Monday, June 20, 2022

What is Benchmarking?

In the early eighties, The Mexican Government expanded the capacity of Imexsa to 2 million tons. Imexsa was a steel mill, based on the DRI process situated at Lazoro Cardenas. DRI or Direct Reduced Iron also called sponge iron is used for steel manufacturing. Sponge iron is produced from the direct iron ore which is found in form of lumps, pellets, and fines. The iron ore is then converted into iron by a reducing gas or elemental carbon produced from natural gas or coal. Many ores are suitable for direct reduction.
Three years after expansion and after having absorbed significant losses. The Government then decided to privatize the facility. Ispat was invited by the Mexican government, and successfully won the bid for the ownership of the facilities, in January 1992. Ispat International N.V. is owned by the Mittals, and it was registered in Holland and headquartered in London. It is one of the most successful Indian-led enterprises. Later on, it was merged into Arcelor Mittal in 2006.
The new management started to benchmark the operating processes. Team members looked at the best practices within the Ispat network, the steel industry as a whole, and also identified and studied related processes at global leaders such as Ericsson and General Electric. They collected and analyzed the detailed data of volume, cost, quality and productivity for each step in the production process on a daily basis. Ispat started implementing the recommendations.
By the 1998 the annual steel shipments had increased to over 3 million tons. Productivity had improved from 2.62 to 0.97 man-hours per ton. J.P. Morgan and Credit Suisse First Boston, known for financial services and reorganizing businesses, reported Imexsa as the lowest cost slab producer in the world. 
And the whole credit goes to benchmarking!

Benchmarking Meaning

Successful companies in every industry engage a variety of practices, which lead to the achievement of high-level performance. Benchmarking has become one of the most popular tools of business management in corporate attempts to gain and maintain a competitive advantage. The central essence of benchmarking is about learning, how to improve business activity, processes, and management. However, benchmarking as a term has been used widely to refer to many different activities.
There is a wide variation in definitions used to describe 'benchmarking'. Let's take a look over various definitions to highlight the diversity of benchmarking.

Benchmarking Definitions

"Benchmarking is a structured process for comparing your organization’s work practices to the best similar practices you can identify in other organizations and then incorporating these best ideas into your own processes."

"A benchmark is a permanent mark with known position and altitude. It is used as a reference point when other positions around it are measured."

In business, to “benchmark”,  has for many years meant comparing your own products, services, or financial results to those of your competitors. 

In quality improvement, benchmarking has attained a new, very specific meaning. Robert C. Camp introduced benchmarking to the world through his book, published in 1989. 
The title of the book was, "Benchmarking: The Search for Industry Best Practices that Lead to Superior Performance."
The title itself defined the benchmarking, Search for industry best practices leading to superior performance.

Jack Grayson, Founder of American Productivity and Quality Center (APQC), has said, “Benchmarking is the practice of being humble enough to admit that someone else is better at something, and being wise enough to learn how to match them and even surpass them at it."
This means it is good to accept sincerely that someone else is better than us, and it is much better to learn from him rather to criticize.

Hence, "Benchmarking is a systematic and continuous measurement process: A process of continuously measuring and comparing an organization's business processes against process leaders anywhere in the world to gain information which will help the organization to take action to improve its performance"

Therefore the three characteristics that emerged from these definitions are that benchmarking is:
  1. Measurement via Comparison
  2. Continuous Improvement and
  3. Systematic procedure in carrying out benchmarking activity

Concept of Benchmarking

The concept of benchmarking is the systematic search for best practices, innovative ideas, and highly effective operating procedures. Benchmarking considers the experience of others and uses it. Indeed, it is the common-sense proposition to learn from others, what they do right and then imitate it to avoid reinventing the wheel, which means, to avoid innovating the same thing.

Benchmarking is not new and indeed has been around for a long time. In fact, in the 1800s Francis Lowell, a New England colonist studied British textile mills and imported many ideas along with improvements he made for the burgeoning American textile mills.

Benchmarking measures performance against that of a best-in-class organization determines how the best-in-class achieve those performance level and uses the information as the basis for 
adaptive creativity and breakthrough performance.

Elements of Benchmarking

The two key elements of the benchmarking are; 
  • Performance Measurement
  • Performance Difference

Performance Measurement

Measuring performance requires some sort of units of measure called metrics and usually expressed numerically, the numbers achieved by the best-in-class benchmark are the target an organization seeking improvement, then plots its own performance against the target.

Performance Difference

Understanding the performance difference means, managers must understand why their performance differs? And hence, Benchmarkers must develop a thorough and in-depth knowledge of their own processes and the processes of the best-in-class organization. An understanding of the differences allows managers to organize their improvement efforts to meet the goal.


Finally, we can conclude that benchmarking is about setting goals and objectives and about meeting them by improving processes.

#Benchmarking #BenchmarkingMeaning #Benchmark

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