2: Benchmark – Bottlenecks and Best Practices

Benchmark [Benchmarking]

It is a measurement of the quality of an organization's policies, products, programs, strategies, etc., and
their comparison with standard measurements, or similar measurements of its peers.

The objectives of benchmarking are

 to determine what and where improvements are called for

 to analyze how other organizations achieve their high performance levels
 to use this information to improve performance

Benchmarking is comparing ones business processes and performance metrics to industry bests and
best practices from other companies. In project management benchmarking can also support the
selection, planning and delivery of projects. Dimensions typically measured are quality, time and cost.

Why?

Companies use benchmarking as a way to help become more competitive. By looking at how other
companies are doing, they can identify areas where they are underperforming. Companies are also able
to identify ways they can improve their own operations without having to recreate the wheel. They are
able to accelerate the process of change because they have models from other companies in their
industry to help guide their changes.

Types

Types
Of
Benchmarking

Internal External

Process Performance Strategic

Internal Benchmarking > comparison of practices and performance between teams, individuals or
groups within an organization

External Benchmarking > comparison of organizational performance to industry peers or across

industries

1. Process Benchmarking - Demonstrate how top performing companies accomplish the specific
process in question. Such benchmarking is collected via research, surveys/interviews, and site
visits. By identifying how others perform the same functional task or objective, people gain
insight and ideas they may not otherwise achieve. Such information affirms and supports
decision-making by executives.
2. Performance Metrics - “Performance metrics” give numerical standard against which a client’s
own processes can be compared. These metrics are usually determined via a detailed and
carefully analyzed survey or interviews. Clients can then identify performance gaps, prioritize
action items, and then conduct follow-on studies to determine methods of improvement.
3. Strategic Benchmarking - Identify the fundamental lessons and winning strategies that have
enabled high performing companies to be successful in their marketplaces. Strategic
benchmarking examines how companies compete and is ideal for corporations with a long-term
perspective.

Importance

Areas for companies to look forward and build winning strategies, tactics and plans

 Strategy – Structure – Leadership

 Cost – Investment – Business Economics
 Staffing – Skills – Talent
 Services – Activities – Impact Analysis
 Technology – Innovation – Future Trends
 Quality – Cycle Times Yields – Productivity
 Best Practices Insight – Process Excellence
 Analogs – Launch – Planning – Life Cycle Insights

Bottlenecks

A bottleneck is a point of congestion in a production system (such as an assembly line or a computer

network) that occurs when workloads arrive too quickly for the production process to handle. The
inefficiencies brought about by the bottleneck often create delays and higher production costs. The
term "bottleneck" refers to the typical shape of a bottle, and the fact that the bottle's neck is the
narrowest point, which is the most likely place for congestion to occur, slowing down the flow of liquid
from the bottle.

A bottleneck can have a significant impact on the flow of manufacturing, and can sharply increase the
time and expense of production. Companies are more at risk for bottlenecks when they start the
production process for a new product because there may be flaws in the process that must be identified
and corrected; this situation requires more scrutiny and fine-tuning. Bottlenecks may also arise when
demand spikes unexpectedly and exceeds the production capacity of a firm's factories or suppliers.
For instance, some analysts following Tesla Motors (TSLA) were concerned that first-generation car
production would be slowed due to changes in the production line. More recently, Tesla faced another
bottleneck with its Model 3 pre-orders creating a backlog in production time.

A bottleneck has a terrible effect on the efficiency of production. The stages following the bottleneck
must function below their capacity because they do not receive enough input to operate at full capacity.
The stages before the bottleneck need to slow down production because the subsequent stages cannot
handle the capacity. As a result, the overall efficiency of the system is significantly reduced.

Best Practices

It is a “technique or methodology that, through experience and research, has proven to reliably lead to a
desired result. A commitment to using the best practices in any field is a commitment to using all the
knowledge and technology at one's disposal to ensure success.

Best Practices in Operations Management – To increase Productivity

Operations Managers are responsible for, and work in conjunction with, many aspects of the company;
their skill-set must reflect both a breadth and depth of knowledge from a myriad of areas. Root
highlights several best practices used by operational managers to increase productivity, decrease waste,
and generate profit.

 Equipment Upgrades - One of the responsibilities of an operations manager is to analyze work

functions and determine what equipment upgrades would improve productivity.
 Communication Coordination - Improved communication within an organization can increase
productivity. When information is sent from one department to another quickly and accurately,
it can speed up the pace at which the company can operate and ensures that all necessary
parties get the information they need to be productive.
 Revenue Collection - The operations manager is in charge of billing and revenue collection. By
analyzing revenue collection procedures, the operations manager can create ways of collecting
revenue quickly to make sure the company has cash on hand.
 Training - Operational managers work with the human resources department and departmental
managers to develop more efficient ways for employees to do their jobs. Analyzing work
functions is one of the many tasks that an operations manager performs each day.

Those working in operations management must engage in all types of critical analysis with a particular
emphasis on effective decision-making to meet the needs of stakeholders and the goals of the company.
Bringing innovation and cutting-edge best practices to the areas of quality management, inventory
control, delivery, supply chain, and information management, is what makes the difference between a
marginally successful company and a company that dominates their share of the marketplace.

Best Performers – Gaining Competitive Edge [Competitive Advantage]

Competitive advantages are conditions that allow a company or country to produce a good or service of
equal value at a lower price or in a more desirable fashion. These conditions allow the productive entity
to generate more sales or superior margins compared to its market rivals.
Competitive advantages are attributed to a variety of factors including

 Cost structure
 Branding
 The quality of the product offerings
 The distribution network
 Intellectual property
 Customer service

Supplier Power Buyer Power

No. of Suppliers No. of Customers

Size of Suppliers Size of each Order
Uniqueness of Service Diff. between Competitors
Ability to substitute Price Sensitivity
Cost of Changing Ability to Substitute
Competitive Cost of Changing
Rivalry
Threat of New Entrants Competitive Rivalry

Time & Cost of Entry No. of Competitors

Specialist Knowledge Quality Differences
Economies of Scale Misc. Differences
Cost Advantage Switching Cost
Technology Protection Customer Loyalty
Barriers to Entry

Threat of Substitution

Substitute Performance
Cost of Change

Porter’s Five Forces Model

Value Added Manufacturing [Lean Manufacturing]

What is “Value Added”?

“Value-added is an economic term to express the difference between the value of goods and the cost of
materials or supplies that are used in producing them. It is a measure of economic activity which
eliminates the duplication inherent in the sales value figure which results from the use of products of
some establishments as materials or services by others. Value added is thus defined as the gross
receipts of a firm minus the cost of goods and services purchased from other firms. Value added
includes wages, salaries, interest, depreciation, rent, taxes and profit”

Lean manufacturing is a methodology that focuses on minimizing waste within manufacturing systems
while simultaneously maximizing productivity.
Also known as lean production, or just lean, the integrated socio-technical approach is based on the
Toyota Production System and is still used by that company, as well as myriad others, including
Caterpillar Inc. and Nike.

It is an activity if and only if following conditions are met

 The customer (buyer) must be willing to pay for the activity

 The activity must change the product, making it closer to the end product that the Customer
wants and will pay
 The activity must be done right the first time

Value added Activity that either

- Directly adds to the final product or

- Directly satisfies the Customer

Concept

Lean manufacturing principles divide waste into seven categories –

1. Waiting (idle) times

2. Excess motion (transportation)
3. Handling (moving things)
4. Excess or useless inventory
5. Over processing
6. Overproduction
7. Defects

Lean Manufacturing is, therefore, all about the optimizing processes and eliminating waste. These
seemingly simple efforts can greatly help with cutting costs while still delivering high-quality product
customers want and are willing to pay for.

The Lean approach is based on thoroughly evaluating the process to find what organization is doing right
and remove or adapt all steps that may be possibly generating waste. This waste is called “muda” and
encompasses anything that doesn’t add value to the end product.

It’s essential to stress that cutting costs according to what Lean proposes doesn’t mean compromising
the quality of the product in any way. Organization will only cut costs by finding better, more efficient
ways to do the same things.

By adopting a lean philosophy, organization enjoy the benefit of continuous improvement. It means
that instead of making rapid, irregular and abrupt changes that are disruptive to the workplace,
organization will make small and sustainable changes.

By doing so organization will ensure that the people who actually work with these processes,
equipments, and materials will take the changes forward.
James Womack’s first mentioned the concept of Lean manufacturing in his 1990′ book, “The Machine
That Changed the World“.

Value added vs. Non-Value added [Required Activities]

Required activities are those which must be done, but they do not necessarily add value for either
internal or external customers. The most common required activities are those required by law or
government regulations. While some required activities do add value, in many cases they are activities
that must be done, but they add no value. However, that does not mean they cannot be optimized,
eliminating waste, to reduce the costs of the required activities.

Some people categorize business activities such as HR (hiring) and building maintenance as required
business activities that do not add value. However, these activities are not non-value adding required
activities. For example, finding and hiring the right people, at the time when they are needed, and doing
it efficiently, adds value. An organization's human resources are its most important resources. The HR
department is providing a valuable service to each of the other departments within the organization
that in turn allows them to do a better job of adding value to the products they produce.

Toyota Production Systems [TPS]

The Toyota Production system is a major precursor of Lean Manufacturing. Founded on the conceptual
pillars of 'Just-in-time' and 'Jidoka' (or, Automation with a Human Touch), the system was first built off
the approach created by the founder of Toyota, Sakichi Toyoda and his son, Kiichiro Toyoda. The main
target of the Toyota Production is to eliminate 3 key issues –

1. Overburden [Muri]
2. Inconsistency [Mura]
3. Waste – [Muda]

Theoretically, process improvement working like so:

 A process is created that is easily repeated, and provides results smoothly, thus eliminating
Inconsistency in the production line (Muri).
 This reduction in Inconsistency minimizes Stress, or Overburden (Mura), as there are less
mistakes being made.
 The lack of Stress in turn massively reduces Waste (Muda), which is considered to occur in 8
forms >

1. Waste of overproduction (this is the worst kind of Muda)

2. Waste of time on hand (waiting for responses or products or parts)
3. Waste of transportation
4. Waste of over processing
5. Waste of stock/inventory
6. Waste of movement
7. Waste of making defective products
8. Waste of underutilized workers
Pillars of Toyota Production Systems [TPS]

The Toyota Production System is grounded on two main conceptual pillars –

Just in Time [JIT]

 Just-in-time Making only what is needed, only when it is needed, and only in the amount that is
needed
 With 'Just in Time', a product is efficiently built within the shortest possible period of time by
adhering to the following –

a) When an order is received, a message to start the process must be sent to the beginning of
the production line as soon as possible.
b) The assembly line must be stocked with no more or less than the required number of all
needed parts so that any type of product available can be assembled quickly.
c) The assembly line must replace the parts used by retrieving the same number of parts from
the parts-producing process - this way, only what is needed is replaced, and over-stocking is
reduced.
d) The preceding process must be consisting of small numbers of all types of parts,
producing only the numbers of parts that were retrieved by an operator from the next
process.

Jidoka – (Autonomation) or, "Automation with a human touch"

For the Just-in-Time system to function, all parts that made and supplied must be meeting
predetermined quality standards. This is achieved through Jidoka.

Jidoka means that a machine stops safely, as soon as the normal processing is completed. It also means
that if a quality / equipment problem arises, the machine will be able to detect the defect on its own
and stop, preventing more defective products from being produced, thus reducing Muda. As a result,
only products satisfying quality standards will be passed on to the following processes on the
production line, preventing a pile up of malfunctioning products.

As the machine automatically stops when processing is completed or when a problem arises and is
communicated quickly, operators can confidently continue working away at another machine, as well
as easily identifying the cause of the problem. This means that each operator can be in charge of many
machines, resulting in higher productivity, while continuous improvements lead to greater processing
capacity.

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