Benchmarking or performance measurement: Which is right for your plant?

Most companies today are looking for some parameter by which to measure their maintenance function. However, there is confusion about what the parameter should be. In addition, there is considerable confusion about the difference between a performance measure and a benchmark. To clearly understand the difference and how both should be used in an organization's effort to improve, it is necess...
By Terry Wireman, Senior Industry Analyst, Genesis Solutions, Ridgefield, CT May 10, 2004
Key Concepts
  • Benchmarks and performance indicators are not necessarily the same.

  • Benchmarking is a process for continuous improvement that involves both metrics and methods.

  • Performance indicators can be used to support the benchmarking process.

    Sections:
    Benchmarking
    Performance Measures
    Coordination
    More Info:

    Most companies today are looking for some parameter by which to measure their maintenance function. However, there is confusion about what the parameter should be. In addition, there is considerable confusion about the difference between a performance measure and a benchmark. To clearly understand the difference and how both should be used in an organization’s effort to improve, it is necessary to define both terms and examine their relationship.

    Benchmarking

    One definition for benchmarking is: An ongoing process of measuring and improving business practices against the companies that can be identified as the best worldwide. This definition emphasizes the importance of improving, rather than maintaining the status quo. It addresses searching worldwide for the best companies. Most marketplaces have international competitors. It would be naive to think that best practices are limited to one country or one geographical location. Information that allows companies to improve their competitive positions must be gathered from best companies, no matter where they are located.

    Companies striving to improve must not accept past constraints, especially the “not invented here” syndrome. Companies that fail to develop a global perspective will soon be replaced by competitors that had the insight to become global in their perspective. In order to make rapid continuous improvement, companies must be able to think outside the box; that is, to examine their business from external perspectives. The more innovative the ideas that are discovered, the greater the potential rewards that can be gained from the adaptation of the ideas.

    Benchmarking opportunities are uncovered when a company conducts an analysis of its current policies and practices. Benefits are gained by following a disciplined process, composed of 10 steps:

    1. Conduct an internal audit of a process or processes.

    2. Highlight potential areas for improvement.

    3. Do research to find 3 or 4 companies with superior processes in the areas identified for improvement.

    4. Contact those companies and obtain their cooperation for benchmarking.

    5. Develop a “pre-visit” questionnaire highlighting the identified areas for improvement. (See step 2.)

    6. Perform the site visits to the 3 or 4 partners (see step 3).

    7. Perform a “gap analysis” on the data gathered compared to your company’s current performance (see Fig. 1).

    8. Develop a plan for implementing the improvements.

    9. Facilitate the improvement plan.

    10. Start the benchmarking process over again (i.e., go back to step 1).

      1. Benchmarking helps companies find the opportunities for improvement that will give them a competitive advantage in their marketplaces. However, the real benefits from benchmarking do not occur until the findings from the benchmarking project are implemented and improvements are realized.

        To gain maximum benefits from benchmarking, a company should only conduct a benchmarking exercise after it has attained some level of maturity in the core competency being benchmarked. Clearly, a company would have to have some data about its own process before it could perform a meaningful comparison with another company.

        Without accurate and timely data and an understanding of how the data is used to compile the benchmark statistics, there will be little understanding of what is required to improve the maintenance process. And this is true whatever process is benchmarked.

        The final step to ensure benefits from benchmarking is to use the knowledge gained to make changes in the competency benchmarked. The knowledge gained should be detailed enough to develop a cost/benefit analysis for any recommended changes.

        Benchmarking is an investment. The investment includes the time and money to do the ten steps described earlier. The increased revenue generated by the implemented improvements pays for the investment. For example, in equipment maintenance, the revenue may be produced through increased capacity (less downtime, higher throughput) or reduced expenses (efficiency improvements).

        The revenue is plotted against the investment in the improvements to calculate the return on investment (ROI). To ensure success, the ROI should be calculated for each benchmarking exercise.

        Performance Measures

        Performance measures have been misunderstood and misused in most companies today. Performance indicators are just that, an indicator of performance. Performance indicators are also not to be used for “ego gratification”; that is, to be used for comparison with another company to show how much better one company is over another. Performance measures are also not to be used to show that “we are just as good as everyone else in our market, so we don’t need to change.”

        Properly utilized, performance indicators should be used to highlight an opportunity for improvement in a company and thus to further analyze to find the problem that is causing the indicator to be low. Ultimately, this analysis should point to a solution to the problem. This scenario implies that there should be multilevel indicators.

        One layer of indicators would be at a corporate strategic level. A supporting level would be the financial performance indicator for a particular department or process. A third level would be an efficiency and effectiveness indicator that highlights what impacts the financial indicator. A fourth level would be a tactical level indicator that highlights the departmental functions that contribute to the efficiency and effectiveness of the department. The fifth level of indicator is the measurement of the actual function itself.

        Performance indicators, properly used, highlight opportunities for improvement. They pinpoint opportunities for improvement in a company’s business and point to needs for further analysis and ultimately to solutions to problems.

        Properly conceived indicators are constructed not from the bottom up, but from the top down. The corporate indicators measure what is important to top management in order to satisfy the needs of the stakeholders or shareholders. That is, the corporate-level indicators help an organization focus its efforts on supporting a company’s direction.

        While corporate indicators set the direction, the subsequent indicators must focus on supporting that direction. If these indicators are not related to corporate level indicators, the overall organizational effort is less than optimized, endangering the corporation’s survival.

        In short, all performance indicators must be tied to long-range corporate business objectives. If a corporate indicator highlights a weakness, then the next lower level of indicators should give further definition and clarification to the causes of the weakness. When the functional performance indicator level is reached, the problem function should be highlighted. It will then be up to the responsible manager to take action to correct the problem condition. When the problem is corrected, the indicators, correctly monitored and recorded, will result in improvement at higher levels.

        Companies need to put in place performance indicators that become ingrained in the culture of the business. This approach presents both opportunity and challenge. The opportunity is for each department to connect its operation to the overall business strategies of the company. The challenge is to find indicators that allow this goal to be accomplished easily. Again, the correct way to develop performance indicators is to work from the top or corporate level and develop indicators at each subsequent level. If the indicators are selected at the bottom and then built upward, they may be conflicting rather than supportive.

        Coordination

        Although benchmarks are not numbers used as an end goal, they can be compared to a destination. If the company has identified an opportunity for improvement, then studying (benchmarking) other companies and learning how to make the improvement becomes a corporate goal. At this time, performance indicators can be developed for charting the course between the present level of performance and the desired benchmark level.

        As progress is made, the performance indicators reflect it, showing the improvement. When the benchmark is realized, the benchmarking process dictates that another area for improvement should be identified. Once the internal audit is conducted and benchmarking activities completed, then the performance indicators are changed or modified to track the progress toward meeting and exceeding the new benchmark goal.

        Is there a particular benchmark that interests you as a manager? Then why not discuss it with others in your company to see if it has merit as an improvement goal? If the consensus is positive, begin the benchmarking process by conducting an internal analysis to see how your company is actually performing in the identified area. If it presents an opportunity for improvement, use the information to begin a benchmarking project.

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        Terry Wireman is a consultant, educator, and author on industrial maintenance. He may be reached at 203-431-0281 or twireman@genesissolutions.com . Article edited by Richard L. Dunn, editor, 630-288-8779, rdunn@reedbusiness.com .

        Widely used maintenance benchmarks

        Indicator Low range High range Best practice
        *ERV = total plant estimated replacement value
        Asset value based
        Maintenance cost/ERV* 2% 5% 2%
        Stores investment/ERV 0.8% 1.2% 1%
        ERV/maintenance engineer $50M $250M $100M
        ERV/maintenance technician $4M $10M $7M
        Staffing
        Technicians/supervisor 8 15 10
        Technicians/planner 15 25 20
        Sales based
        Total maintenance cost/sales cost 1% 5% 2%
        Maintenance labor cost/sales cost 0.6% 2.5% 1%
        Maintenance stores cost/sales cost 0.4% 2.5% 1%
        Maintenance performance
        Work order coverage 60% 100% 100%
        Preventive maintenance compliance 65% 100% 100%
        Maintenance schedule compliance 35% 95% 95%
        Planned maintenance work 35% 95% 80+%
        Operator involvement in PM 10% 40% Varies
        Contractor costs/maintenance cost 10% 100% Varies
        PM+PdM hours/total hours 20% 50% 50%
        Reactive hours/total hours 5% 50% &10%
        Productivity rate (wrench time) 20% 60% 60%
        Equipment performance
        Equipment availability 65% 99.9% Varies
        Equipment efficiency 75% 95% 95+%
        Overall equipment effectiveness (OEE) &20% 85+% Varies
        Maintenance stores
        Spare parts inventory turns 0.5 1.4 Varies
        Stores service level 80% 99% 95%-97%
        Value of stores transactions/stores personnel $350K $600K+ Varies
        Training
        Training expense/employee $607 “$2,000 “ Varies
        Total training expense/total payroll 1.65% 4.39% Varies
        Technology training/total training expense &20% 50+% Varies