Managing Quality: Integrating The Supply

Chain
Sixth Edition

Chapter 6
The Voice of the Market

Copyright © 2017 Pearson Education, Inc. All Rights Reserved

Learning Objectives
6.1 Discuss the different types of benchmarking.
6.2 Assess what type of benchmarking is most appropriate
for a particular situation.
6.3 Compute single-, multi-, and total factor productivity.
6.4 Understand the ethical issues associated with
benchmarking.

Copyright © 2017 Pearson Education, Inc. All Rights Reserved

Figure 6-1 Strategic Quality Planning
Model

Copyright © 2017 Pearson Education, Inc. All Rights Reserved

Gaining Insights Through Benchmarking (1
of 3)

• Benchmark
– An organization recognized for its exemplary
operational performance
▪ Initiator firm
▪ Target firm
• Benchmarking
– The sharing of information between companies so
that both can improve

Copyright © 2017 Pearson Education, Inc. All Rights Reserved

Gaining Insights Through Benchmarking (2
of 3)

• Benchmarking is good business because:

– Openness provides an impetus to continual
improvement.
– Openness can create a competitive advantage
through creating psychological barriers to competition.

Copyright © 2017 Pearson Education, Inc. All Rights Reserved

Gaining Insights Through Benchmarking (3
of 3)

• Process benchmarking
• Financial benchmarking
• Performance benchmarking
• Product benchmarking
• Strategic benchmarking
• Functional benchmarking

Copyright © 2017 Pearson Education, Inc. All Rights Reserved

Purposes of Benchmarking
• Learning from success
• Borrowing ideas
• Best-in-firm
• Beating industry standards
• Best-in-class
• National leadership
• Best-in-world

Copyright © 2017 Pearson Education, Inc. All Rights Reserved

Figure 6-2 Benchmarking Purpose and
Quality Maturity

Copyright © 2017 Pearson Education, Inc. All Rights Reserved

Difficulties in Monitoring and Measuring
Performance
• Limitations of accounting systems
– Variations in the ways companies compute the
measures that affect the results
• Focusing too much on results and not causes
• Analyzing longitudinal data
• Comparisons between U.S. firms and foreign companies

Copyright © 2017 Pearson Education, Inc. All Rights Reserved

Productivity Measures
• Single-factor productivity = output/(a single input)
• Multiple-factor productivity = output/(the sum of multiple
inputs)
• Total-factor productivity = output/(sum of all inputs to
production)

Copyright © 2017 Pearson Education, Inc. All Rights Reserved

Example 6-1 (1 of 3)
• A company has gathered the following financial
information for itself and a competing firm. The company
wants to compare productivity for the two firms. (All the
following numbers are in 000s.)

Blank Firm A Competition

Labor $ 20,000 $ 15,000

Plant and equipment (P&E) 100,000 145,000

Energy 5,500 10,500

Materials 220,000 190,000

Sales 425,000 500,000

Copyright © 2017 Pearson Education, Inc. All Rights Reserved

Example 6-1 (2 of 3)
• Labor and other productivity ratios for the two firms are computed as:
– Firm A labor productivity = (sales>labor) = 425,000>20,000 = 21.25
– Competitor labor productivity = (sales>labor) = 500,000>15,000 = 33.33
– Firm A P&E productivity = (sales>P&E) = 425,000>100,000 = 4.25
– Competitor P&E productivity = (sales>P&E) = 500,000>145,000 = 3.45
– Firm A energy productivity = (sales>energy) = 425,000>5,500 = 77.27
– Competitor energy productivity = (sales>energy) = 500,000>10,500 =
47.62
– Firm A materials productivity = (sales>materials) = 425,000>220,000 =
1.93
– Competitor materials productivity = (sales>materials) =
500,000>190,000 = 2.63

Copyright © 2017 Pearson Education, Inc. All Rights Reserved

Example 6-1 (3 of 3)
• Labor and other productivity ratios for the two firms are computed as:
– Total factor productivity for Firm A = (sales>total of inputs) =
425,000>345,500 = 1.23
– Total factor productivity for the competitor = (sales>total of
inputs) = 500,000>360,500 = 1.39

Copyright © 2017 Pearson Education, Inc. All Rights Reserved

Commonly Benchmarked Performance
Measures
• Dependent on key business factors (KBFs):
– Financial ratios
– Productivity ratios
– Customer-related results
– Operating results
– Human resource measures
– Quality measures
– Market share data
– Structural measures

Copyright © 2017 Pearson Education, Inc. All Rights Reserved

Why Collect All These Measures?
• Management by fact
– Dictates that decisions are made based on the sound
collection and analysis of data
• Performance measures or indicators
– Measureable characteristics of products, services,
processes and operations that the company uses to
track and improve performance

Copyright © 2017 Pearson Education, Inc. All Rights Reserved

Key Business Factors (KBFs)
• Mission
• Vision
• Values
• Key customer segments
• Core capabilities
• Culture
• Governance
• Other facets of a business

Copyright © 2017 Pearson Education, Inc. All Rights Reserved

Business Process Benchmarking
• Based on the concept of 5w2h:
– Who?
– What?
– When?
– Where?
– Why?
– How?
– How much?

Copyright © 2017 Pearson Education, Inc. All Rights Reserved

Figure 6-3 Business Process Benchmarking

Process Model

Copyright © 2017 Pearson Education, Inc. All Rights Reserved

Figure 6-4 Business Process Benchmarking

Process Information
R. Camp, Business Process Benchmarking (Milwaukee, WI: ASQ Quality Press, 1995), p. 26. Reprinted with
permission from the Quality Press. © 1995 American Society for Quality.

Copyright © 2017 Pearson Education, Inc. All Rights Reserved

Robert Camp’s Business Process
Benchmarking Process (1 of 2)
• Decide what to benchmark.
• Identify whom to benchmark.
• Plan and conduct the investigation.
• Determine the current performance gap.
• Project future performance levels.

Copyright © 2017 Pearson Education, Inc. All Rights Reserved

Robert Camp’s Business Process
Benchmarking Process (2 of 2)
• Communicate benchmarking findings and gain
acceptance.
• Revise performance goals.
• Develop action plans.
• Implement specific actions and monitor progress.
• Recalibrate the benchmarks.

Copyright © 2017 Pearson Education, Inc. All Rights Reserved

Leading and Managing the Benchmarking
Effort
• Benchmarking is a managed process.
• Management must have an understanding of the
benchmarking process, the participants involved, and the
objectives of the exercise.
• Managing the benchmarking process involves
establishing, supporting, and sustaining the
benchmarking program.
• Training is a key to success in all management
approaches.

Copyright © 2017 Pearson Education, Inc. All Rights Reserved

Baselining and Process Improvement
• Process redesign
– A fundamental rethinking and redesign of business
processes often accompanied by the automation of
business processes
• Critical factors to achieving success through process redesign
– Breadth
– Depth
• Baselining
– Requires the monitoring of key internal firm performance
measures over time to identify trends such as
improvement (or decline) to inform managerial decision
making
Copyright © 2017 Pearson Education, Inc. All Rights Reserved
Problems with Benchmarking
• There may be substantial difficulty obtaining cooperation
from other firms in your own industry - unless you happen
to be a Fortune 500 firm.
• The predominance of functional benchmarking with firms
in noncompeting industries makes it difficult to
benchmark with these firms.
• Your efforts will be wasted unless you fully understand
your own processes before you benchmark someone
else.
• Benchmarking is time-consuming and costly.

Copyright © 2017 Pearson Education, Inc. All Rights Reserved

Figure 6-5 Baselining Process

Copyright © 2017 Pearson Education, Inc. All Rights Reserved

Copyright

Copyright © 2017 Pearson Education, Inc. All Rights Reserved