In simple words, benchmarking is an approach of setting goals and measuring productivity based on best industry practises. It developed out of need to have information against which performances can be measured. For eg, a customer support engineer of a television manufacturer attends a call within 48 hrs. If the industry norm is that all calls are attended within 24 hrs,the the 24 hrs can be benchmark. Benchmarking helps in improving performance by learning from best practises and the processes by which they are achieved. It involves regular comparing different aspects of performance with the best practise, identifying gaps and finding out novel methods to not only reduce the gaps but to improve the situations so that the gaps are positive for the organisation.
Benchmarking is not panacea for all problems, rather it studies the circumstances and processes that help in superior performance. Better processes are not merely copied. Efforts are made to learn, improve and evolve them to suit the organisational circumstances. Further, benchmarking exercises are also repeated periodically so that the organisation does not lag behind the dynamic environment.
Benchmarking is a process of continuous improvement in search for competitive advantage. It measures the company’s products, services and practice against those of its competitors or other acknowledged leaders in their field. Xerox pioneered this process in late 70’s by benchmarking its manufacturing cost against those of domestic and Japanese competitors and got dramatic improvement in the manufacturing cost. Subsequently ALCOA, Eastmen KODAK, IBM adopted benchmarking.
The crux of benchmarking is the continuous process of comparing and analysing a companies product, strategy processes with those of world leaders and best-in-class organizations.
EVOLUTION OF BENCHMARKING
The method of benchmarking has evolved in the early 1950’s, when W. Edward Deming taught the Japanese the idea of quality control and other American management innovations followed .The best suited example is Toyota motor corporation which followed the footsteps of Ford motor corporation with the adoption of the fords just-in-case system into Toyotas just-in-time system.
The term “benchmarking” was coined when the idea took ground in U.S. during 1980’s when Xerox, ford and Motorola became the avant-garde of benchmarking in U.S.A. Robert Camp, the logistics engineer who started Xerox’s benchmarking programme and who is generally regarded as the father of the benchmarking movement defines it “benchmarking is the search for industry best practices that leads to superior performance.” In 1989, he introduced a new scenario called benchmarking in the total quality management world; it was frequently adopted by industrial organisations and also became a part of the Molcom Baldrige National Quality Award (NBNQA).
OBJECTIVES OF THE TECHNIQUES
Benchmarking involves collecting of information from one organisation to effectively applied to another organisation. The scope is to enhance the techniques performed at the recipient’s organisation by implementing efficient work processes. It is an important Business Engineering Technique and its application not only defines cultivative work techniques but also include discovering the thought process behind the innovation. It is a form of comparative analyses. It is required to establish a common ground as a basis of comparison. Generally one finds one or more functional basis for analysing and picks up one or more metrics as a base for quantitative comparison. These are then compared with a agreed benchmarks obtained from recognised sources of best practice.
Finally, two questions need to be answered:
1. What are the alternative to our current process?
2. What are the cost benefits and risks of the alternatives?
TYPES OF BENCHMARKING:
1. STRATEGIC BENCHMARKING:
Its main aim is to improve companies overall performance by analysing and evaluating the long term strategies and plans that helped the best practice companies to succeed. It involves Evaluating the product/service development, core competencies and innovation strategies of such companies. This benchmarking is generally not industry specific, which means it is best to look at other industries.
2. PROCESS BENCHMARKING:
The firm aims its observations and investigations of business processes with a goal of identifying and seeing the best practises from one or more benchmark firms.
3. COMPETITIVE BENCHMARKS OR PERFORMANCE BENCHMARKING:
It is used by companies to compare their position and status in consideration to their performance characteristics of their main products and services. It generally include companies from same sector.
4. FUNCTIONAL BENCHMARK OR GENERIC BENCHMARKING:
It is generally used by companied to facilitate their processes or activities by benchmarking with other companies from different business sector or areas of activity but rendered in similar functions or work process.
5. INTERNAL BENCHMARKING:
It is defined as the benchmarking against its own units or branches for example, business units of the company located at different places.
6. EXTERNAL BENCHMARKING:
It is used by companies to seek the help of organizations that succeeded on account of their practices. This kind of benchmarking provides an opportunities to learn from high end performers.
THE BENCHMARKING PROCESS:
Benchmarking processes lacks standardization. However, common elements are as follows:
1. Identifying the need for benchmarking and planning:
This step will define the objectives the benchmarking exercise. It will also involve selecting the type of benchmarking. Organizations identify realistic opportunities for improvements.
2. Clearly understanding existing business processes:
This step will involve compelling information and data on performance. This will include mapping processes. Information and data is collected by different methods for eg, interviews, visits and filling of questionnaires.
3. Identify best processes:
Within the selected frame work, best processes are identifies. These may be within the same organization or external to them.
4. Compare own processes and performance with that of others:
While comparing gaps in performance between the organisation and better performers is identified. Further, gaps in performance is analysed to seek explanations. Such comparisons have to be meaningful and credible.
5. Prepare a report and implement the steps necessary to close the performance gap:
A report on the benchmarking initiatives containing recommendations is prepared. Such a report includes the action plans for implementations.
Business organizations evaluate the results of the benchmarking process in terms of improvements via bis-a-bis objectives and other criteria set for the purpose. It also periodically evaluates and reset the benchmark in the light of changes in the conditions that impact the performance.
KEYS TO SUCCESSFUL BENCHMARKING:
On the processes that are critical and beneficial to your business.
To implement in conjunction with strategic planning.
To admit that you are not the best.
To knew ideas and innovations from potentially unexpected sources.
To provide resources and to overpower the resistance to change.
Given to successful benchmarking teams.
Of the benchmarking process.
To the organisation about the aim and objective of the benchmarking project.
DETERMINE WHICH FUNCTIONS WILL BENEFIT MOST FROM BENCHMARKING:
Firms can use benchmarking process to achieve improvement in diverse range of management functions like :
Assessment of total manufacturing costs.
Human resource management
IDENTIFY KEY COST, QUALITY AND EFFICIENCY MEASURES FOR THOSE FUNCTIONS:
The maintenance process of any company provides the advantage in many ways. it includes enhancing capacity, increasing any quality initiative, decreasing cost and removing waste. The aim of the maintenance function is to ensure that all company assets meet and continue to meet the design function of the asset. The practices within maintenance fall in following categories.
1. Preventive maintenance
2. Inventory procurement
3. Computerized maintenance
4. Management system usage
5. Technical and interpersonal training
6. Operational involvement
7. Predictive maintenance
8. Total productive maintenance
9. Financial optimisation
10. Continuous improvement
Maintenance cost is an accurate measure for manufacturing costs. They should be used a s total calculation not a per-production-unit calculation. Maintenance will be a percentage of the cost to produce, but is generally fixed. This stability makes it more correct for the financial measure of maintenance because it makes trending maintenance cost easier. If the maintenance cost percentage fluctuates, then the efficiency and effectiveness of maintenance should be examined to find the cause of change.
Quality and Efficiency:
A good maintenance benchmark program will allow us to assess various aspects of your operations in relation to same organization, as well as industry best practices. When applied effectively, it allows us to gain control and insight in our maintenance pending by helping us to recognise costly and inefficient processes. It will give us an increased ability to make smarter and more strategic decisions in relation to spending and develop plans designed to help us make improvements or adopt best practices.
Assessment of total manufacturing costs:
The way that the value chain approach helps organization assess competitive advantage is through following types of analysis:
1. Internal cost analysis: to determine the sources of profitability and relative cost positions of internal value creating processes.
2. Internal differentiation analysis: to understand the sources of differentiation within internal value creating processes.
3. Vertical linkage analysis: to study the relationships and associated costs between external suppliers and customers in order to maximise the value delivered to customers and to minimise cost.
Benchmarking relates to product development by giving an external prospective on opportunities to improve products, technology, manufacturing and support processes, the product development processes and engineering practices. Manufacturers have to bring products to market rapidly and efficiently to realise the profit potential of their innovations. This complex process involves multiple departments and disciplines working together to develop a product that is right for the market- both technically and commercially.
This is the one macroeconomic factor that has heightened and will continue to increase the demand for strategies and systems that can help make the product life cycle more effective and efficient. When managed effectively, new products can help improve profit margins and enable companies to gain market share in global market.
Product cost management PCM is a systematic approach for aligning design and sourcing strategies and processes to identify and optimize costs and performance across the product life cycle. Following are the organizational process, and system requirements as important component for an effective PCM strategy:
1. Assess: Carry out customer and market research and analysis to assess needs and requirements for new products, features, styling and solution bundles.
2. Conceive: Repair initial product structure and bill of materials for initial costing.
3. Source: Align design concepts with available capabilities and innovations.
4. Test: Carry out costing, manufacturing, quality and performance feasibility, testing by modelling design in different environment.
5. Build: Execute manufacturing plan and start to assess production process improvements and potential outsourcing or off-shoring strategies.
Effective PCM requires organisational alignment, process standardization and control, and a systems infrastructure that supports collaboration, design creation, exchange and redlining and project tracking and management.
QUALITY AND EFFICIENCY:
No organization can improve all spheres of product development at once .It can be considered as a journey rather than a destination. Priorities need to be established for implementing the best practices of product development. The organization must start by understanding what practices need to be adopted. Next it must consider its strategic directions given its market, its objectives and its competitors. Next, the organisation must assess its strength and weaknesses. Several factors contribute to the success of a new product. But there is no doubt that product quality; appropriate to the consumers’ expectations is one of these. Product benchmarking- completing a sensory evaluation of a selected product compared to similar competing products- is a vital part of achieving success.
Business logistics activities represents a cost of over $ 950 billion per year and a growing at an annual rate of over 3%. Business processes have a significant impact on profitability, service levels and costumers satisfaction.
Supply chain operations in an organisation should be regularly reviewed to identify where improvements can be made or deficiency can be removed. One method to help to this is to carry out series of benchmarking tests on their supply chain process. Benchmarking or goal setting allows a company to assess the opportunities they may have for improving a no. of areas in their supply chain which includes: productivity, inventory accuracy, shipping accuracy, storage density and bin-to-bin time. The benchmarking process can provide a company some estimate of the benefits achieved by the implementation of any improvements.
Benchmarking anything, including your customer support teams requires to collect data on it. You might already be collecting data on a support process, or you might just be starting to think about it, in any way it’s easy to drown in all the data available to us.
Nearly all large organisations around the world collect and analyse feedback from their customers about the product or services they provide .As with all quality based initiatives the one can improve the customers experience in a regular process .This is not only about fixing problem areas but also maintaining and improving competitive advantage.
Human Resource Management :
Hiring new talent is a difficult management function. Organisations that consistently brings a new hires whose knowledge, skills and abilities matches with their firms overall strategy and culture out perform their competition. Firms shows higher profit, higher revenue growth and lower turnover when they follow higher strategy of attracting and selecting employs who fit with the culture and values of the organisation. One component of an organization talent accusation strategy is the amount of financial investment it makes to attract and recruit new employs.
Cost-per-hire is an important metric. HR professionals consistently rank cost-per-hire as one of the top most helpful HR metrics. Its recognisation among HR professionals drove the staffing and work force planning standards task force to select cost-per-hire as its first metric to evaluate and define. Cost-per-hire is easy to calculate because external sourcing cost such as online job postings, agency fees and relocation cost are easy to track. Finally, cost-per-hire has face validity outside of HR because it is understood and accepted by line managers as a form of recruiter effectiveness. Benchmarking is most effective when organizations compare their cost-per-hire against similar organisations metrics, making a meaningful comparison. The organization overall business strategy can affect cost-per-hire.
Quality and efficiency:
Use of jobs evaluation systems:
Job evaluation is a systematic method of determining of jobs value to the organisation to other jobs. It considers “how big” or “how small” a job is, the main objective here is to ensure that the jobs with different sizes are paid proportionately different salaries or different total cash compensation. This system ensures to establish internal equity and importance of jobs to the organisation.
Those benchmark companies and benchmarking group companies who conduct job evaluation have adopted a established method of evaluating jobs that they consider effective within the limits of subjective judgement and organizational needs. For e.g., one benchmark company conducts job evaluation through their yearly panel meetings and reviews all new jobs and jobs that have been restructured. The companies have two job evaluation panels. Panel A comprises of the MD/CEO who evaluates jobs of the direct reports. Panel B evaluates jobs below the head of the department level.
In order to keep the job evaluation system robust, another benchmark company updates the system by reviewing 20% of the jobs annually. Since the company deploys staff to 40 different sites and has more than 1000 different jobs it has found the manual way of reviewing and evaluating jobs very tedious and time consuming. The company testing is a computerised job evaluation system that can cut down on the use of manpower and time.
Determining the salary ranges:
The common practice of the companies in benchmarking is to make use of findings of wages and salary service to develop/update salary ranges. For e.g., one company through benchmarking updates a salary ranges annually. This report is also used as a basis by another company to develop/ update salary ranges. The salary is for all jobs are based on market rates the company, which regards itself as a “good pay master”, believes in applying staff such that when staff compares salaries externally, they are unlikely to move to other firms because of salary. To implement this system effectively, company recognises that it needs to tap relevant and timely information on market rates.