IDENTIFICATION OF BENCHMARKING ALTERNATIVES

As indicated earlier, benchmarking candidates can be identified in a wide variety of ways. They can be detected , for example, during the business planning process, as part of a quality initiative, during a six sigma project, or during a profit improvement campaign. Both external and internal analysis can lead to potential candidates.

EXTERNALLY IDENTIFIED BENCHMARKING CANDIDATES

Industry Analysis and Critical Success Factors

Based on the structure of an industry and the dynamics of the customer/supplier interface, certain factors are critical to the success of a business. An identification of the critical success factors and an evaluation of the company's current capabilities can lead to benchmarking opportunities.

The competitive rivalry among firms in an industry has a significant impact on total demand and the level and stability of prices. Competitive rivalry is a function of several interrelated factors that affect the supply and demand for products and services. The balance of supply and demand at a particular time affects the percent capacity utilization in an industry. The percent capacity utilization directly affects price levels and price elasticity.

The factors affecting demand are:

• The strategy of the buyer to be least cost or differentiated ” How well do you meet your customers' specific needs?

• The availability of and knowledge about substitute products ” What are existing and new competitors likely to do?

• The ease of switching from one product to another ” How can you increase the cost of switching to another supplier?

• Governmental regulations ” What can you do to influence these?

The factors affecting supply are:

• The ease of market entry ” What can you do that will make it hard to enter the business?

• The barriers to market exit ” What can you do to make it easy for a competitor to get out of the business?

• Governmental regulations ” What can you do to influence these?

Based on an analysis of the industry as it exists now and might exist in the future, what are the factors absolutely critical for success? Five or six critical success factors can usually be identified for a company. Examples are:

• Customer service

• Distribution

• Technically superior product

• Styling

• Location

• Product mix

• Cost control

• Dealer system

• Product availability

• Supply source

• Production engineering

• Advertising and promotion

• Packaging

• Staff/skill availability

• Quality

• Convenience

• Personal attention

• Innovation

• Capital

Once the critical success factors have been identified, the company can assess its current position to determine whether benchmarking is required. One technique for performing this analysis is to make a tabulation showing how the major competitors in an industry rank for each critical success factor. As a cross check, there should be a correlation between the tabulated results, market share and return on equity.

PIMS Par Report

The PIMS par report indicates the financial results that companies in similar circumstances have been able to achieve. As such, it provides a quantitative benchmark. The PIMS report also indicates those factors that should enable you to earn greater than par and those factors that would cause you to earn less than par.

Financial Comparison

If PIMS data are not available, a comparison of the company's financial performance versus that of other companies in the same industry can suggest the value of benchmarking in specific areas. Potential areas that might be identified are:

• Gross margin improvement

• Overhead cost reduction

• Fixed asset utilization

• Inventory or accounts receivable reduction

• Liquidity improvement

• Financial leverage

• Sales growth

Competitive Evaluations

As discussed earlier, a competitive evaluation is a periodic assessment made to determine, objectively, what factors a buyer takes into consideration when deciding to buy from one supplier versus another, the relative weight given to each of those factors, the competing firms, and the relative performance of each firm with respect to each buying motive.

Focus Groups

Focus groups are used to determine what a customer segment thinks about a product or service and why it thinks that way. Participants are invited to join the group usually with some type of personal compensation. A focus group starts with a series of open-ended questions relative to a specific subject. Representatives of the sponsoring company view the entire process either through a one-way mirror or by closed circuit TV. As a second phase, the company representatives ask specific follow-up questions (through the facilitator), based on the open -ended probing.

Importance/Performance Analysis

The customer perception of performance versus importance can be used to identify benchmark alternatives. A list of attributes can be prepared using either a nominal group process or a focus group. The customer is asked to rate each attribute in terms of both importance and company performance. A matrix is then prepared showing high and low performance versus high and low importance. It has the following implications:

• Continue with high importance, high performance.

• Reduce emphasis on low importance, low performance.

• Increase emphasis on high importance, low performance.

• Reduce emphasis on low importance, low performance.

In addition to determining the customer's perception of performance versus importance, it is also valuable to determine the customer's versus the company's perception of importance. This can also be used to determine areas for intensification and reduction of effort and benchmarking possibilities, including:

1. Customer-oriented goals

2. Service/quality goals

INTERNALLY IDENTIFIED BENCHMARKING CANDIDATES ” INTERNAL ASSESSMENT SURVEYS

An internal assessment of strengths and weaknesses can be used to identify benchmarking candidates. This determination can be made using a Business Assessment Form followed by group discussion or by using the Nominal Group Process. The assessment can be made by the owner of a product, process, or service and/or by the department being served .

An internal assessment can also be approached from the viewpoint of the generic value added chain. For each block of the chain, two questions can be asked:

1. What are the alternatives for least cost operation?

2. What are the alternatives to provide differentiation?

The value added chain can also provide customer perspective by suggesting the questions:

1. How does our product or service help customers to minimize their cost?

2. How does our product or service help customers to differentiate their product?

Nominal Group Process: General Areas in Greatest Need of Improvement

• Improving the precision of the sales forecast

• Reducing the cycle time to bring out new products

• Increasing the success rate in bidding for new business

• Reducing the time required to fill customer orders

• Reducing the errors in invoices

• Major problems or issues

• Areas of competitive disadvantage

Pareto Analysis

Pareto analysis is a form of data analysis that requires that each element or possible cause of a problem be identified along with its frequency of occurrence. Items are then displayed in order of decreasing frequency of probability of occurrence. This can help to identify the most significant problem to attack first. A common expression of the Pareto Law is the 80/20 rule, which states that 20% of the problem causes 80% of the difficulties. A Pareto analysis of setup delay might include factors such as: necessary material not available, tooling not ready, lack of gages, setup personnel not available, another setup has priority, material handling equipment not available, error ” incorrect setup. Develop a Pareto analysis for the production of scrap. (There is a tremendous difference between knowing the facts and guessing).

Statistical Process Control

Statistical process control is a technique for identifying random (or common) causes versus identifiable (or special) causes in a process. Both of these are potential sources for improvement. The amount of random variation affects the capability of a machine to produce within a desired range of dimensions. Hence, benchmarking could be performed to determine machine processing capabilities and how to achieve those levels. The determination and correction of recurring systematic changes is also a benchmarking possibility.

The reduction of the random variation or the uncertainty of the process and the identification and correction of special causes are critical aspects of the total quality management process. Correction often requires a change in the total manufacturing process, tooling, the equipment being used, and/or training in setup and operations.

The first step in process improvement is to control the environment and the components of the system so that variations are within natural, predictable limits. The second step is to reduce the underlying variation of the process. Both of these are candidates for benchmarking.

Trend Charting

Historic data can be used to develop statistical forecasts and confidence intervals that depict acceptable random variation. When data fall within the confidence intervals, you have no cause to suspect unusual behavior. However, data outside of the confidence intervals could provide an opportunity for benchmarking. It might also be informative to pursue benchmarking as a device to reduce the range of variation or the size of the confidence interval.

A simple trend analysis of your own past data can also provide a basis for improvement. The following data relative to the percent scrap and rework illustrate the improvement made and could provide the basis for benchmarking:

1987	1988	1989	1990
2.1%	3.0%	1.0%	0.7%

Product and Company Life Cycle Position

Products tend to go through a defined life cycle starting with an introductory phase and proceeding through growth, maturity, and decline. The management style and business tactics are very different at each stage. Anticipating and managing the transitions can be important. This could lead to opportunities for benchmarking of product life cycle management and product portfolio management. Product portfolio management can lead to the need for new product identification and introduction. These areas have both been the subjects of benchmarking studies.

In addition to the changes that products go through, companies tend to go through various stages of development and crises . Again, the management of the transitions can be an important benchmarking candidate.

Failure Mode and Effect Analysis

Failure Mode and Effect Analysis (FMEA) is a systematic way to study the operating environment for equipment or products and to determine and characterize the ways in which a product can fail. Benchmarking can be used to determine component and system design goals and alternatives (see Chapter 6).

Cost/Time Analysis

To evaluate its new product introduction process, a company may plot cost per unit produced versus elapsed time for each element of the process, e.g., design and engineering, production, sub-assembly, and assembly. The area under the curve represents money tied up (inventory), and smaller is better.

NEED TO IDENTIFY UNDERLYING CAUSES

Problem, Causes, Solutions

When solving a problem, it is critical to attack the underlying cause of the problem and not the symptoms. The underlying cause can be identified by listing all possible causes and identifying the most probable cause based on data collection and a Pareto analysis. This sometimes leads to multiple benchmarking opportunities. Failure to diagnose a problem (ready, fire, aim) can lead to an inefficient use of resources and frustration.

The Five Whys

When identifying underlying causes, it can also be useful to ask five sequential "whys" to get to the heart of a problem. For example:

• Problem: The milling machine is down.

• Why? The chucking mechanism is broken.

• Why? A piece got jammed when being loaded.

• Why? There was excess flash from the stamping operation.

• Why? The stamping die was not changed.

• Why? The die usage control log was not updated daily.

Cause and Effect Diagram

The development of a Cause and Effect Diagram or Fishbone Diagram or Ishikawa Diagram is another way to identify and display the underlying causes of a problem. Causes are usually displayed in terms of major categories such as human or personnel, machines or technology, materials and methods or procedures. Once causes are identified, an analysis is made to determine actionable solutions.

The determination of cause and effect can require the use of designed experiments to measure effects and interaction. For example, to reduce conveyor belt spillage, it was necessary to determine the effects of belt wipers, belt surface, dryness of the belt and material, and particle size in various combinations of each factor.