Making benchmarking work to improve company efficiency.
A world-class company must not only continuously improve, it must continuously improve faster than the competition. Benchmarking, or understanding how you stack up compared to other companies, plays a vital role in this never ending race for success.
Benchmarking is simply learning how a company can improve one or more of its business processes, such as manufacturing, distribution or purchasing, by comparing the company's processes with those of other companies that excel in those processes. Then, on the basis of the comparison, the company makes changes to meet or exceed the standard.
In the January issue of nonwovens industry, we discussed the basics of benchmarking as part of planning for a profitable new year. This month we'll discuss the benefits of benchmarking in more depth and share some real world examples to demonstrate successful applications.
There are two primary benefits to benchmarking.
First, benchmarking helps identify where and how to improve. Understanding how others perform a particular process or function enables you to take their methods and build on them to reach an even higher level of performance. It's this "taking good ideas and building on them" that accelerates the improvement process.
But benchmarking not only helps you identify where and how to improve, it creates an urgency to improve. Once the people in your organization know where they stand, their natural competitiveness and creativity take over.
Benchmarking will force your organization to confront "sacred cows" that may have been good ideas in their time but are now standing in the way of world-class performance. It is tough for someone to support the "old way" when benchmarking data makes it clear that the competition has already found a "better way."
Making Benchmarking Work
So if benchmarking is such a great concept, what does it take to make it work? Why are some benchmarking efforts so successful, while others end up as just another program of the month? There are several critical elements to effective benchmarking.
First, set priorities. Identify the most important factors to benchmark (cost, productivity, customer service, etc.) and what companies or organizations to benchmark against. Don't fall into the trap trying to benchmark everything. You'll be more successful if you focus on a limited list of objectives. Besides, benchmarking is a process that should be repeated regularly, so you'll get a chance in the future to benchmark additional areas.
Involve the people who will be affected by the benchmarking. Not only is their expertise vital in analyzing and understanding the competitive information, their participation will pre-sell the recommendations and make the organization more receptive to implementing the improvements.
Look outside your industry. Yes, it's important to understand your direct competition, but true breakthrough ideas often come from learning how leaders in another industry perform a similar process.
Be creative. Don't limit your solutions to just reapplying others' ideas. Look for ways to build on others' ideas to make them even better. This creative building is what leads to true world-class performance.
Most importantly, take action based on the benchmarking analysis. Avoid paralysis by analysis. Sure, sometimes you'll need more data to make a difficult decision, but don't let sacred cows hide behind the camouflage of endless analysis.
Each benchmarking analysis is unique, but let me share two "real world" examples of what companies have learned and how they have benefitted from benchmarking.
A recent benchmarking study identified the importance of managing and controlling plant overhead cost (Figure 1).
Normally, you would expect a smaller plant to have higher overhead cost per unit than a comparable larger plant. However, as the figure shows, Company X's overhead was not only higher than its larger competitors, its overhead was higher than its smaller competitors as well.
This benchmaking information challenged how Company X thought about its plant overhead structure. After careful examination it determined that it had a "big company" overhead structure and only a "medium-sized company" sales volume.
Ultimately Company X learned that the right plant organization structure is lean, mean and focused and that overheads must be managed to fit each individual situation. On the basis of these learnings, Company X restructured its manufacturing plants and is now beating its smaller competitors in overhead cost. Furthermore, it is using additional creative ideas to close the gap with its larger competitors. (How to manage overhead cost and have a lean, mean and focused plant is a whole subject in itself that we'll be addressing in a future article.)
Distribution costs are often overlooked. Even though distribution costs are generally a small portion of cost-of-goods (<50/o), several benchmarking studies have identified significant distribution cost savings.
Let me tell you about Company Y. Initially, it believed its distribution cost must be competitive because it received competitive rates from the common carriers and the commercial warehouses that distributed its products.
However, benchmarking showed Company Y that a major competitor was shipping full-truck orders to major customers directly from the producing plant. Eliminating the intermediate shipping and warehousing step was saving the competitor's $.35 to $.75 per case.
Needless to say, this benchmarking information motivated Company Y to work with its major customers and with its internal warehousing operation to achieve similar savings. Some of the savings were then passed on to their customers and some of the savings were retained by Company Y.
When Benchmarking Is Finished
What do you do when you've finished implementing the improvements that benchmarking identified? You start benchmarking again. You determine new factors to benchmark, assemble your team, collect data and identify more improvement ideas.
Remember there are always more good ideas to borrow!
Tom Schuler Richard Ducote, Jay Frankenfield, Adrian Bridge and Kay McLeod, of the consulting firm SDF International, write a series of bimonthly articles on "Profitable Manufacturing - Using Manufacturing Leverage To Gain A Competitive Advantage in the Nonwovens Industry." These "how to" articles feature Practical Operations and engineering applications from their years of combined experience with P&G and private label manufacturers. SDF's offices are located at 6855 Jimmy Carter Boulevard, Suite 2400, Nocross, GA 30071; 404-447-9750; Fax 404-448-7722. Reprints of earlier NON-WOVENS INDUSTRY columns referred to in any article are available from SDF.
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|Date:||May 1, 1993|
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