Benchmarking

1
Benchmarking
Douglas M. Stewart, Ph.D. The Anderson Schools of
Management University of New Mexico
2
Benchmarking
the search of industry best practices that lead
to superior performance

• Benchmarking is a search for best practices
• Benchmarking is not industrial tourism
• World Class vs. Industrial Benchmarking
• Benchmarking Clearing Houses

3
Types of Benchmarking

• Competitive benchmarking
• Process benchmarking
• Strategic benchmarking

4
Benchmarking is

• Measuring your performance against that of the
  best-in-class companies, determining how the
  best-in-class achieve those performance levels,
  and using the information as a basis for your own
  companys targets, strategies, and
  implementation.
• L.Pryor, Benchmarking A Self Improvement
  Strategy, Journal of Business Strategy,
  Nov.-Dec. 1989.

5
Types of Benchmarking

• Comparison
• Internal Best in Firm
• Competitive Best in Industry
• World Class Best in World
• Form
• Performance Benchmarking
• Process Benchmarking
• Strategic Benchmarking

6
Performance Benchmarking

• Analysis of relative business performance among
  competitors
• Comparison is internal or industry
• Pricing, quality, technical features, performance
  characteristics
• Resource commitment low
• Usually through 3rd party intermediary
• Global Purchasing Benchmarking Initiative
• Construction Industry Institute
• Metrics Issue Do metrics capture the whole
  story?

7
Performance Benchmarking Reports

• Construction Industry Institute

8
Process Benchmarking

• Analysis of most effective practices on key work
  processes
• Comparison is usually World Class
• Distribution, order entry, procurement.
• NASCAR pit crews
• Resource commitment is high
• Usually conducted by teams from process area
• Metrics Issue What are important metrics for
  process? (Intent)

9
Strategic Benchmarking

• Analysis of alternative competitive strategies
• Comparison is World Class
• Southwest Airlines, Dell Computers
• Resource commitment is moderate
• Usually conducted by benchmarking analyst
• Metrics Issue Are metrics comparable?

10
The Benchmarking Process

• Project selection Goal and scope
• Understanding current process - metrics
• Selection of partner or clearinghouse
• Data collection - metrics
• Assessment and recommendations
• Planning the change
• Implementation
• Recalibration update the metrics

11
Benchmarking Pitfalls

• Project not aligned with competitive strategy
• Outcome cannot be adequately measured
• Scope of project too large
• Omission secondary but important measures
• Failure to establish a baseline

12
Data Envelopment Analysis

• Means to compare multiple similar processes
• with multiple inputs
• with multiple outputs
• Often used with internal benchmarking
• but can be used externally
• How it works
• Identifies those units getting the most output
  out of their inputs
• Uses these to derive an efficient production
  frontier
• Defines all units on frontier as efficient
• All units behind frontier indicate opportunity
  for improvement
• Based on Linear Programming
• K2(number of inputs and outputs)

13
DEA Example (Simplified)

• Summary of Outputs and Inputs for Outlets
• Unit Meals Labor Material
• Sold Hours Cost
• 1 100 2 200
• 2 100 4 150
• 3 100 4 100
• 4 100 6 150
• 5 100 8 80
• 6 100 10 50
• For more information see
• Charnes, A., W. Cooper and E. Rhodes, Measuring
  Efficiency in Decision Making Units, European
  Journal of Operations Research, November 1978,
  pp. 429-444. Or search Data Envelopment
  Analysis for practitioner oriented pieces.