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Benchmarking With Purpose June 14, 2009

Posted by Tim Rodgers in strategy, Supply chain.
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I think a lot of people confuse benchmarking with good-old-fashioned competitive analysis. During my three-year stretch in product marketing I was supporting an internal manufacturing operation at HP that provided electronic assemblies to other HP product divisions. Back in those days HP still did a lot of their own manufacturing, but the transition to outsourcing was well underway. Our division’s competition was the universe of external suppliers of the same components. We were losing the battle for market share despite our argument that as an internal supplier we were better positioned to meet our customers’ strategic requirements for assurance-of-supply, quality, and technology. We tried to downplay the fact that these electronic assemblies were rapidly becoming commodities, and that the only differentiator that mattered to our customers was price. Anyway, I set out to understand the cost structure that enabled our competitors to offer lower prices. I discovered early on that everyone was using virtually the same raw materials and our manufacturing processes were almost identical, and of course it came down to labor costs and allocated overhead.

Benchmarking isn’t simply comparing yourself with your competitors. I believe benchmarking is seeking breakthrough ideas, often from completely different products or industries, as a way of challenging the established paradigm. A few years after my product marketing experience I was leading a procurement engineering team responsible for managing the performance and cost requirements of our inkjet printer design team to match the capabilities of the worldwide supply base. The product design had reached a certain point of maturity, and it seemed to a lot of people that the only thing left to do was to pressure our suppliers to reduce their price on the various components. I didn’t want to accept that. I wanted to know if there were completely different design elements, assemblies, and components that would enable us to dramatically lower cost without sacrificing performance or quality. We started out by doing “teardowns” of competitors’ consumer printers, but I realized that breakthrough thinking wasn’t going to come from within our industry. What we eventually learned from VCRs and kitchen appliances gave us the confidence to try something completely different and achieve a significant reduction in unit cost.

Benchmarking must begin with a purpose, a research objective. What needs to be improved? A random exploration is a waste of resources, and to be truly worth the effort this exercise should seek revolutionary ideas.

Next, who appears to be doing this better than you are? Those are your benchmarking targets. Finally, how are they doing it? One great thing about choosing benchmarking targets outside your immediate industry is that these folks are typically much more willing to share.

I don’t want to throw cold water on all this, but whether or not to implement something found in benchmarking is a completely different issue. I’ll save that for a future post, but I’ll leave you by remembering my mother saying that just because all my friends are doing it doesn’t mean that I should do it too.

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