So you think you're good enough?

Lots of manufacturers have an internal focus and tend, therefore, to have little understanding about the actual operational performance of the other companies in their individual sector. This can lead them to think that any significant improvements in their performance puts them among the best in their sector. Such a perception of their plant's position is often wide of the mark. We come across many companies who think their performance is outstanding, but when compared to the best in their sector, becomes average. Only when you compare your performance against the best in your industry, will you get a true picture of just how good you really are. By comparing the plant's current performance against the best in a sector, it is possible to see where the gaps in performance exist, and consequently where opportunities for improvement are to be found. So, when undertaking a comparison of manufacturing operations which performance measures should be used? How long should the list of measures be? And which among them should be regarded as key? Let's explore the issue of benchmarking and in particular which performance measures should be used when undertaking a comparison of factories. Benchmarking can provide a structured approach to carrying out a comparison of manufacturing operations. At its core, benchmarking is concerned with systematically comparing a company's performance with that of a competing organisation in order to improve how it performs across the same or similar functions and activities. The intention of the approach is to encourage continuous learning and improvement, to lift the firm to higher performance levels, and to improve its competitive position. The learning and knowledge that emerges from benchmarking results in improved processes and products and, ultimately, better performance. Benchmarking involves measuring and comparing the business processes employed in your own organisation with comparable processes in other leading competitor organisations to obtain information that will help identify and implement improvements. The use of key performance measures and their comparison with similar performance measures in 'best in class' companies is an important part of this improvement activity. The measures reveal gaps in performance, especially pointing up their nature and size. Such valuable information can be used to leverage learning and improvement. There are different types of benchmarking, from the simple to more complex process benchmarking (an in-depth comparison of an activity between two or more organisations). One of the most straightforward kinds of benchmarking involves carrying out an internal comparison to contrast performance within the business. If a manufacturer has several plants it is easy to compare performance across several metrics of one plant to that of others in the group. The data emerging from the comparison will indicate performance gaps and encourage managers to take steps towards making improvements. Although an internal comparison is simple enough to undertake, it does not enable the company to understand the true size of the gap that separates it from competitors and fails to build sufficient awareness of the need for change – sister sites are not likely to be considered a threat. While internal comparison can be a starting point, a company needs to take an external perspective to gain the most benefit; it needs to compare its manufacturing operations with others in its sector. The company should carry out an early stage diagnostic benchmarking exercise where it compares its manufacturing operation across several performance areas to other factories in its industry. This type of benchmarking (a form of health check) will provide the firm with an objective understanding of the levels of performance being achieved by the other companies in the same sector. Using the data that comes out of the comparison, the manufacturer can see just what the performance gaps are and identify the most important of them. The gaps will, of course, indicate opportunities for improvement. The use of this approach will expose the firm to the performance achieved not only by competitors (who may, in fact, be relatively average in performance) but also the best operations in the industry, which indicates the level of performance that can be attained. By looking at the performance levels achieved by the best, it is possible to trigger a need for change and to kick start the improvement process. The initial diagnostic benchmarking exercise can also lead to more detailed process benchmarking focused on improving performance in one particular area where a large gap was identified. The use of a health check exercise can be a powerful tool in helping a firm to develop its strategy. Pace Performance Group's Dr Stephen Wright says that when he worked for a large consultancy, it would often do a simple health check benchmarking exercise with clients. "It allows you to understand the state of the business, and gives you enough valuable data for the executives to be able to get around the table to talk about the gaps and the strategy," he says. "It is a very simple process that effectively starts the dialogue about what they want and which direction they want to take." The problem with undertaking the exercise is, of course, getting the information. Very little data is available in the public domain and contacting companies to try to exchange data is not always going to succeed since, as Sandra Brown of Brown Associates points out, companies are protective of information on their performance for competitive reasons. She recommends the use of independent benchmarking schemes such as the Best Factory Awards or specific industry forums. Now, since measurement is an important element of benchmarking, let's consider which measures you should you employ to compare one factory with another. Which of them will help most in answering the questions 'Where are we better?' and, critically, 'Where are we weak?'The view of the practitioners is that comparison needs to be carried out using a wide range of measures. Brown makes the point that when it comes to determining where your plant stands in the sector, "no one measure above all others will give you an accurate picture of an operations standing", no matter what the people in marketing and finance may think. Both Brown and Mike Rushworth, operations director at Vitacress Salads, recommend that companies undertaking a comparison should always try to take a balanced approach using a range of measures that cover the three areas of cost, quality and service (delivery). Taking a balanced approach is also favoured by Pace's Stephen Wright, although he recommends using the balanced scorecard as a guide and, in addition, points to the importance of including a measure of innovation. Comparing manufacturing operations on cost, quality and delivery is important, but as Adrian Pask, a consultant with OptimumFX, says, it is essential not to forget about the people. They are at the heart of the organisation and the best companies know that they make the difference. It is important, in Pask's opinion, to understand the level of motivation and expertise of the people. There are several possible measures that can be used to better determine this – for example, absenteeism. Across the piece, a whole plethora of performance measures could be used. However, for companies or plants aspiring to be world class, the general view is that the following are those that should be concentrated upon when undertaking a comparison. Cost Value added per production employee (£) Value added per direct employee (£) Overall equipment effectiveness (OEE). Quality Scrap rate (%) Right first time at final test (%). Delivery Delivery reliability (on-time and in full) (%) Production schedule adherence (%) Ex-stock availability (%) Inventory record accuracy (%) Capacity used for changeovers (%) Supplier delivery reliability (%). Time Total inventory stockturns Average set-up (changeover) time in component manufacture (mins) Average set-up (changeover) time in final assembly (mins) Longest set-up (changeover) time in component manufacture (mins) Longest set-up (changeover) time in final assembly (mins) Average quoted customer delivery lead time (days). People Absenteeism (%) Employee turnover rate (%) Training on the job for existing employees (days) Training on the job for new employees (days) No of improvement ideas per production employee Number of reportable accidents Number of reportable accidents per million hours worked. Innovation Time to bring a new product innovation to the market (months). A set of measures like this is inevitably long, with the potential to be even longer if other more specific factory measures, like batch size, were to be included. Nevertheless, when undertaking an initial quick health check of the organisation, it is better to focus on fewer measures rather than a voluminous list. A more focused list can make the process of benchmarking more effective. So what would be the few key measures that companies could use to compare their factories on? If we concentrate only upon the key operational measures, then the list of very key measures can be identified. Brown, Pask and Rushworth all agree on the importance of overall equipment effectiveness (OEE). As Brown states: "In my view the standard OEE metric provides the most helpful high-level measure of an operation's overall physical performance. Because it combines plant availability, performance and quality, it gives a broader insight into the business performance." The three also indicate the importance of customer service, especially in fast moving consumer goods sectors such as food. For them, delivery reliability (on-time and in full) is a critical measure. They also point to the importance of having a measure of quality and Pask particularly considers that stock turn is an important measure to include in any comparison – especially if the manufacturing plant is starting on the lean journey. The excellent performance of a factory is, for him, due in no small part to an engaged, committed and well-led workforce. It is important, he believes, to include a measure that indicates the degree to which this has been achieved. While the experts do not necessary agree on exactly which are the top measures, a consensus does emerge when it comes to setting out those that are the most important for comparing one factory with another. They are:

• Value added per production employee (£)
• Overall equipment effectiveness
• Scrap rate (%)
• Right first time at final test (%)
• Delivery reliability (%)
• Total inventory stockturns
• Absenteeism (%)
• Number of improvement ideas per production employee.

Dr Marek Szwejczewski is the director of the Best Factory Awards programme at Cranfield School of Management