Performance measurement [18/08/2009] How do you know how your company stands versus the competition? Well, you benchmark it. Dr Marek Szwejczewski, principal research fellow in operations management, Cranfield University School of Management, explains Lots of manufacturers tend to have an internal focus and therefore little understanding about the actual operational performance of the other companies in their individual sector. We often come across companies who think their performance is outstanding, but, when compared to the best in their sector, becomes average. By comparing a 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. There are different types of benchmarking, from the simple to the more complex process benchmarking (an in-depth comparison of an activity between two or more organisations). One of the simplest and easiest forms of benchmarking is to carry out an internal comparison: to compare performance within the business. If a manufacturer has several plants, it is easy to compare the performance across several metrics of one plant with the others in the group. While 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. Also, this inward focused comparison does not help to build awareness of the need for change – sister sites are not likely to be considered a threat, after all. An internal comparison can be a starting point. But to gain the most benefit, the company needs to take an external perspective; 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 against 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, showing performance gaps and underlining the most important ones. Performance exposed 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. 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. The use of independent benchmarking schemes, such as the Best Factory Awards (www.bestfactoryawards.co.uk), or specific industry forums, is therefore recommended. So, when undertaking a comparison of manufacturing operations, which performance measures should be used? How long should the list of measures (metrics) be? Are there are key measures? The view of practitioners is that a comparison needs to be carried out using a wide range of different measures, as no one measure above all others will give you an accurate picture of an operation's standing. There is a whole plethora of performance measures that could be used. However, if you aspire to be world class, then the general view among the practitioners and academics is that the list under 'What to measure', right, is good. However, it is a long list, and could have been even longer with the inclusion of other, more specific factory measures suggested by practitioners, such as, for example, batch size. When undertaking an initial quick health check of the organisation, it is better to focus on fewer measures. A more focused list can make the process of benchmarking more effective. So what would be the few key measures against which companies could compare their factories? While the experts do not necessarily agree on exactly which are the top measures, a consensus does emerge and indicates that those indicated under 'The short list', right, are the important ones. Image: Click here Box Item What to measure The short list 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 (%) Percentage 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 manufacturing lead time 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) Value added per production employee (£) Overall equipment effectiveness Scrap rate (%) Right first time at final test (%) Delivery reliability (%) Total inventory stockturns Absenteeism (%) No of improvement ideas per production employee First published in Engineering Apprentice, Summer 2009