Benchmarking

1. ONSIDERATIONS C USTOMER & C OMPETITIVE I NTELLIGENCE FOR P RODUCT, P ROCESS, S YSTEMS & E NTERPRISE E XCELLENCE C D EPARTMENT OF S TATISTICS D R. R ICK E DGEMAN, P ROFESSOR & C HAIR – S IX S IGMA B LACK B ELT REDGEMAN@UIDAHO.EDU OFFICE: +1-208-885-4410 ENCHMARKING B

2. C ustomer E xpectation D ilemma Time Performance Expectations Continuous Improvement Performance Gap

4. Types of Benchmarking Competitive Benchmarking Functional Benchmarking Internal Benchmarking Product Benchmarking Process Benchmarking Best Practices Benchmarking Strategic Benchmarking Parameter Benchmarking

5. B enchmarking M ethodology Competitive • Industry leaders • Top performers with similar operating characteristics Functional • Top performers regardless of industry • Aggressive innovators utilizing new technology Internal • Top performers within company • Top facilities within company Best Practice Overlap

12. Library Database Internal Reviews Internal Publications Professional Associations Industry Publications Special Industry Reports Functional Trade Publications Seminars Industry Data Firms Industry Experts University Sources Company Watches Newspapers Advertisements Newsletters Original Research Customer Feedback Supplier Feedback Telephone Surveys Inquiry Service Networks World Wide Web Sources of Information

15. Benchmarking Best Practices, Processes & Products

16. B enchmarking (A) The process of identifying and learning from best practices anywhere in the world is a powerful tool in the quest for continuous improvement. (B) The systematic process of searching for best practices, innovative ideas, and highly effective operating procedures that lead to superior performance. Learning by borrowing from the best and adapting their approaches to fit your own needs is the essence of benchmarking. It has broad applications in problem solving, planning, goal setting, process improvement, innovation, reengineering, and strategy setting. It is a fundamental business skill that supports quality excellence.

18. B est P ractices - the E nds Enablers - the Means to the Ends SOFT MEDIUM HARD Training Communication Empowerment Attitude Management Involvement Goals & Objectives Sequence Controls Measures Policies & Procedures Plant Suppliers Money Technology Equipment

23. Benchmarking Code of Conduct

25. R ange of B enchmarks FOCUS Benchmark Levels Type Improvement Benefit STRATEGIC Best-in-World 7 Generic Processes 30% * Product / Services * Business Processes * Business Function Best-in-Country 6 Functional Areas 30%-40% PERFORMANCE Industry Leader 5 Direct Competitor 15%-20% * Customer Satisfaction Norm 4 * Output : Standard 3 --Products & Services PROCESS Best-in-Company 2 Internal 15% * Practices & Capability * Inputs: -- Material/Supplier Baseline 1

26. Benchmarking Architecture Performance Measures

27. D ashboard of N ew P erformance M easures Capital Expenditures Costs Profitability Cashflow Sales Liabilities Assets Debt Quality Customer Retention Training Customer Satisfaction Defect Rates Cycle Time Referral Rates Employee Retention

33. Product/Service Performance Measures Product & Service Performance Benchmarks Include Measures of: Accuracy, Reliability, Timeliness, Order Ease, Delivery, Packaging, Ease of Assembly & Use, Documentation, Billing, After-Sales Service, and Effective Complaint Management. These May Also Include: Warranty Exchanges and Returns, Unit Productivity & Cost, Cycle Time for Key Intervals, and Market Share.

34. Business Process Performance Measures A simple process analysis model can help identify your organization’s most important workflows. This model reveals that all work can be viewed in four sequential stages: 1. Inputs (including those from both employees & suppliers); 2. Processes (including internal operations & support services); 3. Outputs (your organization’s products, services, and documentation); and 4. Customer Satisfaction. In the following graphic ( the input-output process model ) we begin with inputs that can be tangible (such as supplies, raw materials, and component products) or intangible (such as information) which are delivered to the work process , which transforms them into some final output which might be a product or service. The goal of the output is to create satisfied and loyal customers .

35. Input-Output Process Model Products Services Documentation Results Design of Products/ Services Production of Products Performance of Services Delivery of Products/ Services People Raw Materials Components Customer Requirements Capital Customer Needs Satisfied Customer Problems Solved Customer Requirements Met Inputs Processing Outputs Customers

37. E xamples of K ey B usiness P rocesses IBM Xerox British Telecom Marketing Information Capture; Marketing Selection; Requirements; Hardware/Software Development; Service Development; Production; Customer Fulfillment/ Relationship; Service Customer Feedback; Marketing; Solution Integration; Financial Analysis; Plan Integration; Accounting; Human Resources IT Infrastructure Customer Engagement; Inventory Mgt. & Logistics; Product Design / Engineering; Product Maintenance; Technology Maintenance; Production & Operations Mgt. Marketing Management; Supplier Management; Information Management; Business Management; Human Resources Management; Leased & Capital Asset Mgt. Legal; Financial Management. Direct Business; Plan Business; Develop Processes; Manage Process Operations; Provide Personnel Support; Market Products & Services; Provide Customer Service; Manage Products & Services; Provide Consultancy Services; Plan the Network; Operate the Network; Provide Support Services; Manage Information Resource; Manage Finance; Provide Technical R&D

38. S upport P rocesses / S ervices P erformance M easures Support services are activities and operations that enable your organization’s core production and delivery processes. They include functions such as finance , software services , marketing, public relations, information services, purchasing, legal services, and facilities management. Examples for various areas follow.

39. P erformance M easure E xamples Accounting Percentage of Late Payments Time to Respond to Customer Requests Number of Billing Errors Number of Payroll Errors Purchasing Purchase Order Errors Downtime Due to Shortages Excess Inventory Cycle Time (from start of purchase to receipt in-house) Information Services Number of Errors / Code Line Percent of Reports Received on Schedule Number of Rewrites Number of Errors Found After System Accepted by Customer Product Engineering Project Completion Cycle Times Engineering Changes/ Document Number of Errors Found During Design Review Number of Errors Found in Design Evaluation Quality Control Percentage of Lots Rejected in Error Number of Engineering Changes Detected After Design Review Errors in Reports Cycle Time for Corrective Action Marketing Accuracy of Forecast Assumptions Number of Incorrect Order Entries Overstocked Field Supplies Contact Errors

40. E mployee P erformance M easures Employee Performance Benchmarks Cover a Wide Range of Employee Activities that May Include: Employee Development; Employee Education; Employee Empowerment; Employee Recognition; Employee Recruitment; Employee Absenteeism; Employee Turnover; Employee Grievances; Employee Safety/Accidents; Employee Involvement; Employee Morale; Employee Performance Appraisal; Employee Promotion; Employee Succession Planning.

41. Technology & Innovation Related Performance Measures Technology-related measures reflect the productivity, deployment, and effective use of computers and other technology in an organization. Measure range broadly from processing speeds, deployment percentages, network down time and error rates. In turn, innovation-related performance indicators reflect issues such as product development times, employees’ suggestion rates, new product sales as a percent of total sales, and process improvement rates.

42. S upplier P erformance M easures Supplier performance measures help an organization qualify or certify the vendors with which it will work . These benchmarks then help the organization monitor and manage on-going supplier performance . Supplier performance metrics often include measures of cost, quality, reliability, speed or responsiveness, agreed-upon service levels, and product specifications .

43. C ost P erformance M easures Cost performance measures are broad and flexible. They include balance sheet liability requirements and information drawn from cost centers throughout the organization. Companies can develop useful benchmarks by producing cost ratios for specific products, services, organizational units, processing steps, inputs, and labor. A mortgage company, for instance, might use such measures as cost per loan application, cost per loan processing,human resources cost per loan, data processing costs per 100 bills, and service cost per loan.

44. F inancial P erformance M easures Financial measure include performance indicators required by stock exchanges, security analysts, public accounting firms, regulatory agencies, and other organizations that may oversee reporting standards in your organization’s industry. Many of these measures make up the items on income statements, balance sheets, and cash flow statements, including measures such as revenue, gross profit, operating income, net income, earning per share, long-term debt, book value, cash flow, debt/equity ratio, days/ receivables ratio, current ratio, and so on.

46. Selected Benchmarking Processes

50. Attributes of Benchmarking Studies: Success vs. Failure Success Failure Process Owner Involvement Customer Driven Objectives Linked to Strategic Plan Best Practices & Enablers Consider Cultural Attributes Disciplined Methodology Quantum Change Clear Project Life Cycle Integrated with Existing Quality Efforts Sponsorship Uncertain Amorphous Objectives No Strategic Integration Performance Metrics Only “ Hard” Data Only Arbitrary / Casual Approach Incremental / No Change Keep Going and Going and ….. A la carte Program

52. ONSIDERATIONS C D EPARTMENT OF S TATISTICS D R. R ICK E DGEMAN, P ROFESSOR & C HAIR – S IX S IGMA B LACK B ELT REDGEMAN@UIDAHO.EDU OFFICE: +1-208-885-4410 ENCHMARKING B E nd of S ession