What is Benchmarking? Benchmarking is the process of comparingthe cost, cycle time, productivity, or qualityof a specific process or method to anotherthat is widely considered to be an industrystandard or best practice.
Why best practice? Best practice refers to techniques, methodsor processes that are more effective atdelivering a desired outcome. Incorporating best practice into yourorganization can lead to greater efficiencyand effectiveness and a happier customer.
Benefits of Benchmarking Benchmarking helps identify the gapsbetween the organization that isundertaking the benchmarking assessmentand best practice. Undertaking benchmarking can lead toimprovements being incorporated intoprocesses and systems delivering gains inefficiency and effectiveness. Benchmarking can help align improvementactivity with strategic goals and objectives.
The Benchmarking process Benchmarking has a defined process1. Identify the process that will bebenchmarked – consider what metricswill be measured.2. Measure results in own organization.3. Identify a benchmarking partner (lookfor one with favourable results or to themetric being measured or known bestpractice).4. Measure the process.
The Benchmarking process5. Analyze the conditions that determinethe favourable results.6. Determine an action plan to take yourorganization to the favourable results.7. Review Benchmarking results andconduct regular reviews with yourpeer (s).
Problems with Benchmarking Problems with benchmarking occur where Data is not obtained for the process beingmeasured – and analysis becomes subjective No peer group/best practice identified(including data available) The gap between current state and bestpractice is captured but nothing is done aboutit Assumed best practice isnt best practice Benchmarking happens as a one off event andnot reviewed periodically
The importance of data In order to measure the gap between themeasuring organization and best practicequantifiable measures need to be taken,this requires data. Unless this method is followed results canbe subjective and inaccurate.
Benchmarking doesn’t stop Benchmarking should be viewed as acontinuous improvement method. Regular reviews of performance should betaken especially if improvement activity isunderway to transition to “best practice”. Regular reviews of the peer group shouldbe taken to cater for anychanges/improvement made.
Case studyBackground: Xerox trademark in 1948. Xerox was listed on the New York Stock Exchangein 1961 and on the Chicago Stock Exchange in1990. Revenues soared from $37 million in 1960 to $268million in 1965. Xerox acquired a majority stake in variouscompany’s Profits increased five-fold from $ 83 million in 1966to $ 407 million in 1977
Competition In the early 1980s, Xerox found itselfincreasingly vulnerable to intensecompetition from both the US and Japanesecompetitors. According to analysts, Xeroxs managementfailed to give the company strategicdirection. It ignored new entrants (Ricoh,Canon, and Sevin) Between 1980 and 1984, Xeroxs profitsdecreased from $ 1.15 billion to $ 290million
Competition The companys operatingcost (and therefore, theprices of its products) washigh and its products wereof relatively inferior qualityin comparison to itscompetitors. Return on assets fell to lessthan 8% and market sharein copiers came downsharply from 86% in 1974to just 17% in 1984.
Competition Average manufacturing cost of copiers inJapanese companies was 40-50% of that ofXerox. Benchmarking against Japanesecompetitors, Xerox found out that it tooktwice as long as its Japanese competitors tobring a product to market, five times thenumber of engineers, four times thenumber of design changes, and three timesthe design costs.
Competition Japanese could produce, ship, and sell unitsfor about the same amount that it costXerox just to manufacture them. Xeroxs products had over 30,000 defectiveparts per million - about 30 times morethan its competitors. Benchmarking also revealed that Xeroxwould need an 18% annual productivitygrowth rate for five consecutive years tocatch up with the Japanese.
Results Highly satisfied customers for itscopier/duplicator and printing systemsincreased by 38% and 39% respectively. Customer complaints to the presidentsoffice declined by more than 60%. Customer satisfaction with Xeroxs salesprocesses improved by 40%, serviceprocesses by 18% and administrativeprocesses by 21%. Overall customer satisfaction was rated atmore than 90% in 1991.
Results Number of defects reduced by 78 per 100machines. Service response time reduced by 27%. Inspection of incoming components reducedto below 5%. Inventory costs reduced by two-thirds. Marketing productivity increased by one-third. Distribution productivity increased by 8-10%.
Results Increased product reliability on account of40% reduction in unscheduledmaintenance. Notable decrease in labour costs. Errors in billing reduced from 8.3 % to3.5% percent. Became the leader in the high-volumecopier-duplicator market segment. Country units improved sales from 152% to328%.