Benchmarking for Competitive Advantage

Abstract

Both liquids pipeline and natural gas transportation companies have been confronted with increasing competition over the past several years. Shippers have become far more demanding, insisting that transporters provide more cost effective rates. As a result, pipeline companies are under increased pressure to reduce transportation rates. This scenario is also true for regulated pipelines where shippers are joining forces to pressure transporters to be more creative in their ways of doing business so they can provide lower tolls. In order to assess their current cost structures and identify the most appropriate areas of their business to focus improvement efforts, pipeline companies have benchmarked their performance against competitors and leaders in the industry. Companies have used the results from these benchmarking studies for several purposes: a) understand cost / activity driver relationships; b) obtain empirical versus anecdotal information; c) assess their current level of performance; d) identify opportunities for improvement, focusing efforts on areas with the greatest potential for cost reductions; e) establishing realistic performance improvement targets; f) challenge corporate “myths and legends”; and g) provide insights into leading business practices that have been used by other companies to improve efficiencies. Results from the benchmarking studies suggest that the pipeline industry is, in general, reacting to this pressure for lower transportation costs. Over the past three years, based on a sample of North American pipeline companies, both liquids and gas pipelines have reported improvements in operating costs on a unitized/normalized basis. These cost reductions have resulted from focusing improvement efforts on key areas of the business where performance was not up to industry standards. Modifying business practices in these areas has been critical in assisting these organizations in reducing costs. This paper will present a comprehensive approach to conducting pipeline benchmarking studies. Actual performance results for both gas transportation and liquids carriers will be discussed. The results will focus both on current cost levels as well as industry trends. In addition, it will provide insights into initiatives that have been successful in helping reduce cost structures, moving them towards being the “shipper of choice”.