CASE STUDIES IN OPERATIONS

"The ultimate objective of assaulting costs in the supply chain is not just to effect one-off reductions in the price of components. It is, instead, to set off a chain of continuously falling costs-by mutually discovering ways to do things better without a proportional increase in the rupees poured into the process." - Business Today, January 7, 1999.

Revamping the Supply Chain: The Ashok Leyland Way:Introduction
V Ramachandran, (Ramachandran) deputy general manager, Corporate Buying Cell, Ashok Leyland (AL), the Chennai based manufacturer of medium and heavy commercial vehicles was surfing the Internet at midday in his office. A closer look at the screen showed that he had logged on to an auction site. But this auction site was different. Ramachandran was looking for suppliers of some specific tyres in the global market. At a price of $350, five suppliers were interested. He then lowered the price by $5. Now three of them were willing. Ramachandran kept lowering the price, each time by $5. At $325, there was only one response- the seller asked for an hour's time to confirm. Within one hour, the Czechoslovakian company confirmed it could supply the tyres. Both parties then signed up by e-mail and the deal was struck at $325, saving Ashok Leyland Rs 14,700 per set. Known as reverse auction, this was one of the many ways AL was reducing materials cost, which accounted for nearly 70 per cent of its product cost. In 1997-98, AL, recorded a profit-after-tax (PAT) of Rs. 18.4 crore1 on sales of Rs. 2,014.3 crore. A look at the previous financial year's PAT showed that the profits for 1997-98 had gone for a severe beating. In 1996-97 AL had a PAT of Rs. 124.9 crore on sales of Rs. 2, 482.5 crore. With the manufacturing Industry reeling under recession, the freight generating sectors (manufacturing, mining and quarrying) saw a steep decline resulting in a severe downturn of freight volumes. For AL, whose business was directly dependent on moving material, goods and people across distances, this had come as a severe blow. AL's supply chain2 had gone haywire under the recession which had eaten away 17.62 per cent of its revenues in one year forcing the company to helplessly allow inventories to build up. The results were showing on working capital. It had climbed from 33.34% of sales in 199394 to 58.81% in 1997-98.

'Together We Can' - Beat the Recession
AL did not seem to succumb to the 'uncertainty gloom' that was playing havoc to its business environment. It decided to meet the challenge by re-gearing its systems, be it material order, procurement, material handling, inventory control or production. AL conducted brainstorming sessions inviting ideas on cost cutting. Quality Circle3 teams were

formed for this purpose. Said Thomas T. Abraham, deputy general manager, Corporate Communications, "Our Quality Circle teams were very helpful at this juncture and the worker involvement made it easier to address cost cutting." AL took every employee's ideas into account and figured out a way to keep things going and reduce production without inflicting pain. The recession saw AL waging a war on wastage and inefficiency. AL took many initiatives ranging from tiering its vendor network to reducing the number of vendors, and consequently, moving to a just-in-time (J-I-T)4 ordering system, to joint-improvement programmes (JIP), which were essentially exercises in value-engineering undertaken in association with key vendors. It set up different tier-levels to improve the quality of the suppliers. Tiering formed the basis of the vendor-consolidation drive. Till 1998, Ashok Leyland used to source the 62 components that went into its front-end structure of its trucks and buses, from 16 suppliers. In 2000, one tier-I vendor sourced the products from the other vendors and supplied the assembly to the company. This saved cost and time provided the vendor network was well coordinated with AL's own manufacturing operations. At AL, Vendor Development and Strategic Sourcing were handled by Corporate Materials Department (CMD). CMD identified the vendors, rated the vendors based on feedback received from Supplier Quality Assurance Cell, send drawings/specifications, called for quotes with detailed breakup of operation-wise costs, and negotiated the price at which the parts would be supplied. In addition to CMD, there were Materials Management Departments (MMDs) for scheduling based on unit production plan. AL's purchasing philosophy was to maximize boughtout parts. Over 90% of the parts were bought-out. AL believed in global sourcing. Consistent with its operational needs, AL considered both domestic (Indian) as well as international vendors. Global sourcing was normally resorted to overcome local constraints in the form of technology, quality, capacity or cost effectiveness. AL considered new suppliers for required components, based on Vendors' ability to meet its specification, price and delivery schedules. Vendors were required to have a strong manufacturing base with adequate engineering support for their own product development activities, as needed by the category of product. AL's policy was to develop a vendor base committed to continuous improvement to meet quality, cost and delivery standards. AL considered its vendors as partners in progress and believed in establishing mutually beneficial relationships. It provided necessary technical assistance in the form of project and production engineering, to maintain quality levels. In addition, where required, it also helped vendors financially. AL's Vendors were expected to have a good quality system. Vendors' quality system had to encompass the following: cost effective process, assured process capability, continuous improvements based on customer feedback, compliance of all statutory/legal/commercial requirements of AL, a stage of development where the Vendor could come under AL's self-certification system, and, traceability - first-in first-out.

finances and information. Amrolia. AL preferred a manufacturing/assembly/ support base at close proximity to the production units. an immediate supplier. finances and information from the initial supplier to the ultimate customer. J. services.www. Commenting on the relationship AL shared with its vendors. executive director.emporia. more than fifty executives and engineers from major automobile companies worldwide visited Toyota Motor Company's (Toyota)1 manufacturing complex at Georgetown. 4] Inventory system in which production quantities are ideally equal to delivery quantities. down from three weeks in the late 1990s. 3] Work group that meets to discuss ways to improve quality and solve production problems.N." In the late 2000. with materials purchased and finished goods delivered just in time to be used. US. said. He further added. "The close working relationship with the vendors for vendor development program have benefitted us a lot in cost cutting and making the vendors understand the complexities of material handling. AL's systems were closer to J-I-T with inventories averaging just seven days. The visit also included an intensive question and answer session.edu (1998). services. "We stabilised both the inward material flows as well as the outbound material and that saved us a lot on the inventory. Toyota's JIT Revolution: A Legendary Production System In the mid-1990s." This resulted in low inventories all through the chain. and an immediate customer directly linked by one or more of the upstream and downstream flows of products. to study the Toyota Production System (TPS). . Toyota did not deny them access to the plant." . NOTE: 1] 1 Crore =10 million 2] A basic supply chain consists of a company. An extended supply chain includes suppliers of the immediate supplier and customers of the immediate customer and an ultimate supply chain includes all the companies involved and flows of products. Delivery mode as well as packaging were required to minimize the handling/loading and unloading time. Even though the visitors were from competing automakers. human resources. Also known as Kanban "Toyota's focus on JIT is a continual problem-solving process (not an inventory reduction plan) illustrates why the automaker is a JIT leader not only in its industry but all of industry.AL also placed emphasis on optimizing the inventory and vendors were required to progressively meet "Just-in-Time" requirements. including Ford and Chrysler.academic.

he customized the Ford production system to suit Japanese market. productivity and quality. "Toyota is far ahead in developing markets that the real race is for the second place. they did not match Toyota in efficiency. Sakichi invented a loom that stopped automatically when any of the threads snapped. He saw that an average US worker's production was nine times that of a Japanese worker. engine technology and styling. when Sakichi Toyoda (Sakichi) diversified into the handloom machinery business from his family traditional business of carpentry. After this the production of Model AA began and Toyota Motor Corporation was established in 1937." A top executive at Ford said. It was built on two main principles. He founded Toyoda Automatic Loom Works (TALW) in 1926 for manufacturing automatic looms. supplier relations and distribution. Honda and DaimlerChrysler excelled in advanced engineering techniques. He also devised a system wherein each process in the assembly line of production would produce only the number of parts needed at the next step on the production line. Sakichi established an automobile department within TALW and the first passenger car prototype was developed in 1935. This concept of designing equipment to stop so that defects could be fixed immediately formed the basis of the Toyota Production System (TPS) that went on to become a major factor in the company's success. The early adoption of JIT principles by Toyota seemed to have helped the company achieve significant success.The TPS aimed to produce world-class. Just-in-Time (JIT) production and Jidoka. Analysts remarked that despite imitating Toyota's JIT for many years. quality automobiles at competitive prices. In 1933. Kiichiro visited the Ford Motor Company in Detroit to study the US automotive industry.2 JIT was used not only in manufacturing but also in product development. Toyota's history goes back to 1897." Some executives at BMW also considered Toyota the best car company in the world. Officials at GM commented. It helped the company respond quickly to changing customer needs and offer high quality products at low costs. Sakichi's son Kiichiro Toyoda (Kiichiro) convinced him to enter the automobile business. Analysts felt that though other leading automakers like Mercedes-Benz. He realized that the productivity of the Japanese automobile industry had to be increased if it were to compete globally. which made . no other automaker in the world had been able to make their production systems and processes as efficient as Toyota had done. thus increasing customer satisfaction. Back in Japan. Executives of rival companies also appreciated Toyota's manufacturing and product development systems. "Toyota is the benchmark in manufacturing and product development.

Toyota listed its shares on both the New York and London . the company began its first overseas production in Brazil and over the next few years. it would be very difficult to implement JIT in all the processes for an automobile. Toyota entered the US market through its subsidiary. In 1959. Besides manufacturing. the company appointed distributors in El Salvador and Saudi Arabia and started exports. Okuda replaced chairman Shoichiro Toyoda and Fujio Cho (Cho) became the president. By the early 1990s. TPS followed the production flow conversely. By the early 1970s. In 1996. In 1999. The Toyota Motor Sales Company Ltd. People working in one process went to the preceding one to withdraw the necessary units in the necessary quantities at the necessary time. The package consisted of a series of steps that included downsizing and restructuring the company into separate manufacturing and sales divisions. The JIT production was defined as 'producing only necessary units in a necessary quantity at a necessary time resulting in decreased excess inventories and excess workforce. Toyota made a turnaround and in 1953. was formed in 1950. By 1952. Toyota started a global network of design and Research and Development facilities covering the three major car markets of Japan. who took over as the company President in 1992. Toyota Motor Sales. Toyota flourished during the Second World War by selling trucks and buses to the army and the company launched its first small car (SA Model) in 1947. (launched in 1965) became the largest selling car in the world. In the same year. In the same year. Meanwhile. It also began to tap the markets in the Middle East and by 1974 the Toyota Corolla. Hiroshi Okuda (Okuda) became Toyota president. Kiichiro resigned. after Tatsuro resigned due to health reasons. Toyota entered into a joint venture with GM and established the New United Motor Manufacturing Inc. began to control costs by eliminating all unnecessary expenditure. In 1984. In 1957. This system was referred to as Just-in-Time (JIT) within the Toyota Group. the company faced a series of financial problems. (NUMMI). North America and Europe.' Kiichiro realized that by relying solely on the central planning approach. After the war. A financial support package from a consortium of banks (after the intervention of the Bank of Japan) helped Toyota tide over its problems. Hence. the excessive capital spending affected its profit margins.logistics management easier as material was procured according to consumption. as Toyota expanded its overseas operations. Toyota continued its efforts to make its production system more efficient and also developed flexible manufacturing systems. USA. In 1995. As per the revival package. Tatsuro Toyoda (Tatsuro). developed a vast network of overseas plants. Taiichi Ohno (Ohno) took charge of the company. thereby increasing productivity. This resulted in the preceding process producing only quantities of units to replace those that had been withdrawn. Toyota's sales exceeded that of Chrysler and Volkswagen and its production was behind that of only General Motors (GM) and Ford. Toyota consolidated its production in North American production units into the Cincinnati based Toyota Motor Manufacturing (North America).

a workstation gets a part just in time. JIT was based on the principle of producing only what is needed and nothing more than needed. According to analysts. By the end of 2001.stock exchanges. JIT and other quality measures that enabled Toyota to manufacture in low quantities.447 million and net revenue reached $106. scrap) ‡ Management philosophy ‡ Exposes problems and ‡ 'Pull' System through the bottlenecks plant ‡ Achieves streamlined production What it requires ‡ Employee participation ‡ Industrial What it assumes engineering/basics ‡ Stable environment ‡ Continuing improvement ‡ Total quality control ‡ Small lot sizes Source: Production and Operations Mgmt. work-in-process. Chase. What it is inventory. Cho defined waste as. parts and workers (working time) which are absolutely essential to production. The most important feature of TPS was the way it linked all production activities to real dealer demand through implementation of Kanban. Acquilano & Jacobs. TPS worked on the basic idea of maintaining a continuous flow of products in factories in order to flexibly adapt to demand changes. Toyota's success in both the local and global markets was mainly because of its state-of-the-art and well-planned operational strategies. Developed by the Japanese. . The Japanese believed that anything produced over the quantity required was a waste. Table I Just-In-Time Production System What it does ‡ Attacks waste (time. The system comprised a set of activities aimed at increasing production volume through the optimum use of inventories of raw materials. the JIT production system was one of the most significant production management approaches of the post World War II era. the company's net income had reached $5. materials." JIT did not allow any surplus as it believed that "effort and material expended for something not needed now cannot be utilized now.030 million (Refer Exhibit I for the company's financial performance over the years). The company had continuously focused on gaining a competitive advantage through implementation of innovative and path-breaking ideas on its production floors.: Manufacturing and Services. and finished goods. "Anything other than the minimum amount of equipment." (Refer Table I for requirements and assumptions of JIT). completes its work and the part is moved through the system quickly. In a JIT production system.

In the early 1930s. Ohno also believed that customers should receive high quality products in the shortest time. The ideal lot size as per JIT was one. the production or delivery of components was 'pulled' to the production line (Refer Box). Ohno used pieces of paper contained in rectangular vinyl envelopes to convey information (called Kanban). Ohno had developed the idea in 1956 from the super markets in the US. Initially. Push systems were schedule-based . In case of line interruption. The advantages of JIT included price flexibility. but later it evolved into a management philosophy including a set of techniques (Refer Exhibit II for a comparison between JIT and non-JIT systems). Suppliers delivered desired components when they received a card and an empty container. The JIT system was aimed at avoiding waste. Kiichiro therefore decided to learn new automobile production techniques from American manufacturers. he had to master basic production techniques. He then reorganized the production system in Toyota in a unique way. efforts were made to reduce the transit time. batch production or repetitive production. In a pull system. The consumer of the product 'pulls' from the last link of the production chain. reducing inventories and increasing production efficiency in order to maintain Toyota's competitive edge. This reorganization eventually led to the development of JIT concept.JIT could be applied to any manufacturing environment including job shop. indicating that more parts were needed for production. Since Kanban was a chain process in which orders flowed from one process to another. each supplier produced only enough components to fill the container and then stopped. He soon realized that to catch up with the Americans. and early detection of quality problems. reduction in product variation. the production of a certain product starts only when a demand or request is made by the buyer. The essence of the Kanban concept was that a supplier delivered components to the production line only when required. If workstations were geographically far away. high quality products at low cost for consumers. JIT was used as a method for reducing inventories in Toyota's shipyards. customer satisfaction. thus eliminating storage in the production area. A worker had to complete one task and pass it on to the next workstation for further processing. and above all. In a period spanning three decades. Kanban4 was an essential component of Toyota's JIT concept. The system also offered the advantages of low inventory investment. which had devised an effective system for replenishment of store shelves based on the quantities picked by the customers. the technology used by American automobile companies was superior to that used by Japanese companies. Initially. In western companies. In the early 1970s. The Japanese referred to Kanban as a simple parts-movement system that depended on cards and boxes/containers to take parts from one workstation to another on a production line. This last link pulls its preceding link and so on. Kanban developed into a sophisticated information system that ensured production in required quantities at the right time in all manufacturing processes within the factory. quick response to customers' demands. shortened lead times. the push system was considered to be more cost-effective. Taiichi Ohno (Ohno)3 implemented JIT in Toyota's manufacturing plants.

‡ The earlier process produced only the amount withdrawn by the later process. ‡ Reduce the number of Kanbans. Three types of information were exchanged using Kanban. The disadvantage of the push system was that predictions did not always coincide with facts. two types of Kanban cards were used: one. Avoids overproduction 7. Table II Advantages of Kanban 1. (Refer Figure I). Production information was transmitted from the earlier stages to the later stages to inform the workers about the product mix and other operational matters. As a first step. Pick up information guided the earlier stages regarding parts to be produced for the succeeding stages. Low costs associated with the transfer of information 4. and the other. a computer program processed the information giving a detailed sub-schedule for buying materials and producing goods. (Refer Box). To make the Kanban system effective and reap maximum benefits (Refer Table II) from it. parts were 'pushed' to the line (Refer Exhibit III for a comparison of the Kanban philosophy with the western philosophy). ‡ 100% defect free parts were required. to move parts from one place to another. Provides quick and precise information 3. Transfer information indicated when the parts had to be produced for the succeeding stages. Control can be maintained . known as the Conveyance Kanban card. Minimizes waste 8. A simple and understandable process 2. Provides quick response to changes 5. n the traditional forecast oriented method. a production Kanban card is issued to work centre A. Ohno framed six rules: ‡ Later process went to the earlier process to pick up products. Based on historical information (updated on a weekly or monthly basis). ‡ Should not pick or produce goods without a Kanban. This schedule pushed the production in order to comply with the expected demand. to authorize the production of parts. This resulted in either excess or inadequate inventories. known as the Production Kanban card. Suppose a container of item X is required in work centre A. Limit of over-capacity in process 6. The container of raw materials also included a conveyance Kanban card. The work centre withdraws a container of raw materials from its inventory. At Toyota. ‡ A Kanban should be attached to the goods. Work centre A removes the conveyance Kanban card from the container and sends it to the proceeding work centre where it serves as an authorization to pick up a container of raw materials. A standard size container was used to store parts and each card was treated like a coupon.projections of what demand was expected to be.

go only so far.9. Analysts felt that it did not take into account the possibility of labor strikes at automotive plants. In fact. Outside the plant. In the absence of good supplier relations. the system was far from perfect and difficult to implement. Heijunka averaged the highest and lowest variations of the orders. Another important component of JIT was Heijunka (production smoothing). there could be many barriers to the successful implementation of JIT. Another problem seemed to be the difficulty of removing the 'human element' from the systems that generate requirements. Heijunka took care not only of the total volume of items but also the type of items produced and the other options. "Computer algorithms." . For JIT to be successful. The supplier relations of the company also needed to be improved to ensure timely delivery. companies had to ensure that they did not make frequent changes in production planning and that their forecasting procedures were reliable and did not result in under or over forecasting of demand. JIT involved high set up costs and Special training and reorganization of policies and procedures in the company were necessary to implement JIT. John Paul MacDuffie5 said. The variations were then removed from the production schedule. JIT's principle of building only the required number of items helped keep the production costs low. In this way. with lengthy experience at reading the ups and downs of the industry are still a must. Analysts felt that Toyota's JIT was a complicated process and that its success inside a plant depended mainly on highly experienced. Organizational culture also seemed to play a crucial role in the implementation of JIT. Good people. highly motivated managers. JIT's success depended on a network of capable suppliers that operated in sync with Toyota's production processes. An analyst commented. Many companies outside Japan reported difficulties in the implementation of the concept. Moreover. Heijunka helped in the accomplishment of this principle by creating a consistent production volume. Toyota was not able to replicate the JIT production system in an efficient way in any of its operations outside Japan. "Toyota hasn't developed a single facility that is as efficient as the ones it has in Japan. according to some analysts. the activities of final assembly were linked to previous operations by a chain system of card ordering that 'pulled' production through the factory. Other barriers could be equipment failure and employee absenteeism. Although many automobile companies around the world adopted JIT. Moreover. they say. Delegates' responsibility to workers Source: ICMR The Kanban cards were re-circulated and the number of cards controlled work-in-progress (WIP) in the system." Most companies felt that people should be actively involved in the system. It was based on the key assumption that sources and channels of supply were reliable and dependable at all times. This ensured that the right quantity of parts was produced with minimum workforce. JIT increased the risk of inventory shortage.

Toyota benefited more from the system than other automobile companies (Refer Exhibits IV & V).Although Toyota's JIT had some drawbacks. Muthuraman.B. JIT was adopted by many Japanese companies. TISCO. Analyst." . This is no fault of ours. Quality is no longer a privilege . the steel industry is not likely to return the cost of capital. Taiichi Ohno had revolutionized production. TISCO offered a wide range of products (See Exhibit I) and services including Hot rolled/Cold rolled (HR/CR) . Background Note Tata Iron and Steel Company (TISCO) was established in 1907 by J N Tata1 at Jamshedpur in Bihar." . Any necessary improvements are made by directing attention to the stopped equipment and the worker who stops the operation. The Jidoka system puts faith in the worker as a thinker and allows all workers the right to stop the line on which they are working.it is a standard accompanied by low cost.The World's Most Cost-Effective Steel Plant "With cost-cutting measures and good management. Because of the early adoption of JIT. Managing Director. Paribas Asia Equity. it offered several advantages over other manufacturing processes. TISCO . but due to the structure of the global and Indian steel industry. 2] A defect detection system that automatically/manually stops the production operation and/or equipment whenever an abnormal or defective condition occurs. but also a philosophy that governed the attitude of a successful business.6 "Using JIT. "It is our endeavor to reduce the cost of saleable steel by 2. India.Rajeev Das.3 per cent every year." NOTE: ] Toyota was the world's third largest automobile manufacturer in 2000. By 2000. after General Motors and Ford.5 . The concept has made Japanese products affordable and reliable in quality. as well as some US car companies. The market clearly reflects the success of JIT. According to one analyst. Analysts felt that JIT was not only a process that could be applied to manufacturing." "We realize that however efficient we become. a company like TISCO may be the last one standing.

Explaining the need of modernization. in a report stated. the then managing director of TISCO said. By early 2000. TISCO had completed four phases of the modernization programme with an investment of about Rs 60 billion5. special company culture." WSD identified 12 companies as World Class Steel Makers. and offered cargo-handling services.coils2 and sheets.. etc. The company's cost per tonne of finished steel stood at $152 for the financial year ending March 2001. a program that focused on improving TISCO's operational practices and rationalizing procurement costs.. We would have been annihilated had we not modernized. TISCO had emerged as the world's lowest cost producer of steel.. TISCO had become India's most cost-effective steel plant. Joda. West Bokaro Collieries. Tubes Division. construction bars. you cannot fight a modernday war with weapons of the Mahabharata. In the early 1980s. Ferro Alloy Plant. The World Steel Dynamics (WSD)6. ferro alloys and other minerals. J J Irani. software for process controls. The fifth phase of the program had commenced in April 2000 By April 2001.and one of the few companies in the world with such a standing. . This view point is based on a variety of reasons such as low operating costs. tubes. strips and bearings. It also manufactured material handling equipment. The company had invested Rs 4 billion on consultancy fees during 1990 to 2000. and ranked them based on certain factors7 (Refer Table I). and Growth Shop & Steel Works. integrated steel producer (ISP)3 in the private sector. "Tata Steel is a 'world class' steel maker . our weakest link. including Noamundi Iron Operations. We realized this and embarked on the four phases of modernization.the only in India . forging quality steel. Sukinda Chromite Mines. Joda East Iron Mines. structurals. "We would have been finished otherwise. rods. Analysts felt that TISCO's achievement of becoming the lowest cost producer of steel was mostly attributed to its implementation of TOP (Total Operational Performance). TISCO initiated a modernization program of its steel plant (See Exhibit II). We addressed our drawbacks like the steel making process. It also became Asia's first and India's largest. TISCO's operating cost at the 'hot metal' (liquid) stage was $75 per tonne. good profitability. eight divisions of Tata Steel were ISO-140014 certified." By mid-1990s. By 2000.

required in minimum time (See Exhibit IV). cost of conversion. as a program.com The 'Top' Program In the early 1990s. which included cost of raw materials." The consultants suggested TISCO to focus on various components affecting the cost of steel. fuel rate in the blast furnace and mining of coal.tatasteel. In the second half of 1998. with minimum investment. TISCO appointed McKinsey and Booz-Allen & Hamilton to study its operations and suggest ways to cut costs. in association with McKinsey. TISCO was advised to use the most modern technologies to cut costs further. which would have a maximum positive impact to the bottomline. Irani explained the rationale. TOP was widely regarded.TABLE I WSD's RANKING Company Ranking Score TISCO 1 131 Usinor 2 129 (Russia) Posco 3 127 (Korea) CSN 4 123 (Brazil) Baosteel 5 121 (China) China Steel 6 119 (China) Gerdau 7 118 (Brazil) Nucor 8 116 (US) Car-Tech 9 112 Nippon Steel 10 111 (Japan) Severstal 10 111 (Russia) Dofasco 11 109 (US) Source: www. It aimed . TISCO implemented TOP program at its G blast furnace8. "Cost-cutting measures are more important in the present situation where one can no longer control steel prices which are dictated by international markets.

TOP was in Phase V of the Wave In 2000. Individual components of the larger cost elements were identified by drawing cost trees9. By March 1999. Around eight units were addressed simultaneously during the 12 weeks. which could be reduced were highlighted and the reduction targets were set. the whole organization was divided into manageable 'units' to facilitate the implementation of TOP. Each team was asked to set itself a target based on the TOP norms. similar Waves were also adopted in TISCO's shop floors. coke and coal were the largest cost elements. TOP was expected to enable the TISCO to achieve high rates of performance improvement (See Exhibit V). the G blast furnace also implemented 185 ideas. the G blast furnace achieved a savings of Rs 87 million against the targeted savings of Rs 40 million. McKinsey provided the facilitators. throughput10 and fuel costs were identified as the key performance indicators in the Phase II. develop ideas to improve from the present level of performance to the target level. ideas were generated to achieve the target output of 3800 tons per day. In the process. The Phase IV of the Wave started with the implementation of these ideas. A unit team was formed comprising a unit leader and two facilitators. In the Phase II of the Wave. They accounted for about 50% of the total costs. During this phase. In the long run. quality and cost in the short term. The unit team's objective was to explore ideas to reduce the cost or delays made by the unit by about 40%. TOP enabled TISCO to improve customer satisfaction and loyalty. 36 ideas were short-listed. At the G blast furnace. The team had to establish relationships between key performance indicators and the elements that had an impact on them. Since TISCO's scale of operations was quite large. Initially. which did not require any capital investment. Moreover. The TOP program had helped TISCO to shift its focus from just producing volumes to costs and quality. The cost elements. Among the different individual components of fuel costs. Considering the techno-economic feasibility. The unit leader was responsible for the performance of that particular unit. ideas were explored to reach the set targets. The Phase I of a Wave was two weeks long. The team worked full time on the TOP program for a period of 12 weeks. the team was expected to identify and understand how each cost element could be reduced. accounting for more than 10% of its profits in the fiscal 1999. Simultaneously. . TISCO set up a potential savings target for its G blast furnace at about Rs 300 million per annum. and implement those ideas. A reduction target was set to bring costs down to 570 kgs per thm11 from 610 kgs per thm.achieving large improvements in throughput. In the Phase III of the Wave. the cost base was examined and the items that had a maximum impact on the bottomline were identified. The ideas were then grouped based on the capital expenditure required for implementing each idea.' The entire Wave was divided into five phases (See Exhibit VI). By late 1999. and this was also known as 'Wave.

The company made efforts to reduce its product delivery time from 3-4 weeks in 1998 to 2 weeks in 2000. PEP had two core elements. The team was responsible for re-designing two core business processes ." In a bid to reduce costs further. TISCO took measures to reduce costs further by adopting innovative strategies and other cost-cutting exercises. an expensive metal used to increase the strength and flexibility of steel. the average age of the managers has fallen by 10 years. rather than following the convention of seniority. TISCO wanted to make performance appraisals transparent and fair and reward the good performers. it proposed a new organizational structure. and encourage teamwork among the managers and the workforce.000 employees was not an easy job and the company was able to do it with a lot of communication with employees. The company aimed to further reduce the time to one week. it planned to promote hardworking young people to higher positions depending on their performance. The program began with a study on cost-competitiveness. TISCO . clear accountability. TISCO had adopted Performance Ethic Programme (PEP). "Youngsters are getting higher salary than some of the seniors. For example. TISCO used IT as a strategic tool. TISCO also took steps to reduce its manpower costs. Firstly. PMS would also ensure that every employee's job profile was clearly defined.000 employees. and also offer development opportunities for each employee. under which. The company also planned to introduce a new compensation package based on performance from November 2001. the team decided to use SAP R/3.order generation and fulfillment and marketing development. which was expected to foster growth businesses. and after the restructuring. It would identify and reward strong performers. Between 1996 and 2000. Analysts opined that cutting its workforce by 38. thereby reducing the costs.000 to 40. In 1999. By introducing PMS. This exercise was expected to cut the management staff from 4000 to 3000. After considering several packages. TISCO stopped using manganese. TISCO reduced its workforce from 78. introduce more decision-making flexibility. the company formed a small cross-functional in-house team consisting of consultants from Arthur D Little and IBM Global Services. PEP proposed to introduce a Performance Management System (PMS). Secondly. Through PEP. The aim of the program was to enhance customer focus enabling better credit control and reduction of stocks. TISCO also reduced the hierarchical levels from 13 to 5. Muthuraman explained the benefits of PEP.mplementing Best Practices In 1999-2001.

wanted the team .also known as ASSET (Achieve Success through SAP Enabled Transformation) . TISCO planned to enter the call center business in Jamshedpur. TISCO also planned to exit from some of its non-core activities. TISCO entered into a marketing alliance with Tata International.1 million-ton ferro chrome export oriented project. It also improved customer service and productivity. There was a significant reduction in inventory the carrying cost.8 cents for about 15 years that is about onefifth of the tariffs in India. They felt that it was doubtful whether steel. Critics felt that TISCO might face problems due to the decrease in demand for steel in the global and local markets and increasing competition from cheap imports. They said that its entry into value-added products was expected to safeguard the company from . The Steel Authority of India Ltd. even at the lowest cost.82 billion during 1998-99 (Refer Exhibit VII). TISCO was to get power at a tariff of 1. The Future Analysts felt that TISCO's modernization program was very successful. TISCO's strategy to export to Jordan. (SAIL) adopted a similar program with an investment of Rs 70 billion. The project was planned in Australia because of the lower power costs. In contrast. The introduction of SAP also decreased manpower cost from more than US $ 200 per ton in 1998 to about US $ 140 per ton in 2000. However. the program was not successful. the trading arm of Tata Group. Power accounted for 60% of the cost of ferro chrome manufacturing. To provide employment to the employees opting for VRS at over-manned units. After SAP solutions were introduced in TISCO. the business processes became more efficient.to integrate SAP into the existing information system and make it compatible with future SAP implementations. from Rs 190 per ton in 1999 to Rs 155 per ton by 2000. and Rs 4. in spite of the depressed market and lower margins. Iraq and the Southeast Asian countries might reduce dependence on the US markets thus helping the company. However.53 billion in 2000-2001. There were also significant cost savings through efficient management of resources. TISCO planned to enter new areas including setting up of a 0. would deliver returns higher than the cost of capital in India. and anti-dumping duties imposed on the domestic steel manufacturers by the US. The Future TISCO was also planning to enter titanium mining through alliances with major global companies. some analysts remarked that in the long run. To develop this business.22 billion in 1999-2000 compared to Rs 2. and reduced costs. the decrease in the production costs enabled TISCO to achieve a profit after tax of Rs 5.

8] A blast furnace is a towering cylinder lined with heat-resistant (refractory) bricks. aggressive. 2] Hot rolled coil is a coil of steel rolled on a hot-strip mill (hot-rolled steel). what are the other steps taken by TISCO for reducing costs? 3. TOP was described as "maximum impact to the bottomline. Questions for Discussion 1. . 4] The International Organization for Standardization (ISO) develops voluntary technical standards. The cost tree of a master template allows to check or un-check preengineered cost elements of the master template. price paid for electricity. coke and limestone that are loaded into the furnace. balance sheet. What was the rationale behind the implementation of TOP? Briefly analyze the process and explain the advantages of TOP. 6] A renowned industry analyst firm based in the US. in the minimum time. it resembles the file arrangement that Microsoft Explorer provides. Cold rolling is a process where the shape and structure of the steel can be changed by rolling. or stretching it at a low temperature (often room temperature). favorable location for procuring raw materials. with minimum investment. The cost-cutting measures seemed to have helped TISCO to a large extent. ownership of low-cost ore and coal. high quality and niche products. 11] Kilograms per ton of heavy metal. hammering. used by integrated steel mills to smelt iron from its ore. 3] The Integrated steel producers have manufacturing facilities right from the iron ore stage to the finished steel stage. The lowered production costs enabled TISCO to record a profit during 1999-2000. skilled and productive workforce. cost position of nearby competitors. 2. Its name comes from the 'blast' of hot air and gases forced up through the iron ore. 5] In September 2002. despite a depressed market and low margins. domestic market growth rate.the fluctuations in the steel prices. low legacy (retired worker) costs. NOTE: 1] Jamshedji Nusserwanji Tata (J N Tata) was the founder of the Tata Group of companies. 7] Operating costs. Do you think the low costs would help the company in the long run? Justify your answer. management is experienced. Rs 48 equaled 1 US $. proactive. dominant in region. Apart from TOP. 9] Cost tree is a display of the organization of the costs of a template which contains all the major cost elements for an asset or a worksheet. owns downstream steel-using businesses. 10] Output or production over a period of time. It can be sold in this form to customers or be processed further into other finished products. Visually. degree of 'pricing power' with large steel buyers. The ISO 14000 standards are on environmental management. borrowed funds and equity on a favorable basis. ongoing cost cutting efforts. proportion of domestic sales.

Ltd. Cincinnati. Xerox acquired a majority stake (51. made the first xerographic image in the US. when Chester Carlson. approached Battelle and obtained a license to develop and market a copying machine based on Carlson's technology.XEROX . maker of photographic paper. a Customer Services Benchmarking Manager. It also explores the positive impact of benchmarking practices on Xerox . in 1944. which Carlson called 'electrophotography. in 1999.Warren Jeffries. Finally. Daconics (which . During the late 1960s and the early 1970s. The case discusses in detail the benchmarking concept and its implementation in various processes at Xerox. Fuji Xerox Co.The Benchmarking Story The case examines the benchmarking initiatives taken by Xerox. the Battelle Memorial Institute in Columbus. Buoyed by the success of Xerox copiers. It is also traded on the Boston.2%) in Rank Xerox in 1969. and to The Xerox Corporation in 1961. as a part of its 'Leadership through Quality' program during the early 1980s.' Three years later. Philadelphia. Throughout the 1960s. Haloid changed its name to Haloid Xerox Inc in 1958. Xerox grew by acquiring many companies. Micro-Systems. Xerox diversified into the information technology business by acquiring Scientific Data Systems (makers of time-sharing and scientific computers). Haloid later obtained all rights to Carlson's invention and registered the 'Xerox' trademark in 1948. Xerox was listed on the New York Stock Exchange in 1961 and on the Chicago Stock Exchange in 1990. Pacific Coast. one of the world's leading copier companies. Basic Systems and Ginn and Company. contracted with Carlson to refine his new process. Ohio. was launched as a joint venture of Xerox and Fuji Photo Film. 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. Xerox. including University Microfilms. a patent attorney and part-time inventor. Carlson struggled for over five years to sell the invention. London and Switzerland exchanges. Background Note The history of Xerox goes back to 1938. as many companies did not believe there was a market for it. Electro-Optical Systems. The Haloid Company. In 1962.

In 1982. In the early 1980s. About Benchmarking Benchmarking can be defined as a process for improving performance by constantly identifying. benchmarking means comparing one's organization or a part of it with that of the other companies. Canon. Xerox also suffered from its highly centralized decision-making processes. In 1969. The company's operating cost (and therefore. understanding and adapting best practices and processes followed inside and outside the company and implementing the results. to develop technology in-house. Kearns (Kearns) took over as the CEO.' Simply put.made shared logic and word processing systems using minicomputers). Xerox's profits decreased from $ 1. Japanese companies were able to undercut Xerox's prices effortlessly. As Xerox grew rapidly. The company even went on to become one of the best examples of the successful implementation of benchmarking. While the company's revenues increased from $ 698 million in 1966 to $ 4. It ignored new entrants (Ricoh. The main emphasis of benchmarking is on improving a given business operation or a process by exploiting 'best practices. He discovered that the average manufacturing cost of copiers in Japanese companies was 40-50% of that of Xerox. Between 1980 and 1984. David T.' As part of this quality program. and Vesetec (producers of electrostatic printers and plotters). 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. return on assets fell to less than 8% and marketshare in copiers came down sharply from 86% in 1974 to just 17% in 1984. a variety of controls and procedures were instituted and the number of management layers was increased during the 1970s.15 billion to $ 290 million (Refer Exhibit I). it set up a corporate R&D facility. and Sevin) who were consolidating their positions in the lower-end market and in niche segments. As a result of this. According to analysts. however. profits increased five-fold from $ 83 million in 1966 to $ 407 million in 1977. Xerox's management failed to give the company strategic direction. Xerox implemented the benchmarking program. the prices of its products) was high and its products were of relatively inferior quality in comparison to its competitors. These initiatives played a major role in pulling Xerox out of trouble in the years to come.' not on 'best performance. This. the Palo Alto Research Center (PARC). In the 1970s. Companies can adopt one or more of the following types of . 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. slowed down decision-making and resulted in major delays in product development.4 billion in 1976. As a result. Xerox found itself increasingly vulnerable to intense competition from both the US and Japanese competitors.

The data analysis and reporting stage involves the critical evaluation of practices followed at high performing companies. Of the total time spent on the above stages. ‡ External Benchmarking: Used by companies to seek the help of organizations that succeeded on account of their practices. This allows easy access to information. Information is mainly collected through questionnaires administered to all best practice companies. The best-practice companies are identified and appropriate data collection tools are selected and updated for use. establishing and documenting specific study focus areas. which contains key findings. It involves examining the core competencies. ‡ Process Benchmarking: Used by companies to improve specific key processes and operations with the help of best practice organizations involved in performing similar work or offering similar services. product/service development and innovation strategies of such companies. A detailed final report is presented. Competitive benchmarking involves companies from the same sector. The time . ‡ Functional Benchmarking or Generic Benchmarking: Used by companies to improve their processes or activities by benchmarking with other companies from different business sectors or areas of activity but involved in similar functions or work processes. When these findings are discussed. This stage also includes site visits to organizations that follow best practices. A typical benchmarking exercise is a four-stage process involving planning. ‡ Internal Benchmarking: This involves benchmarking against its own units or branches for instance. data collection 50%. even sensitive data. data analysis and reporting and adaptation. and data analysis and reporting take up the remaining 20%. data collection. and also takes less time and resources than other types of benchmarking.benchmarking ‡ Strategic Benchmarking: Aimed at improving a company's overall performance by studying the long-term strategies and approaches that helped the 'best practice' companies to succeed. key events and definitions. The planning stage includes identifying. The adaptation stage includes developing an initial action plan to adapt and implement the practices followed by high performance companies. The purpose of the data collection is to accumulate qualitative data and learn from the best practices of different organizations. best practice companies also take part through systematic networking activities and presentations. business units of the company situated at different locations. and the identification of practices that help and deter superior performance. Competitive Benchmarking or Performance Benchmarking: Used by companies to compare their positions with respect to the performance characteristics of their key products and services. ‡ International Benchmarking: Involves benchmarking against companies outside the country. This kind of benchmarking provides an opportunity to learn from high-end performers. as there are very few suitable benchmarking partners within the country. planning takes up 30%.

and sell units for about the same amount that it cost Xerox just to manufacture them. IBM. Xerox found out that it took twice as long as its Japanese competitors to bring a product to market. Benchmarking against Japanese competitors. integration. the pioneering efforts of Xerox in the field of benchmarking have undoubtedly been the most talked about and successful of such initiatives. over 30 companies reported a $76 million payback approximately in the very first year of their benchmarking implementation. Benchmarking at Xerox The 'Leadership through Quality' program introduced by Kearns revitalized the company. Some of the companies that derived the benefits of benchmarking included Ford.000 defective parts per million .planning. Xerox managers accepted the reality. identifying the gaps and establishing goals. Motorola and Citicorp. Services. The above stages comprise a series of steps that collectively complete the benchmarking process (Refer Exhibit II for steps in a typical benchmarking process). Organizations usually customize this model or develop their own benchmarking model to meet their specific organizational needs. The program encouraged Xerox to find ways to reduce their manufacturing costs. adaptation.' Gradually. in 1995. Our goal is always to achieve superiority in quality. and practices against its toughest competitors. This model involved tens steps categorized under five stages . analysis. The company also found that the Japanese could produce. a division of American Productivity & Quality Center (APQC2). product reliability and cost. Xerox defined benchmarking as 'the process of measuring its products. ship. many Fortune 500 companies and other major companies were implementing benchmarking to reap the benefits it promised. depends on the scope of the exercise being undertaken by the company. Following this. Xerox's products had over 30. After an initial period of denial. four times the number of design changes. Xerox developed its own benchmarking model. In addition. Benchmarking also revealed that Xerox would need an 18% annual productivity growth rate for five consecutive years to catch up with the Japanese. However. action and maturity (Refer Figure I for the Xerox benchmarking model). five times the number of engineers. and three times the design costs. AT&T. By the early 1990s. Benchmarking also became a key criterion for winning the Malcolm Balridge National Quality Award.about 30 times more than its competitors. GE.taken for the last stage.1 According to research conducted by the International Benchmarking Clearinghouse. The five-stage process involved the following activities: .

a mail-order supplier of sporting goods and outdoor clothing.L. to attain best performance. identify the relevant best practice organizations and select/develop the most appropriate data collection technique.‡ Planning: Determine the subject to be benchmarked. on the basis of the data collected. Xerox identified ten key factors that were related to marketing. integrate these goals into the company's formal planning processes. These were customer marketing. referred to magazines and trade journals. ‡ Integration: Establish necessary goals. the company found this type of benchmarking to be inadequate as the very best practices. ‡ Analysis: Assess the strengths of competitors (best practice companies) and compare Xerox's performance with that of its competitors. Deviations from the plan are also tackled at this stage. This stage determines the new goals or targets of the company and the way in which these will be communicated across the organization. For instance. These ten key factors were further divided into 67 subprocesses. product maintenance. business management. order fulfillment. Xerox collected data on key processes of best practice companies. ‡ Maturity: Determine whether the company has attained a superior performance level. These critical processes were then analyzed to identify and define improvement opportunities. billing and collection. which involved a study of the best practices followed by a variety of companies regardless of the industry they belonged to. Xerox subscribed to the management and technical databases. This considerably reduced the . The program arranged orders in a specific sequence that allowed stock pickers to travel the shortest possible distance in collecting goods at the warehouse. asset management. The company then adopted functional benchmarking. This stage also helps the company determine whether benchmarking process has become an integral part of the organization's formal management process. financial management. in some processes or operations were not being practiced by copier companies. customer engagement. For the purpose of acquiring data from the related benchmarking companies. Xerox began by implementing competitive benchmarking. human resource management and information technology. and also consulted professional associations and consulting firms. However. Xerox initiated functional benchmarking with the study of the warehousing and inventory management system of L. Each of these sub-processes then became a target for improvement. Having worked out the model it wanted to use. Bean had developed a computer program that made order filling very efficient. ‡ Action: Implement action plans established and assess them periodically to determine whether the company is achieving its objectives. This stage determines the current competitive gap and the projected competitive gap. Bean (Bean).

Cummins Engines and Ford (for factory floor layout). Saturn (a division of General Motors) and Fuji Xerox (for manufacturing operations) and DuPont (for manufacturing safety). half the components of similar machines were identical. Vendors were consulted for ideas on better designs and improved customer service also. Florida Power and Light (for quality improvement). Japanese companies worked closely with their suppliers. 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. i.000 to just 400. As a result. Often. Xerox replicated the system in the US and saved tens of millions of dollars in the process. manufacturing automation and other key areas. Toyota (for quality management). was used to determine inventory levels.000 suppliers. delivery in small quantities.inconvenience of filling an individual order that involved gathering relatively less number of goods from the warehouse. fully configured products near to the customer. Xerox reduced the number of vendors for the copier business from 5. Actual usage. The increased speed and accuracy of order filling achieved by Bean attracted Xerox. Honda (for supplier development). while Xerox alone had 5. 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. In the late 1980s. Traditionally. which considerably reduced the inventory holding time. Xerox zeroed in on various other best practice companies to benchmark its other processes. Cooperation between the company and the vendor extended to just-in-time production scheduling. Japanese companies standardized many parts. technical representatives decided the level of spare parts inventory to be carried. The company was convinced it could achieve similar benefits by developing and implementing such a program.000. They frequently trained vendor's employees in quality control. working capital cycle time was cut by 70% leading to savings of about $200 million. Inventory Management Xerox's efforts to improve inventory management practices drew inspiration from the innovative spare parts management practices of its European operations. Hewlett-Packard (for research and product development). some of which was not even sold during a given period. The stocking policy followed by Xerox branch managers was to hold fully finished. To keep the number of suppliers low. These included American Express (for billing and collection). Xerox's European operations developed a sophisticated information system to get around this problem. rather than mere withdrawal from the stocking point. In line with the best practices. The company changed the above setup by asking branch managers to match the stocking policy to the customer's installation orders. they carried vast amounts of inventory. Because of this policy. little information was available on the actual usage pattern of the spare parts. Similarly. as per the customer's production schedule. The process of benchmarking helped Xerox revamp its . To ensure part standardization.e.

the group that built paper trays identified its external customer as the end user who would load the paper. The transition team took action at two levels. Firstly. Xerox also used the vast amount of information gathered by the system to develop business plans for improving quality and meeting customer needs. Xerox reformulated its quality policy. benchmarking had become a dayto-day activity in every division of the company." In 1991. Consequently. This was also done to ensure continuous . Quality means providing our external and internal customers with the innovative products and services that duly satisfy their requirements. 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. Following this. Xerox's new quality policy stated. Its internal customers were the assembly-line workers. who would combine the paper tray with hundreds of other components to assemble the copiers. we should aim to do at least equally well. marketing and pricing. Quality is the basic principle for Xerox. According to company sources.manufacturing techniques. Marketing Xerox introduced a Customer Satisfaction Measurement System that integrated customer research and benchmarking activities. For instance. the company embarked on a complete organizational restructuring exercise that focused on research and development. it conveyed the message clearly to the world that Xerox was pursuing more widespread use of TQM. it identified and addressed the obstacles that were likely to slow down the spread of TQM. Xerox's guiding principle was. the transition team also replaced the existing complex matrix by three Strategic Business Units (SBUs) .000 questionnaires monthly to its customers to measure customer satisfaction and record competitors' performance.Enterprise Service Business. By the late 1980s. Xerox developed Business Excellence Certification (BEC) to integrate benchmarking with the company's overall strategies. Quality As a part of its "Leadership Through Quality" program. "Xerox is a quality company. This process significantly improved the operational efficiency of the work groups. employee involvement and customer orientation. Each of these SBUs was given considerable autonomy in engineering. Office Copiers and Home Copiers. The new policy supplemented the company's benchmarking efforts. Quality improvement is the job of every Xerox employee" (Refer Exhibit III for a comparison between new and old quality policies). 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. It then benchmarked against those competitors that had scored high marks on specific measures of customer satisfaction. The company sent out over 55. and secondly. These ranged from the corporation's function-dominated matrix structure to the need for new training programs. 'anything anyone can do better.

Each unit's self-appraisal was validated by representatives from sister divisions. ‡ Inspection of incoming components reduced to below 5%. human resource management. ‡ Defects in incoming parts reduced to 150ppm. quality support and tools. This new philosophy was dubbed 'steal shamelessly.3 % to 3. The benchmarking process encouraged Xerox's employees to learn from every situation. ‡ Inventory costs reduced by two-thirds. By the mid-1990s. Customer complaints to the president's office declined by more than 60%. ‡ Marketing productivity increased by one-third.' though the company used only those ideas that the best practice companies willingly gave away. at varying levels. It also helped the company establish key functions for removing obstacles that prevented it from reaching the set quality goals. 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. ‡ Increased product reliability on account of 40% reduction in unscheduled maintenance. The key performance factors measured by BEC were management leadership. 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. The initiatives were also adopted. ‡ Errors in billing reduced from 8. ‡ Notable decrease in labour costs. ‡ Distribution productivity increased by 8-10 %.self-appraisal of the overall quality performance of the company.' This change in attitude was just the beginning of the payoffs of the benchmarking moves. ‡ Service response time reduced by 27%. Customer satisfaction with Xerox's sales processes improved by 40%. at Xerox units across the world. which were further divided into forty sub-factors. process management and business priorities/results. ‡ Became the leader in the high-volume copier- . 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 1991.5% percent. benchmarking was extended to over 240 key areas of product. service and business performance at Xerox. Some of the other benefits Xerox derived were: ‡ Number of defects reduced by 78 per 100 machines. had their specific measuring targets. 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. service processes by 18% and administrative processes by 21%. These factors. Highly satisfied customers for its copier/duplicator and printing systems increased by 38% and 39% respectively. customer focus.

along with companies such as Ford. Australia. the company's document outsourcing division. Xerox. comment on the rationale behind the decision to implement benchmarking practices at the company. China. benchmarking had become a common phenomenon in many companies across the world. Canada. By 2001. Define benchmarking and discuss the various types of benchmarking. AT&T. the Malcolm Baldridge National Quality Award in 1989. 3. By the mid-1990. The success of benchmarking at Xerox motivated many companies to adopt benchmarking. The institute offers information on various companies and best practices through its electronic bulletin board. more than 100 companies joined IBC to gain access to extensive database. to the adoption of benchmarking practices. Belgium. Ireland. and Uruguay. What benefits did Xerox derive from the implementation of benchmarking practices? Why do you think benchmarking initiatives sometimes fail to give companies the expected benefits? Explain how you would go about ensuring the success of the benchmarking initiatives undertaken by the company. Brazil. France. 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). Hong Kong. and. hundreds of companies implemented benchmarking practices at their divisions across the world. and the European Quality Award in 1992. the UK. ‡ Country units improved sales from 152% to 328%. How did Xerox go about implementing benchmarking practices in the company? 4. 2. also won the Baldridge Award in the service category in 1997. Motorola and Citicorp. Explain the steps involved in the implementation of a typical benchmarking process. Explain the circumstances that led Kearns to adopt the 'Leadership Through Quality' program. . Questions for Discussion 1. Mexico. Motorola and IBM. Portugal. These included leading companies like Ford. created the International Benchmarking Clearinghouse (IBC) to promote benchmarking and guide companies across the world in benchmarking efforts. Norway. Describe Xerox's benchmarking model. Colombia. Xerox Business Services. India. more significantly. During the 1990s. Analysts attributed this success to the 'Leadership Through Quality' initiative. Xerox won quality awards in Argentina. GE. the Netherlands. In addition. AT&T. IBM. Xerox went on to become the only company worldwide to win all the three prestigious quality awards: the Deming Award (Japan) in 1980. Soon after its establishment. In the backdrop of his initiatives to retain Xerox's global competitiveness. over the years. Germany.duplicator market segment.

2] APQC is a US-based nonprofit organization supported by nearly 500 companies. strategic planning. and business results. It provides the tools. government organizations. It is based on seven parameters . expertise. and educational institutions. customer and market focus. human resource focus. . process management. information and analysis. and support needed by companies to discover and implement best practices in areas such as benchmarking and knowledge management.NOTE: 1] A highly revered award given for excellence in quality in the US to businesses.leadership. information.

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