Six Sigma Benchmarking

Client, Enterprise & Competitive Intelligence for Product, Process & Systems Innovation

Dr. Rick L. Edgeman, University of Idaho

Six Sigma

IXCUSTOMER & COMPETITIVE INTELLIGENCE

FOR SYSTEMS INNOVATION & DESIGN

S IGMAS DEPARTMENT OF

STATISTICSDR. RICK EDGEMAN, PROFESSOR & CHAIR – SIX SIGMA BLACK BELT

[email protected] OFFICE: +1-208-885-4410



Six Sigma

IXS IGMAS DEPARTMENT OF

STATISTICS

Benchmarking



Six Sigma

IXS IGMAS

DEPARTMENT OF

STATISTICS

a highly structured strategy for acquiring, assessing, and applying customer, competitor, and enterprise intelligence for the purposes of product, system or enterprise innovation and

design.



Six Sigma

Six Sigma Strategy and Methods

Managing Six Sigma Projects: Benchmarking from a Six Sigma Perspective



Six Sigma The Analyze Phase of DMAIC: Define Performance Objectives

Defects

p(x) Benchmark

Z short-termBaseline

Benchmark: World-class performance

Z short-term: The level of performance a business should be able to achieve given the investments already made

Baseline:The current level of performance

Benchmarking sets the ultimate goal, while baselining takes current measurements to monitor a process

Benchmarking sets the ultimate goal, while baselining takes current measurements to monitor a process



Six SigmaDefine Improvement

Objective For Y• Z Short-term: Short-term performance of the process

• Benchmarking: Get to best-in-class

• Learning Curve-Based: Get to 6 Sigma across all processes in 5 years

• Defect Reduction: e.g., eliminate 90% of defects

Sigma Scale of Measure

1

10

100

1000

10000

100000

1000000

Your ProcessYour Process

Improvement Objective

Improvement Objective

1 2 3 4 5 6

The Basic ObjectiveThe Basic Objective

Six Sigma Teams Set Aggressive, but Achievable

Objectives.



Six Sigma

Actual (LT) Potential (ST)

0.7700.7690.7680.7670.766

Process Performance

USLLSL

Actual (LT) Potential (ST)

1,000,000

100,000

10,000

1000

100

10

1

3002001000

Potential (ST)Actual (LT)

Sigma

PPM

(Z.Bench)

Process Benchmarks

0

3.42

309

6.00

Process Demographics

Opportunity:

Nominal:

Lower Spec:

Upper Spec:

Units:

Characteristic:

Process:

Department:

Project:

Reported by:

Date:

Report 1: Executive Summary

Process Capability



Six Sigma

BenchmarkingBenchmarking is the process of continually searching for the best methods, practices and processes, and either adopting or adapting their good features and implementing them to become the “best of the best.”

How is benchmarking used?• Compare performance of an existing process against other companies’ best-in-class practices• Determine how those companies achieve their performance levels• Improve internal performance levels

Use benchmarking both for comparison of performance as well as to understand the potential

for improvement

Use benchmarking both for comparison of performance as well as to understand the potential

for improvement



Six Sigma

Types of BenchmarkingCompetitive BenchmarkingFunctional Benchmarking

Internal BenchmarkingProduct BenchmarkingProcess Benchmarking

Best Practices BenchmarkingStrategic Benchmarking

Parameter Benchmarking



Six Sigma

Competitive

• Industry leaders• Top performers with

similar operatingcharacteristics

Functional

• Top performersregardless of industry

• Aggressive innovatorsutilizing newtechnology

Internal

• Top performers within company

• Top facilities within company

Best PracticeOverlap

Benchmarking Methodology



Six Sigma

Benchmarking Is… A continuous process A process of investigation that provides valuable

information A process of learning from others; a pragmatic

search for ideas A time-consuming, labor-intensive process

requiring discipline A viable tool that provides useful information for

improving virtually any business process



Six Sigma

Benchmarking MethodologyChecklist

1. Identify Process to Benchmark

Select process and define defect and opportunities

Measure current process capability and establish goal

Understand detailed process that needs improvement



Six Sigma

Benchmarking Methodology2. Select Organization to

Benchmark Outline industries/functions which perform

your process Formulate list of world class performers Contact the organization and network

through to key contact



Six Sigma

Benchmarking Methodology3. Prepare for the Visit

Research the organization and ground yourself in their processes

Develop a detailed questionnaire to obtain desired information

Set up logistics and send preliminary documents to organization



Six Sigma

Benchmarking Methodology4. Visit the Organization

Feel comfortable with and confident about your homework

Foster the right atmosphere to maximize results Conclude in thanking organization and ensure

follow-up if necessary



Six Sigma

Benchmarking Methodology5. Debrief and Develop an Action

Plan Review team observations and compile report

of visit Compile list of best practices and match to

improvement needs Structure action items, identify owners and

move into Improve phase



Six Sigma

Benchmarking Methodology6. Retain and

Communicate Report out to business management and 6σ leaders

Post findings and/or visit report on local server/6σ bulletin board

Enter information on GE Intranet benchmarking project database



Six Sigma

Library Database Internal Reviews

Internal Publications Professional Associations

Industry Publications Special Industry Reports

Functional Trade Publications Seminars

Industry Data Firms Industry Experts

University Sources Company Watches

Newspapers Advertisements

Newsletters Original Research

Customer Feedback Supplier Feedback

Telephone Surveys Inquiry Service

Networks World Wide Web

Sources of Information



Six SigmaBenchmarking Compliance

Policy regarding benchmarking protocol should be communicated to all employees involved, prior to contacting external organizations. Guidelines should address the following areas:

Misrepresentation – do not misrepresent your identity in order to gather information Information requests – a request should be made only for information your organization would be willing to share with another company Sensitive / proprietary information – avoid direct benchmarking of sensitive or proprietary information Confidentiality – treat all information as confidential



Six SigmaBenchmarking

Compliance Avoiding inappropriate communication and contacts with competitors

Never propose, enter, or engage in a discussion related to any agreements with a competitor to fix prices, in terms or conditions of sale, costs, profit margins, or other aspects of the competition

Keep communications with competitors to a minimum – make sure there is a legitimate business reason for all such communications




Compliance Consult with business legal counsel before initiating any contact with competitors regarding Six Sigma (or any other topic):

Benchmarking

Training of suppliers and customers – they may also be competitors

Comply with GECS guidelines for:

Documenting competitor contacts – check with legal counsel first.

Participating in trade associations and standards - setting groups.



Six Sigma

Benchmarking

Best Practices, Processes & Products



Six Sigma

Customers are Increasingly Demanding

Customer expectationsare simple. They want more goodsand services at a lower cost, in a

shorter time frame, withmore information!



Six Sigma

Customer Expectation Dilemma

Time

Perf

orm

an

ce

Expecta

tions

Continuous Improvement

Performance Gap



Six Sigma

Benchmarking(A) The process of identifying and learning from best practices anywhere in the world is a powerful tool in the quest for continuous improvement.

(B) The systematic process of searching for best practices, innovative ideas, and highly effective operating procedures that lead to superior performance.

Learning by borrowing from the best and adapting their approaches to fit your own needs is the essence of benchmarking. It has broad applications in problem solving, planning, goal setting, process improvement, innovation, reengineering, and strategy setting. It is a fundamental business skill that supports quality excellence.



Six SigmaBenchmarks & Benchmarking:Ideas & Definitions Benchmarking: is the on-going search for best practices that

produce superior performance when adapted and implemented in one’s own organization.

Emphasis: On-going outreach activity Goal: Identification of best operating practices When Implemented: Produces superior performance. Benchmarking: is the actual process of investigation and

discovery that emphasizes the operating procedures as the things of greatest interest and value.

Benchmarks: are measurements to gauge the performance of a function, operation, or business relative to others.



Six Sigma

Best Practices - the Ends

Enablers - the Means to the Ends

SOFT MEDIUM HARD

Training

Communication

Empowerment

Attitude

ManagementInvolvement

Goals & Objectives

Sequence

Controls

Measures

Policies &Procedures

Plant

Suppliers

Money

Technology

Equipment



Six Sigma

Benchmarks & Benchmarking:Managing Change

• Best Practices Benchmarking can be described as the process of seeking out and studying the best internal and external practices that produce superior performance.– Don’t reinvent what others have learned to do better!– Borrow shamelessly!– Adopt, adapt, advance!– Imitate creatively!– Adapt innovatively!



Six Sigma

Benchmarking for Best Practices

Metrics

Benchmarks

OperatingStatistics

Processes

Best Practices

Benchmarking

Practices



Six Sigma

Process

Benchmarking• Process benchmarking focuses on discrete work

processes and operating systems, such as the customer complaint process, the order-and-fulfillment process, or the strategic planning process.

• Process benchmarking seeks to identify the most effective operating practices from many companies that perform similar work functions.

• Its power lies in its ability to produce bottom-line results. If an organization improves a core process, for instance, it can then quickly deliver process improvement



Six SigmaPerformance

Benchmarking• Performance benchmarking enables managers to

assess their competitive positions through product and service comparisons.

• Performance benchmarking usually focuses on elements of price, technical quality, ancillary product or service features, speed, reliability, and other performance characteristics.

• Reverse engineering, direct product or service comparisons, and analysis of operating statistics are the primary techniques applied during performance benchmarking.



Six Sigma

Strategic

Benchmarking• Strategic benchmarking examines how companies compete and is seldom industry-focused. It roves across industries seeking to identify the winning strategies that have enable high-performing companies to be successful in their marketplaces.

• Strategic benchmarking influences the longer-term competitive patterns of a company. Consequently, the benefits may accrue slowly.



Six Sigma

Applications &

Benefits Setting & Refining Strategy; Reengineering Work Processes & Business Systems; Continuous Improvement of Work Processes &

Business Systems; Strategic Planning & Goal Setting; Problem Solving; Education and Idea Enrichment; Market Performance Comparisons & Evaluations; Catalyst for Change.



Six Sigma

Widely AcknowledgedBenchmarking Benefits

• Improves organizational quality;• Leads to lower cost positions;• Creates buy-in for change;• Exposes people to new ideas;• Broadens the organization’s operating perspective;• Creates a culture open to new ideas;• Serves as a catalyst for learning;• Tests the rigor of internal operating targets;• Creates an external business view;• Raises the organization’s level of maximum potential

performance.



Six Sigma

Benchmarking

Code of Conduct



Six SigmaThe Benchmarking Code of

Conduct:Adopted by The Council on Benchmarking

of The Strategic Planning InstituteSuccessful Benchmarking Includes Personal Interaction,

Openness, Sharing and the Transfer of Information.

Trust Between Benchmarking Parties is Fundamental.

To Respect the Rights and Prerogatives of Others and Reflect Legal Considerations and Limitations, the Following

Guidelines are Suggested for any Benchmarking Interaction.



Six Sigma

Benchmarking:

Legal & Ethical Guidelines• Ethics

– Principles, guidelines, or standards that determine a protocol of interaction between individuals and organizations.

– Deal in a forthright & above board manner.– Provide for a clear understanding of the intended use of

information. Consult your partner(s) should your intent change.

– Conduct benchmarking activities with integrity and in a professional manner. Establish specific ground rules in advance, particularly when benchmarking with a competitor.



Six Sigma

Benchmarking:

Legal & Ethical Guidelines• Legality

– Never misrepresent yourself or your organization’s interest in a benchmarking exchange.

– Treat information obtained from a benchmarking partner as privileged. Identify all parties who will have access and the extent of that access.

– Comply with antitrust laws; be aware of potentially sensitive issues and consult with legal counsel if gathering procedure is in doubt, particularly if dealing with current or potential competitors.



Six Sigma• Legality: Proprietary Information• Any information (in tangible or intangible form) created, acquired

or controlled by the company that has not been published or released without restriction of a type the company wishes to maintain confidential. Proprietary information includes various kinds of technical, information per Securities & Exchange Commission requirements.– Request and accept only the types and levels of information

that you and your organization are willing to share.– Understand your and your partner organizations definitions,

restrictions, and controls on proprietary information.– Respect the sensitivity of partner organizations in areas that

you might not consider proprietary.– Seek prior understanding about what can be shared and / or

how it might be used.– Consult legal counsel on restrictions or rights regarding

proprietary information.Benchmarking: Legal & Ethical Guidelines



Six Sigma• Legality: Intellectual Property• Refers to the kind of property created from intellectual activities

in the industrial, scientific, literary, or artistic fields. It includes business and technical information (e.g. scientific works, inventions, industrial designs, computer programs) and the material that might lead to patents, copyrights, trademarks, service marks, and commercial names or designations.– Know the internal organization source for any information that

your organization plans to provide in a benchmarking exchange.

– Understand the nature and value of your organization’s intellectual property. Respect the values of your benchmarking partner.

– Seek prior understanding about what can be shared and how it might be used.

– Consult legal counsel on restrictions or rights regarding intellectual property.

Benchmarking:

Legal & Ethical Guidelines



Six Sigma

Benchmarking:

Legal & Ethical GuidelinesConclusion

Knowing the nature of the benchmarking topic, dealing ethically and legally, understanding information exchange latitudes, and

following the Benchmarking Code of Conduct

will contribute to a successful and mutually beneficial benchmarking interchange.



Six Sigma

PRINCIPLES• To contribute to efficient, effective and ethical benchmarking,

individuals agree for themselves and their organization to abide by the following principles for benchmarking with other organizations:

• LEGALITY: Avoid discussions or actions that might lead to or imply an interest in restraint of trade: market or customer allocation schemes, price fixing, dealing arrangements, bid rigging, bribery, or misappropriation. Do not discuss costs with competitors if costs are an element of pricing.

• EXCHANGE: Be willing to provide the same level of information that you request, in any benchmarking exchange.

The Benchmarking Code of Conduct:Adopted by The Council on Benchmarking of

The Strategic Planning Institute



Six Sigma

PRINCIPLES• CONFIDENTIALITY: Treat benchmarking interchange as something

confidential to the individuals and organizations involved. Information obtained must not be communicated outside the partnering organizations without prior consent of participating benchmarking partners. An organization’s participation in a study should not be communicated externally without their permission.

• USE: Use information obtained via benchmarking partnering only for the purpose of improvement of operations within the partnering companies themselves. External use or communication of a benchmarking partner’s name with their data or observed practices requires permission of that partner. Do not, as a consultant or client, extend one company’s benchmarking study findings to another without the first company’s permission.The Benchmarking Code of Conduct:

Adopted by The Council on Benchmarking of The Strategic Planning Institute



Six Sigma

PRINCIPLES• FIRST PARTY CONTACT: Initiate contacts, whenever possible,

through a benchmarking contact designated by the partner company. Obtain mutual agreement with the contact on any hand off of communication or responsibility to other parties.

• THIRD PARTY CONTACT: Obtain an individual’s permission before providing their name in response to a contact request.

• PREPARATION: Demonstrate commitment to the efficiency and effectiveness of the benchmarking process with adequate preparation at each process step; particularly at initial partnering contact.

The Benchmarking Code of Conduct:Adopted by The Council on Benchmarking of the

Strategic Planning Institute



Six Sigma



Remember• 1. Keep it legal;• 2. Be willing to give what you get;• 3. Respect confidentiality;• 4. Keep information internal;• 5. Use benchmarking contacts;• 6. Don’t refer without permission;• 7. Be prepared at initial contact.



Six Sigma Etiquette & Ethics• In actions between benchmarking partners, the emphasis is on

openness and trust. The following guidelines apply to both partners in a benchmarking encounter.– In benchmarking with competitors, establish specific ground

rules up front, e.g. “We don’t want to talk about those things that will give either of us a competitive advantage, rather, we want to see where we both can mutually improve or gain benefit.”

– Do not ask competitors for sensitive data or cause the benchmarking partner to feel that sensitive data must be provided to keep the process going.

– Use an ethical third party to assemble and blind competitive data, with inputs from legal counsel, for direct competitor comparisons.The Benchmarking Code of Conduct:




Six Sigma

Etiquette & Ethics– Consult with legal counsel if any information gathering

procedure is in doubt, e.g., before contacting any direct competitor.

– Any information obtained from a benchmarking partner should be treated as internal, privileged information.

– DO NOT:• Disparage a competitor’s business or operations to a

third party.• Attempt to limit competition or gain business through

the benchmarking relationship.• Misrepresent oneself as working for another employer.





Six Sigma

Benchmarking Exchange Protocol• As the benchmarking process proceeds to the exchange of

information, benchmarkers are expected to:– Know and abide by “The Benchmarking Code of Conduct”.– Have basic knowledge of benchmarking and follow a

benchmarking process.– Have determined what to benchmark, identified key performance

variables, recognized superior performing companies, and completed a rigorous self-assessment.

– Have developed a questionnaire and interview guide, and will share these in advance if requested.

– Have the authority to share information.– Work through a specified host and mutually agree on scheduling

and meeting arrangements.The Benchmarking Code of Conduct:Adopted by The Council on Benchmarking of




Six Sigma

Benchmarking Exchange Protocol: Guidelines for Face-to-Face Site Visits• Provide meeting agenda in advance.• Be professional, honest, courteous, and prompt.• Introduce all attendees and explain why they are present.• Adhere to the agenda: maintain focus on benchmarking issues.• Use language that is universal, not one’s own jargon.• Do not share proprietary information without prior approval, from the

proper authority, of both parties.• Share information about your process, if asked, and consider sharing

study results.• Offer to set up a reciprocal visit.• Conclude meetings and visits on schedule.• Thank the benchmarking partner for the time and for the sharing.The Benchmarking Code of Conduct:




Six Sigma

Benchmarks & Performance Measurement

Revolutions begin long before they are officially declared.

For several years, senior executives in a broad range of industries have been rethinking how to measure the

performance of their businesses.

At the heart of this revolution lies a radical decision: to shift from treating financial figures as the foundation

for performance measurement to treating them as one among a broader set of measures.

Professor Robert Eccles, Harvard Business School



Six Sigma

Benchmarking Whys &

Hows• Benchmarking represents a versatile process management tool that helps organizations identify and understand what constitutes best operating practices.

• Benchmarks are the operating statistics or measures that define the achievement level of any given practice or system.

• These are not in and of themselves enough since they provide no insight into the root causes of performance differences.

• A flexible set of benchmarks reflects full process or system capabilities. Performance indicators may include dimensions such as cost, productivity, cycle time, yields, error rates, waste and turnover.



Six Sigma

Range of

Benchmarks FOCUS Benchmark Levels Type Improvement

Benefit

STRATEGIC Best-in-World 7 Generic Processes 30%* Product / Services* Business Processes* Business Function

Best-in-Country 6 Functional Areas 30%-40%

PERFORMANCE Industry Leader 5 Direct Competitor 15%-20%* Customer Satisfaction Norm 4 * Output : Standard 3 --Products & Services

PROCESS Best-in-Company 2 Internal15%* Practices & Capability* Inputs: -- Material/Supplier Baseline 1



Six SigmaLessons from Active

Benchmarkers• 1. Do not strive to benchmark everything at best-in-country or best-in- world levels:

No company can be best in every function -- focus on processes and practices of strategic importance.

• 2. Seek best-in-class benchmarks for core processes and functions of the highest strategic importance: the Pareto Principle wins again. Other benchmarks can come from levels 2 through 5. World and country leadership benchmarks require greater time, resources and effort to develop.

• 3. Seek internal, regional, or industry benchmarks for secondary and support processes: for some processes and business activities that are not critical to the organization’s strategic advantage, internal, regional or competitive benchmarks may be most appropriate. Such benchmarks produce incremental improvements that are substantial -- even if not radical or ‘breakthrough’ in terms of the size of the expected improvement benefits.



Six Sigma

Benchmarking Architecture

Performance Measures



Six Sigma

Dashboard of New Performance Measures

CapitalExpenditures

Costs

Profitability

Cashflow

SalesLiabilities

Assets

Debt

QualityCustomerRetention

Training

CustomerSatisfaction

DefectRates

CycleTime

ReferralRates

EmployeeRetention



Six Sigma

Designing Successful Benchmarks:Effective Performance Benchmarks Reflect the Most Important

Operating Dimensions of a Business Process, System, or Function.

• MEASUREMENT FOCUS – Determine where in a work area or process that value for the customer is created;– Determine where value is detracted through high costs, errors, rework, or accidents; and– Target benchmarks in areas where performance diverges from designated standards, or where variation

above and below standards is greatest.

• MEASUREMENT PERSPECTIVE– Leading indicators foreshadow or anticipate future system outcomes. Leading indicators are thus

“proactive” or “preventative”.– Lagging indicators such as traditional financial measures are “reactive” or “descriptive” of the actual

results of a system or process in a given time period.– Traditional companies employ lagging indicators while high-performance companies embrace

both types since leading indicators intervene upstream.



Six Sigma

• MEASUREMENT CONTROL– People are always the principal factor affecting the degree of measurement control. Managers

fail at performance improvement when they evaluate individual or system performance using benchmark measures that are uncontrollable by the people overseeing the process.

– Therefore benchmarks that are designed for performance improvement must be crafted to reflect the individual level of authority, responsibility, and skills of those people expected to work with the benchmarks.

• DATA COLLECTION– After defining performance measures, managers must be able to readily collect the data from

which performance benchmarks are constructed.– Many organizations develop interesting performance measures only to discover that they

currently do not collect the required information and do not have the resources to do so. – The best performance benchmarks can be collected without excessive investment of time,

systems, staff, or capital.

Designing Successful Benchmarks



Six SigmaA Benchmark Design

ArchitectureThe first step in designing a performance

benchmark system is to create measures that will enable management to achieve the organization’s strategic objectives.

The second step in designing a benchmark architecture requires managers to create an agreed upon vocabulary describing performance measurement in your organization.

The third step is to develop plans to collect, process, and analyze the performance measures.



Six SigmaDesigning a Benchmark

Architecture:Ten Generic Benchmark Categories

• Customer-service performance;

• Product / service performance;

• Core business process performance;

• Support processes and services performance;

• Employee performance;

• Supplier performance;

• Technology performance;

• New product / service development and innovation performance;

• Cost performance;

• Financial performance.



Six SigmaCustomer-Service Performance Measures:

The Best Customer-Related Measures Come from Objective and Valid Data Collected Directly from

Customers Customer-service performance measures typically probe organizational performance in the following areas:

Overall Customer Satisfaction with Products & Services; Customer Evaluations of Sales & Service Representatives; Customer Assessments of Your Organization’s Understanding of

Customer Needs; Customer Ratings of How Clearly Your Organization Communicates Cost

Information & How Well the Organization Suggests Customer Solutions Customer Appraisals of Delivery Timeliness; Customer Impressions About the Usefulness of Your Organization’s

Product & Service Documentation; Customer Feelings Concerning How Easy it is to Conduct Business with

Your Organization; The Value Customers Place on Your Organization’s Products & Services.



Six Sigma

Product / ServicePerformance Measures

Product & Service Performance BenchmarksInclude Measures of:

Accuracy, Reliability, Timeliness, Order Ease, Delivery, Packaging, Ease of Assembly & Use, Documentation, Billing, After-Sales Service, and Effective Complaint Management.

These May Also Include:Warranty Exchanges and Returns,

Unit Productivity & Cost, Cycle Time for Key Intervals,and Market Share.



Six Sigma

Business ProcessPerformance Measures

A simple process analysis model can help identify your organization’s most

important workflows. This model reveals that all work can be viewed in

four sequential stages:

1. Inputs (including those from both employees & suppliers);2. Processes (including internal operations & support services);

3. Outputs (your organization’s products, services, and documentation); and

4. Customer Satisfaction.

In the following graphic (the input-output process model) we begin with inputs that can

be tangible (such as supplies, raw materials, and component products) or intangible (such as information) which are delivered to the work process,

which transforms them into some final output which might be a product or service. The goal of the output is to create satisfied and loyal customers.



Six Sigma

Input-Output Process Model

Products

Services

Documentation

Results

Design of Products/Services

Production of Products

Performance of Services

Delivery ofProducts/Services

People

Raw Materials

Components

CustomerRequirements

Capital

CustomerNeeds

Satisfied

CustomerProblems

Solved

CustomerRequirements

Met

Inputs Processing Outputs Customers



Six SigmaCommon Performance Measures of

theInput-Out Process Analysis Model

* Enhanced customer value - often observed through added product features or reduced costs;

* Production costs, frequently described as cost per 100, 1000 or million;* Responsiveness and / or process cycle time;

* Defect, error, waste, problem, or failure rates, often formatted asdefects per 1000 or million output units;

* Productivity & resource utilization, often reflected in transactions perperson, inventory turn rates, or projects operating within budget;

* Public safety and / or legal responsibilities, sometimes observed in accident rates, employee absentee rates, regulatory citations, or litigation rates.



Six Sigma

Examples of Key Business Processes

IBM Xerox British Telecom

Marketing Information Capture;

Marketing Selection;

Requirements;

Hardware/Software Development;

Service Development;

Production;

Customer Fulfillment/ Relationship;

Service Customer Feedback;

Marketing;

Solution Integration;

Financial Analysis;

Plan Integration;

Accounting;

Human Resources

IT Infrastructure

Customer Engagement;

Inventory Mgt. & Logistics;

Product Design / Engineering;

Product Maintenance;

Technology Maintenance;

Production & Operations Mgt.

Marketing Management;

Supplier Management;

Information Management;

Business Management;

Human Resources Management;

Leased & Capital Asset Mgt.

Legal;

Financial Management.

Direct Business;

Plan Business;

Develop Processes;

Manage Process Operations;

Provide Personnel Support;

Market Products & Services;

Provide Customer Service;

Manage Products & Services;

Provide Consultancy Services;

Plan the Network;

Operate the Network;

Provide Support Services;

Manage Information Resource;

Manage Finance;

Provide Technical R&D



Six Sigma

Support Processes / Services

Performance Measures

Support services are activities and operations that enable your organization’s core production

and delivery processes.

They include functions such as finance, software services, marketing, public relations, information

services,purchasing, legal services, and facilities

management.

Examples for various areas follow.



Six Sigma

Performance Measure

ExamplesAccountingPercentage of Late Payments

Time to Respond toCustomer Requests

Number of Billing Errors

Number of Payroll Errors

PurchasingPurchase Order Errors

Downtime Due to Shortages

Excess Inventory

Cycle Time (from start ofpurchase to receipt in-house)

Information ServicesNumber of Errors / Code Line

Percent of Reports Receivedon Schedule

Number of Rewrites

Number of Errors Found AfterSystem Accepted by Customer

Product EngineeringProject Completion Cycle Times

Engineering Changes/ Document

Number of Errors Found DuringDesign Review

Number of Errors Found inDesign Evaluation

Quality ControlPercentage of Lots Rejectedin Error

Number of Engineering ChangesDetected After Design Review

Errors in Reports

Cycle Time for Corrective Action

MarketingAccuracy of ForecastAssumptions

Number of IncorrectOrder Entries

Overstocked Field Supplies

Contact Errors



Six Sigma

Employee Performance

Measures Employee Performance Benchmarks Cover a Wide Range of Employee Activities that May Include:

Employee Development; Employee Education;Employee Empowerment; Employee Recognition;Employee Recruitment; Employee Absenteeism;Employee Turnover; Employee Grievances;Employee Safety/Accidents; Employee Involvement;Employee Morale; Employee Performance Appraisal;Employee Promotion;Employee Succession Planning.



Six SigmaTechnology & Innovation

RelatedPerformance MeasuresTechnology-related measures reflect the productivity,

deployment, and effective use of computers and other technology in an organization.

Measure range broadly from processing speeds, deployment percentages, network down time and error rates.

In turn, innovation-related performance indicators reflect issues such as product development times, employees’ suggestion rates, new product sales as a percent of total sales, and process improvement rates.



Six Sigma

Supplier Performance

MeasuresSupplier performance measures help an organization qualify or certify the vendors with which it will work.

These benchmarks then help the organization monitor and manage on-going supplier performance.

Supplier performance metrics often include measures of cost, quality, reliability, speed or responsiveness, agreed-upon service levels, and product specifications.



Six SigmaCost Performance

MeasuresCost performance measures are broad and flexible. They include balance sheet liability requirements and information drawn from cost centers throughout the organization.

Companies can develop useful benchmarks by producing cost ratios for specific products, services, organizational units, processing steps, inputs, and labor.

A mortgage company, for instance, might use such measures as cost per loan application, cost per loan processing,human resources cost per loan, data processing costs per 100 bills, and service cost per loan.



Six Sigma

Financial Performance

MeasuresFinancial measure include performance indicators required by stock exchanges, security analysts, public accounting firms, regulatory agencies, and other organizations that may oversee reporting standards in your organization’s industry.

Many of these measures make up the items on income statements, balance sheets, and cash flow statements, including measures such as revenue, gross profit, operating income, net income, earning per share, long-term debt, book value, cash flow, debt/equity ratio, days / receivables ratio, current ratio, and so on.



Six Sigma

Six Sigma Strategy and Methods

The Balanced Scorecard



Six Sigma

The Balanced Scorecard

• The Balanced Scorecard (Kaplan & Norton) manages performance measurements through an integrated system. This combines both financial and operational measures into an integrated system of performance indicators. This assumes that no single measure is sufficient for managing all companies at all times. It combines at least four perspectives:

• Financial Perspective: “If we succeed, how will we look to our shareholders?”

• Customer View: “To achieve our vision, how must we look to our customers?”

• Internal Operating Perspective: “To delight our customers, what management processes must we excel at?”

• Innovation & Learning Perspective: “To achieve our vision, how must the organization continuously learn, improve, and create value?”



Six Sigma

The Balanced Scorecard:

Financial Perspective• There are three fundamental dimensions, each

of which may include many types of financial measures:

• Profitability• Growth• Shareholder Value



Six Sigma


Customer Perspective• The customer perspective includes four important dimensions:

– cycle time for meeting customer needs;– quality;– performance & service for customer value creation; and– cost of ownership.

• In total these reflect the customer’s perception of total value.



Six Sigma


Internal Operations Perspective• Internal perspective examines those business processes and operations that most directly influence customer satisfaction. Often included are the three dimensions of:

– Internal Cycle Time -- which may track specific process steps.

– Quality -- which may include simple defect measures or may pick up sophisticated metrics such as first-pass yield rates.

– Productivity -- reflects employee skills, effectiveness, and motivation, especially as they are evidenced in employees’ output per person, per day, or per hour.



Six SigmaThe Balanced

Scorecard:Innovation & Learning

Perspective• Innovation & Learning include three primary dimensions:– Market Innovation - this records new product & service

introduction rates.– Continuous Operational Learning & Improvement -records the

rate at which individuals & organizations learn.– Intellectual Assets - These are among the most valuable and most

intangible resources available in any organization. Companies are developing measures that evaluate skills deployment, training effectiveness, employee involvement levels, employee suggestion rates, cross-functional activity levels, and experience sharing.




Critical Success Factors• Adopt, Adapt, and Advance: A well-designed

performance measurement and benchmark system is essential, but there are other critical success factors:– Senior management support;– Benchmarking training for the project team;– Useful information technology systems;– Cultural practices that encourage learning;– Resource dedication - especially in the form of

time, funding, and useful equipment.



Six Sigma

Selected

Benchmarking Processes



Six SigmaThe Bristol-Myers & Baxter

InternationalSeven-Step Benchmarking

Process1. Determine which function(s) to benchmark;2. Identify key performance variables to

measure;3. Identify the best-in-class companies;4. Measure performance of best-in-class

companies;5. Measure your own performance;6. Specify programs and actions to meet and

surpass;7. Implement and monitor results.



Six SigmaThe Motorola

Five-Step

Benchmarking

Process1.Decide what to benchmark;2.Find companies to benchmark;3.Gather data;4.Analyze data & integrate results into action

plans;5.Recalibrate & recycle the process.



Six SigmaThe Xerox 12-Step

Benchmarking Process• Phase 1: Planning– 1. Identify what to benchmark;– 2. Identify comparative companies;– 3. Determine data collection method &

collect data.

• Phase 2: Analysis– 4. Determine current performance gap;– 5. Project future performance levels.

• Phase 3: Integration– 6. Communicate finding and gain

acceptance;– 7. Establish functional goals.



Six Sigma

The Xerox 12-Step Benchmarking Process

(continued) • Phase 4: Action– 8. Develop action plans;– 9. Implement specific actions & monitor

progress;– 10. Recalibrate benchmarks.

• Phase 5: Maturity– 11. Attain leadership position ;– 12. Fully integrate practices into processes.



Six SigmaThe AT&T Nine-Step

Benchmarking Process1. Identify what to benchmark;2. Develop a benchmarking plan;3. Choose a data collections method;4. Collect data;5. Choose best-in-class companies;6. Collect data during a site visit;7. Compare processes, identify gaps,

and develop recommendations;8. Implement recommendations;9. Recalibrate benchmarks.



Six SigmaA Generic Benchmarking

Process:The Simple, Consensus

Model• From the Strategic Planning Institute’s (SPI) Council on Benchmarking has developed the following model:

– 1. Launch– 2. Organize– 3. Reach Out– 4. Assimilate– 5. Act



Six Sigma

The Doyle-Smith10-Step

Benchmarking Process:

1. Identify what to benchmark; 15% 7%

2. Select the benchmarking team; 4% 7%

3. Document your process; 18% 21%

4. Quantify your process; 6% 10%

5. Develop questionnaire; 5% 10%

6. Develop partnership with BIC organizations 5% 10%

7. Document BIC process & analyze; 35% 28%

8. Develop goals & implementation plans; 9% 7%

9. Monitor the plan.

StrategicPlan

IdentifyBest-in-Class

Organizations-------

4% -Concurrent

937 29 hours weeks

Contact Elapsed Time Time



Six Sigma

Benchmarking Resources &

Toolset

• Resources:

– Time Investment:• Team Leader: 20%-25% over seven months• Team Members: 15% over seven months

– Financial Investment:• Travel: 4 on-site visits * 5 members * $1,500 visit = $30,000• People: $60/hour• Research: $125 to $250 / hour * 8 hours = $1,000 - $2,000• Consulting: $1,500-$3,500 /day * (4-10) days = $6,000-$35,000

Toolset:Voice of the Customer Hoshin Planning Storyboards Seven Strategic Tools Seven M&P Tools Team Building Value Delivery System Process Mapping



Six SigmaAttributes of

Benchmarking Studies:Success vs. FailureSuccess Failure

Process Owner Involvement

Customer Driven Objectives

Linked to Strategic Plan

Best Practices & Enablers

Consider Cultural Attributes

Disciplined Methodology

Quantum Change

Clear Project Life Cycle

Integrated with ExistingQuality Efforts

Sponsorship Uncertain

Amorphous Objectives

No Strategic Integration

Performance Metrics Only

“Hard” Data Only

Arbitrary / Casual Approach

Incremental / No Change

Keep Going and Going and …..

A la carte Program



Six Sigma

Management’s

Benchmarking Challenge• Commit required resources to key projects;

• Provide focused training / facilitation to project participants;

• Proactively manage the direction and momentum of benchmarking within the organization;

• Create visibility of the benchmarking process;

• Recognize benchmarking team efforts.



Six Sigma

IXS IGMAS DEPARTMENT OF

STATISTICS

End of Session

Six Sigma Benchmarking

Business

Transcript of Six Sigma Benchmarking