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Industrial Engineering and Productivity Management

Application of Benchmarking with case studies

Benchmarking
Definition
Benchmarking is the process of identifying "best practice" in relation to both products (including) and the processes by which those products are created and delivered. The search for "best practice" can take place both inside a particular industry, and also in other industries (for example - are there lessons to be learned from other industries?).The objective of benchmarking is to understand and evaluate the current position of a business or organisation in relation to "best practice" and to identify areas and means of performance improvement. Since when it has come to mean any standard against which something is compared; and some of the leading exponents in business include Xerox and GE. In business terms there are numerous definitions of benchmarking, but essentially it involves learning, sharing information and adopting best practices to bring about step changes in performance. So at its simplest, benchmarking means: 'Improving by learning from others - i.e. - benchmarking is simply about making comparisons with other organisations and then learning the lessons that those comparisons throw up' Another Definition is: 'Benchmarking is the continuous process of measuring products, services and practices against the toughest competitors or those companies recognised as industry leaders (best in class)' Robert Camps Definition: 'A positive, proactive process by which a company examines how another company performs a specific function in order to improve how it performs the same, or similar function. Operational processes must be comparative or analogous if the highest degree of knowledge transfer between benchmarking partners is to be achieved' Benchmarking allows you to discover the gaps in your performance when compared with someone else. Nothing will happen, however, unless you actually do something to close the gap - or surpass it. The real payback comes from changing what you do to improve your operations - and as we all know change is difficult - actual benchmarking is the easy part.

Benchmarking for competitive advantage


There has been a progressive increase in the topic of benchmarking - but for all that there is still a great deal of ignorance about what it actually is. It has taken its place as a management buzzword along with Business process reengineering, Total Quality Management, Change Management, EVA and many others - but its true nature is poorly understood. Some see it as stealing (or 'borrowing') ideas; others as a mechanism for comparison with a competitor; whilst others view it as a form of industrial espionage. In fact it is all of these and none of these at the same time, but instead involves understanding strategic gaps; cooperation; hard work; a willingness to question and where necessary to change fundamental precepts (sacred cows) and also - giving.

Once a gap has been identified the key question is: 'How much of the gap do you wish to close?' Do you wish to improve a little, a lot or become best-in-class? i.e., what is the benefit from each stage of change and what will it cost? Some areas will need greater effort to change than others but all must be compared to probable benefit/return for that effort (e.g. revenue, cost efficiency or customer satisfaction). It may not be cost effective to go the whole way and in some cases best-in-class may be a step too far! But it may act as a stretch target to which you aspire - or re-visit later.

In practice, benchmarking usually encompasses: regularly comparing aspects of performance (functions or processes) with others; identifying gaps in performance; developing performance improvements to close the gaps thus identified; implementing the improvements; monitoring progress and; reviewing the benefits

The key questions on which successful benchmarking turns are:


How do we do it? How do they do it?

In other words a comparison of your processes with (a) more successful organisation(s) to establish exactly where the differences lie - and then taking steps to use the knowledge to close the gaps.

What it is not
Although benchmarking involves making comparisons of performance, it is not:

just competitor analysis - benchmarking is best when it involves collaboration comparison of league tables - the aim is to learn about the circumstances and processes that underpin superior performance

a quick fix, done once for all time - benchmarking projects may extend over a number of months or even years, and it is vital to repeat them periodically so as not to fall behind as the background environment changes catching up - in rapidly changing circumstances, good practices become dated very quickly and anyway you want to gain competitive, or possibly prime mover, advantage copying - the fact that others are doing things differently does not necessarily mean they are better spying or espionage - openness and honesty are vital for successful benchmarking

The underlying reason for benchmarking is to learn how to improve your business processes and thereby increase your competitiveness. Organisations choose to benchmark outstanding companies whose business processes are analogous to their own - even if they are in different industries! Benchmarking allows you to identify those practices that have facilitated those successful companies' superior performance and that can be adapted to your own business. Accordingly, benchmarking is an operational process involving continuous learning and adaptation which enables you to improve your organisation's competitive position.

Why Benchmarking is required?


Although many organisations initiate benchmarking projects because of some dubious reasons; for practical purposes the only reason to benchmark is because you recognise that somewhere, somehow you are not as efficient or as capable of satisfying your customers as your competition whether currently or because you have spotted a trend in the market that you need to exploit, follow or respond to. There are two key drivers for an organisation - profitability and revenue growth (the former being a function of the latter after costs) and there are many variables that impact on these. The key to maximising both is to understand where competitors are better than you - where customers value it. It is of little value having the best process for selling insurance if what customers really want is an easy to use claims process and yours isn't! Similarly it is no good having an extremely slick sales process for commodities if the delivery is poor, patchy and unreliable. As the diagram shows, processes, although an ephemeral component of an organisation (as opposed to more durable items such as hardware and fixed assets) because they change easily, are critical for profitability as delivery of products/services is crucial to customer satisfaction, payments and ultimately profit. Similarly reputation (ephemeral) is critical to growth but can be lost all too easily - especially if processes/people do not deliver .

Although benchmarking is a measurement process and does generate comparative performance measures, it also about attaining exceptional performance. The practices that lead to exceptional performance are called enablers. Thus the process of benchmarking results in two types of outputs: benchmarks, or measures of superior performance, and enablers. Process enablers are developed to meet a specific business need within the context of a specific business environment and company culture. This is why it is of little value to 'steal' from others because you will not have explored whether and where their business practices are relevant or transferable to yours.

Types of Benchmarking
There are several 'types' of benchmarking

Generic - e.g. comparisons in a general sense - often using terms such as customer, strategic or operational Functional - e.g. Finance, Sales or HR efficiency (e.g. HR staff to total employees) Process - e.g. insurance claims or delivery of bulk commodities Global - across the world Cost - focussing on cost dynamics Performance - looking at revenue or growth

The problem with more general benchmarking is that you are unable to drill down to the right level of granularity unless you get inside information. Analysts often compare Unilever and Procter & Gamble but at group levels it is not a fair benchmark as Unilever doesn't sell nappies and Procter and Gamble doesn't sell ice-cream. Similarly benchmarking LloydsTSB with Barclays at group level misses the subtle nuances of their operations - LloydsTSB for example has a much greater focus on retail banking than Barclays which has extensive corporate business. In order to gain value from benchmarking it is necessary to look at analogous processes - e.g. cashiering in branches. The closer you get to a benchmark then the more value that you will receive - but of course you must also give something in return as a quid quo pro or the other firm will not be interested in giving you access to its workings. Benchmarking can take place at different levels:

Internal Competitor/peer Best in industry World class and these are explored below.

Internal- is looking at the differing levels of performance within your own organisation and highlighting best practice for dissemination to other parts. For example if an organisation has several factories making the same goods then it can analyse the best performing areas in each and then extrapolate these features to its other operations thus bringing all operations up to the best internal

levels of operation. Due regard must be given to the context of the analysis as due to past decisions there will be differences in operations which must be allowed for, such as different IT or logistics systems, local variations in staff competencies or even raw material access, rail links etc such that the comparison is 'normalised'. The benefits of internal benchmarking are that it is cost effective, that it is easy to gain access to all the information required, that it does not require you to give anything away to competitors or other outside parties and that the processes will be analogous. The diagram shows an example where an 'efficiency frontier' of several units has been plotted. The boundary maps the most efficient units on two fronts - transactions and revenue. This allows you to identify quickly the poorer performers (those inside the frontier) and where they fall behind. Extrapolating the current position up to the boundary or frontier gives you an idea of the possible gains - assuming it is possible. The drawbacks of internal benchmarking include that fact that even the very best internal practices may not be adequate in the face of external pressures (e.g. having very competent cashiers is better than not having them but if customers want internet banking it misses the point); that it is only looking internally and may miss the bigger picture; and that it is unlikely that you will find a radical solution internally (but not impossible). It is generally considered a good idea therefore to benchmark externally (possibly as well) Competitor/peer - is analysing those firms that you regard as competitors or peers. For example a peer group in banking might include Barclays, LloydsTSB, HSBC, RBS, HBOS - but might also include Egg or Smile or Cahoot depending on which facet you wish to explore; whilst looking at say retailing you might include Sainsburys, Tesco, Asda, M&S, Waitrose, Coop and so on but might include organisations such as Amazon or e-bay if looking at on-line retailing. The diagram shows some potential outputs from a peer group of banks. Typically this type of benchmarking is carried out as part of a cooperative study involving a significant number of players - e.g. the major banks; or the global custodians or the major retailers; often with the cooperation and involvement of the 'trade association' body which ensures that the study is 'fair' and using independent consultants/advisors who retain the level of confidentiality required. Each participant gives information to the study in the knowledge that it will remain confidential to it and only it will know where it lies in the study. The great advantage of this type of study is that the information so gained can be at a very detailed level of granularity which allows comparison; for example down to activity level. This facilitates identification of those important enablers as well as allowing a greater range of comparisons than with just one. It also allows you to decide what level of excellence you wish to target in your changes - which might not be the leader - especially if the majority of benefits can be gained from going part of the way. As all participants benefit, they will all give the information to enable the study to add real value. Best in industry - is focussing on the firm that you consider to be the leader in your own field/industry sector and finding out what it is that it does that is so much better than you. This involves getting close to it and learning - but also exchanging information. Also it is likely that others in the industry will also wish to contact it so competition will be intense.

World class - is simply deciding that no matter what industry sector you are in - you wish to compare what you do against the best in the world. Of course the process must still be analogous, but it means that you are looking for a (probably) very stretching target. The issue here is - what can you offer the best-in-class firm to tempt it into helping you - and to make it choose you rather than any of the other firms wishing to benchmark it as well?

Competencies and competition


When operating in a market it is not the competition that is very different from you that matters - in fact your most dangerous competitors are those that are most like you. This is because for most products and services there will be many features in common which give customers a 'comfort' factor and allows customers to differentiate between offerings without feeling that they are looking at something so completely different that they will disregard it.

It is, however, the differences between you and your competitors that are the basis of competitive advantage and leads you to offer a distinct customer value proposition that compels customers to use you rather than the competition. To be successful in business you must have some kind of competitive advantage, no matter how small or how subtle. This allows you to construct a Customer Value Proposition (CVP) which distinguishes you from your competitor's products but which also equalises the price/value trade-off in the customers' mind - in your favour. A superior CVP will exist because your competencies are more in tune with market 'needs and wants' than the competition - otherwise you will lose customers to those competitors that have organisational competencies that are better or more in tune with the customers. It is important to keep abreast of customers' needs and wants which change constantly - as shown in the diagram - and update your competencies accordingly. Usually insufficient attention is paid to CVPs and organisational competencies - but that is exactly where benchmarking can add value.

In this context competency refers to all aspects of the organisation that are inputs into the CVP (IT, customer handling processes, premises etc) - not just staff skills. This set of competencies is unique to you and is why you have competitive edge. It is not set in tablets of stone, however, and an edge can be dulled or even worn away. To maintain and enhance it you must:

keep evaluating the needs and wants in the market place and how they will metamorphose; understand what your customers' value now and their needs moving forward; take a long term time horizon; understand competitive movements (current and potential); keep a close eye on changes in the substitutes market; and put in hand the changes to your own competencies to continue to meet the evolving market needs and therefore sustain your competitive advantage.

This is where benchmarking can be of great value and successful benchmarking, therefore, will involve focussing on key, cross-functional business processes that support the long-term strategic intent and enable you to develop process capability, or focussing on those areas that develop and enhance core competencies.

Steps in benchmarking
There are five key stages in benchmarking: 1. Proto-planning 1. Decide what you wish to benchmark 2. Decide against whom you need to benchmark

3. Identify outputs required 4. Determine data collection methodologies 2. Data collection 1. Secondary/background research 2. Primary research - from the benchmark 3. Analysis 1. Of the gaps 2. Of the factors that create the gaps (enablers) 4. Implementation 1. Implementation planning 2. Roll-out of new modus operandi (changes) 5. Monitoring 1. Collecting data 2. Evaluating progress 3. Iterative change Proto-planning Choosing what to benchmark Before starting a programme you must choose what to compare. It is of little value benchmarking irrelevant processes or activities [e.g. how efficient cleaners or night watch men are] - they should be areas that have the potential to add real sustainable competitive advantage to your business. Those areas that you benchmark should be chosen with reference to key criteria such as:

Core to you and your competition Important to you in terms of [some or all of]:
o o o

Volume (large number of transactions undertaken) Cost (high costs - based on time and FTE's) Value (significant in terms of revenue to you and/or benefit to the customer)

Easy to measure and offering comparisons Risk inherent:


o o

Processes that are difficult to control, thus presenting a risk to the business Processes that vary in performance and impact profits and costs

..so that you can maximise the benefits from improvements. NB - not every process needs to be world class, it is` only those that `will deliver sustainable competitive advantage. Similarly one process should not shine at the expense of the entire system or there will be an efficiency mis-match leading to ineffectiveness. The company must understand its strategic intent, and identify core competencies, key business processes, and critical success factors. Then the particular process to be benchmarked must be documented and flowcharted, to determine its inherent capability. Specific activities are:

Understand business strategic intent Identify core competencies, and map company capabilities Select the specific process to benchmark. Select a benchmarking team leader and participants. Identify the customer profiles and expectations. Analyse process flow and performance measures. Define process inputs and outputs. Document and flow chart the process. Identify, understand and measure critical success factors. Select critical success factors to benchmark. Develop the company selection criteria. Establish the data collection method. Develop a preliminary questionnaire.

Choosing your benchmark Having decided what you want to benchmark the next question is: 'against whom will we benchmark?' - The choice of organisation is key and dependent on several factors as discussed above. Requirements must be established for selecting benchmarking partners, given the benchmarking objective, or for characterising the degree of relevance that any particular company may have as a potential benchmarking partner. At this stage you need to decide if it will be a one : one exercise or a peer group.

Deciding on outputs Before collecting data it is vital that you decide on the format of the outputs. This will in turn shape both how you collect the data and the method you use for analysis. This should lead to developing benchmark metrics for use during the project. Defining the data collection methods This will be driven by:

The outputs required The form of the information The nature of the exercise (group versus one : one) Time Process to be benchmarked

Data collection Data collection is based on 'secondary research - public background - and primary research - directly from benchmarks Secondary- it is important to learn as much as possible before making any direct contact and this can be accomplished using 'desk research including publications and websites etc. This enables you to get a picture of the firm(s) that you might wish to benchmark and an understanding of what you can bring to them. From this you can develop a shortlist. Primary- direct data collection from the benchmark. If this is a one to one exercise then it will involve staff 'living' with the organisation to understand what it does and how; if it is part of a larger exercise say of peers/competitors then it will be a formal data collection programme in which you will participate.

This will involve:


Planning the data collection Developing an interview guide/questionnaire Conducting primary research (telephone survey, mail survey, or individual interviews); Monitoring process performance and analyse performance gaps; Making on-site observations to clarify and verify previous observations; Conducting a post-site-visit debriefing with team members, to record observations; Preparation of a report

Analysis The analysis consists of two aspects:


Determining the magnitude of the performance gaps between you and the other companies, using the benchmarking metrics identified during the proto-planning step Identifying the process enablers that facilitated the performance improvements at the leading companies

The analysis step in the benchmarking process model consists of five phases: 1. Data analysis 2. Data presentation 3. Root cause analysis 4. Results projection 5. Enabler identification The goal of this step is to identify adaptable process enablers for implementation The specific activities are:

Organise and graphically present the data for identification of performance gaps Normalise performance to a common measurement base

Compare current performance against the benchmark Identify performance gaps and determine the root causes Project the performance 3 to 5 years into the future Develop scenarios case studies for discussion Isolate process enablers that correlate to process improvements Valuate the nature of the process enablers to determine their relevance to your organisation

A typical comparison is shown below:

Implementation The objective of this phase is to make the changes to your processes to improve performance and this involves, implementation planning - i.e. developing the how of the change; rolling out the new methods etc and finalising measures for excellence. The main activities are:

set goals to close, meet, and then exceed the performance gap select best practices and enablers for consideration modify process enablers to match the company culture and organisational structure enhance these enablers based on team observations for integrating process improvements develop a formal action plan for implementing improvements obtain management buy-in and ownership of the required changes commit resources implement the plan - piloting where sensible iterate changes based on pilot roll-out elsewhere as appropriate

Monitoring This is about ensuring that the new processes work and that any 'edge' created is sustained, and involves collecting data on the new process, evaluating progress and if necessary, iterating changes, monitoring and reporting improvement progress, identifying opportunities for future benchmarking and recalibrating the measure regularly.

Conclusion
Benchmarking is more than just a comparative analysis - this sort of analysis has been undertaken for many years with little benefits. What benchmarking contributes is that 'lessons are learned'. The difference with a benchmarking study is that a better way of doing things is analysed and then the key factors - the enablers - are then used to close the gap. NB techniques and enablers that were critical in recent past will not remain the same so the processes should be revisited periodically to see if they are still extant and if not to find out what needs to be done. There are a few key issues for organisations beginning benchmarking efforts:

top management commitment and participation are necessary sufficient time must be allowed for the project as it takes time an able, well-trained team is critical - where appropriate get outside help (consultants) it is heavy on resources: people, travel, research, consultants, and other factors are involved process rigour is an absolute sine qua non for success - you cannot 'graze the surface' quantitative data is often difficult and time consuming to obtain

In addition there are some principles that have evolved over time which form a framework to such studies:

legality - you must be open and honest exchange - a quid pro quo confidentiality - it remains between you and the benchmark use - only for the purpose agreed preparation - is essential to succeed completion - of all tasks and implementation must be carried out understanding - of your processes, gaps, enablers [and their relevance to you] and the action to close the gap are key to success

Successful benchmarking requires three basic ingredients: a real problem with management willing to solve it; access to benchmarking partners who have previously resolved that problem; a knowledgeable benchmarking team with the ability to use quality tools and research practices to investigate process problems to their root cause. In most cases it is advisable to use external consultants who bring expertise and experience and can help you carry out a benchmarking exercise avoiding pitfalls and maximising return from effort.

Case Study Xerox


Background Note The history of Xerox goes back to 1938, when Chester Carlson, a patent attorney and part-time inventor, made the first xerographic image in the US. Carlson struggled for over five years to sell the invention, as many companies did not believe there was a market for it. Finally, in 1944, the Battelle Memorial Institute in Columbus, Ohio, contracted with Carlson to refine his new process, which Carlson called 'electrophotography.' Three years later, The Haloid Company, maker of photographic paper, approached Battelle and obtained a license to develop and market a copying machine based on Carlson's technology. Haloid later obtained all rights to Carlson's invention and registered the 'Xerox' trademark in 1948. Buoyed by the success of Xerox copiers, Haloid changed its name to Haloid Xerox Inc in 1958, and to The Xerox Corporation in 1961. Xerox was listed on the New York Stock Exchange in 1961 and on the Chicago Stock Exchange in 1990. It is also traded on the Boston, Cincinnati, Pacific Coast, Philadelphia, London and Switzerland exchanges. The strong demand for Xerox's products led the company from strength to strength and revenues soared from $37 million in 1960 to $268 million in 1965. Throughout the 1960s, Xerox grew by acquiring many companies, including University Microfilms, Micro-Systems, Electro-Optical Systems, Basic Systems and Ginn and Company. In 1962, Fuji Xerox Co. Ltd. was launched as a joint venture of Xerox and Fuji Photo Film. Xerox acquired a majority stake (51.2%) in Rank Xerox in 1969. During the late 1960s and the early 1970s, Xerox diversified into the information technology business by acquiring Scientific Data Systems (makers of time-sharing and scientific computers), Daconics (which made shared logic and word processing systems using minicomputers), and Vesetec (producers of electrostatic printers and plotters). In 1969, it set up a corporate R&D facility, the Palo Alto Research Center (PARC), to develop technology in-house. In the 1970s, Xerox focused on introducing new and more efficient models to retain its share of the reprographic market and cope with competition from the US and Japanese companies. While the company's revenues increased from $ 698 million in 1966 to $ 4.4 billion in 1976, profits increased five-fold from $ 83 million in 1966 to $ 407 million in 1977. As Xerox grew rapidly, a variety of controls and procedures were instituted and the number of management layers was increased during the 1970s. This, however, slowed down decision-making and resulted in major delays in product development. In the early 1980s, Xerox found itself increasingly vulnerable to intense competition from both the US and Japanese competitors. According to analysts, Xerox's management failed to give the company strategic direction. It ignored new entrants (Ricoh, Canon, and Sevin) who were consolidating their positions in the lower-end market and in niche segments. The company's operating cost (and therefore, the prices of its products) was high and its products were of relatively inferior quality in comparison to its competitors. Xerox also suffered from its highly centralized decision-making processes. As a result of this, return on assets fell to less than 8% and marketshare in copiers came down sharply from 86% in 1974 to just 17% in 1984. Between 1980 and 1984,

Xerox's profits decreased from $ 1.15 billion to $ 290 million (Refer Exhibit I). In 1982, David T. Kearns (Kearns) took over as the CEO. He discovered that the average manufacturing cost of copiers in Japanese companies was 40-50% of that of Xerox. As a result, Japanese companies were able to undercut Xerox's prices effortlessly. Kearns quickly began emphasizing reduction of manufacturing costs and gave new thrust to quality control by launching a program that was popularly referred to as 'Leadership through Quality.' As part of this quality program, Xerox implemented the benchmarking program. These initiatives played a major role in pulling Xerox out of trouble in the years to come. The company even went on to become one of the best examples of the successful implementation of benchmarking. Benchmarking at Xerox The 'Leadership through Quality' program introduced by Kearns revitalized the company. The program encouraged Xerox to find ways to reduce their manufacturing costs. Benchmarking against Japanese competitors, Xerox found out that it took twice as long as its Japanese competitors to bring a product to market, five times the number of engineers, four times the number of design changes, and three times the design costs. The company also found that the Japanese could produce, ship, and sell units for about the same amount that it cost Xerox just to manufacture them. In addition, Xerox's products had over 30,000 defective parts per million - about 30 times more than its competitors. Benchmarking also revealed that Xerox would need an 18% annual productivity growth rate for five consecutive years to catch up with the Japanese. After an initial period of denial, Xerox managers accepted the reality. Following this, Xerox defined benchmarking as 'the process of measuring its products, Services, and practices against its toughest competitors, identifying the gaps and establishing goals. Our goal is always to achieve superiority in quality, product reliability and cost.' Gradually, Xerox developed its own benchmarking model. This model involved tens steps categorized under five stages - planning, analysis, integration, action and maturity (Refer Figure I for the Xerox benchmarking model). The five-stage process involved the following activities: Planning: Determine the subject to be benchmarked, identify the relevant best practice organizations and select/develop the most appropriate data collection technique. Analysis: Assess the strengths of competitors (best practice companies) and compare Xerox's performance with that of its competitors. This stage determines the current competitive gap and the projected competitive gap. Integration: Establish necessary goals, on the basis of the data collected, to attain best performance; integrate these goals into the company's formal planning processes. This stage determines the new goals or targets of the company and the way in which these will be communicated across the organization. Action: Implement action plans established and assess them periodically to determine whether the company is achieving its objectives. Deviations from the plan are also tackled at this stage.

Maturity: Determine whether the company has attained a superior performance level. This stage also helps the company determine whether benchmarking process has become an integral part of the organization's formal management process. Xerox collected data on key processes of best practice companies. These critical processes were then analyzed to identify and define improvement opportunities. For instance, Xerox identified ten key factors that were related to marketing. These were customer marketing, customer engagement, order fulfillment, product maintenance, billing and collection, financial management, asset management, business management, human resource management and information technology. These ten key factors were further divided into 67 sub-processes. Each of these sub-processes then became a target for improvement. For the purpose of acquiring data from the related benchmarking companies, Xerox subscribed to the management and technical databases, referred to magazines and trade journals, and also consulted professional associations and consulting firms. Having worked out the model it wanted to use, Xerox began by implementing competitive benchmarking. However, the company found this type of benchmarking to be inadequate as the very best practices, in some processes or operations were not being practiced by copier companies. The company then adopted functional benchmarking, which involved a study of the best practices followed by a variety of companies regardless of the industry they belonged to. Xerox initiated functional benchmarking with the study of the warehousing and inventory management system of L.L. Bean (Bean), a mail-order supplier of sporting goods and outdoor clothing. Bean had developed a computer program that made order filling very efficient. The program arranged orders in a specific sequence that allowed stock pickers to travel the shortest possible distance in collecting goods at the warehouse. This considerably reduced the inconvenience of filling an individual order that involved gathering relatively less number of goods from the warehouse. The increased speed and accuracy of order filling achieved by Bean attracted Xerox. The company was convinced it could achieve similar benefits by developing and implementing such a program. Similarly, Xerox zeroed in on various other best practice companies to benchmark its other processes. These included American Express (for billing and collection), Cummins Engines and Ford (for factory floor layout), Florida Power and Light (for quality improvement), Honda (for supplier development), Toyota (for quality management), Hewlett-Packard (for research and product development), Saturn (a division of General Motors) and Fuji Xerox (for manufacturing operations) and DuPont (for manufacturing safety). Benchmarking was implemented at Xerox in the following manner: Supplier Management System Xerox found that all the Japanese copier companies put together had only 1,000 suppliers, while Xerox alone had 5,000. To keep the number of suppliers low, Japanese companies standardized many parts. Often, half the components of similar machines were identical. To ensure part standardization, Japanese companies worked closely with their suppliers. They frequently trained vendor's employees in quality control, manufacturing automation and other key areas. Cooperation between the company and the vendor extended to just-in-time production scheduling, i.e. delivery

in small quantities, as per the customer's production schedule. In line with the best practices, Xerox reduced the number of vendors for the copier business from 5,000 to just 400. Xerox also created a vendor certification process in which suppliers were either offered training or explicitly told where they needed to improve in order to continue as a Xerox vendor. Vendors were consulted for ideas on better designs and improved customer service also. Inventory Management Xerox's efforts to improve inventory management practices drew inspiration from the innovative spare parts management practices of its European operations. Traditionally, technical representatives decided the level of spare parts inventory to be carried; little information was available on the actual usage pattern of the spare parts. Xerox's European operations developed a sophisticated information system to get around this problem. Actual usage, rather than mere withdrawal from the stocking point, was used to determine inventory levels. In the late 1980s, Xerox replicated the system in the US and saved tens of millions of dollars in the process. The stocking policy followed by Xerox branch managers was to hold fully finished, fully configured products near to the customer. Because of this policy, they carried vast amounts of inventory, some of which was not even sold during a given period. The company changed the above setup by asking branch managers to match the stocking policy to the customer's installation orders, which considerably reduced the inventory holding time. As a result, working capital cycle time was cut by 70% leading to savings of about $200 million. he process of benchmarking helped Xerox revamp its manufacturing techniques. Each 'family unit' (a manager and his direct subordinates) was encouraged to identify its internal as well as external customers and to meet their needs. For instance, the group that built paper trays identified its external customer as the end user who would load the paper. Its internal customers were the assembly-line workers, who would combine the paper tray with hundreds of other components to assemble the copiers. This process significantly improved the operational efficiency of the work groups. Marketing Xerox introduced a Customer Satisfaction Measurement System that integrated customer research and benchmarking activities. The company sent out over 55,000 questionnaires monthly to its customers to measure customer satisfaction and record competitors' performance. It then benchmarked against those competitors that had scored high marks on specific measures of customer satisfaction. Xerox also used the vast amount of information gathered by the system to develop business plans for improving quality and meeting customer needs. Quality As a part of its "Leadership Through Quality" program, Xerox reformulated its quality policy. The new policy supplemented the company's benchmarking efforts. Xerox's new quality policy stated, "Xerox is a quality company. Quality is the basic principle for Xerox. Quality means providing our external and internal customers with the innovative products and services that duly satisfy their requirements. Quality improvement is the job of every Xerox employee" (Refer Exhibit III for a

comparison between new and old quality policies). Following this, the company embarked on a complete organizational restructuring exercise that focused on research and development, employee involvement and customer orientation. Xerox also formed a transition team consisting of 24 senior managers and consultants from McKinsey & Co to help make Total Quality Management (TQM) a part of its organizational culture. The transition team took action at two levels. Firstly, it conveyed the message clearly to the world that Xerox was pursuing more widespread use of TQM, and secondly, it identified and addressed the obstacles that were likely to slow down the spread of TQM. These ranged from the corporation's function-dominated matrix structure to the need for new training programs. Consequently, the transition team also replaced the existing complex matrix by three Strategic Business Units (SBUs) Enterprise Service Business, Office Copiers and Home Copiers. Each of these SBUs was given considerable autonomy in engineering, marketing and pricing. By the late 1980s, benchmarking had become a day-to-day activity in every division of the company. According to company sources, Xerox's guiding principle was, 'anything anyone can do better, we should aim to do at least equally well." In 1991, Xerox developed Business Excellence Certification (BEC) to integrate benchmarking with the company's overall strategies. This was also done to ensure continuous self-appraisal of the overall quality performance of the company. The key performance factors measured by BEC were management leadership, human resource management, customer focus, quality support and tools, process management and business priorities/results. These factors, which were further divided into forty sub-factors, had their specific measuring targets. Each unit's self-appraisal was validated by representatives from sister divisions. BEC helped Xerox determine the causes for the success or failure of a specific quality process and identify the key success factors or obstacles for achieving a specific quality goal. It also helped the company establish key functions for removing obstacles that prevented it from reaching the set quality goals. By the mid-1990s, benchmarking was extended to over 240 key areas of product, service and business performance at Xerox. The initiatives were also adopted, at varying levels, at Xerox units across the world. The benchmarking process encouraged Xerox's employees to learn from every situation. This new philosophy was dubbed 'steal shamelessly,' though the company used only those ideas that the best practice companies willingly gave away. The salient rule at Xerox for benchmarking was to 'ask no question of another firm that you would be unwilling to answer about your own.' This change in attitude was just the beginning of the payoffs of the benchmarking moves. Reaping the Benefits The first major payoff of Xerox's focus on benchmarking and customer satisfaction was the increase in the number of satisfied customers. Highly satisfied customers for its copier/duplicator and printing systems increased by 38% and 39% respectively. Customer complaints to the president's office declined by more than 60%. Customer satisfaction with Xerox's sales processes improved by 40%, service processes by 18% and administrative processes by 21%. The financial performance of the company also improved considerably through the mid and late 1980s.

Overall customer satisfaction was rated at more than 90% in 1991. Some of the other benefits Xerox derived were: Number of defects reduced by 78 per 100 machines. Service response time reduced by 27%. Inspection of incoming components reduced to below 5%. Defects in incoming parts reduced to 150ppm. Inventory costs reduced by two-thirds. Marketing productivity increased by one-third. Distribution productivity increased by 8-10 %. Increased product reliability on account of 40% reduction in unscheduled maintenance. Notable decrease in labour costs. Errors in billing reduced from 8.3 % to 3.5% percent. Became the leader in the high-volume copier-duplicator market segment. Country units improved sales from 152% to 328%. Xerox went on to become the only company worldwide to win all the three prestigious quality awards: the Deming Award (Japan) in 1980, the Malcolm Baldridge National Quality Award in 1989, and the European Quality Award in 1992. Xerox Business Services, the company's document outsourcing division, also won the Baldridge Award in the service category in 1997. In addition, over the years, Xerox won quality awards in Argentina, Australia, Belgium, Brazil, Canada, China, Colombia, France, Germany, Hong Kong, India, Ireland, Mexico, the Netherlands, Norway, Portugal, the UK, and Uruguay. Analysts attributed this success to the 'Leadership Through Quality' initiative, and, more significantly, to the adoption of benchmarking practices. The success of benchmarking at Xerox motivated many companies to adopt benchmarking. By the mid-1990, hundreds of companies implemented benchmarking practices at their divisions across the world. These included leading companies like Ford, AT&T, IBM, GE, Motorola and Citicorp. During the 1990s, Xerox, along with companies such as Ford, AT&T, Motorola and IBM, created the International Benchmarking Clearinghouse (IBC) to promote benchmarking and guide companies across the world in benchmarking efforts. The institute offers information on various companies and best practices through its electronic bulletin board. Soon after its establishment, more than 100 companies joined IBC to gain access to extensive database. By 2001, benchmarking had become a common phenomenon in many companies across the world. Analysts remarked that continuous benchmarking helped companies deliver best quality products and services and survive competition in all businesses (Refer Exhibit V for successful benchmarking guidelines).

Water Use Benchmarking in the Beverage Industry


(A Study by Beverage Industry Environmental Roundtable [BIER])
Clean, high-quality water is the essential ingredient for all products of the beverage industry.For years, beverage companies have focused on water use avoidance and conservation to demonstrate one aspect of environmental stewardship. Since 2007, the Beverage Industry Environmental Roundtable (BIER) has completed an annual quantitative benchmark to evaluate water use and efficiency in the beverage industry. This article shares some of the water use and performance information collected as part of this study. Further, some of the best practices employed to drive water use avoidance and efficiency are summarized.

Trends and Observations, 2010


Benchmarking Process BIER completed its fourth annual water use benchmark in 2010, evaluating the performance of more than 1,500 beverage manufacturing locations representing 16 beverage enterprises. Each year the study evolves, as BIER members fine-tune the benchmarking process by redefining benchmarking metrics (Table 1), determining the most critical data to collect, and adjusting the data analysis process for an ever-expanding data set. In 2010, BIER membership determined the benchmarking process was sufficiently mature to share results with external stakeholders in support of the Transparency Principle of World Class Water Stewardship in the Beverage Industry 2010: Water Efficiency and Beyond. In 2010, each of the 16 member enterprises submitted three years (2007, 2008, 2009) of facility-specific data, as described in Table 1. At a minimum, all enterprises provided facility-specific data for total water use, total beverage production, facility type and location. The basis for efficiency analysis is the water use ratio,which describes how efficiently a facility uses water for beverage production. The Global Corporate Consultancy of AnteaGroup, a thirdparty consultant, has managed the annual study since its inception, including data collection, analysis, verification and reporting. For the purposes of this study, four types of beverage production facilities were identified: Bottling, brewery, distillery and winery. While all water uses at these facility types (including Water used for employee services, on-site landscaping, etc.) were included, nonmanufacturing facilities, such as office buildings and warehouses, were excluded from the study. Facility type was determined by the primary process conducted at each facility. Bottling facilities were assigned additional sub-categories based on product mix to account for the various product types processed at bottling facilities. All facilities reported a beverage product mix, or a percentage breakdown of the different beverage types produced at each facility (Table 1). Characteristics of each facility and beverage type are further explained in the following sections.

Table 1: Quantitative Facility-Level Data Set Total Water Use (kL): all water used by the facility (including bottling and industrial water) from all sources used for activities as identified below: Includes water used for: Facility-level beverage production and packaging (accounts for water contained in product) Cleaning/sanitizing processes Cooling waters Heating waters Sanitation Landscaping Stormwater captured for aforementioned activities

Excludes water used for: Return water (underground water returned to the aquifer, recharge area, or natural drainage basin without significant modification).2 Concentrate, syrup or flavor production Agriculture Production of raw materials (plastic, glass, etc) Shipment of raw materials Distribution of finished product User consumption purposes (e.g. addition of ice cubes, spirits dilution, etc.)

BIER members determined that benchmarking would focus on the manufacturing and packaging sections of the value chain only, as upstream and downstream processes vary dramatically between the four beverage types. As noted in Table 1, water used in upstream processes such as agriculture (water used to grow ingredients), production of flavors or concentrates, and production of other raw materials (e.g., plastics,metals, etc.) was not included in water use totals.Similarly, water used in downstream processes such as distribution of finished product was not included in water use totals. Upstream and downstream processes are addressed under Principle VI of World Class Water Stewardship in the Beverage Industry. It should be noted that water contained in the final beverage product was included in water use totals and beverage production totals. However, any water added to finished product by users as ice or to dilute product was excluded. Further information on the processes included in water use is defined for each facility type. Enterprises were also asked to submit supplemental process information for their distillery, brewery and winery facilities. Process-specific information such as package type,pasteurization type, and alcohol content was collected to evaluate trends observed during data analysis.

2010 Water Stewardship Benchmarking Results The 2010 study was the most robust report to date, with over 1,500 facilities spread throughout six continents reporting data into the study. However, to maintain consistency in data evaluation, only facilities which reported data in each of the three study years were included in these analyses. Due to acquisitions, divestitures, site openings and closures, or gaps in data reporting; this results in a data set of 1,178 facilities for detailed analysis. Analyses were conducted to determine industry water use, production, and water use ratio over the three year period.Industry aggregate water use ratio improved by 7 percent from 2007 to 2009. Aggregate beverage production remained relatively stable, increasing 1 percent from 2007 to 2009. Industry aggregate water use decreased approximately 6 percent from 2007 to 2009. By improving water efficiency, the industry avoided the use of approximately 19 billion liters of water in 2009, enough water to supply the average daily water use for the entire population of the United Kingdom for two days. Further analysis was performed on each of the four facility types to identify trends in water use. Facility types, general process steps, and associated water use ratio trends are described in the next section. Annual water use benchmarking has revealed the unique processes that use water at each facility type and the many variances between facility processes within the same facility types. BIER recognizes that it is impossible to compare water use ratios across different facility types or with other consumer goods industries because of these unique processes. Similarly, BIER abstains from ranking facility efficiency within beverage types in consideration of the unique characteristics of individual facilities. Bottling For the purposes of the benchmarking study, bottling facilities were defined as locations where concentrate, syrup, flavors/infusions, and/or bulk alcohol are blended with water and packaged into various container types. Bottling facilities also encompass facilities which receive finished bulk product (such as completely brewed beer or matured whiskey). No fermenting or distilling processes are conducted at bottling facilities. All nine beverage categories were represented in this facility type (Table 1). Bottling represented the largest data set of the study, with bottling facilities accounting for 82 percent (by volume) of the industry data set. Bottling facilities generally use the least amount of water to make a liter of product, since there are fewer water-intensive processes as compared to other beverage types (e.g. cooking,fermenting and distilling). However, bottling facilities typically package a mix of several different products and beverage types; 29 percent of these facilities had a beverage product mix of more than one type of beverage. If a facility manufactures more than one product, water is used during rinse cycles to switch between products. Water used for rinse cycles and sanitization is a known driver of water use. The bottling facility data set included a range of beverage types, processes, and production volume. This article focuses on the two largest subgroups within the bottling data set: Carbonated Soft Drinks and Bottled Water.

Carbonated Soft Drinks Carbonated soft drinks are defined as non-alcoholic, flavored carbonated beverages. This category includes colas, ginger ales, and seltzers but excludes non-carbonated beverages such as ready to drink teas, coffees, fitness drinks, energy drinks, and juice drinks. Facilities included in this subgroup reported a beverage production mix (percentage of each type of beverage produced at the facility, totaling to 100) of 50 percent or more carbonated soft drinks. Figure 1 shows the boundaries of the operations where water use was included in the benchmarking report. In 2010, 687 carbonated soft drink bottling facilities submitted three years of data for the benchmarking study. Carbonated soft drinks were the most well represented subgroup with facilities located on six continents. This subgroup also contained some of the largest facilities by production volume in the entire study. Of the 687carbonated soft drink bottling sites, 64 percent showed an improvement in water use ratio from 2007 to 2009. As seen in Figure 44, the overall carbonated soft drink subset water use ratio showed a 3 percent improvement from 2007 to 2009. Facilities with a beverage product mix of 100 percent carbonated soft drinks (523 facilities) showed a similar improvement of 4 percent from 2007 to 2009. Agriculture Concrete Production n Water Treatment Blending and Bottling Distil latio n

Fig 1: Process Map Carbonated Soft Drinks Bottled Water Bottled water is defined as all unflavored bottled waters including spring water, purified water (produced by distillation, deionization, reverse osmosis or other processes), mineral water, sparkling bottled water or well water. The study process data sheets offered three choices for specifying bottled water mix: spring water, natural water or mineral water. For the purposes of this article, data is presented for facilities that had a beverage product mix of 50 percent or more of any bottled water type. As seen in Figure 5, benchmarking accounts for water treatment (as applicable) and bottling processes In 2010, 105 bottled water facilities submitted three years of data for the benchmarking study, or 14 percent (by volume) of the bottling facility data set. As seen in Figure 2, the water use ratio range reported in this subgroup had the smallest range of all subgroups. Of these 105 sites, 60 percent showed an improvement in water use ratio from 2007 to 2009. The overall bottled water subgroup water use ratio showed a 2 percent improvement from 2007 to 2009. Facilities with a beverage product mix of 100 percent bottled water (62 facilities) showed a similar water use improvement of 4 percent from 2007 to 2009.

Water Treatment

Bottling

Distill ation

Figure 2 Brewery For the purposes of the benchmarking study, a brewery was defined as a facility conducting all processes after the malting process to produce beer (mashing/lautering, boiling,fermenting, aging, and packaging). All breweries in this study also conducted bottling operations on site; a small number also shipped product off site in bulk containers to a separate bottling facility. Breweries may have also produced other beverages (carbonated soft drinks, bottled water) in addition to beer, but in all cases, the majority of beverage product mix was beer. Brewery (beer only) facilities accounted for 16 percent (by volume) of the industry data set, the second largest facility type of the study. As seen in Figure 3, benchmarking accounted for all process steps except for upstream agricultural growth, malting and distribution of finished product. Agriculture

Malting

Mashing

Boiling

Fermenting

Aging

Packaging

Fig 3: Process Map Brewery

Disti llati on

In 2010, a total of 142 breweries submitted three years of data for the benchmarking study. Of these breweries, 117 manufactured beer only, while 25 facilities produced other beverages in addition to beer. Figure 8 presents the water use ratios of the 117 facilities that produced beer only. The range in water use ratios observed in the brewery data set can be attributed to several factors, including: Breweries that package the majority of their product in small package configurations (such as 12oz

or 33cL bottles and cans) typically use more water than a facility which packages a majority of product in large format containers (such as kegs). Within larger facilities, there was less variation in water use ratio. Facilities with a 2009 production volume greater than 1,000,000 kiloliters reported water use ratios below 5.0 L/L. Additionally, these facilities demonstrated a 19 percent improvement in water use ratio from 2007 to 2009. Of these 117 breweries, 70 percent showed an improvement in water use ratio from 2007 to 2009. The overall data set water use ratio improved 14 percent from 2007 to 2009, the greatest improvement in the study. Distillery For the purposes of the benchmarking study, a distillery was defined as any facility that takes agricultural inputs (grains, agave, molasses, etc.) and conducts processes (cooking, fermenting, distilling and storage/maturation) to make bulk alcohol. Production volume at distilleries is reported as wine liters, or the bulk volume of alcohol produced at the facility independent of alcohol content. As seen in Figure 4, benchmarking did not account for upstream agricultural processes or distribution of finished product. Approximately one-quarter of reporting facilities also gauged and packed product on site; however, based on a statistical analysis, there was no discernible trend of water use ratios at these locations compared to those which shipped product off site for blending and bottling. Similar to bottling facilities, distilleries produce a wide variety of products, each of which can require a different number of manufacturing processes that can impact the total water use at the facility, including differences in the distillation process itself. Additionally, facilities that produce a single product or product-type experience lower water use ratios due to reduced cleaning requirements than those facilities that produce more than one type of spirit. Distillery production processes varied by type of spirit manufactured and by each facility and enterprise. Similarly, facilities that produce one type of product would use less water for cleaning between cycles. Alcohol content is also a driver for water use ratio in distilleries. The spirits that result from the distilling process have a range of alcohol content; a lower proof spirit has more water in the final beverage product than a high proof spirit. Additionally, due to transportation regulations and proximity to the bottling facility, some products are partially blended to a lower proof at the distillery.

Agriculture

Cooking

Fermenting

Distilling

Storage/ Maturation

Blending/ Bottling

Disti llati on

Fig 4: Process Map Distillery In 2010, 41 distilleries provided three years of data. Distilleries had the greatest water use ratio range in the industry data set. One of the main drivers for this range was the extensive cooling water requirements of distilleries. The type of cooling water system is one of largest drivers of water use. For example, a once-through cooling water system which draws from a surface water body typically uses more water than either an open recirculating or a closed loop cooling system. Of these 41 facilities, 54 percent improved their water use ratio from 2007 to 2009. The overall distillery data set showed an improvement of 2 percent from 2007 to 2009 a smaller-scale improvement than other data sets.

Winery For the purposes of the benchmarking study, the scope of winery processes included the crushing and pressing of grapes, fermentation, storage/aging and bottling of product. As seen in Figure 5, water used for agriculture, including crop irrigation, was not included in total water use data. Water used for concentrate production and distribution also was not included in benchmarking. Only some facilities included the blending and bottling process in benchmarking data. Wineries represented the smallest data set, with 37 facilities reporting three years of data in 2010, accounting for less than 1 percent (by volume) of the industry data set. Like distilleries, wineries also had a large range of water use ratios among facilities, which was the result of various facility sizes, type of inputs used (concentrated juice, grapes or both), and the type/blend of product (red, white or sparkling wine).

Agriculture

Juice/Conce ntrate

Crushing/ Pressing

Fermenting

Aging

Blending /Bottling

Disti llati on

Fig 5: Process Map Winery Of these 37 facilities, 59 percent improved their water use ratio from 2007 to 2009. The overall winery data set showed an improvement of 4 percent from 2007 to 2009, which similar to distilleries, is likely attributed to a range of water use ratios and facility production volumes throughout the data set. Wineries were the only facility type where the year to year change in production volume at individual facilities showed a statistically significant correlation to a change in water use ratio. This was most notable from 2008 to 2009, when the aggregate production of wineries in the data set decreased 13 percent, and water use ratio increased 5 percent. This indicated that the size (or production volume) of a winery is a factor in determining its water use ratio. Water Use Efficiency Drivers Water use ratios vary in the beverage industry due to availability of advanced technology, packaging requirements for different beverage types, and general company practices. BIER has identified some of the following water use drivers through four cycles of water use benchmarking and best practice sharing: Process Automation and Efficiency: Facilities with newer equipment often report lower water use ratios. Automated processes, where water use is more closely controlled and regulated, will also result in water use efficiency and improvement. Number of Unique Products: Facilities that produce more than one unique product (e.g. different brews of beer, types of soft drink, etc) will require additional water use for cleaning of equipment between products.

Use of Returnable Containers: Returnable container use is known to be a driver of higher water use ratios, as the bottle washing and sterilization process is water intensive. Use of Non-returnable Containers: Rinsing practices associated with non-returnable containers represent another potential source of water use at beverage facilities. However, new applications in non-returnable bottle use, such as air rinsing and improved controls on bottle production, reduce the need for water rinse. Water Recovery and Re-use: Water recovery and re-use for non-product purposes can significantly reduce the total volume of water used by a facility. Water that is not suitable for product (e.g. treatment reject, rinse water, used cooling water, etc.) can be recovered and reused for irrigation, sanitary water supply, line lubrication,facilities maintenance, cooling/heating water,or other cleaning purposes. Clean-in-place Technology: Commercial beverage manufacturing operations useautomated clean-inplace technologies to sanitize process lines and tanks to preserve product quality. Automated controls of chemical concentration, cycle duration,system temperature, and mechanical flow/system pressure can be modified and regulated to efficiently clean equipment with less water and fewer downtime periods. Facility Water Efficiency Efforts: Most BIER members publically report sustainability data, including annual water use ratio (or similar value) and long-term conservation goals.Dedicated enterprise and facility-level efficiency management systems (establishing key performance indicators, clear targets, accountability for targets, monitoring, monthly reporting, etc) establish a culture of water conservation are significant drivers of water use ratio improvement.

Bibliography:
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