Benchmarking Overview:
In 1912, Henry Ford of The Ford Motor Company watched men cut meat during a tour of a Chicago slaughter house. The carcasses were hanging on hooks mounted on a monorail. After each man performed his job he would push the carcass to the next station. Less than six months later, the worlds first assembly line started producing Magnetos in the Ford Highland Park Plant. In other words the idea that revolutionized modern manufacturing and automotive history was imported from another industry.
- Benchmarking is simple as a concept but much more involved as a process. The ultimate payoff is that you can become the best of what you do, and continuously improve upon that superiority.
- Benchmarking is a means of identifying best practices and using this knowledge to continuously improve our products, services, and systems so that we increase our capability to provide total customer satisfaction.
- Today our performance is not of the same world-class standard as a benchmark business. The delta is the competitive gap
- Benchmarking and improving our business as a result means a surge in business performance and a Competitive Advantage.
Key Point: Do Not Just Copy, Adopt and Adapt and then Advance
Define Performance Objectives:
What does it mean to Define Performance Objectives?
A performance objective is a statement of your projects output performance level that will satisfy the project Critical-To-Quality CTQ(s). It is the projected reduction in defects you plan to achieve for your process or product. Typically, this is stated in terms of defects per million opportunities (DPMO) reduction and a corresponding target Z-value. In the Lean Six Sigma Measure Phase, you determined the current process performance. In the Analyze Phase you will state what the end results of the Lean Six Sigma project will be by statistically defining the goal of the project. In addition, an estimate of financial benefits is due in Analyze.
Why is it important to Define Performance Objectives?
It is important to identify your improvement goals in measurable terms in order to define the level of improvement you wish to achieve and provide a focused target toward which you can direct your efforts.
If I benchmark, performance standards are based upon:
- Closing the gap with the competition
- Exceeded projected competitive performance
- Similar performance in dissimilar businesses
- Gathering best practices from multiple sources to become best in class
- Becoming as good or better than a substitute product/service
If I do not benchmark, performance objectives are based upon:
- For a process with a 3 Sigma Quality level or less, decrease percent of defects by 10x and for greater than 3 Sigma Quality level, decrease % defects by 2x
- If your process is in statistical control (Run Chart or Control Chart), the next improved performance objective comes from a capability investment as in facilities, equipment, digitization, etc.
- Corporate mandate
- Compliance/legal
- Voice of the Customer (VOC) data
Key for best results:
- Be creative and think out of the box
- Consider all organizations, not just corporations
- Review all sectors such as Private, Public and NonProfit
- Study domestic and International organizations
Benchmarking is the process of continually searching for the best methods, practices and processes, and either adopting or adapting their good features and implementing them to become the best of the best.
Key Point: Benchmarking is a continuous process of measuring products, services, and practices against the toughest competitors and/or those companies renowned as the leaders
Example: In the 1980s the Remington Rifle Company, a division of giant DuPont Corporation, had a technical issue it was struggling with. Market Research showed that customers wanted the shells of the bullets to be shiny. Plant Managers pay little or no attention to this CTQ, after all Remington had been making quality guns for a very long time. Nearby the plant in Arkansas was a Maybelline cosmetics plant that produced shiny lipstick cartridges about the same size and shape of the rifle shells. Remington realised that the company may have useful information to impart and made a site visit. And thus the problem was solved.
Benchmarking is:
- A continuous process
- A process of investigation that provides valuable information
- A process of learning from others; a pragmatic search for ideas
- A time-consuming, labor-intensive process requiring discipline
- A viable tool that provides useful information for improving virtually any business process
Benchmarking is not:
- A one-time event
- A process of investigation that provides simple answers
- Copying, imitating
- Quick and easy
- A buzzword, a fad
How is Benchmarking Used?
- Compare performance of an existing process against other companies best-in-class practices.
- Determine how those companies achieve their performance levels.
- Improve internal performance levels.
- A performance objective is determined by using Zbench, short-term, benchmarking, or defect reduction goals.
- Benchmarking is a process of identify best practices, measuring our own practices against those best practices, and adapting the appropriate best practices to our own processes.
- Revenue & cost implications are also due for benefit analysis.
Process Benchmarking:
Example: A billing and invoicing process. Citibank is has several clients. They have a robust process for billing and invoicing, adopting their process is called process benchmarking
Piloting: Implementing the solutions/ improvement plans on a small scale to find if there are any adverse impacts
Cost benefit analysis: when there are investments required in implementing a solution, the return on investment is calculated to judge the benefits got and in what duration
Key Point: Benchmarking is a process used to identify, establish, and achieve standards of excellence, standards based on the realities of the market place. It is a process to be used to manage on a continuous basis.
Identify the Process to Benchmark
How to
- Select process and define defect and opportunities
- Measure current process capability and establish goal
- Understand detailed process that needs improvement
Select Organization to Benchmark
- Outline industries/functions which perform your process
- Formulate list of world class performers
- Contact the organization and network through to key contact
Prepare for the Visit
- Research the organization and ground yourself in their processes
- Develop a detailed questionnaire to obtain desired information
- Set up logistics and send preliminary documents to organization
Visit the Organization
- Feel comfortable with and confident about your homework
- Foster the right atmosphere to maximize results
- Conclude in thanking organization and ensure follow-up if necessary
Debrief & Develop an Action Plan
- Review team observations and compile report of visit
- Compile list of best practices and match to improvement needs
- Structure action items, identify owners and move into Improve phase
Retain and Communicate
- Report out to business management and Lean Six Sigma leaders
- Post findings and/or visit report on local server/6s bulletin board
- Enter information on your business Intranet benchmarking project database
Key Point: Benchmarking draws upon the integration of competitive information, practices, and performance into the decision-making and communication function at all levels of the business.
A good starting point is asking customers, suppliers, and distributors whom they rate as doing the best job. In addition major consulting firms have built voluminous files of best-practices.
Directories, Annual Reports, Brochures, and Press Releases are good sources of historical information, but they are often not good enough if a company hopes to compete against a recently introduces product or service.
- Watch the small companies in your industry and related industries. True innovation often comes from small, inconspicuous companies.
- Follow pattern applications. Not all applications need to lead to products or services. Still, pattern filings indicate a companies direction. Pattern application information can be found in various online and CD Rom databases.
- Track the job changes and other activities of industry experts. Seek the answers to such questions as: Whom have the competitors hired? Have the new hires written papers or made presentations at conferences? What is the value of their expertise to the competitor? If the company gains this expertise, will it affect your firms competitive position?
- Be aware of licensing agreements. These provide useful information about where, how, and when a company can sell a new product or service.
- Monitor the formation of business contracts and alliances.
- Find out about new business practices that are saving your competitors money. What does it mean if a competing insurance company has bought thousands of laptops and portable printers? Very likely, that its claims adjusters soon will be writing estimates and generating checks on the spot, saving time and overhead.
- Follow changes in pricing. For instance, when luxury items become cheap enough for the mass market, they supplant some of the more expensive equipment, as when camcorders supplanted home movie cameras in the late 1980s.
- Be aware of social changes and changes in consumer tastes and preferences that could alter the business environment. Consumers are fickle. During the past 15 years, jogging has given way to aerobics, and now walking is the preferred leisure activity. By anticipating changing fads, some shoe companies were able to introduce new types of athletic shoes.
Key Point: By exposing organizations and people to new ideas and approaches, the benchmarking experience often spurs extraordinary insights and Breakthrough thinking.
Ethical Conduct:
Because discussions between benchmarking partners can involve competitively sensitive data, conceivably rising questions, about possible restraint of trade or improper business conduct, the Strategic Planning Institutes Council on Benchmarking and the International Benchmarking Clearinghouse urge all individuals and organizations involved in benchmarking to abide by a code of conduct grounded in ethical business behavior.
The code is based on the following principles and guidelines:
- In benchmarking with competitors, establish specific ground rules up front, such as We don’t want to talk about those things that will give either of a competitive advantage; rather, we want to see where we either can mutually improve or gain benefit. Do not discuss costs with competitors if costs are an element of pricing.
- Do not ask competitors for sensitive data or cause the benchmarking partner to feel that sensitive data must be provided to keep the process going. Be prepared to provide the same level of information that you request. Do not share proprietary information without prior approval from the proper authorities of both parties.
- Use an ethical third party to assemble and blind competitive data, with inputs from legal counsel, for direct competitor comparisons.
- Consult with legal counsel if any information gathering procedure is in doubt (e.g., before contacting a direct competitor).
- Treat any information obtained from a benchmarking partner as internal, privileged information. Any external use must have the partners permission.
Key Point: The tough part of benchmarking is not whether or how to do it but rather gaining access to the information about other companies practices and costs
Look at a similar process in the industry. How are they doing? Can we do the same?