BENCHMARKIN

G
COURSE INSTRUCTOR
MS. PARVICA GUPTA
ASSISTANT PROFESSOR
DEPARTMENT OF MANAGEMENT & COMMERCE
BBA 4TH SEM (UNIT 3)
RBMI, BAREILLY
Benchmarking

 Benchmarking is the continuous process of measuring

one’s own product, services and ac­tivities against the
best level of performance. These best levels of
performance may be found either inside one’s own
organization or in other competing organizations or in
organizations having similar processes.
 Benchmarking uses best practices as the standard for
evaluating activity performance.
 Benchmarking can be seen as the systematic process of
searching for best practices, innovative ideas, and more
productive operating methods.
 Strategic benchmarking helps make sure that improvement
efforts and resources are directed at activities that will move
the organization forward.
 Benchmarking is the process of careful examination of a
company’s success rate by comparing it with its competitors.
 Benchmarking

 Benchmarking is a strategic management approach that organisations use

to gain a competitive edge by comparing their practices, processes, and
performance metrics with those of their industry counterparts or top
performers.
 It’s a powerful tool that allows companies to identify areas for
improvement, set performance targets, and implement effective strategies
to enhance overall organisational performance. By analyzing data and
information obtained from benchmarking partners, businesses can pinpoint
performance gaps and discover best practices that can be adopted.
 In 1992 Ford’s Taurus won over Honda’s Accord and earned a title of the
best-selling passenger car in the United States.
 This is the Ford’s achievement through benchmarking.
 Definitions of
Benchmarking
• “Benchmarking is the continuous process of measuring products,
services, and practices against the toughest competitors or those
companies recognized as industry leaders.” – David Kearns of Xerox
Corporation

• “A process of identifying, understanding and adopting outstanding

practices from within the same organization or from other organizations
to help improve performance.” – Sarah Cook
 History

 In Supply Chain Management (SCM), the history of

benchmarking can be traced back to the late 1970s when Xerox
pioneered the concept by comparing its own production costs
to its Japanese competitors, realizing they were significantly
cheaper,
 Thus initiating the practice of studying other companies to
identify best practices and improve their own operations; the
term "benchmarking" itself was coined by Xerox during this
period.
Benchmarking

 Learning through comparing own position with the best practices

in the world with the aim of identifying and implementing changes
to attain better quality and higher productivity, maximum resource
utilization and reduction in cost, quick delivery of products and
services which ensures efficiency.
 Benchmarking measures the performance of a company's supply
chain by considering quantity, value, and time. Benchmarking
formulates a tangible measure of the efficiency of main processes
in the supply chain and creates a solid foundation for an
organization's performance.
 Benchmarking In Supply Chain
Management
 Benchmarking is a valuable tool in logistics and supply chain
management that helps organizations to measure their performance
against industry best practices and identify areas for improvement.
 Benchmarking involves comparing an organization's processes and
practices with those of its competitors or industry leaders to
identify best practices and potential performance gaps.
 Supply chain benchmarking is defined as the process of collecting
information on good practices in the sector and from industry
leaders to study and adapt them to the reality of your company.
 Objectives of Benchmarking
in SCM

1. Improve operational efficiency: By comparing performance

metrics such as delivery time, cost, and inventory levels against
industry best practices, organizations can identify opportunities to
improve their operational efficiency and reduce costs.
2. Enhance customer service: Benchmarking can help organizations
to identify areas where they can improve their customer service,
such as delivery time, accuracy, and responsiveness.
3. Optimize inventory management: Benchmarking can help
organizations to optimize their inventory management processes by
comparing their inventory levels, turnover, and carrying costs with
industry benchmarks.
4. Identify best practices: By benchmarking against industry leaders, organizations
can identify best practices and implement them to improve their operations and
performance.
5. Cost optimization: Companies use benchmarking to identify areas where they can
reduce costs in their supply chain by analyzing the practices of other companies with
better cost structures.
6. Process improvement: Benchmarking helps identify and implement best practices
in areas like inventory management, logistics, procurement, and delivery times to
improve overall supply chain efficiency.
7. Performance measurement: By comparing their performance against industry
benchmarks, companies can gain insights into their strengths and weaknesses,
enabling them to set realistic goals and track progress.
Main areas for benchmarking and
improving in supply chain management
are:

• Productivity
• Warehouse management and inventory
accuracy
• Shipping/receiving accuracy
• Storage density
• Quality control
 Components/ Types of
Benchmarking

1. Performance benchmarking –Performance benchmarking concentrates on

comparing key performance indicators (KPIs) and metrics across organisations in the
same industry or sector. It enables organisations to understand their relative
performance in terms of productivity, quality, customer satisfaction, and financial
performance. Performance benchmarking assists in setting realistic targets, tracking
progress, and driving continuous improvement.
2. Strategic benchmarking –Strategic benchmarking involves comparing long-term
strategies, goals, and business models of organisations in similar or related industries.
The objective is to learn from successful strategic approaches and identify opportunities
for innovation and differentiation. Strategic benchmarking helps organisations align their
strategic direction, make informed decisions, and adapt to evolving market dynamics.
 Real-world examples of
Performance Benchmarking:
 Retail:
A clothing store can benchmark its sales figures, customer satisfaction scores, and inventory turnover rates
against competitors to improve operations and customer service.
 Manufacturing:
A company can benchmark its production processes against industry leaders to identify areas for
improvement and increase efficiency.
 Healthcare:
Hospitals can compare patient outcomes and treatment effectiveness across different facilities to improve
patient care and outcomes.
 Customer Service:
Call centers can benchmark customer satisfaction ratings, average call duration, and resolution times to
enhance customer service and improve staff motivation.
 Technology:
Tech companies can benchmark product features, battery life, and processing speed against competitors to
develop superior products.
 Real-world examples of Strategic
Benchmarking:

• Walmart's Supply Chain Optimization:

Walmart uses benchmarking to analyze its competitors' inventory management systems and implement more
streamlined approaches, resulting in faster and more accurate order fulfillment and improved customer
satisfaction.
• Coca-Cola's Logistics Planning:
Coca-Cola benchmarks its logistics planning against industry leaders to optimize transport routes, reducing
transportation costs and minimizing carbon emissions.
• Toyota's Production System:
Many automotive companies benchmark Toyota's production system for its efficiency, aiming to replicate its lean
manufacturing practices.
• Amazon's Global Logistics Network:
Amazon has built a vast network of fulfillment centers, sortation centers, and delivery stations worldwide,
allowing them to quickly move goods to areas where they are in high demand, making their supply chain
extremely reactive to customer needs.
 3. Functional benchmarking

• Functional benchmarking focuses on specific functions or processes within an organisation. It involves

comparing similar functions across different industries to discover innovative practices and process
improvements. For instance, a manufacturing company might benchmark its supply chain management
practices against a leading logistics company to enhance efficiency.
Here are some examples:
• Manufacturing: Comparing inventory turnover rates, procurement cycle times, and logistics cost
structures with industry leaders to reduce operational costs and increase efficiency.
• Retail: Comparing sales performance across different store locations can help identify top-performing
stores and replicate their strategies.
• Logistics: A logistics company can benchmark its supply chain against a market leader to uncover
opportunities for faster delivery times or cost reductions through automation.
 4. Competitive Benchmarking

Competitive benchmarking entails comparing an organisation’s performance and practices against direct
competitors in the industry. The purpose is to identify areas where the organisation may be falling behind
and to learn from the best practices of competitors. This type of benchmarking provides insights into
industry standards, customer expectations, and competitive advantages.

Example:- Amazon's Logistics and Inventory Control:

• Benchmarking: Amazon, focused on delivering superior customer service, benchmarked against
Walmart's supply chain prowess to improve its logistics and inventory control.
• Implementation: By studying Walmart's efficient supply chain models, Amazon gained insights to boost
its delivery efficiency and customer satisfaction.
• Outcome: This allowed Amazon to significantly boost its delivery efficiency and heighten customer
satisfaction, reinforcing its position as a leader in the global e-commerce space.
 5. Internal Benchmarking

 This type involves comparing performance and practices within different departments or units of the same
organization. Internal supply chain benchmarking involves comparing performance metrics within a company's
own operations, like comparing different warehouses or departments, to identify best practices and areas for
improvement. Example:-
 Warehouse Performance Comparison: A company with multiple warehouses can compare metrics like order
fulfillment time, inventory accuracy, and shipping costs across different locations to identify the most efficient
warehouse and replicate its best practices.
 Inventory Management Comparison: Different departments or divisions within a company can benchmark
their inventory management practices, such as inventory turnover rate, stockout rates, and carrying costs, to
identify areas for improvement.
 Transportation Cost Analysis: A company can benchmark its transportation costs across different modes of
transport (e.g., truck, rail, air) and routes to identify the most cost-effective options and improve logistics
efficiency.
 Benchmarking Process

 1. Define the Focus: Clearly identify the specific area or process

that you intend to benchmark. Whether it’s a particular function
within your organisation or a specific aspect of your industry, having
a clear focus will ensure a targeted approach to improvement.

 2. Select Benchmarking Partners: Identify organisations that

excel in the chosen area and can serve as valuable benchmarks. Look
for both direct competitors and companies from different industries
known for their best practices. This diverse selection will provide a
broader perspective and fresh insights for your improvement efforts.
 3. Gather Data and Information: Collect relevant data and
information from your benchmarking partners. Employ various methods
such as surveys, interviews, site visits, or accessing publicly available
reports. It’s crucial to ensure the accuracy and comprehensiveness of
the data, focusing specifically on the benchmarks you have identified.
 4. Analyze and Compare: Analyze the collected data and compare it
with your organisation’s own performance. Identify gaps and differences
in processes, practices, and performance metrics. This analysis will
enable you to gain a deeper understanding of areas for improvement
and learn from the best practices of your benchmarking partners.
 5. Set Performance Targets: Based on the insights gained from the
benchmarking analysis, establish specific performance targets and
goals for your organisation. These targets should be challenging yet
attainable, aligning closely with your strategic objectives. Clear
targets provide a roadmap for your improvement efforts.
 6. Develop an Action Plan: Create a comprehensive action plan
that outlines the specific steps and initiatives required to bridge
performance gaps and achieve the set targets. Ensure the action plan
includes well-defined timelines, assigned responsibilities, required
resources, and key milestones. Tailor the plan to suit the unique
needs and capabilities of your organization.
 7. Implement and Monitor: Put your action plan into motion and execute
the identified improvements within your organization. Regularly monitor
progress, tracking relevant performance indicators and metrics tied to your
benchmarking focus. Ongoing monitoring allows for timely assessment of
the effectiveness of implemented changes and enables necessary
adjustments if required.
 8. Learn and Iterate: Benchmarking is an iterative process that fosters
continuous learning and improvement. Evaluate the outcomes of the
implemented changes, draw insights from the results, and identify
additional areas for enhancement. Leverage the knowledge gained through
benchmarking to refine your processes, practices, and overall performance.
 Advantages of Benchmarking

 Performance Enhancement: Benchmarking enables organisations to

compare their practices, processes, and performance metrics against
industry leaders or competitors. This analysis highlights areas for
improvement, allowing organisations to implement best practices and
enhance their operational efficiency, product quality, customer satisfaction,
and overall performance.
 Competitive Edge: By benchmarking, organisations can identify unique
strategies and practices that provide a competitive advantage. Learning
from the successes of others and incorporating industry-leading approaches
enables organisations to differentiate themselves in the market and stay
ahead of competitors.
 Fostering Innovation and Learning: Benchmarking nurtures a culture of
continuous improvement, learning, and innovation within organisations.
By studying best practices and emerging trends, businesses can generate
fresh ideas, drive innovation, and improve their processes and products.
 Informed Strategic Decision-Making: Benchmarking provides objective
data and insights that inform strategic decision-making. It helps
organisations allocate resources effectively, prioritize process
improvement initiatives, and position themselves in the market based on
industry best practices.
 Customer Focus: Benchmarking allows organisations to understand
customer expectations and evaluate their performance in delivering
products or services. By benchmarking customer service practices and
satisfaction levels, organisations can identify areas for improvement and
enhance the overall customer experience, leading to increased loyalty.
 Collaboration and Networking: Benchmarking often involves
collaboration and networking with external organisations. By engaging
in benchmarking initiatives, organisations can build valuable networks,
establish partnerships, and share knowledge with industry peers. Such
collaborations foster innovation and provide insights through shared
experiences.
 Driving Organisational Change: Benchmarking challenges the
status quo and promotes a culture of continuous improvement
within organisations. It encourages organisational change by
presenting tangible evidence and demonstrating the benefits of
adopting new practices or processes.
 Effective Performance Measurement: Benchmarking provides
a framework for measuring performance against industry
standards and key performance indicators (KPIs). It enables
organisations to establish meaningful performance metrics and
track progress over time, ensuring they stay on course to achieve
their goals.
 Disadvantages of Benchmarking

 Inappropriate or Irrelevant Comparisons: One key pitfall is selecting benchmarking

partners or metrics that are not directly applicable to the organisation’s specific context.
It’s crucial to ensure that the comparisons being made are meaningful and aligned with
the organisation’s goals and industry.
 Lack of Internal Assessment: Before engaging in benchmarking, organisations must
conduct a thorough internal assessment of their own processes and practices. Failing to
understand and address internal issues can lead to misguided benchmarking efforts and
ineffective improvements.
 Blind Adoption of Best Practices: While benchmarking aims to identify best practices,
blindly adopting them without considering the organisation’s unique circumstances can
be problematic. Each organisation has its own culture, resources, and objectives, and it’s
crucial to evaluate and adapt best practices to fit these specific factors.
 Excessive Competitor Focus: While understanding and
learning from competitors is important, becoming overly fixated
on them can limit the perspective. It’s valuable to explore
benchmarking partners from different industries or sectors who
may offer innovative practices and insights.
 Absence of Clear Action Plans: Benchmarking should not stop
at identifying performance gaps or best practices. It’s essential
to develop clear and actionable plans for implementing
improvements. Without a well-defined action plan, the
benchmarking exercise may yield limited or no tangible results.
 Exam Readiness
1. What is not benchmarking?
a) Systematic search for best practices
b) Systematic search for innovative ideas
c) Systematic search for highly effective operating procedures
d) Systematic search for imitating competitors.
2. Defining a proper metric for performance comparison is important in benchmarking.
a) True.
b) False
3. Benchmarking requires managers who understand the reasons for performance variation.
a) True.
b) False
4. Benchmarking is used by organizations as a ________ tool.
a) Intermittent improvement
b) Discontinuous improvement
c) Continuous improvement
d) Sporadic improvement
 Exam Readiness

5. Company A manufactures 10 defective products on an average out of 1000 products manufactured. Company B manufactures
5 defective products on an average out of 1000 products manufactured. Which company must be chosen for benchmarking and
by whom?
a) B should choose A as benchmark
b) A should choose B as benchmark.
c) Both are equally efficient
d) Concept of benchmarking is not applicable here

6. Benchmarking involves ________ between the performance level of the organization with its benchmark.
a) Increasing the gap
b) Reducing the gap.
c) Opening the gap
d) Broadening the gap

7. Benchmarking is used extensively in __________

a) Manufacturing organizations only
b) Service organizations only
c) Manufacturing and service organizations
d) Government institutions only
 Exam Readiness

8. In which form of benchmarking is comparison of a business process done with a similar process
within the organization?
a) Internal benchmarking
b) Competitive benchmarking
c) Functional benchmarking
d) Generic benchmarking
9. Which of the following is not an advantage of internal benchmarking?
a) Low cost
b) High cost
c) Relatively easy
d) Deeper understanding of all the processes of the organization
10. Which of the following is not a challenge to internal benchmarking?
a) Low performance improvement
b) Internal bias
c) It may not provide best-in-class comparison
d) High performance improvement
 Exam Readiness

11. In which form of benchmarking is direct comparison with competitor done of

a product, service, process or method?
a) Internal benchmarking
b) Competitive benchmarking
c) Functional benchmarking
d) Generic benchmarking
12. In which form of benchmarking is comparison of similar or identical
practices within same or immediate industry is done?
a) Internal benchmarking
b) Competitive benchmarking
c) Functional benchmarking
d) Generic benchmarking