Benchmarking is the process of comparing the cost, cycle time, productivity, or quality of a specific process or method to another that is widely considered to be an industry standard or best practice.
Why best practice?
Best practice refers to techniques, methods or processes that are more effective at delivering a desired outcome.
Incorporating best practice into your organization can lead to greater efficiency and effectiveness and a happier customer.
Benefits of Benchmarking
Benchmarking helps identify the gaps between the organization that is undertaking the benchmarking assessment and best practice.
Undertaking benchmarking can lead to improvements being incorporated into processes and systems delivering gains in efficiency and effectiveness.
Benchmarking can help align improvement activity with strategic goals and objectives.
The Benchmarking process Benchmarking has a defined process 1. Identify the process that will be benchmarked – consider what metrics will be measured. 2. Measure results in own organization. 3. Identify a benchmarking partner (look for one with favourable results or to the metric being measured or known best practice). 4. Measure the process.
The Benchmarking process 5. Analyze the conditions that determine the favourable results. 6. Determine an action plan to take your organization to the favourable results. 7. Review Benchmarking results and conduct regular reviews with your peer (s).
Problems with Benchmarking
Problems with benchmarking occur where
Data is not obtained for the process being measured – and analysis becomes subjective
No peer group/best practice identified (including data available)
The gap between current state and best practice is captured but nothing is done about it
Assumed best practice isn't best practice
Benchmarking happens as a one off event and not reviewed periodically
The importance of data
In order to measure the gap between the measuring organization and best practice quantifiable measures need to be taken, this requires data.
Unless this method is followed results can be subjective and inaccurate.
Benchmarking doesn’t stop
Benchmarking should be viewed as a continuous improvement method.
Regular reviews of performance should be taken especially if improvement activity is underway to transition to “best practice”.
Regular reviews of the peer group should be taken to cater for any changes/improvement made.
Case study Background:
'Xerox' trademark in 1948.
Xerox was listed on the New York Stock Exchange in 1961 and on the Chicago Stock Exchange in 1990.
Revenues soared from $37 million in 1960 to $268 million in 1965.
Xerox acquired a majority stake in various company’s
Profits increased five-fold from $ 83 million in 1966 to $ 407 million in 1977
In the early 1980s, Xerox found itself increasingly vulnerable to intense competition from both the US and Japanese competitors.
According to analysts, Xerox's management failed to give the company strategic direction. It ignored new entrants (Ricoh, Canon, and Sevin)
Between 1980 and 1984, Xerox's profits decreased from $ 1.15 billion to $ 290 million
The company's operating cost (and therefore, the prices of its products) was high and its products were of relatively inferior quality in comparison to its competitors.
Return on assets fell to less than 8% and market share in copiers came down sharply from 86% in 1974 to just 17% in 1984.
Average manufacturing cost of copiers in Japanese companies was 40-50% of that of Xerox.
Benchmarking against Japanese competitors, Xerox found out that it took twice as long as its Japanese competitors to bring a product to market, five times the number of engineers, four times the number of design changes, and three times the design costs.
Japanese could produce, ship, and sell units for about the same amount that it cost Xerox just to manufacture them.
Xerox's products had over 30,000 defective parts per million - about 30 times more than its competitors.
Benchmarking also revealed that Xerox would need an 18% annual productivity growth rate for five consecutive years to catch up with the Japanese.
Benchmarking was implemented at Xerox – ‘Leadership Through Quality’
Highly satisfied customers for its copier/duplicator and printing systems increased by 38% and 39% respectively.
Customer complaints to the president's office declined by more than 60%.
Customer satisfaction with Xerox's sales processes improved by 40%, service processes by 18% and administrative processes by 21%.
Overall customer satisfaction was rated at more than 90% in 1991.
Number of defects reduced by 78 per 100 machines.
Service response time reduced by 27%.
Inspection of incoming components reduced to below 5%.
Inventory costs reduced by two-thirds.
Marketing productivity increased by one-third.
Distribution productivity increased by 8-10 %.
Increased product reliability on account of 40% reduction in unscheduled maintenance.
Notable decrease in labour costs.
Errors in billing reduced from 8.3 % to 3.5% percent.
Became the leader in the high-volume copier- duplicator market segment.