Benchmarking internally can lead to missed improvement opportunities.

Most pipeline and terminal operators identify KPIs (Key Performance Indicators) internally to benchmark their operations, measure performance, and drive continuous improvement. While, internal benchmarking is valuable, by not benchmarking against a wider set of industry peers, operators miss areas of underperformance and opportunities to improve. These missed opportunities can range from minor changes to closing larger gaps, which can result in saving millions of dollars over time.

For example, imagine you are a runner who proves to be faster than anyone else in your neighborhood. Obviously, that does not necessarily mean you are a world-class competitor. If you want to be a world-class competitor, you will need to widen your competitive experience and learn how the best competitors perform at a high level. One way would be to compare yourself with the best runners and learn what you can of their training regime, diet, shoes, etc., to see what improvement opportunities you might have missed.

This comparison enables you to learn where you rank against the competition. And when you race against a large and diverse group on a regular basis, you will learn additional ways to improve your fitness. You might also seek out a trusted trainer who has the knowledge to help guide and accelerate your journey to higher performance.

This same thinking applies to externally benchmarking your pipeline and terminal operations against a wider audience to deliver actionable insight that enables you to improve results and sustain success.

So how do you benchmark externally, when accessing operations-data details are not revealed publicly or are highly diluted, at best? Proper external benchmarking with assured data security, robust comparative methodology, detailed and actionable metrics, and operator anonymity is the answer. By trusting a third party with your data, you can receive a rare view of how you compare to peers.

Internal Benchmarking Limitations

Internal benchmarking does not use non-public data, instead it uses internal or public data to measure performance improvement efforts. When utilizing this limited dataset and small range of performance metrics compared to external benchmarking, it can result in missing valuable comparative insight. Internal company politics potentially can also influence internal benchmarking results, sometimes failing to shed light on an important facet that is not popular to bring to light. As a result, meaningful change can be missed. Since external benchmarking is conducted by an impartial third party, this pitfall is avoided.

External Benchmarking Advantage

External benchmarking utilizes non-public data to compare your pipelines and terminals with industry peers across a range of detailed metrics and KPIs. This type of benchmarking uncovers opportunities often missed when measuring performance internally or using only public data to compare with peers. A company conducting the external benchmarking does not disclose the names of the competitors and has a trusted and proven method to conduct the competitive performance evaluation. In return, an operator receives a wealth of insight and a thorough analysis of how they compare on metrics, including integrity maintenance, downtime, reliability, personnel costs, energy efficiency, and more.

External benchmarking allows comparisons that are not available with internal benchmarking. For example, both Solomon's Liquid Pipeline Study [1] and Liquid Terminal Study [2] have complexity divisors — Equivalent Terminal Complexity (ETC™) and Equivalent Pipeline Complexity (EPC™) — that allow comparisons between operations encompassing many diverse conditions. These conditions include pipelines with varying lengths, diameters, pumps, meters, and surrounding terrains; as well as terminals with varying tank capacities, transportation accommodations, product mixes, and tank types; and locations in widely varying regions throughout the world. It is difficult for an individual company with an internal benchmarking program to make similar comparisons across diverse facilities. In addition, the accuracy of study results improves greatly when the size of the comparison population increases. External benchmarking studies can also provide companies with regional peer groups against which they can compare their operations. These peer groups have a larger number of participants than any one company has in any region, allowing for a deeper drill-down than is possible with internal benchmarking.

External Benchmarking’s Larger Database Provides More Accurate Predictions

External benchmarking provides a larger performance database than is possible with internal benchmarking. This is important for two reasons:

1. Participants get a better view of the very best in class — the group against which they should most want to benchmark themselves. Being the best within your company, while admirable, is not nearly as significant as being the best in your industry or market.

2. A large database with a broad and diverse range of performance makes a superior normalization model possible. Internal benchmarking typically offers only a small dataset with a limited range of performance, which can result in an inaccurate normalization model. In addition, because normalization models are empirical, they cannot be used to extrapolate beyond the data range, which is limited in the case of internal benchmarking. Conversely, external benchmarking provides a broad range of performance, one that is more accurate for normalization and better for predicting the effects of changing variables.

Striking the Right Balance Between Internal and External Benchmarking

Solomon has witnessed a challenging dynamic between internal and external benchmarking advocates. One example of this is where one company had started benchmarking by using its own internal metrics and internal benchmarking systems several years before joining Solomon’s study. Members of the company’s management team were convinced that internal benchmarking was the right thing to do and that they had all the comparative data that they needed — and that they were saving money with internal benchmarking. 

However, Solomon brought an unbiased and external view to the company and showed leadership the significant limitations with its internal metrics and internal benchmarking. After further discussion with the company’s managers and support from Solomon, the company came to appreciate the benefits and deep insight of external benchmarking. A company director said, “Once Solomon came in, everything started to change, and we became focused on achieving REAL measurable performance improvement.”

External Benchmarking & Continuous Performance Excellence Go Hand-In-Hand

Every company has strengths and weaknesses, and these can be identified reliably, only by benchmarking against regional and global competitors. Proper external benchmarking studies provide comparisons that are more in depth than what can be provided by internal benchmarking. The results are drill-down capabilities that can be used to reliably justify improvement initiatives. Benchmarking externally gives you the valid insight needed to act.

Start your journey to performance excellence and uncover data-driven opportunities to improve operations and increase profits. Get on the path of continuous performance improvement throughout your pipeline and terminal networks.

Learn more about our Liquid Pipeline and Terminal Studies.

[1] Worldwide Liquid Pipeline Performance Analysis   [2] Worldwide Liquid Terminal Performance Analysis