Operation Management Term Report: Submitted by

Operation Management
Term Report
Submitted by:
Muhammad Ajmal 2K15-Che-02
Hafiz Muhammad Hassan Raza 2K15-Cht-04
Inam Marcus 2K15-Cht-09
Muhammad Hafeez 2K15-Cht-11
Muhammad Umair 2K15-Cht-24
Submitted To:
Engr. Imran Iqbal Sb
Department:
Chemical Engineering
Section:
Date:
12 -12-2018
“In the name of Allah (Almighty) ,
the Most Gracious, the Most Merciful”
ACKNOWLEDGEMENT
We are indebted to ALLAH ALMIGHTY, The Lord of this spacious universe,

and resource of astuteness WHOSE leadership permits us to accomplish this term
report. All reverence to HIS HOLY PROPHET HAZRAT MOHAMMAD
(S.A.W.) Who conveyed the radiance of knowledge when the human race was
roving in the desert of ignorance.
We, here by concede our heartily thanks and appreciation to Engr. Imran Iqbal sb
who gives us the leadership, guidance and opportunities, because of that we are
capable to accomplish this term report.
Moreover, we are greatly admiring to our ever affectionate Parents whose prayers,
endurance, serenity, support and understanding have enabled us to complete this
report. We feel enormous pleasure and contentment on the accomplishment of this
term report.
We also anticipate, it would be greater reached to our course instructor’s

expectations.
(Group – 5 )
Abstract:
Benchmarking is recognized as an essential tool for continuous improvement of quality. A large
number of publications by various authors reflect the interest in this technique. Reviews of
literature on benchmarking have been done in the past by a few authors. However, considering
the contributions in the recent times, a more comprehensive review is attempted here. In this
paper, the authors have reviewed benchmarking literature in a way that would help researchers,
academicians and practitioners to take a closer look at the growth, development and applicability
of this technique. The authors have examined various papers and have proposed a different
scheme of classification. In addition, certain gaps that would provide hints for further research in
benchmarking have been identified.
What is Benchmarking?
A systematic procedure that measures a firm’s processes, services, and products against those of
industry leaders.
Benchmarking is comparing ones business processes and performance metrics to industry bests
and best practices from other companies. In project management benchmarking can also support
the selection, planning and delivery of projects. Dimensions typically measured are quality, time
and cost. 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.
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.
Also referred to as "best practice benchmarking" or "process benchmarking", this process is used
in management which particularly shows VEMR strategic 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.
Understanding to Benchmarking:
Benchmarking can be another valuable source for process redesign. Benchmarking is a

systematic procedure that measures a firms processes, services, and products against those of
industry leaders. Companies use benchmarking to better understand how outstanding companies
do things so that they can improve their own processes.
Benchmarking focuses on setting quantitative goals for improvement. Competitive

benchmarking is based on comparisons with a direct industry competitor. Functional
benchmarking compares areas such as administration, customer service, and sales operations
with those of outstanding firms 1n any industry For instance, Xerox benchmarked its distribution
function against L. L. Bean’s because L. L. Bean is renowned as a leading retailer in distribution
efficiency and customer service Similarly, many firms benchmark with McDonald’s for process
standardization.
Internal benchmarking involves using an organizational unit with superior performance as the
benchmark for other units. This form of benchmarking can be advantageous for firms that have
several business units or divisions. All forms of benchmarking are best applied in situations
where you are looking for a long-term program of continuous improvement. Most of the Aditya
Birla Group firms in India practice internal benchmarking.
Typical measures used in benchmarking include cost per unit, service upsets (breakdowns) per
customer, processing time per unit, customer retention rates, revenue per umt, return on
investment , and customer satisfaction levels.
Steps of Benchmarking:
Benchmarking consists of four basic steps:
Step1:Planning
Identify the process, service or product to be benchmarked and the firm to be used for
comparison; determination the performance metrics for Analysis; collect the data.
Step:2 Analysis.
Determine the gap between the firm’s current performance and that of the benchmark firm;
identify the causes of significant performance gaps.
Step3: Integration.
Establish goals and obtain the support of managers who must provide the resources for
accomplishing the goals.
Step4: Action.
Develop cross-functional teams of those most affected by the changes; develop action plans and
team assignments; implement the plans; monitor progress; recalibrate benchmarks as
improvements are made.
Collecting benchmarking data can sometimes be a Challenge. Internal benchmarking data is

surely the most accessible. One way of benchmarking is always available ~tracking the
performance of a process over time
Illustrative Benchmarking Metrics by Type of Process:
1. Customer Relationship Process:
 Total cost of “enter, process, and track orders” per $1,000 revenue 0 System costs of
process per $100,000 revenue
 Value of sales order line item not fulfilled due to stockouts, as percentage of revenue.
 Percentage of finished goods sales value that is returned
 Average time from sales order receipt until manufacturing or logistics is notified
 Average time in direct contact with customer per sales order line item
2. Order Fulfillment Process:
 Value of plant shipments per employee
 Finished goods inventory turnover
 Reject rate as percentage of'total orders processed
 Percentage of orders returned by customers due to quality problems
 Standard customer lead time from order entry to shipment
 Percentage of orders shipped on time.
3. New Service/Product Development Process:
 Percentage of sales due to services/products launched last year
 Cost of “generate new services/products” process per $1 ,000 revenue
 Ratio of projects entering the process to projects completing the process
 Time to market for existing service/product improvement project
 Time to market for new service/product
 Time to profitability for existing service/product improvement project
4. Supplier Relationship Process:
 Total number of active vendors per $1 ,000 of purchases.
 Cost of “select suppliers a number of employees per $1,000 of purchases.
 Percentage of value of purchased material that is supplier certified

Application of benchmarking in practice:
Here follows an example of practical application of benchmarking process Slovenian company

Riko Hiše d.o.o. (Riko Houses Ltd.). For this purpose a short description of the company is first
given; it is followed by a demonstration of benchmarking process and its results and finally by
presentatation of indicative improvement plan.
From 1955 onwards the company Riko Hiše d.o.o. with its registered office in Ribnica
manufactures solid wood bio-houses RIKO on the basis of widely experienced German patent.
The houses are of high quality and belong to upper price category. The production of houses was
first intended merely to supply the Austrian and German market but from 1998 onwards the bio-
houses Riko have also been meant for Slovenian customers. Their market share on Slovenian
prefabricated houses market has been 2,34 % (Source: Enclosure to the magazine “Les” of
9.3.2001). The company has directed its strategy to the enlargement ofproduction scope,
improvement of business efficiency and increase of export rate and has consequently decided to
apply the benchmarking method. This decision has also been encouraged by an increasing trend
of enquiries for prefabricated houses due to changes of the population dwelling habits, especially
in Western European countries, where according to statistics more than 20 % of all residential
buildings are of prefabricated type. It is important to know that prefabricated houses have
numerous advantages, such as quick construction and assembly, seismic safety,
durability, acoustic and thermal insulation as well as exterior able to adapt to the environment or
landscape. For this reason the decision of Riko hiše d.o.o. to
research the prefabricated houses production and market characteristics has been the correct
response.
The basic starting-points to be considered during the implementation of
benchmarking process are:
• Riko Hiše d.o.o. manufactures prefabricated houses of a limited scope (50

houses per year).
• Marketing includes technology as well.
• Marketing of Riko houses is directed to European markets, especially to
the German and Austrian market.
• Potential markets: Turkey, Spain and Portugal.
As to data collection the methods have been used in accordance with available capital and time
schedules. These methods have included secondary data which have already been collected
(articles, magazines, internet, statistical data) and newly collected data (interviews, visits of
benchmarking partners). At first the data collection has concerned mostly the internal data while
later, when the benchmarking process has further developed, it has also been extended to external
data collection and their analysis.
Wherever the benchmarking method is applied in prefab houses production

the following limitations should be respected:
• The selected producers of prefab houses use different technologies and

consequently the definition of quality-price ratio is not easy or simple.
• The company does not have appropriate statistical data available which
would enable an integral comparison between competitive companies.

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Operation Management

We are indebted to ALLAH ALMIGHTY, The Lord of this spacious universe,

We also anticipate, it would be greater reached to our course instructor’s

Benchmarking can be another valuable source for process redesign. Benchmarking is a

Benchmarking focuses on setting quantitative goals for improvement. Competitive

Benchmarking consists of four basic steps:

Collecting benchmarking data can sometimes be a Challenge. Internal benchmarking data is

Illustrative Benchmarking Metrics by Type of Process:

1. Customer Relationship Process:

 Percentage of finished goods sales value that is returned

2. Order Fulfillment Process:

 Value of plant shipments per employee

 Finished goods inventory turnover

 Reject rate as percentage of'total orders processed

 Percentage of orders returned by customers due to quality problems

 Standard customer lead time from order entry to shipment

 Percentage of orders shipped on time.

3. New Service/Product Development Process:

 Percentage of sales due to services/products launched last year

 Cost of “generate new services/products” process per $1 ,000 revenue

 Ratio of projects entering the process to projects completing the process

 Time to market for existing service/product improvement project

 Time to market for new service/product

 Time to profitability for existing service/product improvement project

4. Supplier Relationship Process:

 Total number of active vendors per $1 ,000 of purchases.

 Cost of “select suppliers a number of employees per $1,000 of purchases.

 Percentage of value of purchased material that is supplier certified

Here follows an example of practical application of benchmarking process Slovenian company

• Riko Hiše d.o.o. manufactures prefabricated houses of a limited scope (50

Wherever the benchmarking method is applied in prefab houses production

• The selected producers of prefab houses use different technologies and

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