TOTAL QUALITY MANAGEMENT

DIGITAL ASSIGNMENT 2
ALIASGAR AHMEDALI 18BME0878
F2+TF2 PROF.Dr. SRINIVASAN NARAYANAN

Q1) Efficiency has been defined as “doing things better” and effectiveness
as “doing better things”. Describe how benchmarking can be used to
improve both efficiency and effectiveness.
Ans.

When you benchmark you “look up to” other companies that are leaders (or that are at least doing better then
you) in your industry (or in your niche) to improve your own company’s effectiveness. You can benchmark
their processes (the way they do it) or their metrics (how well they actually do it). As an example if you want to
improve how you handle your inventory you can determine who has the best inventory turns in your industry,
set a goal to achieve that and implement processes they (or others) used to get there.

You can benchmark even if you are the leader, in order to keep leading…

Companies are experiencing tighter budgets, longer sales cycles, and declining revenues. A focus on reducing
costs and improving efficiency and effectiveness throughout the organization may provide a growth path, if
not survival. As a result, strategic initiatives such as bench-marking are on the rise, providing business
executives with valuable information that will help them remain at the forefront of their industry.

Bench-marking provides the quantitative method by which companies measure functional improvements,
operational efficiency, and cost reduction opportunities. It serves as an objective measuring stick used by
business managers to make informed business decisions, develop strategy, create initiatives, as well as
improve business processes and systems. Bench-marking can also help identify where gaps or inefficiencies
exist and provide insight for improving that process.

Finally, benchmarking is critical for developing a business case for change and providing a quantitative baseline
analysis of existing processes, technology, as well as other key performance indicators while becoming the
measurement against which ongoing efforts are compared. Essentially, benchmarking provides a reference
point for implementing and managing change.

What is Benchmarking?

Benchmarking is the process of comparing the cost, cycle‐time, productivity, or quality of a specific
process/method to another that is widely considered to be an industry standard or leading practice. Similar to
a balance sheet, benchmarking provides a snap‐shot of performance measurement at a point in time, and
needs to be re‐measured on an ongoing basis.

How is Benchmarking Used?

Strategically, benchmarking provides a baseline today for growth tomorrow. Executives use this business data
and analysis to drive strategic decisions and initiatives. The continuous monitoring of the metrics associated
with the strengths and deficiencies of business processes or systems allows organizations to focus on the right
levers for growth. Benchmarking shows the value associated with any improvements, efficiency and cost
reductions gained, which can translate into increased profit.

Organizations also use benchmarking for trend analysis and target setting as part of their annual strategic
planning process. Established baseline measurements enable decision makers to better plan and align business
initiatives with corporate strategy. The metrics and insights derived from benchmarking provide the
quantitative evidence into the effectiveness of critical business processes or operations. This information
enables managers to proactively craft solutions to address issues which increase efficiency and reduce cost.
Benchmarks become the visible line in the sand against which incremental improvements are measured, as
managers drive toward their targets.

Benchmarks can also be used to improve employee performance. While process improvement and
benchmarking sometimes have a negative connotation for employees (such as layoffs resulting from efficiency
gains), they provide an educational opportunity if communicated correctly. The baseline dataserves as a report
card for employees letting them know how processes and systems are performingwhile also setting
expectations for future improvements. In addition to inciting a competitive desire toimprove, employees
should also be encouraged to work smarter, not harder. Employees tend torespond better with a deeper
understanding of the root cause and quantitative value derived from thedata, thus allowing emotions and
egos to remain in check.

What Do Companies Benchmark?

So, what do companies measure? Typically, organizations measure the business metrics which are important
indicators of the business’ operational and financial health. Because of its strategic use ,benchmarking offers
organizations and decision makers the ability to measure critical business functions and operations closely tied
to revenues and profits. For example, a technology company with an established product may focus on its
sales‐cost‐per‐lead whereas a retail company may gain insight from cost‐per‐transaction metrics. Another
example would be a company trying to break into a new market; measuring its engineering or manufacturing
costs, as well as sales and marketing investments.

Other business functions like finance and accounting may not be deemed critical for benchmarking because
they are perceived as standard processes that are performing “on par”. However, it is imperative for
businesses to take a closer look at these function’s metrics. Benchmarking is critical to improving the
performance of the finance function and ultimately defining a sound, cost‐effective financial strategy for the
organization.

Selecting Benchmarks

When benchmarking processes, it is important to keep an open mind about the alternatives or non‐typical
solutions for your business. Why? The comparison between leading practices for certain functions versus your
industry’s best practices may be eye‐opening for most executives. Benchmarking can point to several
opportunities for improvement or investigation, and that’s the point. Managers must focus on the quantitative
evidence and objectively address issues.

When selecting metrics and their components, the SMART metric guideline, as outlined below, ensures your
metrics are simple and straightforward. If you have to define, explain, or defend the metrics, then collecting
and translating data will be a challenge. By using SMART metrics, the measures are easier to sell and have a
stronger impact on the process and people who use them.

The SMART guideline:

• Specific: metrics are specific and targeted—they answer who? what? where? when? why? which?

• Measurable: the data is accurate and complete

• Actionable: metrics are easy to understand and are clear when charting performance, so the appropriate
action can be taken

• Realistic: metrics should represent an objective that you are both willing and able to work towards

• Timely: you can get the data when you need it

Benchmarking is more than simply selecting the right set of numbers and watching them change overtime. The
real insight comes from comparing these numbers to those outside of the organization. There are a few
methods organizations can use when comparing metrics. An organization usually comparestheir
measurements against:
• top organizations (best‐practices method)

• relative peer groups (competitive method)

• a combination of these two methods

Which method is best for your organization and the process? That depends on what you are benchmarking
and on your organization. The comparison to top organization benchmarks works well for certain business
functions that are similar enough in any organization, regardless of size or industry. Forexample, accounts
payable metrics may warrant comparison to leading practices. Alternatively, comparing the transaction
process and technology spend of an organization with limited volume versus those of a transaction‐heavy
organization would be comparing apples to oranges. As such, the better method may be to use the relative
peer groups..

Key Benefits of Benchmarking

In addition to the points made above, benchmarking can help your organization in other ways. Some ofthese
include providing:

• Actionable information to help companies grow. Organizations that regularly benchmark their
operations use these insights to map their strengths and weaknesses. With continuousmonitoring and
data in hand, organizations can react faster and make the appropriateadjustments.

• Quantitative information drives strategic decisions and initiatives. Insight into the business processes
or systems allows organizations to focus on the right levers for growth. Knowing whatwaste to cut or
where investments need to be made based on data‐driven evidence givesexecutives confidence in
their decisions.

• Reduced uncertainty. Benchmarking provides quantitative evidence that helps companies measure any
change in performance. A significant benefit of benchmarking is the insight into critical business
processes it provides thereby enabling managers to proactively craft solutions to address issues.

• Tactical Action Plan. Misallocation of resources is often a result of an inefficient or ineffective process.
Comparing the process, staff, and systems involved in relation to a peer group allows managers to
address laggard processes with less effort and greater knowledge.

• Enhanced understanding of cost structure relative to others. Comparing relative business costs to top
organizations and peers can drive the initiative to improve processes, systems, or staff functions to
gain a competitive advantage.

Where to Apply Benchmarking

Anything that can be measured can be benchmarked. Some common applications include:

• Financial Management ‚

o Accounts Payable and Expense Reimbursement‚

o Accounts Receivable‚

o The Finance Organization‚

o General Accounting and Reporting‚

o Internal Controls‚

o Order to Invoice‚

o Payroll‚

o Planning and Management Accounting

• Supply Chain Management‚

o Supply Chain Planning‚

 o Procurement‚

o Manufacturing‚

o Logistics

• Human Capital Management‚

o The HR Organization‚

o Create and manage HR strategy ‚

o Source, recruit, and select employees ‚

o Develop, train, and counsel employees ‚

o Reward and retain employees ‚

o Salary, report time, and process payroll taxes‚

o Redeploy and retire employees ‚

o Manage employee information

• Business Process Management

• Customer Service

• Innovation

• Knowledge Management

• Product Development

The only real limitation of areas to benchmark is the availability of peer group data for comparison.

Conclusion

Organizations seek ways to reduce costs and increase the effectiveness and efficiencies to grow.Organizations
can use benchmarking results to justify business initiatives and investigate potential solutions by verifying
process performance against competitors. The quantifiable performance points provide a strong business case
for such initiatives and investments. Defining a road map with measurable targets and goals further supports
the argument for change and improvement.

While some companies may seek to take on benchmarking projects internally, there are benefits in using
outside consultants.ƒ

Objectivity: often, third‐parties remain objective and enable clients to have greater confidence in the results
and recommendationsƒ

Expertise: consultants often have specific benchmark training and client experience across different types of
industries, company sizes, and geographic locationsƒ

Credibility: with proven tools and methodology for managing projects, consultants can provide consistent,
predictable results utilizing open communication methods for sharing of information and insights

In short, benchmarking business functions and processes provides a creditable reference point and helps
analyze the areas needing improvement. And as quoted by Lord Kelvin above, “if you cannot measure it,you
cannot improve it.
Q2) What difficulties are typically encountered when benchmarking direct
competitors? Describe several ways to work around these problems.
Ans. Benchmarking is simply the process of measuring the performance of one's company against the
best in the same or another industry. Benchmarking is not a complex concept but it should not be
taken too lightly. Benchmarking is basically learning from others. It is using the knowledge and the
experience of others to improve the organization. It is analysing the performance and noting the
strengths and weaknesses of the organization and assessing what must be done to improve.
However while doing this, there are certain difficulties that are typically encountered when
benchmarking competitors. Here are some of them and ways to overcome them.

1. Competitors may refuse to share their information

Competitive benchmarking is the most difficult type of benchmarking to practice. For obvious
reasons, organizations are not interested in helping a competitor by sharing information. It looks at
all aspects of the competition's strategy. This does not just include the disassembly and examination
of the product but it analyzes the entire customers’ path of the organization’s competitor. This is a
difficult thing to do because this information is not easily obtained.
SOLUTION:

• The company should conduct an extensive research. It is also important to remember when
using competitive benchmarking that the goal is to focus on your direct competitors and not
the industry as a whole.
• Reverse engineering. This is a process if buying a competitors product, dismantling it to
understand its components and its configurations.

2. Difficulties in deciding what activities to benchmark

This is where a company finds it difficult to make a choice on which activity to benchmark as opposed
to others. Therefore the company finds itself concentrating on irrelevant activities and leaving the
most important activities. At times the company will be forced to carry out so many activities which
make it expensive for the company.
SOLUTION:

• The company should sub divide its processes so as to identify the most important activities
to prioritize.
• They should involve experts in the relevant areas of concern so as to ensure quality decision
making.

3. Successful practices in one organization may not be successful in another organization

This where a company borrows ideas applied by other companies and apply them on their strategy
expecting them to have the same results. In return, they end up being frustrated due to the failure of
the whole process. This is because techniques applied by one company may not be applicable to
another company.
SOLUTION:
 • Appraisal – This is to evaluate the worth, significance, status of or give expert judgment on
value or merit of the practice that is used constantly to check its effectiveness and change
where necessary.
• Ideas borrowed should not be copied directly, but rather modified to suit the situation

4. It can be expensive to a firm

Benchmarking will involve an extensive research and experts’ knowledge in order to be successful.
Therefore the company has to spend more on resources required, thus increasing the operating costs
of the company.
SOLUTION:

• The company should identify the key areas to benchmark and state the desired objective.

5. The benchmark may be yesterday’s solution to tomorrow’s problem.

Since the operating environment is highly dynamic, the information obtained from the competitor
becomes obsolete before implementation thus the solution will be ineffective. Due to changes in
technology, current processes may be ineffective tomorrow.
SOLUTION:

• Be up to date with the technology.

6. It encourages the mentality of catching up rather than being innovative

The company using their competitor to benchmark, will rather be centralized to competition and
trying to reach the levels of performance of the company in question, instead of being creative and
innovative to come up with better means and ways of doing things, were it not for consideration of
the competitor. The competitor company being used as benchmark may even have more advanced
resources, making it difficult to directly use it as basis for evaluating your company.
SOLUTION:

• Emphasize on innovation rather than invention.

• While using your competitor as basis for benchmarking, avoid the idea of trying to catch up,
rather, use it as a level of comparison to come up with better standards and ways for
organizational improvement and meeting or surpassing the industries best practices.

ETHICAL PRACTICES CONCERNING BENCHMARKING

Since the concept of benchmarking can lead to unscrupulous and sometimes unethical behavior, the
SPI Council on Benchmarking and the International Benchmarking Clearinghouse have established a
general code of conduct (Thompson). The code is as follows:

• When benchmarking with competitors, set up certain rules that state that things will not be
discussed that give either company a competitive advantage. Establish the purpose for both
parties to improve or gain benefit. Costs should not be discussed.
• Do not ask competitors for sensitive information. Do not make them feel that if the data is
not shared the benchmarking process will end. If you ask the company for sensitive and
valuable information, be prepared to give the same in return.
• Use an ethical and unbiased third party such as a legal advisor for direct competitor advice.
• Consult with a legal advisor if any information gathering procedure is in doubt.
• Treat any information obtained from a benchmarking partner as privileged or “top secret”
information. Don't give away any information or potential trade secrets without permission.
• Do not misrepresent yourself or your organization as being someone or something that you
are not.
• Show that you are committed to the effectiveness of the process. And in doing so maintain
a professional and honest relationship with your benchmarking partners.
Q3) Benchmarking studies are a search for two types of information: (i)
best in class processes and (ii) metrics that result. In your opinion, which
piece of information is more important ? Why ?
Ans.
Benchmarking is the practice of comparing business processes and performance metrics to industry
bests and best practices from other companies. Dimensions typically measured are quality, time and
cost.

In my opinion , for the process of benchmarking, ‘best in class processes ‘ is more important piece of
information. Let us see why.

Metric benchmarking identifies areas of weak performance where changes need to be made to the
way things are done, while process benchmarking is a vehicle for achieving this change.

Benchmarking is used to measure performance using a specific indicator (cost per unit of measure,
productivity per unit of measure, cycle time of x per unit of measure or defects per unit of measure)
resulting in a metric of performance that is then compared to others.

Such detailed benchmarking includes comparisons of engineering practices, data collection

procedures, office routines and performance indicators for each of the processes under study. Flow
diagrams can capture key relationships and assist managers in identifying areas for improvement.

Also referred to as "best practice benchmarking" or "process benchmarking", this process is used in
management in which organizations evaluate various aspects of their processes in relation to best-
practice companies' processes, usually within a peer group defined for the purposes of comparison.
This then allows organizations to develop plans on how to make improvements or adapt specific best
practices, usually with the aim of increasing some aspect of performance. Benchmarking may be a
one-off event, but is often treated as a continuous process in which organizations continually seek to
improve their practices.

In the process of best practice benchmarking, management identifies the best firms in their industry,
or in another industry where similar processes exist, and compares the results and processes of those
studied (the "targets") to one's own results and processes. In this way, they learn how well the
targets perform and, more importantly, the business processes that explain why these firms are
successful. According to National Council on Measurement in Education, benchmark assessments are
short assessments used by teachers at various times throughout the school year to monitor student
progress in some area of the school curriculum. These also are known as interim assessments.

Process benchmarking.

This is all about better understanding your processes, comparing performance against internal
and external benchmarks, and finding ways to optimise and improve your processes. The idea is that,
by understanding how top performers complete a process, you can find ways to make your own
processes more efficient, faster and more effective.

The initiating firm focuses its observation and investigation of business processes with a goal
of identifying and observing the best practices from one or more benchmark firms. Activity analysis
will be required where the objective is to benchmark cost and efficiency; increasingly applied to back-
office processes where outsourcing may be a consideration. Benchmarking is appropriate in nearly
every case where process redesign or improvement is to be undertaking so long as the cost of the
study does not exceed the expected benefit

Performance benchmarking. This involves collecting information on how well you’re doing in
terms of outcomes (which could mean anything from revenue growth to customer satisfaction) and
comparing these outcomes internally or externally. This can also refer to functional performance
benchmarking, such as benchmarking the performance of the HR team (using metrics like employee
net promoter score or staff engagement surveys) or the marketing team (measuring net promoter
score or brand awareness, for instance).

Allows the initiator firm to assess their competitive position by comparing products and
services with those of target firms.

Metric benchmarking

Another approach to making comparisons involves using more aggregative cost or production
information to identify strong and weak performing units. The two most common forms of
quantitative analysis used in metric benchmarking are data envelope analysis (DEA) and regression
analysis. DEA estimates the cost level an efficient firm should be able to achieve in a particular
market. In infrastructure regulation, DEA сan be used to reward companies/operators whose costs
are near the efficient frontier with additional profits. Regression analysis estimates what the average
firm should be able to achieve. With regression analysis, firms that performed better than average
can be rewarded while firms that performed worse than average can be penalized. Such
benchmarking studies are used to create yardstick comparisons, allowing outsiders to evaluate the
performance of operators in an industry. Advanced statistical techniques, including stochastic
frontier analysis, have been used to identify high and weak performers in industries, including
applications to schools, hospitals, water utilities, and electric utilities.

One of the biggest challenges for metric benchmarking is the variety of metric definitions
used among companies or divisions. Definitions may change over time within the same organization
due to changes in leadership and priorities. The most useful comparisons can be made when metrics
definitions are common between compared units and do not change so improvements can be
changed.
Q4) Explain the following : (a) theory behind the control charts (b) how
the process is improved by the use of control charts ?
Ans. A)
A Control Chart is also known as the Shewhart chart since it was introduced by Walter A Shewhart.
We can also call it as process behaviour chart. By this, we can see how is the process behaving over
the period of time. Although in Six Sigma study, we usually read Control chart in the Control phase.
However, a control chart is being used at the initial stage to see the process behaviour or to see the
Voice of Process (VoP). If our process is stable its’s only then we should think about running the
project. Else, at first, we should make the process stable. It is one of the seven effective quality tools.
If we say the process is stable, which means that all the data points fall under the control limits, no
special reason which is making process unstable.
What is a Control Chart?
As a matter of fact, we have variations everywhere, no process is without variation. This means that
there can be no common cause variation or special cause variation. In the control charts, we see how
these variations impact our process over a period of time, whether our process will be in control or
will cross the process boundaries. Control charts help us in visualizing this variation. Control charts
have one central line or mean line (average), and then we have the Upper Control Limit (UCL) and
Lower Control Limit (LCL). The upper control limit and lower control limit are three standard
deviation distance from the centre line in both sides. We can have the upper warning line and lower
warning limit also. Now the question is which is the two standard deviation in distance from the
central line? The one which alarms us if data points crossing this limit, this can make the process
unstable.
Significance & Objective of a Control Chart in Six Sigma
We use a control chart to see the special cause variation. Special cause variation does not always
indicate the negative part of the process, sometimes it reflects a good indication for the process too.
If we have some special cause due to that we have process variation, we can adopt the preventive
actions to avoid those special cause variation in the future. Likewise, if we get late due to a flat tire,
we could take some preventive actions to avoid such situations in the future. The special cause is also
called as the assignable cause as it is avoidable, while the common cause is inevitable.

One of the reasons to use a control chart is to see whether our process is stable or not if we find the
process as unstable, we need to work on this. It even gives the discern between the assignable or
unassignable causes for variations. The control chart tends to make a process simple while skipping
the assignable causes.
It helps to detect the process average, and estimate the variation (the spread in the histogram). We
need to understand that the process in control is more important. Also, you need to check the
process mean, and all the data points should fall between the Upper and Lower Control Limits. By
doing this, we can judge whether our process is capable enough or not and also what we want to do
with our process.
Where can we check the Process Capability by Cp and Cpk?
While using the control chart, we could see the process improvement, while seeing the process
average and we can compare it with the earlier process mean. This gives us the information about
how much our process is in control. Like as a normal chart here in control chart, we have the same
rules, 68% of data points should fall under the 1st standard deviation, and 95% data points should be
within the 2nd standard deviation, and 99.7 % data should be within 3rd standard deviation.
When to use a Control Chart?
• We can use a Control Chart, at the starting of a project or whenever we want to see the VoP.
While seeing the VoP we can even find the reason for running the project.
• We can see process improvement too by using a Control Chart towards the end of the project.
This would also help in determining whether the project is successful or not.
• A Control Chart also helps in checking the process stability and verifying whether the process
is stable enough to improve and make necessary improvements in the process wherever
required.
Four Process States in a Control Chart
The 4 process states in a Control Chart are discussed below:
1. The Ideal state: This is where the process is in control and all the data points fall under the
control limits. There is no non-conformance.
2. The Threshold state: Although data points are in control, or the process is stable, however,
some non-conformance happen over a period of time.
3. The Brink of Chaos state: In this, the process is in control; however, it is on the edge of
committing errors.
4. And the fourth stage is when the process is Out of Control and we have unpredictable non-
conformance.
B)
How & Why a Control Chart is used as a Tool for Analysis?
A Control Chart is used to monitor, control and improve the process performance over time by
studying the variation and its sources.
Control Charts are used to focus on detecting and monitoring the process variation over time. It helps
us to keep an eye on the pattern over a period of time - variation, quantity, the current capability of
your process and identify when some special events interrupt the normal operations. In the Improve
phase, Control Charts are used to see the process improvement.
Since Control Charts and Run Charts show on-time passes, and reflect the improvement in the
process while running the project. They are considered one of the best tools for analysis.
It monitors the progress and helps to learn continuously and quantify the capability of the process
and evaluate the special causes happening in the process. It is typically part of the process
management chart.
It is also used to segregate the difference between the common causes and special causes. We have
already discussed in detail how and what control chart should we use. Given below are a few tips
which we can be useful while using Control Charts.
Few tips and points to consider while using for Control Charts
If LCL is negative, we can assume LCL as 0, instead of a negative value.
And for P and U chart, we know they vary with their sample sizes, for that we can take the average of
their sample size to fix the sample size.
As we can see for continuous data, Control Charts exhibit two different charts, whereas for discrete
data we can make a single Control Chart.
If the process is in control, which doesn’t mean that the product is meeting the expectations, it just
means that it is consistent in performance.
Also, don’t get confused by control limits and specification limits. Specifications limits are given by
the customer, whereas UCL and LCL are considered as the process variation limits.
Although the points which are on the outside of control limits indicate the special cause. The points
which are on the inside of the limits give the indication that the data points are showing some trends,
shifts, or sometimes instability.
For instance, if we remove the special cause, at that time we should not recalculate the control limits.
For as long as the process is not changing, we should not change the process limits.
Benefits of using Control Charts and Who can benefit from its use?
The Statistical Process Control(SPC) helps in reduction of the margin of errors since it is a kind of early
warning system, which gives you an alarm for your process that in near future the process would go
out of control if no preventive action is taken.
It also shows in what is the condition of the process whether it is under control or not and what
circumstances make it out of control. Accordingly, we can take the action and avoid any chaos in the
process.