Benchmarking: Business Excellence and Total Quality Management - Essay Example

Benchmarking A major portion of the cost of products is the cost of the raw materials or components with which the product is assembled or manufactured. Therefore purchase can be said to be the vital input on which an organization’s profitability depends. Purchasing is important whenever the organization concerned spends a significant proportion of its income on purchasing goods and services to allow it to do business. (Farmer 1997). Benchmarking is the tool that is used to advance the practice of purchasing from ordinary to exceptional. It is used to set targets that are required to be ultimately achieved by the purchaser. It is useful in assessing the company’s strength or weakness in the purchase process vis-à-vis the suppliers and competitors. The concept of quality and delivery schedules got more importance than price. It also became possible to evaluate the performances of the various vendors against benchmarking and ABC analysis made them perform better if they wanted continued patronage from the Purchaser. The Purchaser too became accountable as his track record now became transparent and in turn his position became respectable in the company. These actions finally grow into Best Practices. Best Practices evolve over a period of experimentation and result in setting parameters of quality and terms. In the past ten years, benchmarking has become a common practice in purchasing departments (Carr and Smeltzer, 1999). This has helped in getting better products at better prices and on better terms. Therefore Benchmarking has made a positive impact on the purchasing function and has improved performance. A high performance level of purchasing functions results in high levels of business performance. The ultimate goal is to deliver total quality and 100 percent value to the end customer (Zairi 1994) and it is this standard or benchmark that makes it possible. According to Zairi (1988) “Benchmarking is anything taken or used as a point of reference or comparison. Something that serves as a standard by which others may be served; it is all to do with anything or something that is comparatively measurable”. (Zairi 1988) The core of benchmarking practice is the sequence of identifying the best and most suitable standard of quality for products, services, or processes, and making the improvements necessary to reach those standards. These are described as best practices. (Bhutta and Huq 1999). Best Practices normally start with manufacturing as this is the core of the enterprise and on this strength organisations aim to excel and become competitive. But best practices can and should be extended to each and every department and activity to be really valuable. They could be adopted in Human Relations to improve performances and motivate workers towards higher productivity and commitment with both intrinsic and extrinsic rewards. The more challenging environments of current knowledge based industries, the service industries and others will all benefit from best practices that evolve out of benchmarking. Benchmarking is equally useful in setting goals and standards in customer services and accounting practices. Benchmarking also became necessary because business expanded to other geographies and often with diverse suppliers. It would be difficult to place an order for the same item which was perceived differently by different suppliers. There had to be a standard fixed by the purchaser that was understood equally by all suppliers to ensure uniformity of quality standards. The evolution of benchmarking ensured that when suppliers understood the exact requirement, minimum communication was needed and automatically deliveries were received without delays. This in turn ensured that Production schedules were maintained with consistent quality. With Globalization of business international procurement commenced and the concept of supply chains evolved. From a one sided piece meal order, purchasing was transformed to collaborative efforts between the Production department and the Supplier with the purchaser acting as the conduit and controller of events. Orders were made for prolonged periods and larger repeated quantities of standardized benchmarked products and delivery schedules were spaced according to the requirements of capacities. This collaboration between production, inventory, supplier, and the purchase department was the new beginning and has evolved due to the benchmarking process. Types of Benchmarking There are several kinds of benchmarking procedures. Internal benchmarking: In most cases benchmarking commences by setting internal goals and targets. A necessary feature in the beginning is to have a consensus between departments in order to avoid conflicts and a like minded approach is desirable. It must be evident to all that this is a need and not a reward and punishment practice. At this stage co-operation is very necessary to bring around the change in attitude. Indeed the organisational culture will be affected deeply with the advent of this practice Competitive benchmarking: When Internal standards have been set, it is time to look at what the competition is doing in order to better it to ether gain or retain competitive advantage. It is interesting to note that Porter (1996) advocated that competitive edge is possible by not doing different things but by doing them differently. It is obvious that the benchmarking practice revolves around this principle. There is safety in following the leader, but then the result will be predictable and staid. The uniqueness and the competitive edge will lie in doing the s a different manner and this same work in a different fashion and these calls for benchmarking to pave the way. Functional Benchmarking: Often a narrow approach of doing things in the same old routine way, even if they are sought to be continually improved under benchmarking practices, will bring in eventual stagnation. It is useful in such cases to look beyond the narrow confines of rivals and look at other industries and observe what do they do an learn valuable lessons from a wider horizons. This will certainly improve the benchmarking practice. The similarity of process exists across industry spectrums and organisations can incorporate these best practices to their advantage. Benchmarking and TQM This makes some quarters feel that Benchmarking alone will solve quality problems as this initiative ensures the quality of inputs as a result of which the output by way of production will automatically achieve the desired quality and the goal of customer satisfaction will be realized. They also feel that implementation of Total Quality Management (TQM) is superfluous if Benchmarking is in place. However this is a wrong notion. TQM covers not only benchmarking and setting of standards for purchases, but it also covers the domain of production processes required in the realization of quality outputs. A number of organizations also implement Total Quality Management (TQM) practices to guide them through to becoming competent and successful. To set quality standards use is made of Benchmarking. According to Zairi and Youssef (1998) in the global context today competition cannot be met with cost efficiency alone. Quality plays an equally important role in assessing competitiveness. Quality is a function of (TQM) and quality cannot be achieved without Benchmarking. Benchmarking is essentially a cost reduction method (McDougall and Hinks 2000). Its exercise results in pre-determined and pre-arranged costs. Deviations are the measures that managers seek to locate and redress. Managers depend upon it for performance measurement in the TQM context (Camp 1989) and it is considered as the most powerful technique for gaining and maintaining competitive advantage (Codling 1992). Benchmarking has also been defined as the continuous, systematic process for evaluating the products, services and work processes of organisations for the purposes of organisations improvement (Sarkis 2001). Usually profits and returns are considered to be a measure of accomplishment, but, in its widest sense, quality is perceived as the vital element for both national and global success (Dale 1999, Feigenbaum 1999). Deming (1986) in his 14 point formula to improve efficiency emphasizes on quality and calls lowest price a recipe for disaster. According to him quality, set through standards, prevails over price. This is the benchmarking process. TQM as a term came to be used as a term in the eighties although the ingredients of TQM were laid out and practiced during the Second World War when the US companies assisted their allies by producing quality war goods to win the war. After the war the shattered Japanese manufacturing was largely aided by Deming who introduced quality principles without using the term TQM. He preached business excellence through quality management. Benchmarking and Business Excellence The ultimate aim for a firm is to reach a standard of excellence that is recognised all over the world. This accomplishment will enable the firm to achieve an edge over its competition as well as be a reminder to the consumers as a reliable and socially conscious supplier of goods and services. To reach business excellence it is critical to develop internal quality consciousness and the ability to respond quickly as per schedules (Clausing 1994). But the prerequisite of this status is setting of standards that are understood to be the hallmark of excellence. This calls for TQM practices and benchmarking is a vital tool in attaining TQM. The dynamic nature of todays global marketplace places a premium on a firms ability to anticipate and to respond to customer needs as well as changing competitive pressures. Within this environment, developing a successful manufacturing strategy can be critical to the firms long-term competitive success. The potential for using the product life cycle (PLC) as a strategic anchor in the manufacturing strategy planning process also depends largely on TQM practices. There are several models of Business Excellence in the world today but the most prestigious are the Malcolm Baldrige Award of the US, the EFQM Award of Europe and the Deming Prize of Japan. The two important features of the Malcolm Baldrige Award (1987) for Business Excellence are Managing for innovation and Management by fact. The underlying principles of both features is Benchmarking that calls for innovations in products and services and their continuous improvement. Similarly in the EFQM model of Business Excellence the Results generate feedback which in essence serves as a Benchmark for further improvements in standards of excellence (EFQM 1990) Benchmarking is so fundamentally linked with both TQM and Business Excellence that it becomes difficult to define where one ends and the other begins. The relationship is sublime and runs like an undercurrent. Benchmarking is the basic factor on which both TQM and Business Excellence are developed. The absence of benchmarking will make both TQM and Business Excellence lose their worth. But this does not make Benchmarking more important that the other two. The role of benchmarking is vital but limited to setting of standards, revising them for improvements based on performance and results and acting as a fulcrum for goal setting. Discussion The purpose of Benchmarking is focused on the following requirements, Firstly, to establishing the difference between what is being done as against what is needed or required. Secondly, by setting the highest possible standards by raising the goal step by step based on feedback received and past performances. Thirdly, learning from best in class, whether from competitive rivals or even from no-competitive industries. Lastly Benchmarking will lead to the creation of synergies of operations making them follow each other in a fused manner for optimum results and eventual elimination of waste. Businesses have now gone global and in these new settings political boundaries are blurring and standards are becoming more common. However there is still a huge amount of national benchmarking and concepts of international standards are at a nascent stage. The emerging scene is that products need to be standardized to a certain minimum level to be termed as international products. This is a very difficult task as local aspirations are different within each country. Yet it is important to have a common minimum standard first to ascertain a minimum quality and secondly for sake of conformity so that the products is inimitable. The uniqueness of the product is the eventual triumph and competitive edge for the organisation. Benchmarking is therefore the only way to step up the quality and bring conformity. This is the stepping stone to the larger TQM plan and recognition of the firm as an organisation of business excellence. Distinction however must be drawn between Benchmarking, TQM and Business Excellence. Benchmarking is the beginning of quality consciousness, a tentative but firm step towards implementation of Total Quality Management over the entire enterprise. While benchmarking will raise the standards of separate activities, TQM will be on a larger canvas, and with use of benchmarking as a tool, will lead to improvement in quality and elimination of wastage thereby increasing the profitability and competitiveness of the firm in the marketplace. Business Excellence on the other hand is a much larger achievement that rides both on benchmarking as well as TQM. This is the recognition by the society at large through its institutions, like the Baldrige and EFQM Awards, and the Deming Prize, of a firm having reached a status where it symbolizes a beneficial entity that offers rewards for all its stakeholders; shareholders, employees, suppliers, consumers, government and the society at large. Although they are all inter related and activities are inter-woven, yet benchmarking cannot be conceived as a standalone measure and which can neither constitute business excellence nor replace TQM as a quality measure. Reference: Baldrige FAQ pdf available at: www.baldrige.nist.gov. Bhutta, Khurrum S., and Faizul Huq (1999), Benchmarking - best practices: an integrated approach, Benchmarking: An International Journal; 06: 3; pp. 254-268, Carr, A.S. and Smeltzer, L.R. (1999), “The relationship among purchasing benchmarking, strategic purchasing, firm performance, and firm size”, The Journal of Supply Chain Management, Fall, pp. 51-60. 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