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...

05/10/2004


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.

      More Info:

      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/ERV0.8%1.2%1%
      ERV/maintenance engineer$50M$250M$100M
      ERV/maintenance technician$4M$10M$7M
      Staffing
      Technicians/supervisor81510
      Technicians/planner152520
      Sales based
      Total maintenance cost/sales cost1%5%2%
      Maintenance labor cost/sales cost0.6%2.5%1%
      Maintenance stores cost/sales cost0.4%2.5%1%
      Maintenance performance
      Work order coverage60%100%100%
      Preventive maintenance compliance65%100%100%
      Maintenance schedule compliance35%95%95%
      Planned maintenance work35%95%80+%
      Operator involvement in PM10%40%Varies
      Contractor costs/maintenance cost10%100%Varies
      PM+PdM hours/total hours20%50%50%
      Reactive hours/total hours5%50%&10%
      Productivity rate (wrench time)20%60%60%
      Equipment performance
      Equipment availability65%99.9%Varies
      Equipment efficiency75%95%95+%
      Overall equipment effectiveness (OEE)&20%85+%Varies
      Maintenance stores
      Spare parts inventory turns0.51.4Varies
      Stores service level80%99%95%-97%
      Value of stores transactions/stores personnel$350K$600K+Varies
      Training
      Training expense/employee$607"$2,000 "Varies
      Total training expense/total payroll1.65%4.39%Varies
      Technology training/total training expense&20%50+%Varies




Top Plant
The Top Plant program honors outstanding manufacturing facilities in North America. View the 2017 Top Plant.
Product of the Year
The Product of the Year program recognizes products newly released in the manufacturing industries.
System Integrator of the Year
Each year, a panel of Control Engineering and Plant Engineering editors and industry expert judges select the System Integrator of the Year Award winners in three categories.
May 2018
Electrical standards, robots and Lean manufacturing, and how an aluminum packaging plant is helping community growth.
April 2018
2017 Product of the Year winners, retrofitting a press, IMTS and Hannover Messe preview, natural refrigerants, testing steam traps
March 2018
SCCR, 2018 Maintenance study, and VFDs in a washdown environment.
April 2018
ROVs, rigs, and the real time; wellsite valve manifolds; AI on a chip; analytics use for pipelines
February 2018
Focus on power systems, process safety, electrical and power systems, edge computing in the oil & gas industry
December 2017
Product of the Year winners, Pattern recognition, Engineering analytics, Revitalize older pump installations
Spring 2018
Burners for heat-treating furnaces, CHP, dryers, gas humidification, and more
April 2018
Implementing a DCS, stepper motors, intelligent motion control, remote monitoring of irrigation systems
February 2018
Setting internal automation standards

Annual Salary Survey

Before the calendar turned, 2016 already had the makings of a pivotal year for manufacturing, and for the world.

There were the big events for the year, including the United States as Partner Country at Hannover Messe in April and the 2016 International Manufacturing Technology Show in Chicago in September. There's also the matter of the U.S. presidential elections in November, which promise to shape policy in manufacturing for years to come.

But the year started with global economic turmoil, as a slowdown in Chinese manufacturing triggered a worldwide stock hiccup that sent values plummeting. The continued plunge in world oil prices has resulted in a slowdown in exploration and, by extension, the manufacture of exploration equipment.

Read more: 2015 Salary Survey

The Maintenance and Reliability Coach's blog
Maintenance and reliability tips and best practices from the maintenance and reliability coaches at Allied Reliability Group.
One Voice for Manufacturing
The One Voice for Manufacturing blog reports on federal public policy issues impacting the manufacturing sector. One Voice is a joint effort by the National Tooling and Machining...
The Maintenance and Reliability Professionals Blog
The Society for Maintenance and Reliability Professionals an organization devoted...
Machine Safety
Join this ongoing discussion of machine guarding topics, including solutions assessments, regulatory compliance, gap analysis...
Research Analyst Blog
IMS Research, recently acquired by IHS Inc., is a leading independent supplier of market research and consultancy to the global electronics industry.
Marshall on Maintenance
Maintenance is not optional in manufacturing. It’s a profit center, driving productivity and uptime while reducing overall repair costs.
Lachance on CMMS
The Lachance on CMMS blog is about current maintenance topics. Blogger Paul Lachance is president and chief technology officer for Smartware Group.
Maintenance & Safety
The maintenance journey has been a long, slow trek for most manufacturers and has gone from preventive maintenance to predictive maintenance.
Industrial Analytics
This digital report explains how plant engineers and subject matter experts (SME) need support for time series data and its many challenges.
IIoT: Operations & IT
This digital report will explore several aspects of how IIoT will transform manufacturing in the coming years.
Randy Steele
Maintenance Manager; California Oils Corp.
Matthew J. Woo, PE, RCDD, LEED AP BD+C
Associate, Electrical Engineering; Wood Harbinger
Randy Oliver
Control Systems Engineer; Robert Bosch Corp.
Data Centers: Impacts of Climate and Cooling Technology
This course focuses on climate analysis, appropriateness of cooling system selection, and combining cooling systems.
Safety First: Arc Flash 101
This course will help identify and reveal electrical hazards and identify the solutions to implementing and maintaining a safe work environment.
Critical Power: Hospital Electrical Systems
This course explains how maintaining power and communication systems through emergency power-generation systems is critical.
click me