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BenchmarkingBenchmarking Introduction and Application Introduction and Application
T.K.MagazineT.K.Magazine
Director, Traam Services Pvt. Ltd.Director, Traam Services Pvt. Ltd.
[email protected]@traambiz.com
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Highlights What is bench mark ? Bench marking – background Why bench mark? DANTOTSU Bench marking – evolution Bench mark – a bird’s eye view Bench marking - where to apply How to bench mark? Bench mark – information sources Bench marking – who practice? Bench mark – live experience on inventory
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What is bench mark? “A bench mark is a standard of excellence, or achievement, against which performance must be measured or judged.”
“Bench marking is the continuous process of measuring products, services and practices against the company’s toughest competitors or those companies renowned as industry leaders”
=Robert camp=
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Bench marking is learning from the best. Bench marking is the process of continuous comparing and measuring own business processes, against business leaders anywhere in the world, to gain information, pick up best practices, set your own standards, which will help the organization, take action, to improve its performance, on a continuous basis, to become world class.
Bench marking is external orientation, instead of only extrapolating from internal practices and past trends.
What is bench mark?
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Bench marking-backgroundAfter world war II , “ imitation” was regarded as a prominent corporate trait of the Japanese, who were known for copying anything produced in the world, from a pin to a ship, and vastly improving upon the copied model.
In modern management parlance, “imitation” has grown into a major business survival tool world wide, used to improve business competitiveness, except that it is now termed as “bench marking”.
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Why bench mark?
“The arrival of the world economy has presented tougher challenges for most organizations- more and better competitors, shorter product life cycles and accelerating technology changes. Business as usual in such a market climate could be fatal….Even for market leaders. To stay competitive, organizations must continually reinvent how they do things… in every department, at every level… and maybe look at what world-class organizations are doing to find innovative ideas and adopt best work practices.
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The usual methods of improving performance – downsizing and cost cutting – do not solve systematic performance problems. To become more productivity requires redesigning old work methods, scrapping internally-protected agendas, tossing out obsolete work practices and looking outside for innovative work methods…wherever they are.
This practice of emulating world –class practices, called “bench marking” simply means”… “…finding and implementing best practices that lead to superior performance.” =Robert camp=
Why bench mark?
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BENCH MARKING IS CARVED OUT OF JAPANESE WORD
DANTOTSU
“STRIVING TO BE THE BEST OF THE BEST”
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Bench marking-EvolutionTaiicho Ohno, Japanese management expert, the founder of just in time (JIT) and bench marking concepts, highlights this technique in his book about the Toyota production system.
On a visit to us in 1956, he had called on various American car manufactures, for ideas and information. But , he got break through idea from a large supermarket, displaying thousands of items, which were tracked and replaced individually, the moment customers bought these. Ohno noticed that the customers pulled the items on their trolleys, through the store.
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Initiating the practice, Toyota started pulling auto parts, through its production system at the precise moment of usage, in exact quantities needed.
American companies, who were condemning Japanese “imitation policies”, since world war ii , adopted bench marking in 1979, when Xerox corporation found that a popular model of photocopier manufactured and sold by them was at double the price compared to an identical product manufactured by cannon of Japan.
Bench marking-Evolution
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While utilizing bench marking techniques, Xerox discovered that their manufacturing process was grossly inefficient and cost ineffective. Xerox did massive business re-engineering during 1980 -85 and slashed its production cost by half and pruned its inventory cost by two third. The man responsible was Robert camp, who is regarded as modern international guru in bench marking.
Bench marking-Evolution
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Benchmarking-a bird’s eye view -Where we want to be
WORLD CLASS
CUSTOMER REQUIREMENTS
INDUSTRY BEST
CURRENT PERFORMANCE
WHERE WE ARE
GOAL 1
GOAL 2
GOAL 3
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Bench marking-where to apply?Strategic Planning……ForecastingMarketing…..Customer SatisfactionManufacturing……….Quality ControlBuying……….Inventory ControlEmployee Skills……Goal SettingAsset Utilization………Cost Reduction
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How to bench mark? Bench marking is hard investigative work,
with open mind, in sight, “nothing impossible concept” futuristic vision and good judgment.
Know your operation. Fix your goal. Know industry leaders, competitors. Bench mark partners. Incorporate the best. Gain superiority and competitive edge.
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How to bench mark? Plan – Search – Data – Consolidate. Dissect – Analyze – Investigate Act – Implement – Adapt – Achieve World class best practices, Functional best practice, Industry best practices. Bench marking should be an integrated
effort on a business purpose, and not an isolated department effort, or reducing the costs, at the cost of quality
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Bench mark potential information sources Companies in identical or allied business. Balance sheet information. Give and take information. Government and trade association
statistics. Research statistical data compiled by
professional institutes, Professional conferences. Research scholars. Books, journals, news papers. Internet sites.
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Bench marking – who practice?
TOYOTA XEROX
FORD AT&T
DUPONT HEWLETT PACKARD
JOHNSON AND JOHNSON IBM
HINDUSTAN LEVER CITIBANK
MOTOROLA CANNON
RPG GROUP ARVIND MILLS
RANBAXY DCM
ACC ETC.
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ABC Chemicals Limited
Inventory Management
Case Study On Bench Marking
MAA Saraswati Institute of Continuous Learning
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Inventory ManagementProblem: Excess and Erratic InventorySolution: Benchmark – Ideal LevelsTo Ensure: - Smooth Flow Of Raw
Materials Reduce Working Capital To Ideal Levels
(Determine)Comfort Level In Procurement (Avoid Rush/ Emergency Purchase)
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Inventory Management
Magnitude of problem : Feb. ’96 all time high inv. Rs. 499 mil.
Objective: Reduce to 250 mil. In 6 monthsHow achieved ? how to improve further ?
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(IMPORTED RAW MATERIALS) -RS. CRORES (IMPORTED RAW MATERIALS) -RS. CRORES
MODEL BUDGET PLANT ACTUAL(*)CAPACITY CAPACITY CAPACITY
I.BUDGETED PRICE 19.98 22.95 18.6 BASED ON AVG. PERFORMANCEAPR.SEPT. 96
II.ACTUAL PRICE 18.92 21.88 17.58 ITEMWISE DETAILS AS PER ANNEXURE
III.TOP TEN ITEMS (ACTUAL PRICE BASIS)
A.seven items which can be airfreighted
1.PEN G 3.6 3.79 3.792.6-APA 3.77 5.19 3.623.PEN-V 1.6 1.75 1.624.DANE SALT 1.21 1.7 1.215.D-ALPHA 0.81 0.92 0.786.ENZYME 0.39 0.4 0.397.PYR.HBR. 0.38 0.36 0.38
TOTAL:III-A 11.76 14.11 11.7
REMARKS
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B.THREE ITEMS WHICH CANNOT BE AIR FRIETEDFRIGHTED
8.TPP 0.52 0.56 0.59.HMDS 0.45 0.49 0.4610.MECL2 0.37 0.43 0.36
TOTAL:III-B 1.34 1.48 1.32
IV. ITEMS OTHER THAN 5.82 6.29 4.56
(ACTUAL PRICE BASIS)
V. VENDOR COMPAIGN ITEMS (NEEDING HIGHER INVERNTORY)-ADDITIONAL VALUE;
DAYS : C + A = T1. 3,4 LUTIDINE 0.03 0.03 0.05 45+135=1802. CO-POLYMER 0.41 0.45 0.42 45+135=1803.FLU - CMIC 0.36 0.36 0.52 60+30=904. CYCLOHEXANE 0.28 0.3 0.52 60+60=120
TOTAL:V 1.08 1.14 1.28
TOP TEN
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SR. NO. INVENTORY/ BASIS RS (CR) RS( CR) REMARKSGROUP CLASSIFICATION
1 TOP SEVEN ITEMS ACTUAL PROD. PLAN 11.7 OUT OF TOP 10 2 TOP THREE ITEMS OPTIMUM PLANT CAP. 1.48 OUT OF TOP 10 CANNOT BE AIRFREIGHTED3 REST OF THE ITEMS OPTIMUM PLANT CAP. 6.294 VENDOR COMPAIGN ITMES OPTIMUM PLANT CAP. 1.14 19.47 ADDITIONAL INVENTORY5 25% PROVISION FOR PLAN VARIATIONS 4.876 ADDITIONAL COMFORT LEVEL TO I.P. 0.66 5.537 MAXIMUM LIMIT-BENCHMARK 25
NOTES: 1.PROVISION FOR NEW PRODUCTS NOT INCLUDED . ONCE THESE ARE ESTABLISHED INVENTORYHOLDING VALUE WOULD PROPORTIONATELY INCREASE.2. SINCE D-ALPHA AND MECL2 ARE PURCHASED ON DEEMED ROUTE, SCOPE TO REDUCE HOLDING NORMS FURTHER, BY ONE WEEK , AMOUNTING TO RS. 45 LACS; IS POSSIBLE. TO TEVIEWTO REVIEW IN APRIL 19973. VALUES WORKED OUT ON ACTUAL PURCHASE PRICE.4. INDENTED QUANTITIES (MONTH'S DELIVERY SCHEDULE) WOULD BE DELIVERED BY 15 TH OF EACH MONTH
RECOMMENDED INVENTORYMODEL IMPORTED RAW MTRL
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MATERIALS GROUP INVENTORY PERFORMANCE (IMPORTED RAW MTRL)
FEBRURAY '96 - MARCH 97MONTH FEB.'96 MAR. APR MAY JUN JUL AUG SEP OCTRUPEES CRORES 49.93 45.31 35.73 34.51 37.96 30.6 25.2 19.5 20.2
NOTES:2. FACTORS RESPONSIBEL FOR REDUCTION NOV. 21.58
DEC 21.68ANALYTICAL STUDY AND PROBLEM DIAGNOSIS JAN 26.41TIGHTENING OF PLAN FEB 27.18CLOSE INTERACTION AND MONITORING BETWEEN PLANT/ IP MAR 24.89
ACTION ON OBSOLETE ACTION ON REJECTIONSELECTIVE REDUCTION OF FORMS
WEEKLY REVIEW
OWNERSHIP
1. IDEAL MAX. LEVEL - RS. 25 CRORES.
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SUB PROCESS OUTPUTS PRIORITY IMPRO POTENTIAL
MARKETING A. ANNUAL BUDGET RELEASED A HB. MONTHLY PLAN RELEASED A HC. NON PLAN MARKET SCHEDULE RELEASED C L
PRODUCTION PLANNING A. QUARTERLY PROD. P. RELEASED A HB. MONTHLY UPDATED P. RELEASED A HC. EMERGENCY PROD. P .RELEASED C LD. PROD. MONI. STATEMENT ISSUED B ME. FINISHED GOODS DESPATCH STATUS ISSUED A H
DIVISIONAL MATERIALS A. QUARTLY. MTRL. PLAN RELEASED A HB. ITEMWISE INDENTS RELEASED A HC. CRITICAL STATUS RELEASED A HD. INVENTORY MONITORING STAT. ISSUED. A H
INTERNATIONAL PURCHASE A. SHIPMENT PLAN ISSUED A HB. PO RELEASED A HC. WEEKLY SHIPMENT STATUS B MD. CUSTOMS CLEARANCE B ME. CUCTOMS CLEARANCE EFFECTED A HF.TRANSPORTATION TO PLANT ORGANISED A H
(*) H-HIGH, M-MEDIUM, L-LOW
INVENTORY MANAGEMENT
FUNCTIONAL PROCESS
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FUNCTION MARKETING P. PLANNING DIVISIONAL MATERIALS INTERNATIONAL FORECAST P.PLAN PURCHASE
MATERIALS PROCUREMENTPLANT INDENT SHIPMENT LOGISTICS
ANNUAL BUDGET QUARTERLY MATERIALS ROLLING PLAN PLANT INDENT
QUARTERLY PLAN ONE MONTH MATERIALS FIRM PLANT INDENT
MONTHLY TWO MONTHS MATERIALS 1 MONTH TENTATIVEUPDATING TENTATIVE PLANT INDENT
UPDATED EVERY MATERIALS MONTH PLANT INDENT
SHORT TERMREACTION TO UPDATED EVERY MATERIALS MARKET NEEDS MONTH PLANT INDENT
PROCESS CONSUMPTION LEAD TIME PLANT CAPACITIES STORAGE TRANSPORTNORMS NORMS NORMS NORMS
SHIPPING PERIODSINGLE SOURCE ALL PROCESS PARAMETERSCAMPAIGN CONTRIBUTE FOR DETERMININGCUSTOMS CLR. INVERNTORY NORMS
2 MONTHS FIRM DUE TO LONG LEAD TIME
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INVENTORY MANAGEMENTMEASUREMENT
IN PROCESS OUTPUT
QUALITY: TIMELY DELIVERY. ENSUREUN-INTERRUPTEDPRODUCTION
CYCLE TIME: 3 MONTHS TENTATIVE 2 MONTHS 1 MONTH FIRM TENTATIVE,
1 MONTH FIRM
ASSET UTILIZATION INVENTORY LEVEL RS INVENTORY LEVEL 500 MILLION FOR TURNOVER RS. 250 MILLIONOF RS. 5000 MILLION FOR TURNOVER OF RS. 5000
MILLIONVALUE /COST. HIGH INVENTORY INVENTORY CARRYING
CARRYING COST COST REDUCED OF RS. 125 MILLION TO 50% RS. 62.5 MILLION
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PROCESS: INVENTORY MANGAEMENT
WORK INTERNAL DIRECT FUNCTIONAL GENERICSTEPS OPERATIONS COMPETITORS LEADERS PROCESS
MARKET FORECAST REGIONWISE GLAXO HINDUSTAN LEVER GEERAL ELECTRICINFORMATION
ANNUAL PAST BUDGET LILLY HINDUSTAN LEVER GEERAL ELECTRICBUDGET PERFORMANCES
PRODUCTION PAST VARIATION HOECHST HINDUSTAN LEVER GEERAL ELECTRICPLAN AND REASONS
MATERIALS ACCURACY LILLY HINDUSTAN LEVER GEERAL ELECTRICPALN IN SERVICE
MATERIALS FIRM DATA LILLY HINDUSTAN LEVER GEERAL ELECTRICINDENTING EMERGENCY DATA
PLACEMENT PLACEMENT LILLY HINDUSTAN LEVER GEERAL ELECTRICOF ORDERS LEAD TIME
ADHERENCESHIPMENT TO DELIVERIES LUPIN HINDUSTAN LEVER GEERAL ELECTRIC
SHIPMENT QUICKEST LUPIN HINDUSTAN LEVER GEERAL ELECTRICTIME TRANSIT TIME
CUSTOMS DATA ON KOPRAN HINDUSTAN LEVER GEERAL ELECTRICCLEARANCE CLEARNACE TIME
PLANT DELIVERIES INLAND TRANSPORT MAX HINDUSTAN LEVER GEERAL ELECTRICSCHEDULE ADHERENCE
INDUSTRY BEST COMPARISON
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Constraints
Industry data not availableHow to bench mark with the best
questions?Are we on the right track?Can we do still better?
