BENCHMARKING A tool for Profit Re-engineering

1. BENCHMARKING A tool for Profit Re-engineering Dr. S K Gupta M.Com, FCS, FCMA, Ph.D

2. The world is changing.. The businesses must change too..

3. It’s a VUCA world… Volatile Unpredictable Complex Ambiguous

4. The world is changing… Yesterday’s order winners are today’s order qualifiers ….

5. Changing Landscape of Business To compete effectively in today’s markets, companies need to be competitive simultaneously on : Price Quality Delivery Responsiveness Flexibility Innovation …Customer Delight

6. Bottomline blues.. Cashless Profit Profitless Turnover..

7. Business Imperatives Companies today need to be • Quicker • Better • Cheaper

8. Some definitions of Benchmarking David T, Kearns, chief executive officer of Xerox Corporation, defined benchmarking as "the continuous process of measuring products, services, and practices against the toughest competition or those companies recognized as industrial leaders."

9. Benchmarking A great way to gauge how your company is really performing ….

10. Benchmarking A great tool to identify red flags…

11. Benchmarking Looking forward by looking back

12. What is Benchmarking ? Benchmarking is a continuous process of • Comparison, • Projection and • Implementation.

13. It involves: Comparison • Comparing the organization and its parts with the best in class organizations • Comparing business processes with similar processes in best in class organizations all • Comparing operational processes with the similar processes in best in class organizations • Comparing the organization's products and services with those of the best competitors • Comparing different types of capital to with the best in class organizations.

14. It involves: Projection • Projecting future trends in best practices and proactively leading to these trends • Meeting and exceeding customer expectations

15. It involves: Implementation • Implementing defined best practices • Making improvements systematic,repeatable and reliable

16. Benefits of Benchmarking • Effective ‘wake-up-call’ • Identifying performance gaps • Learning from other’s experiences • Become more competitive • Innovate and generate new ways of doing things • Sustainable growth

17. Key to Benchmarking Adapt , and not adopt…is the way

18. Measurement is the key • You can’t manage , what you can’t measure • Numbers tell a story

19. The question that needs to be decided is what should be measured in the process? • Benchmarking should measure such things as • How fast • How good • How much and Where • When • How long • Size, shape, form, and fit

20. Benchmarking dimensions • financial; • product quality and customer satisfaction; • process efficiency; • product and process innovation; • competitive environment; • quality/independence of management; • human resource management; and • social responsibility

21. Some of the important performance measures that can be used are • operating cost / sales per employee; • product development time; • rejection ratio • capacity utilization; • number of new products developed; • queuing time • customer complaints; • service responsiveness; and • percent of returned orders.

22. Types of benchmarking: • Internal • Competitive • Functional • Generic • World Class

23. Internal benchmarking • One of the easiest benchmarking investigations is to compare operations among functions within your own organization. • This type of investigation is applicable to multidivisional or international firms.

24. Competitive benchmarking • Direct product or service competitors are the most obvious to benchmark against. • Although this information may be difficult to obtain, its value is high

25. Functional benchmarking • Functional benchmarking investigates leaders in dissimilar industries. • The relevance of comparison is maintained by defining the performance characteristics that must be similar to your own functions.

26. Generic benchmarking • It extends functional benchmarking by removing the constraints imposed by limiting the investigation to practices with similar characteristics. • It requires broad conceptualization • Although it is the most difficult type of benchmarking to use, it probably provides the highest potential payoff.

27. World class • The most ambitious. • It involves looking towards the recognized leader for the process being benchmarked. • An organization that does it better than any one.

28. Steps in Benchmarking Process • Identify benchmarking subject, • Identify comparable companies, Functions • Determine data collection method and collect data, • Determine current competitive gap • Communicate findings and gain acceptance, • Establish functional goals, • Develop action plans, • Implement plans and monitor progress, • Recalibrate benchmark.

29. Pitfalls to avoid • Bad data is worse than no data • Benchmarking focusing on averages • Data lacks quality control to deal with definitional differences, fudging • Benchmarking only gathers basic operational metrics without linkage to desired outcomes • Benchmarking does not take into account differences in work load mix, markets and culture

30. Beware… Figuring out a company’s relative performance is ferociously problematic. It depends on which other companies are included in your comparison. Just change the peer group, and a laggard becomes a leader, or vice versa.

31. Beware… • When comparing a ketchup plant that fills small bottles with one that fills large bottles, a company scale to a common unit and calculate the additional cost per litre of filling smaller bottles. • One company found that its process for filling small package sizes cost 20 percent more than its process for filling large ones.

32. Beware… A milk powder manufacturer might have a highly efficient packaging process, but it might also have an outdated, energy-guzzling drying machine. These two factors can offset each other, resulting in reasonable production costs. Only with a detailed examination of every step in the production process will the company realize that it ought to replace its milk-drying machine

33. Benchmarking tool box • Physical flow • Process Flow • Check Sheets • Run Charts • Teams

34. In selecting functions or processes, consider major opportunities for change • Which functions represent the greatest percentage of resource consumption? • Which functions add the most value to the customers, shareholders, and internal organization? • Which functions have the most room for improvement? • Which functions can realistically be improved?

35. Helpful hints for Successful Benchmarking The benchmarking process has produced outstanding results in some organizations, good results in most, fair results in many, and little or no results in others.

36. Benchmarking - Critical Success Factors • Top management must actively lead and support the benchmarking process. • Benchmarking projects should be embedded into each function's yearly business • There must be a commitment to a continuous, ongoing benchmarking effort that makes it part of the management process, not a "flavour of the month.“ • Small benchmarks are better

37. Benchmarking Case studies - 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.After an initial period of denial, Xerox managers accepted the reality. Xerox collected data on key processes of best practice companies. Xerox identified ten key factors. Each of these then became a target for improvement

38. Benchmarking Case studies - xerox Xerox zeroed in on various other best practice companies to benchmark its other processes. These included: American Express (for billing and collection), Cummins Engines and Ford (for factory floor layout), Florida Power and Light (for quality improvement), Honda(for supplier development), Toyota (for quality management), Hewlett-Packard ( For product development), Fuji Xerox (for manufacturing operations) DuPont (for manufacturing safety).

39. Results of Benchmarking efforts in ZEROX • 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%. • Inventory costs reduced by two-thirds. • The financial performance of the company improved considerably .

40. Benchmarking Case Studies One of the most famous examples of best-in-class benchmarking is that of airlines improving their turnaround times by benchmarking themselves against Formula 1 racing car pit-stop operations. In both cases there are both routine operations and occasional emergency repairs / replacements to be carried out efficiently . Also load factor ( what percentage of seats are occupied) can be benchmarked for different Airlines

41. Benchmarking Case Studies A European company embarked on a benchmarking effort involving six of its production plants. Data was gathered on more than 100 operations-related key indicators. The analysis showed that two of the company’s plants were among the best performers in the industry, and two were among the worst. The breakdown analysis revealed that :

42. Benchmarking Case Studies • In one case, a plant’s material cost was too high • In another , a plant had a disproportionately large staff • The plant down time was significant in one plant • Energy consumption analysis revealed two inefficient plants • By applying detailed break down of cost levers, and deploying a cross functional / cross plant teamcompany realized significant savings

43. Examples of bad Benchmarking A company compared itself to only those in its own industry and was one of the best on first call resolution and customer satisfaction. Its high ranking led to complacency even though companies in other industry segments were far better in call resolution.

44. Examples of bad benchmarking A company decided to focus on the best (lowest) metrics for average speed of answer and talk time. It ended up devoting head count to answering quickly and rushing people off the phone. This mechanistic response resulted in incomplete answers and frustrated customers.

45. Examples of bad benchmarking Many companies set targets for operational metrics without proper analysis whether target is really what the customer wants or is really in the best interest of the company. The worst example is where the target is 80% of calls answered in 20 seconds when the data suggests that most customers will wait in queue for 60 seconds, if , when their call is answered, they can get complete answer for their question

46. What Benchmarking is not A tool for a quick fix A tool to impress top management only A tool to use up some idle time if there is nothing better to do with it A way to justify headcount reductions without changing the accompanying processes A form of industrial tourism

47. Beyond Benchmarking • Perfect is the enemy of the good • Benchmarking is a process and not an end in itself • Continuous improvement is a way of life • Engage employees • To infinity and beyond….

48. Selected Best-Practices Companies American Airlines : Information system Domino’s Pizza : Cycle time Honda : New Product development Motorola : Flexible manufacturing General Electric : Management process Wal-Mart : Information system Dow Chemical : Safety HP : Order Fulfillment

49. KISS Benchmarking is the practice of being humble enough to admit that someone else is better at something and wise enough to try and learn how to match and even surpass them at it.

50. Shape UP… Or Ship OUT