (e.g. standard high floor bus with two doors). Additionalequipment, car length, etc. is incorporated with an individualsurplus for each item (e.g. articulated bus: plus 40%; air conditioning:plus 12%; additional door: plus 3%), which describesthe cost (and productivity driving) complexity of thevehicle fleets to be analysed. By summarising the index valueof each vehicle a comparable denominator for the productivityvalue is created.Benchmarking resultsThe results of benchmarking have various aspects, dependingon the intentions of the management of the organisationsinvolved. For public transportation managers the mostimportant elements tend to be the current costs, productivityand revenues of their firms. Hence benchmarks have tobe carried out on the relevant key performance indicators ifthey are to describe the situation correctly. An overall pictureis provided in the following table:In the table above, the benchmark results for driver costs areSPUTNIC (Strategies for Public Transport in Cities) is a project funded by the European Commission under the 6th Framework Programme.SPUTNIC is dedicated to challenges faced by local and regional public transport systems in transition. These challenges include the emergenceof a competitive environment, changing institutional frameworks and increasingly scarce financial resources. SPUTNIC seeks to help makepublic transport systems more attractive and efficient by providing: support to stakeholders to anticipate and prepare for emergingchallenges; an overview of state-of-the-art knowledge and research; and specific guidelines and practical tools.

CORPORATE MANAGEMENTBenchmarking as a starting point for further stepsDetailed benchmarking• harmonised benchmarking• detailed, functional analysis cost targets• internal transparency of costs and performance values• monitoring and time series comparisonStrategy development• becoming fit in terms of competition (tax/competitionlegislation)• organisational changes and modelling• cooperation model evaluation/expansion/acquisitionand take oversRestructuring Process• development of action plan• implementation of restructuring measures• topic evaluation (ie. operations, maintenance, customermanagement, management services...)Management information systems (MIS)• key performance indicators• balanced scorecard• target systems• field of action controllingshown for a sample of regional bus companies (TU = transportundertakings). The reference undertaking (RU) was comparedagainst this sample.Apparently the RU has some deficits in productivity (i.e. disposabledriver hours per year), costs (labour cost per hour)and duty roster productivity, which accumulates to a disadvantageof around 30% in driver cost per km.In terms of the value chain of a public transport company,vehicle costs are typically the second most important costcategory. Within vehicle costs, maintenance and cleaning canbe managed by the public transport operator and can oftenbe optimized.The productivity of a public transportation company — measuredas full-time employees per (standardized) vehicle unit —deviates between 0.07 and 0.13, representing a delta of morethan 80%. This is a clear indicator for need of improvement atcompanies TU 1 and TU 6, and also highlights the competitivedisadvantage of the workshops of these two firms.Besides highlighting differences in key performance indicators,which show disadvantages in certain areas and gapsversus the market level, the benchmarking process shouldalso provide the first signs of areas that need improvement,by analysing and comparing the underlying processes of thevarious organisations.In a large number of benchmarking projects, the initialbenchmarking process has turned out to be the startingpoint for huge improvements in managing a public transportorganisation. Based on the compilation of facts and figures inthe benchmarking process, a company’s current strengthsand weaknesses become obvious. This allows the developmentof a restructuring process which outlines targets to bereached and improvement measures to be undertaken. Furthermore,the benchmarking results are useful in developingthe firm’s subsequent strategy, organisational changes andcontrolling tools (MIS). (See table below.)Note: This document is based on both the cooperative deskresearch of Sputnic project partners and input from publictransport practitioners/experts.SPUTNIC (Strategies for Public Transport in Cities) is a project funded by the European Commission under the 6th Framework Programme.SPUTNIC is dedicated to challenges faced by local and regional public transport systems in transition. These challenges include the emergenceof a competitive environment, changing institutional frameworks and increasingly scarce financial resources. SPUTNIC seeks to help makepublic transport systems more attractive and efficient by providing: support to stakeholders to anticipate and prepare for emergingchallenges; an overview of state-of-the-art knowledge and research; and specific guidelines and practical tools.