Benchmarking 

:
 Involves two organizations that have agreed to share information about processes or
operations. (Sharing of information so that both can improve)
 They both anticipate some gain from the exchange of information.
 Either organization is free to withhold information that is considered proprietary.
 They both need not to be competitors
 It is callet “the process of identifying, understanding and adapting outstanding
practices and processes from organizations anywhere in the world to help
improve the performance.
 Benchmarking is good business because:
 Openness provides an impetus to continual improvement
 Openness can create a competitive advantage through physiological barriers to
competition.
 Benchmarking concerns processes and practices
 Benchmarking is a respected means of identifying processes that require
major change.
 Benchmarking compares your process or practice with the target company’s
best in-class process or practice.
 The goal of benchmarking is to find “secrets of success” and then adapt and
improve them for your own application
 Equally beneficial for both large and small businesses

Types of benchmarking:
 Financial benchmarking
 Process benchmarking
 Product benchmarking
 Strategic benchmarking
 Functional benchmarking
 Performance benchmarking:
 Allows initiator firms to assess their competitive position by comparing
products and services with those of target firms.

Difficulties in monitoring and measuring performance:

 Limitations of accounting systems
 Focusing too much on results and not causes
 Analyzing longitudinal data
 Sometimes referred to as panel data, track the same sample at different points
in time. The sample can consist of individuals, households, establishments, and
so on. In contrast, repeated cross-sectional data, which also provides long-term
data, gives the same survey to different samples over time.
 Comparisons between Domestic firms and foreign companies.
Productivity Measures:
 Single-factor productivity = output/ (single input)
 Multiple factor productivity = output/ (the sum of multiple inputs)
 Total factor productivity = output/ (sum of all inputs to production)

Key business factors:

 Mission
 Vision
 Values
 Key customer segments
 Core capabilities
 Culture
 Governance
 Other facets of a business

Benchmarking Process:
1. Decide what to benchmark
2. Identify whom to benchmark
3. Plan and conduct the investigation
4. Determine the current performance gap
5. Project future performance levels
6. Communicate benchmarking findings and gain acceptance
7. Revise performance goals
8. Develop action plans
9. Implement specific actions and monitor progress
10. Recalibrate the benchmarks

Cost of quality:
 Appraisal costs: Evaluating products, parts and services
 Prevention costs: Reducing the potential for defects
 Internal failure costs: Producing defective parts or service before delivery
 External failure costs: defects discovered after delivery
 Six Sigma definition:
 Two meanings:
 Statistical definition of a process that is 99.9997% capable, 3.4
defects per million opportunities
 A program designed to reduce defects, lower costs, save time,
and improve customer satisfaction.
 A comprehensive system for achieving and sustaining business success
 Originally developed by Motorola, adopted and enhanced by Honeywell and
GE.
 Highly structured approach to process improvement : Strategy,
Discipline(DMAIC) and a set of 7 tools.

Six Sigma Steps:

1. Defines the project’s purpose, scope, and outputs, then identifies the required
process information keeping in mind the customer’s definition of quality
2. Measures the process and collects data
3. Analyzes the data, ensuring repeatability and reproducibility
4. Improves by modifying or redesigning existing processes and procedures
5. Controls the new process to make sure performance levels are maintained.

Implementing Six Sigma:

 Emphasize defects per million opportunities as a standard metric
 Provide extensive training
 Focus on top management leadership (Champion)
 Create qualified process improvement experts (Black Belts, Green Belts, Etc.)
 Set stretch objectives

Process Capability Ratio:

Cp = (Upper specification – Lower specification) / 6 sigma

Process Capability Index:

Where :
 x̄ = process mean
 σ = standard deviation of the process population

 If Cpk for both upper and lower specifications limits equals 1.0, the process variation
is centered and the process is capable of producing within ±3 standard deviations
 A Cpk of 2.0 means the process is capable of producing fewer than 3.4 defects per
million
 If Cpk to exceed 1, σ must be less than 1/3 of the difference between the specification
and the process mean (x̄).

Types of variations:
 Common cause variation:
 Normal Variation
 Random Variance
 Chance Occurrence Variation
 Inherent Variation
 Stable Variation
 Special Cause Variation:
 Nonrandom Variance
 Unstable Variation
 Assignable Cause Variation
 Total Process Variation = Common cause Variation + Special Cause Variation
 A system that contains only common cause variations is very predictable
 Stability means that some percentage of the output will continue to lie within given
limits as long as the common cause system is operating
 A long as the measurement fall within ±3 standard deviation boundary, the process is
considered to be stable.
 Process control charts:
 x̄ chart : Used to monitor a process average
 R-chart: Used to monitor the variation of individual process values
 P-chart: Used to monitor the proportion
 C-chart: Used to monitor the number of attributes present in sampling units of the
same size)

UCL (X chart) = X double bar + A2* Range Average

LCL (X chart) = X double bar – A2* Range Average
UCL (R chart) = D4 * Range Average
LCL (R chart) = D3 * Range Average

Signals:
 One or more points outside the upper or lower control limits
 Nince or more points in a row above or below the centerline
 Six or more consecutive points moving in the same direction (increasing or
decreasing)
 Fourteen points in a row, alternating up and down

Mean Proportion:
 For equal sample sizes:

P Bar = Sum of P / Number of samples of sizes N

 For unequal sample sizes:

P Bar = (Sum of Pi * Ni) / total number of items sampled in k samples

 Estimate for the standard error for the sample proportions (ESE):
 UCL (P-Chart) = P Bar + (3 * ESE)
LCL (P-Chart) = P Bar – (3 * ESE)

Flow Chart:
 Document the as-is condition of a process
 Reflect changes that are to be made to a process
 Design an entirely new process
 Fulfill the ISO 9001 standards requirement to identify and document the
organization’s processes and the sequence and interaction of these processes

Check Sheets:
 Gathering information to analyze
 Facilitates the use of facts rather than just opinions
 Gather data on frequency of of occurrence
 Data from several check sheets can be organized into a pareto chart for final analysis

Pareto Charts:
 Pointing out that 80 percent of the variation in a process is caused by roughly 20
percent of the variables.

Scatter Diagrams:
 Shows whether or not there is a correlation between two variables
 If it appears that values for one of the variables can be predicted based on the value of
another variable, then there is a correlation.
 If the slope is upward ( Positive correlation)
 If the slope is downward ( negative correlation)
 Not all relationships between variables are linear
 The visual slope of the line does not provide any information about the strength of
correlation since the scales of the graph can be expanded or compressed on either axis.
 A direct and strong correlation does not necessarily imply a cause-and-effect
relationship.

Control Charts:
 Shows when a process is being influenced by special causes
 Indicates how a process behaves over time
Cause-and-effect:
 Tool to help move to lower levels of abstraction in solving problems

Servqual:
 Reliability
 Responsiveness
 Assurance
 Empathy
 Tangible
Gap score = Perception – Expectation

GAPS:
Gap 1 = Not knowing what customers expect
Gap 2 = The wrong service quality
Gap 3 = The service performance gap
Gap 4 = When promises do not match actual delivery
Gap 5 = The difference between customer perception and expectation

Services Blueprinting:
1. Identify processes
2. Isolate fail points
3. Establish a time frame
4. Analyze profits