Benchmarking in OPM1

HISTORY OF BENCHMARKING

Throughout history, people have developed methods and tools for

setting, maintaining and improving standards of performance. Desire to improve performance and the actual

improvement can be traced far back in history. Many examples from industrial

history may be considered as prehistorical forms of benchmarking.


For example, in the early 1800’s British textile industry had a

leading position in the world. A remarkable American

industrialist, Francis Lowell, decided to travel to England

where he studied the manufacturing techniques and industrial design of the British

mill factories.


He noticed that even though factory equipment appeared to be sophisticated

there was room for improvement in the way British plant layouts utilized labor. Using

technology very similar to what Lowell had seen in England, he built a new plant in the U.S. This factory functioned in a less labor

intensive fashion (Bogan & English 1994, 2-4).


The popularity of benchmarking was spearheaded by the Xerox corporation in the

1980’s and is now used in corporations throughout the world.

I. WHAT IS BENCHMARKING?

- comparison of a company’s performance in certain areas with other firms.

- can cut across traditional industry lines, providing opportunities for new and innovative

ways to increase performance.For example: Xerox Corp., in its desire to deliver

products quickly, studied how L.L. Bean of Freeport, Maine, a mail-order company well-

known for fast and accurate service


According to David T. Kearns, CEO of Xerox Corporation: it is the

continuous process of measuring products,

services, and practices against the toughest

competitors.


According to Robert Lee Camp, a famous

and influential Hollywood author, it is

the search for best practices that leads to superior performance.

II. WHAT BENCHMARKING CAN DO?

Firms that want to compete as world-class organizations in the highly competitive global arena must attain best of breed status in those performance that are critical for success in their respective industries.

II. WHAT BENCHMARKING CAN DO?

AT&T, Ford Motor, IBM, Motorola, Xerox and other industry leaders now use benchmarking as a standard management tool in an attempt to increase both quality and productivity.

III. WHAT SHOULD BE BENCHMARK?

1. Goods and Services

Benchmarking identifies the features and functions of the goods and services that are desired by the

firm’s customers.

For example: Product planning, design, and development in the

form of product goals and technology design practices of Apple Inc.

2. Business Processes

Benchmarking in this area provides the basis for business process improvement and reengineering.

These changes should be an integral part of the continuous quality improvement initiative.

For example: Business process in Supply Chain Management includes:

PURCHASING OPERATIONS ACCOUNTING

3. Performance Measures

The end result of benchmarking goods, services and processes is to establish and validate

objectives for the key performance measures that have been identified as critical to the success of

the organization.

For example: The use of Supply Chain Operations Reference (SCOR), provide a solid foundation for

measuring performance and identifying priorities.

The SCOR® model – an industry open standard

SCOR is a supply chain process reference model containing over 200 process elements, 550

metrics, and 500 best practices including risk and environmental management.

SCOR Benchmarking - Presentation

Supplier

Plan

CustomerCustomer’s

CustomerSuppliers’

Supplier

MakeDeliverSource Make DeliverMakeSourceDeliver SourceDeliver

Internal or External Internal or External

Your Company

Source

Return Return ReturnReturn Return Return

Return Return

19

Organized around the five primary management processes of Plan, Source,

Make, Deliver and Return

Superior: top 10 performers (90%)

Advantage: top half performers (70%)

Parity: Half better/Half worse (50%)

SCOR Benchmarking - Presentation 20

• SCOR metrics: Standard Strategic (Level 1) Metrics

Performance Metrics

† upside and downside adaptability metrics

Attribute Metric (Strategic)

Reliability Perfect Order Fulfillment

Responsiveness Order Fulfillment Cycle Time

Agility Supply Chain Flexibility

Supply Chain Adaptability†

Cost Supply Chain Management Cost

Cost of Goods Sold

Assets Cash-to-Cash Cycle Time

Return on Supply Chain Fixed Assets

Return on Working Capital

Cu

sto

me

rIn

tern

al

BENEFITS OF SCOR

1. Improvement in stock market value.

2. Increase of profits and margins

3. Increase of available financial means through improved investment selection

(portfolio management of initiatives)

4. Reduction of overall costs

5. Optimization of Enterprise Resource Planning

IV. KEY STEPS IN BENCHMARKING

Five phases that are necessary to successfully implement benchmarking within an organization:

PLANNING ANALYSIS INTEGRATION

ACTIONMATURITY

1. PLANNING

This phase of benchmarking identifies the areas that should be benchmarked, the specific organizations against which should be benchmarking.

For example: The types of data that should be collected and ways of

collecting between two or more other

prospected firm like tour of the facilities of other

companies.

2. ANALYSIS

Focuses on obtaining an in-depth understanding of one’s firm’s existing practices and other organizations to be benchmarked.

For example: Apple Inc. and Samsung Group.

When Apple seemed to encounter critical

project they create 3 teams to compete while Samsung more 3 teams

for competition.

3. INTEGRATION

Need to ensure that benchmarking concepts are implemented in the corporate planning process

and accepted of all levels of management.

For example: In supply chain management,

purchasing, operations and accounting head should be part of it.

4. ACTION

Findings and associated goals must be translated into action. Individuals who perform the tasks

should determine how the findings can best be incorporated into the existing process.

For example: Old practices to new and innovative ideas in a supply chain management

5. MATURITY

The phase to which the best business practices that have been identified and have been incorporated into all of the relevant business processes and ensuring superior performance for the organization as a whole.

1. INTERNAL BENCHMARKINGThe internal benchmarking process allows a company

with a number of facilities that operate the same supply chain processes to compare and contrast the ways in

which the process is performed in those facilities.

For example: If a company operates five distribution centers in the US and Canada, it examines the number

of operations.

2. EXTERNAL BENCHMARKING

The external benchmarking process takes a company outside of its own industry and exposes them to

different methods and procedures.

For example, a manufacturer and distributor of electrical components have exhausted ideas on improving efficiencies, they approached a very successful retail company.

3. FUNCTIONAL BENCHMARKINGThis type addresses performance comparisons with

the best functional areas, regardless of the industry in which they are located.

For example: Nike and Adidas are direct

competitors in sports gear. Adidas will have its

partnership with Underarmour to enhance

their operations.

4. GENERIC BENCHMARKINGHere performance measures are concerned with

specific work processes. This type can easily identify those firms that have adopted innovative processes,

there by focusing targets that can be readily accepted by all levels of management in the organization.

Citicorp is the best example of this type of benchmarking for document processing