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Benchmarking

A very important step in process reengineering (i.e. improving upon both quality of the product and the quality of operation) is benchmarking. This technique helps managers to find out how well their organization performs a special task of specialization. Benchmarking may be defined as systematic procedure for identifying the best practice and also modifying and updating the current actual knowledge to achieve superior performance.

Benchmarking is based on two basic ideas.

Firms who are interested in processing ahead must strive to continuously improve all aspects of their present operations. This means that the firm must be ready to improve a procedure or an operation without waiting for it to fail or break operation.

The firm must find out and learn from outside its own, enterprises the best practice and procedure that are being adopted in other companies so that the firm fruitfully implement them in its own operation.

Hence benchmarking is essentially a process of proving operations by innovative methods. A critical step that has be undertaken to improve the existing process is to develop meaningful and practical standards to measure the existing practices in the operations and then to evaluate, suggest meaningful alternatives that should be attractive for implementation. Activity based costing (ABC) is one of the methods of evaluating present practices. In successful logistic reengineering processes, it is very essential to know the actual cost associated with various activities so that areas where costs have to be reduced can be identified. E.g.: by introducing and implementing improved techniques.

Best Practice Benchmarking

When a company attempts to introduce and review best practice benchmarking, it essentially focuses on the measures, practices and process of the comparable organization. For example: a company that wishes to introduce benchmarking may identify that the key factor in the customer satisfaction is establishing a certain level of customer service and installing a perfect order system for the customer.

Firms normally employ Combinations of three benchmarking methods:

They use published logistics data, which is available from consultants, periodicals and university researchers. However though the published data are easily available, they do not provide much competitive advantage since the data will be available to the competitors as well.

To benchmark privately against non-competitive firms in one’s own or related industry. Here each organization reviews the other’s measures, practices and processes to develop insights that will improve performance.

Consists of an alliance of organizations that systematically share benchmark data on regular basis. These alliances require more effort to maintain but usually provide substantially better information than the preceding two methods.