Benchmarking a business’ performance is a critical step in evaluating performance improvement efforts across the organization. This is especially true for manufacturers. To grow and thrive, manufacturers need to develop best practices, benchmark against those best practices and formulate action plans. Here is why benchmarking is important to the success of your manufacturing business, the various benchmarking types and processes as well as the benefits of maintaining a good level of consistency.
What is Benchmarking and Why is it Important?
Benchmarking is common practice across many different industries. According to Business Benefits Group (BBG), benchmarking in business is a way of comparing best industry practices against your organization’s processes to identify performance gaps and achieve a competitive advantage. Benchmarking can be applied against any process, approach, function, or product in business. The process primarily focuses on measures like quality, time, cost, effectiveness, and the satisfaction of customers to distinguish where there are problems.
What is the Goal of Benchmarking?
Businesses use benchmarking for many different reasons, whether it be to improve product quality, increase sales, or improve business performance and efficiency. BBG defines benchmarking as an ongoing process that can be continually relied upon by business owners to identify possible performance issues. Benchmarking involves looking outside of a business to examine how others achieve a high level of performance and the processes they use to maintain success.
What are the Benefits of Manufacturing Performance Benchmarking?
Benchmarking is used by establishing baselines and comparing them with actual results. As long as clear goals are set, and with the proper infrastructure, this results comparison can help a company move in the right direction and even help to mitigate risk. These baselines might include:
- Understanding How Your Business Stacks Up Against Your Competitors
- Improving Company Efficiency and Effectiveness
- Tracking the Progress of Business Goals and Objectives
- Discovering New Opportunities for Rapid Growth
- Motivating Staff and Holding People Accountable
- Boosting the Performance of Business Sales
- Improving the Quality of Products Sold by a Business
What are the Four Types of Benchmarking?
When comparing business metrics, there are four primary types of benchmarking to consider:
- Internal benchmarking measures improvements that can be made to a business process or function internally and within the organization.
- Competitive benchmarking compares your results directly with those of a competitor as they pertain to a specific product, service, process or method.
- Functional benchmarking compares your results with those of an organization outside your immediate industry with similar or identical practices or functions. This is often done to establish best-in-class processes.
- Generic benchmarking provides a common basis of comparison using foundational metrics or unrelated business processes and functions that can be practiced in the same or similar ways independent of industry.
Regardless of type, benchmarking is about accepting that others may be performing with more success and being agile enough to learn how to match or even surpass their results down the line. Businesses must understand what goes on outside the business in order to make better decisions about what goes on inside the business, and that starts with best practices.
Benchmarking Best Practices: Setting a Manufacturing Performance Benchmark
Benchmarking standards can be set internally by a business, but there are organizations that establish benchmarks for specific industries and provide best practices to benchmark against. Overall, benchmarking is a simple, yet detailed five-step process:
- Use your key performance indicators (KPIs) to help determine what will be measured
- Determine the type of benchmarking you want to use
- Establish baselines on internal performance (or metrics) and gather your actual results
- Compare the baseline results with your actual results
- Formulate best practices and put into place policies within the best-in-class performers
Benchmarking Process: How is Benchmarking Done?
There are four main phases of the benchmarking process. The steps within each phase can help any organization that practices Lean Six Sigma, a data-driven approach and continuous improvement methodology. These phases include:
- Identify Opportunities and Prioritize (What to Benchmark)
- Decide the Benchmarking Organization (Whom to Benchmark)
- Study Your Competitors and Collect Necessary Information
- Identify the Reasons for Better Results and Establish Improvements
- Set Goals for Improved Processes
- Communicate Your Findings and Gain Acceptance
- Establish New Functional Goals
- Develop and Action Plan for Implementation
- Implement Actions and Monitor Progress
- Review and Continue the Process
Using Benchmarking Metrics to Measure Manufacturing Performance
Manufacturers use key benchmarking dimensions like quality, time and cost to gauge their metrics (ie. total cost to manufacture, manufacturing cycle time, unplanned machine downtime), which help determine how the business is performing at any given time. Collecting data, tracking results and managing metrics can all be time-consuming tasks, but they are beneficial to the business if done regularly.
One way to track and manage benchmarking metrics is with metric-driven solutions found in QAD Adaptive ERP. By maintaining a consistent level of benchmarking, and with the right solutions in place, manufacturers can implement continuous lean manufacturing improvements and gain better insights into the effectiveness of their processes.
What challenges are you finding most significant when it comes to benchmarking? Let us know in the comments section below.