Question

Glamour Glass Pty Ltd manufactures glass kitchenware at its Campbelltown factory. Its manufacturing equipment includes large machinery that was purchased 15 years ago. Glamour Glass uses small production runs, and although the machinery is old it is reliable. The company’s products are much sought after by speciality gift stores and up-market department stores such as David Jones. It also sells its products to Saks of Fifth Avenue, in New York. While Glamour Glass has many products, among the most popular is the Puchi salad bowl and servers, which competes very favourably with the latest Italian salad bowls. Glamour Glass has just begun its first benchmarking activity. It has subscribed to an international benchmarking group that provides benchmarking data specifically tailored to different industries. The benchmarking data relating to the glass industry that is supplied by the agency includes product cost per kilogram of finished product, cycle time, reject rate, and direct labour and raw material costs per kilogram of product. The manufacturing manager, Paul Griswald, suspects that the benchmark data must relate to the famous Speedy Glass, renowned as the world’s best glass manufacturer. Speedy Glass mass-produces glass kitchenware products using high-speed computer-controlled machinery. The management accountant of Glamour Glass, Brian Hill, has prepared a report comparing the performance of Glamour Glass with the benchmark data

Performance measure Glamour Glass Benchmark data Product cost per kilogram of product $68 $53 Direct labour per kilogram of product $16 $ 8 Raw material cost per kilogram of product $36 $ 8 Cycle time per 100 units 60 minutes 15 minutes Reject rate 2% 3% Griswald is concerned about the size of some of the performance gaps between Glamour Glass’ measures and best practice, and has asked Hill to investigate. Required: 1. Explain the concept of benchmarking and how it can be used to help a business improve its performance. 2. Should Griswald be concerned about the size of the performance gaps? In your answer, consider each performance measure separately. 3. Assuming that the benchmarking data relates to Speedy Glass, will it provide suitable benchmarks for Glamour Glass? If not, can you suggest what types of data may be more suitable?

Answer 1

1) Benchmarking, technique for continuous improvement was originated in Japan during the early 1960s due to Japanese curiosity and fondness for achieving the best of best. Various forms of benchmarking have been used in industry for years. After 1980s with th e advent of worldwide competition in key industries benchmarking come of age. Xerox, Motorola, Ford and other leading companies pioneered a much broader forms of benchmarking. These companies found benchmarking a valuable means of improving their competiti veness and effectiveness. It became
an integral part of their continuous process improvement programme.

Benchmarking is a technique for continuous improvement in performance. It involves comparing a firm’s products, services or activities against other bes t performing organisations, either internal or external to the firm. The objective is to find out how the product, service or activity can be improved and ensure that the improvements are implemented. It attempts to identify an activity such as customer or der processing needs to be improved and finding a non - rival organisation that is considered to represent world class best practice and studying how it performs the activity. It is a performance measure that provides the driving force to establish high perf ormance and means to accomplish these goals. It is thus a component of a wider improvement process such as business process reengineering or quality improvement.

The benchmarking is a versatile tool that can be applied in a variety of ways to meet a range of requirements. The distinct types of benchmarks have been evolved over a period of time. Each has its own benefits and shortcomings and therefore each one is appropriate in certain circumstances then others.

Benefits - Benchmarking can deliver significant performance improvements and returns based on efficiency, cost savings and new revenues. Benchmarking projects typically target cycle times, productivity, customer service, quality and production costs. They also can be part of an effort to shift the culture of a company to be more customer oriented and results focused . It drills down into performance gaps to identify areas for improvement and sets performance expectations.It also helps to develop a standardized set of processes and metrics. Hence, overall Benchmarking helps a business in improving its performance.

2) We will now consider the performance gaps on one-on-one basis.

a) Product cost per kilogram of product

Our cost is $68 while Benchmark Cost is only $53 per KG. There is a performance gap of $15 per KG which is quite a significant gap, almost 30% over the becnhmark cost. Since the costing of the product is the main step at which the profitability and consequently the long term surviaval of the firm is determined, a Performace gap of $15 is very huge and Griswald should be very concerned about this performance gap and should aim to reduce it.

b) Direct labour per kilogram of product

Our cost is $16 while Benchmark Cost is only $8 per KG. There is a performance gap of $8 per KG which is quite a significant gap, almost 100% over the becnhmark cost or double the benchmark cost. As mentioned in point a also , the costing of product is what makes or breaks an organisaltion and a Performace gap of $8 is very huge and Griswald should be very very concerned about this performance gap and should rigorously aim to reduce it.

c) Raw material cost per kilogram of product

Our cost is $36 while Benchmark Cost is only $8 per KG. There is a performance gap of $28 per KG which is an unbelievably significant gap, almost 350% over the becnhmark cost or three and a half times the benchmark cost. As mentioned in point a) and b) also , the costing of product is what makes or breaks an organisaltion and if the oragnisation can't even control the cost of basic raw material and is overpaying by 350%, it shows a serious lack in management skills. Performace gap of $28 is very huge and Griswald should be very very concerned about this performance gap and should consider evaluating which is he even doing business if he has to pay such huge prices over 350% above the benchmark cost. He should try to find the reason for this performance gap at the earliest and should make it his first priority to reduce this gap as much as possible.

d) Cycle time per 100 units

Our cycle time is 60 minutes as opposed of 15 minutes of benchmark time, that is a 300% more time and shows a lack of efficiency of our equipment and labour. However, unlike other performance gaps, this one can be understood on the basis that the equipment and machines are over 15 years old and have lower efficiencies. Griswald should still try to minimize this performance gap and should take necessary steps like upgrading the machines and equipments.

e) Rejection Rate

Our rejection rate is 2% compared to the 3% benchmark rate, that is a 33% improvement over the benchmark. It is the only Performance measure where we are doing better than the benchmark and we should ensure that this is maintained or even improved upon in the future.

3) Benchmarking is a good method of measuring performance. It enables a comparison of the process, costs etc. with those of a close competitor. Companies will be expected to use benchmarking information to learn from best practice, change procedures and processes to achieve enhanced methods of working, and reduce unnecessary expenditure. However, benchmarking of performance against Speedy Glass is not ideal. The performance of Glamour Glasses Pty Ltd can be better measured by adopting benchmarking against similar companies who are operating on a similar scale with old and reliable equipment.

Speedy glass being the world's best glass manufacturer and mass producer uses high speed computer based machines and enjoys a huge bargaining power which is reflected in a lower Product costs, lower Direct labour costs and lower raw material costs. Speedy glasses also enjoys the ability to setup production plant all over the world in the countries having lower tax rate and cheaper raw material and labour.

Glamour Glasses on the other hand uses 15 year old but reliable machinery and while it's product is much sought after by speciality gift stores, it does not enjoy the bargaining power and control over supply chain that Speedy Glasses enjoys. Hence, the benchmarking data of a similar firm with similar old machinery and lesser control over supply chain should be taken to derive a meaningful analysis.