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Benchmarking and improvement

Thomas Matheus

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• How can operations measure their performance in terms of their five performance objectives?

• How can operations managers prioritize improvement of performance objectives?

• What are the broad approaches for managing the rate of improvement?

Learning outcomes

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• Where does business process engineering (BPR) fit into the improvement activity?

• What techniques can be used for improvement?

Learning outcomes

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• Operations management and improvement

Measuring and improving performance

• Accessing the current state

• What is performance measurement?

Portfolio for evaluating corporate processes

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How operations can measure their performance

Cost

Dependability

FlexibilitySpeed

Quality Cost

Dependability

FlexibilitySpeed

Quality

Market requirements and operations performance change over time

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• Performance measures

Measuring and improving performance

• Performance standards

• Historical standards

• Target performance standards

• Competitor performance standards

• Absolute performance standards

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100

90

80

70

60

50

Absolute performance = 100%

Customer expectation = 98%

Target performance = 95%

Competitor performance = 81%

Now

Per

cent

age

of d

eliv

erie

s on

-tim

e

Performance against customer expectations is POORHistorical performance is GOODPerformance against target is POORPerformance against competitors is GOODAbsolute performance is POOR

Delivery performance is 87% Is this good, bad, or indifferent ?

XX

XX

XX

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• Benchmarking

Measuring and improving performance

• Why benchmarking?

• Origins of benchmarking

• Objectives of benchmarking

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• Types of benchmarking • Internal benchmarking

Measuring and improving performance

• External benchmarking

• Non-competitive benchmarking

• Competitive benchmarking

• Performance benchmarking

• Practice benchmarking

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• Benchmarking as an improvement tool

Measuring and improving performance

• The objectives of benchmarking

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• The role of customers

Improvement priorities

• The role of competitors

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2 - Provide an important advantage with most customers

3 - Provide a useful advantage with most customers

4 - Need to be up to good industry standard

5 - Need to be around median industry standard

6 - Need to be within close range of the rest of the industry

7 - Not usually important but could become more so in future

8 - Very rarely rate as being important

9 - Never come into consideration

For this product group does this performance objective ......

ORDERWINNINGOBJECTIVES

QUALIFYINGOBJECTIVES

LESSIMPORTANTOBJECTIVES

9 Point Importance Scale

1 - Provide a crucial advantage with customers

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PRICE

SERVQUAL (DISN.)

SERVQUAL (ORDER TAKE)

ENQUIRY LEAD-TIME

DROP QUOTE

WINDOW QUOTE

DELIVERY PERFORMANCE

DELIVERY FLEXIBILITY

VOLUME FLEXIBILITY

1 2 3 4 5 6 7 8 9

X

X

X

X

XX

X

X

X

IMPORTANCE to Customers

DOC. SERVICE X

Temperature controlled - Overnight service

1 2 3 4 5 6 7 8 9

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1 - Consistently considerably better than our nearest

4 - Often marginally better than most competitors

For this product group is achieved performance ........

competitor2 - Consistently clearly better than our nearest competitor3 - Consistently marginally better than our nearest competitor

5 - About the same as most competitors

6 - Often close to main competitors

7 - Usually marginally worse than main competitors

8 - Usually worse than most competitors

9 - Consistently worse than most competitors

BETTERTHANCOMPETITORS

SAMEASCOMPETITORS

WORSETHANCOMPETITORS

9 Point Performance Scale

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COST

SERVQUAL (DISN.)

SERVQUAL (ORDER TAKE)

ENQUIRY LEAD-TIME

DROP QUOTE

WINDOW QUOTE

DELIVERY PERFORMANCE

DELIVERY FLEXIBILITY

VOLUME FLEXIBILITY

1 2 3 4 5 6 7 8 9

1 2 3 4 5 6 7 8 9X

X

X

X

XX

X

X

X

PERFORMANCE against Competitors

DOC. SERVICE X

Temperature controlled - Overnight service

Estimated

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betterthan

sameas

worsethan

lessimportant qualifying order

winning

1

2

3

4

5

6

7

8

9

123456789

IMPORTANCEFOR

CUSTOMERSLOW HIGH

PER

FOR

MA

NC

EA

GA

INST

CO

MPE

TITO

RS

GO

OD

BA

D

URGENTACTION

IMPROVE

APPROPRIATEEXCESS ?

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betterthan

sameas

worsethan

lessimportant qualifying order

winning

1

2

3

4

5

6

7

8

9

123456789

IMPORTANCEFOR

CUSTOMERSLOW HIGH

PER

FOR

MA

NC

EA

GA

INST

CO

MPE

TITO

RS

GO

OD

BA

D

Volume Flex X

Drop QuoteX

Delivery XWindow QuoteX

Servqual (DISN)X

Doc Service XXPrice/Cost Delivery

FlexX

XServqual (Order Take)

XEnquiry Lead-Time

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• Two approaches

Approaches to improvement

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Innovation...Short-term, dramaticLarge steps Intermittent Abrupt, volatile Few championsIndividual ideas & effort Scrap and rebuild New inventions/theories Large investment Low effort Technology Profit

• Breakthrough improvement

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Intended performance improvement with breakthrough

improvement

Time

Per

form

ance

Breakthroughimprovements

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Actual performance improvement with breakthrough improvement

Time

Per

form

ance

Actual improvement

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...KaizenLong-term, undramatic

Small steps Continuous, incrementalGradual and consistent

Everyone Group efforts, systematic

Protect and improveEstablished know-how

Low investment Large maintenance effort

People Process

• Incremental improvement

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Performance improvement with continuous improvement

Time

Per

form

ance

“Continuous”improvement

Standardize and maintain

Improvement

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...KaizenLong-term, undramatic

Small steps Continuous, incrementalGradual and consistent

Everyone Group efforts, systematic

Protect and improveEstablished know-how

Low investment Large maintenance effort

People Process

• Incremental improvement

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• Building a continuous improvement capability

Approaches to improvement

• Breakthrough versus continuous improvement • Breakthrough improvement • Continuous improvement

• An analogy

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(a)“Breakthrough” improvement, (b) “continuous” improvement and (c) combined improvement patterns

Perf

orm

ance

Time

Perf

orm

ance

Time

Perf

orm

ance

Time

Planned “breakthrough” improvements

Actual improvement

pattern

Continuous improvement

Combined “breakthrough” and continuous

improvement

(a) (b)

(c)

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• Neverending process of improvement

Improvement cycle models

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Plan Do

CheckAct

(a) The plan-do-check-act, or “Deming” improvement cycle

(a)

Plan

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Define

Measure

AnalyzeImprove

Control

(b)

(b) The define-measure-analyze-improve-control, or DMAIC six sigma improvement cycle

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PDCA Cycle repeated to create continuous

improvement

Time

Per

form

ance

“Continuous”improvement

Plan

Do

Check

Act

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• Radical breakthrough way

Business Process Engineering

• Definition

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Business process re-engineering

Functional structure Process structure

Supp

liers

Cus

tom

ers

Supp

liers

Cus

tom

ers

Func

tion

1

Func

tion

2

Func

tion

3

Process 2

Process 3

Process 1

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• The principles of BPR

Business Process Engineering

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Common techniques for process improvement

Cause-effect diagrams Why-why analysis

Why?

Why?

Why?

Flow charts Scatter diagrams

xx

x x

x xxx

x

x x

Input/output analysis

Input Out put

Pareto diagrams

The procedure for CED