Benchmarking: A Way to Superior Procurement Performance

Author(s):

Laura M. Birou
Laura M. Birou, Assistant Professor, George Washington University, Washington, D.C., 20052, 202/994-5609.
Barbara Taylor Cofield, C.P.M.
Barbara Taylor Cofield, C.P.M., Manager, Professional Development, Texas Instruments Incorporated, Dallas, TX 75265, 214/995-5234.

79th Annual International Conference Proceedings - 1994 - Atlanta, GA

In today's competitive global economy, procurement and materials management must continually strive for superior performance. Benchmarking focuses on improving performance by understanding current processes and practices, then proactively searching for and incorporating the beat from industry leaders.

INTRODUCTION
Benchmarking has been a "hot" topic over the past few years as companies are driven by global competition, the desire for breakthrough improvements and the push to receive quality awards from both governments and customers. Successful benchmarking results are found in companies such as XEROX, Ford Motor, Motorola, AT&T, Texas Instruments, and others. Benchmarking is used to increase quality and productivity, by striving to become the "best of the best." But exactly what is benchmarking, what can you expect to achieve and how can it be applied to procurement and materials management?

DEFINITION
One definition of benchmarking is -- a process of continuous search for the best processes or practices, then adaptation and implementation of these processes/practices to become "best in class." Three key words are process, implementation and continuous. Benchmarking is a process with an output, and input and the steps to move from one to the other.

Adaptation and implementation are key to obtaining results. Many companies stop at "industrial tourism", visiting other facilities to get a broad overview rather than focusing on one area or process. Only by comparing the information obtained with in-house data, analyzing how to implement and then following through can success be obtained.

The last key word is continuous because the process never ends. Once your function or process becomes the benchmark, then it is the target for others to "best." In addition, once the benchmarking process is learned, it becomes easier and can become a way of life.

BENEFITS
There are three general benefits. The first is improvement in meeting customer requirements. If a practice is benchmarked it is because it best satisfies a customer need - if customers did not prefer benchmark practices, then they wouldn't be benchmarked. The second is the ability to set goals and measure. This involves a thorough understanding of your own process in order to accurately compare with others. This is a critical step in the process and certainly one which is difficult. Many companies have never identified their processes except by "gut" feel. With this step you can assess where you are in comparison to the benchmark (gap analysis) and set goals to move ahead.

The third is learning and implementing creative and innovative ideas from customers, suppliers, competitors and other industries. This, added with the good ideas of internal employees, will help to make your company more competitive.

TYPES
Bringing in ideas from a wide variety of sources leads to four types of benchmarking:

• Internal Benchmarking
  Comparison of internal processes, particularly within a multi-divisional corporation.
• Competitive Benchmarking
  Comparison with direct competitors within the same industry.
• Functional Benchmarking
  Comparison of functional competitors or leading firms, regardless of industry.
• Generic Benchmarking
  Comparison of dissimilar functions to learn new technology or practices which may be translated to the original function/process.

The degree of difficulty in obtaining data increases as one goes down the list. the broader the scope, the greater the chance to pick up innovative ideas. This is especially true with generic benchmarking. It is the most difficult, but also can lead to breakthrough innovations.

PROCESS
One of the keys to benchmarking is to select a process and follow it. There are a number of good processes available -- the Xerox 10-step (described during the presentation), the AT&T 12 step program, IBM's 16 steps and Weyerhaeuser's 33 steps, among others. They all have fundamental steps in common:

Planning

• Select process
• Select team
• Identify customer needs
• Analyze process
• Define inputs and outputs
• Identify benchmark partners
• Develop questionnaires

Data Collection

• Collect internal information on questionnaires
• Reassess questionnaires
• Confirm partner participation
• Collect preliminary information
• Conduct site visits

Data Analysis

• Combine information
• Normalize performance
• Compare internal performance with data Identify gaps and cause
• Project potential results
• Define key process enablers
• Assess ability to adapt process enablers

Adaptation, Implementation and Improvement Set goals

• Adapt process enablers
• Gain internal support for change
• Develop implementation plans
• Communicate plan
• Commit internal resources
• Implement
• Monitor and report progress
• Recalibrate benchmark

Although the process looks deceptively simple, a number of misunderstandings and problem areas have been uncovered by firms actively benchmarking. By understanding where others have had trouble, you can take steps to avoid similar situations.

MISUNDERSTANDINGS
Some of the misunderstandings surrounding benchmarking can prevent companies from considering benchmarking. If benchmarking is undertaken, some of the myths can lead to problems which, if not taken care of, can sabotage the results.

Benchmarking is:

the same as competitive assessment.
Competitive assessment is the macro analysis of a company within its industry to be used as input to strategic planning. Benchmarking focuses at a lower level within a company and is done to improve processes. Also, benchmarking has a broader external view, breaking outside the company's own industry.

just copying.
Just copying leads to being the same. Benchmarking's goal is to find breakthrough ideas which set the process ahead of others.

metrics.
Although metrics are a key aspect, benchmarking focuses on improving the process and uses metrics to determine the how well it is succeeding.

geared only to manufacturing.
Manufacturing processes are more clear cut, with visible inputs and outputs. However, many of the great successes are in the indirect areas: purchasing, logistics, customer service, accounts payable, etc..

impossible with direct competitors.
Although there are areas that competitors can't share, there are a large number of processes where they can. A "code of conduct" should be strictly enforced when benchmarking competitors in order to legally adhere to U.S. anti-trust laws.

TIPS FOR SUCCESS
These are primarily slanted to those with limited benchmarking experience.

Plan, organize and manage.
Benchmarking is a complex and time consuming process and must be recognized as such. Without detailed planning the process will collapse on itself. As in any business undertaking, goals, metrics and performance monitoring are management musts to achieve success.

Set realistic time frames.
top management usually does not have a realistic idea of the time involved for the full process. There are parts of the process where you may have no control, e.g. a benchmarking partner which you feel is critical is not available when you want to visit them. Therefore, an honest appraisal at the beginning can eliminate potential problems.

Understanding your process
Many companies have not mapped their process to determine all the steps involved. Understanding the process is the foundation for benchmarking and the ability to effectively implement significant process change.

Focus your process.
Often the scope of the original selection is too large to be adequately benchmarked in a reasonable amount of time. By narrowing the focus, the benchmarking process becomes more executable, both in logistics and time, and implementation is easier.

Select a team.
Little change will take place unless those who have a stake in the benchmarking process are actively involved. Since these are the people who will implement any potential changes, having them "bought in" in the beginning will smooth the way later.

Train the team.
The benchmarking team must understand the full process before beginning in order to adequately plan, organize and manage the process. Training is now widely available through a number of sources.

PROCUREMENT AND MATERIALS MANAGEMENT
The benchmarking process itself is generic. Identification of current procurement and materials management benchmark practices and results will be discussed during the presentation.

ADDITIONAL SOURCES
A listing of publications and organizations (including N.A.P.M.) for help in benchmarking procurement and materials management processes will be handed out during the presentation.

SUMMARY
In an increasingly competitive world, companies must learn to effectively use available tools to achieve breakthrough improvements. It is encouraging to know that a growing number of companies across the country are benchmarking. When used correctly, benchmarking can be a potent weapon to increase productivity, quality and competitiveness to obtain and maintain global prominence.

BIBLIOGRAPHY

Altany, David. "Benchmarkers Unites." Industry Week, February 3, 1992, 25.

Altany, David. "Share and Share Alike." Industry Week, July, 15, 1991, 12-16.

Bagchi, Prabir K., and Laura Birou. "Benchmarking in Logistics: Some Insights." Working paper, June, 1993.

Biesada, Alexandra. "Strategic Benchmarking." Financial World, September 29, 1992, 30-36.

Camp, Robert C. Benchmarking. Milwaukee: Quality Press, 1989. Common Steps in Benchmarking Models. International Benchmarking Clearinghouse, Houston, TX., 1992.

Grecian, C. Jackson Jr. "Taking on the World." Total Quality Management, June 1992, 139-143.

Harmon, Marion. "Benchmarking." Quality Digest, July 1992, 20-31, Main, Jeremy. "How to Steal the Best Ideas Around." Fortune, October 19, 1992,102-106.

Sillyman, Steve. "Guide to Benchmarking Resources." Quality, March 1992, 17-18.

Thor, Carl G. "Beyond Benchmarking: Directions for Future Research." Operations Management Review 10:1 (January 1993): 20-26.

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