The relevance of benchmarking in the steel industry has been a topic of debate for several years. Many players in the industry were initially of the opinion that benchmarking may not be effective in the steel industry as there is limited transparency in the industry regarding what is achievable and how results can be replicated. However, over the years, stakeholders in the steel industry have realized that to achieve operational efficiency and cost-effectiveness, industry benchmarking is essential. So, what are the challenges faced in the steel industry, and how can steel companies effectively use benchmarking to their advantage in this lucrative industry? Let us examine:
Here are some of the key challenges that the players in the steel industry have to face with respect to adopting benchmarking practices:
- Less amount of transparency among steel producers in the industry is making it difficult for companies to establish proper benchmarks
- Conducting an effective benchmarking based on similar parameters without mixing up structural and performance differences
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Benchmarking Best Practices
Here is a three-step approach for establishing benchmarks in steel operations and overcoming the challenges mentioned above:
#Step 1: Baselining: Analyzing operational and financial data
Benchmarking should always be conducted for a defined reference period such as a quarter or a fiscal year. Essential operational key performance indicators (KPI) should be identified, and it should be ensured that the KPIs provided are aligned and consistent with the financial data obtained. This makes the performance measurement much easier.
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#Step 2: Normalization of KPIs
One of the critical challenges in benchmarking is to ensure that the KPIs are consistent and valid comparisons are possible. It must be ensured that the KPIs obtained for benchmarking are consistent and measurable to be able to compare different variables in the data obtained.
#Step 3: Opportunity Sizing and Prioritization
After identifying the most relevant operational KPIs, the final step is to derive and formulate new targets for future KPIs. A comprehensive effort to benchmark different performance parameters will help players in the steel industry identify the activities that are of high priority and improvement opportunities available and take corrective actions to fill the gap.
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