Benchmarking is crucial to cost leadership

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Setting challenging KPIs for your business is all well and good, but needs to be done in line with what your competitors are achieving.

Many companies are happy to set themselves internal savings and efficiency objectives which result in incremental, year on year improvements. Whilst this approach can provide significant benefits, aligning the process with what similar companies have achieved ensures optimal value is delivered.

To give you an example, imagine a company manages to reduce the cost of vehicle procurement by ten per cent each year. Without looking at a competitor’s costs, it is difficult to know if this represents good value. Using a full scale commercial benchmark model 4C recently managed to help clients save up to 20 per cent on vehicle procurement expenditure.

Leveraging Insight  

Carrying out a thorough benchmarking process enables companies to identify areas where they are over and underperforming in relation to rival businesses. This knowledge can then be refined and leveraged to achieve better value.

Figure one provides an example of a benchmarking exercise carried out by 4C. This analysis looked at two fuel price scenarios, to help understand how changing prices could impact different companies.

The graph illustrates the cost per case delivered for a range of distributors. Knowing where your business stands means it is easier to set challenging and achievable targets. The process also ensures a business focuses on the right areas to cut costs and improve efficiency.

Maximising Value to Drive Growth

The hard truth is that in the current economic climate it will continue to be difficult to achieve growth through increased sales. For the majority of businesses implementing cost transformation techniques and effective benchmarking, represent the most viable strategies to increase shareholder value.

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