Benchmarking 101.

Benchmarking has become quite a buzzword in business and industry, and as is the case with buzzwords, you find people scrambling to grasp and act on it. However, like anything else, benchmarking is useless if only part of the concept is understood and implemented. A basic introduction to the process is necessary if more widespread use is to be made of this indispensable competitive tool.

By definition, benchmarking is a systematic and ongoing process of measuring products, services and practices against companies recognized as best in class. It relies on an external point of view and a structured approach to help a firm incorporate the best practices to surpass best-in-class performance.

According to the AFS Benchmarking Committee, benchmarking - both industry-wide and on an individual, company initiated level - allows found-ties to:

* better understand the extent and value of quality and productivity measures;

* better understand where a facility's operational strengths and weaknesses are, relative to the competition;

* fully comprehend what practices lead to superior performance and therefore, increased profitability.

This article seeks to briefly lay out the basic steps your company can take to implement a benchmarking strategy, and how to use the results to surpass the "best of the best."

Benchmarking Methods

There are several benchmarking methods, and each can be used to provide information for a specific topic of concern. The three most commonly used methods include:

Strategic Benchmarking - focuses primarily on market share and segment, plant capacity, revenue mix and company profitability.

Operational Benchmarking - deals with competitive costs such as raw materials, labor, overhead and productivity. It compares product features, quality and customer satisfaction.

Functional Benchmarking - concentrates on areas within the firm where group performance provides a competitive edge. Areas of consideration include maintenance, accounts receivable, customer service, purchasing and engineering.

A Process Model

A benchmarking process model consists of six steps which must be taken if the exercise is to yield maximum benefit to the company.

1. Determine Benchmarking Requirements. Establish a bench-marking team consisting of subject experts, external contacts, a communications coordinator and a leader. Their job is to define the benchmarking mission, and to:

Select the business processes with the most potential for improvement, and in which improvement will yield the largest impact on competitive performance. Value-added processes that impact product cost and marketplace access are prime targets.

Define performance measures. Productivity is measured in frequency of inventory turns, staff profile (what percentage is production, what is in sales, etc.) Quality is measured in terms of percentage of materials rejected and percentage of changed purchase orders. Time is judged by lead time and on-time delivery. Business practice is measured by just-in-time performance, supplier certification and materials requirements planning. Cost is gauged by unit costs vs. target costs, cost reduction and inventory levels.

2. Identify Best-in-Class Companies. This can be done through a literature search of relevant publications. Begin with 10-15 firms considered industry leaders, and focus intense research on them. Types of best-in-class firms include direct competitors, indirect competitors within the industry, latent competitors: and firms from outside the industry. Also, a highly effective group within your own company can be examined.

3. Conduct Comparisons. It is crucial to develop an approach to comparison. Methods include visiting subject companies, sending out questionnaires and conducting telephone surveys.

4. Analyze the Results. Results analysis is the most important, difficult and time consuming step in the entire process. The main element here is called gap analysis - determining your company's position in comparison with the best-in-class companies studied.

5. Develop Action Plans. Once the gap between you and your benchmarking subjects has been determined, you must set priorities for the improvement areas, highlight targets and develop action plans to hit them. Remember that competitors are moving targets - they get better at what they do, even as you are trying to catch up with them. Your action plans should be set up to foster continuous improvement beyond the immediate target level of your competitors.

6. Implement and Monitor Results. The main objective in benchmarking is to close the gap between you and the best-in-class companies. As you implement changes, monitor the results, recalibrate benchmarks and repeat the process to ensure continuous improvement.

Ten Benchmarking 'Must Dos'

1. Persuade management to "buy into" benchmarking. 2. Use a formal program and approach. 3. Look at your business from a process viewpoint. 4. Focus on internal processes. 5. Send experts to see and evaluate best-in-class processes. 6. Visit the "right" places. 7. Determine practices, then measurements. 8. Communicate your findings. 9. Implement the recommendations. 10. Begin the process again.