Return to the handbook index.

SUBJECT: Competitor Benchmarking -- Low-Cost Producer

ALPHANUMERIC IDENTIFIER:

DESCRIPTION: Benchmarking is defined as a process of continuous comparison of a company's performance on determined measure against that of the best in an industry or a class, considered the standard or the reference. Benchmarking is one of the most popular business management tool for establishing competitive advantage and initiating performance improvements, being used by companies such as Xerox, Motorola, AT&T and General Motors

KEYWORDS: Benchmarking, low-cost, benchmark, comparison

OVERVIEW:

Benchmarking is defined as a process of continuous comparison of a company's performance on determined measure against that of the best in an industry or a class, considered the standard or the reference. Benchmarking is one of the most popular business management tool for establishing competitive advantage and initiating performance improvements, being used by companies such as Xerox, Motorola, AT&T and General Motors. The Benchmarking process support the establishment and adoption of best practices with enhanced organization performance which leads to cont inuos improvement. When it is used toward low-cost producer, the focus are on costs improvements.

Benchmarking is closely associated with the concept of Total Quality Management (TQM) when considered as an efficient approach to enhancing the quality of an organization's response to its customer's needs while increasing the character of its internal culture, in both policies and procedures. Benchmarking is seen as a major component of "improvement initiatives," as it enables an organization to identify strengths and weaknesses when compared to the references, while helping to achieve the lowest costs on a determined product, process or method.

Four types of benchmarking have been identified. Internal compares a process to similar operations within the same company; it may yield 10% performance improvement. Competitive is specific competitor-to-competitor comparisons for the process ; it may yield 20%. Functional runs comparisons to similar functions within the same industry or with outsiders (e.g. chemical companies are increasingly benchmarking with apparel mail-order in areas such as order entry); it may yield 35%. Generic compa res procedures that are unrelated but have similar processes (e.g. airline gate turnaround maintenance and the Indianapolis 500 pit crew); it may yield 35%.

The functions or processes that need benchmarking include those that represent the highest percentage of a company's cost, that are of strategic value to a company and those that can be sharply enhanced regarding cost performance.

An example of a successful process benchmarking is John Deere, a machinery supplier, where it has become a hallmark of manufacturing. At Deere, t he benchmarking activity can be broken in four parts. The planning stage involves identifying the process that needs to be improved, choosing the benchmarking team and internal benchmarking. During the collection phase, participants develop a survey, ma ke a list of prospective benchmarking partners and call them, conduct the actual benchmark, visit the site if necessary and share the collected information to the partners. The analysis stage involves interpreting the data, writing the analysis, sharing information, discussing results and making recommendations for improving processes. At the final stage, recommendations are implemented.

However, several risk are associated with benchmarking as a management tool. These include the selection of an unsuitable set of performance measures, failure to gain support and assistance from top management, misunderstanding of the benchmarking concep t, and mismanagement of information.

AT&T give four tips to a successful process. The process should be quickly complet ed within a realistic framework as team members may move from the assignment, or a new management may not want the work done. The critical success factors, derived from a company's survival parameters, need to be integrated. The fallacy of best-in-class companies for benchmarking should be avoided, we need to identify the low-cost producer not relying on rumors . Proper management of changes during benchmarking needs to be employed. }}

REFERENCES: none

ACKNOWLEDGEMENT: This is a March 29, 1999 revision by Gene Goodson of an assignment for OM742 contributed by Renato Monteiro.