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view often is needed to justify making major internal changes. To minimize potential skepticism about the relevance of the comparison population, you ll need to do a thorough analysis to ensure that the external benchmarks are meaningful. Your benchmarking service provider can help you to choose a relevant population, especially if you re looking beyond your own industry. BASF Corporation used a combination of internal and external benchmarking to drive process improvements throughout its operations. The BASF Group, headquartered in Ludwigshafen, Germany, is one of the world leaders in the chemical industry, with more than 160 subsidiaries and affiliates. In 2003, its North American Free Trade Agreement (NAFTA) operations in the United States, Canada, and Mexico set up a task force to assess the core supply chain operations of its 13 business units, identify any performance gaps, and develop a plan to close those gaps. The task force planned to use both internal and external benchmarks to compare the performance of each business unit against other BASF businesses and a customized external population. At first, the business unit leaders were somewhat skeptical about the proposed approach and expressed concern that the benchmarks wouldn t provide a meaningful comparison. As Mary Scheibner, the NAFTA director of supply chain consulting, explains, Each of the business units is unique. Each produces different products through different manufacturing processes and sells to different customers. So we needed each business unit to feel confident that the population to which they were being compared was appropriate. To address this concern, BASF used a bundling approach to create meaningful comparison populations. The 13 business units were grouped into two high-level categories based on their primary manufacturing process continuous or batch (see Figure 5-2). Then each unit completed a PMG supply chain scorecard (see generic scorecard shown in Figure 5-3). Similar external companies were chosen to create a comparable benchmark population for each of the two bundles. The performance of each business unit was compared against two groups the BASF units with the same manufacturing process and the population of similar external companies. Each business unit got a report comparing its performance with that of the two different comparison groups. The results were used to set performance-improvement targets. Scheibner worked closely with senior management to establish aggressive but reasonable targets for each unit. This was a huge effort, so we needed to come up with a fairly simple approach, she notes. We looked at each business unit s percentile-based
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CHAPTER 5 Core Discipline 5: Use Metrics to Drive Business Success
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BASF benchmarking population.
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Continuous Manufacturing Population Continuous Manufacturing Bundle BASF BASF BASF Business Business Business Unit 1 Unit 2 Unit 3 BASF BASF Business Business Unit 4 Unit 5 Batch Manufacturing Population BASF BASF BASF Business Business Business Unit 6 Unit 7 Unit 8 BASF BASF BASF Business Business Business Unit 9 Unit 10 Unit 11 BASF BASF Business Business Unit 12 Unit 13 Comparison Comparison Comparison Company G Company H Company I Comparison Company J Batch Manufacturing Bundle
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Comparison Comparison Comparison Company A Company B Company C Comparison Comparison Comparison Company D Company E Company F
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performance compared with the benchmarking population and set a target of 25 percent improvement. For example, if a unit ranked in the 50th percentile for inventory performance, the target was to achieve a performance level consistent with the 75th percentile. Business units that were already at the 75th percentile level or higher for a given metric were off the hook. This top-down approach provided a relatively straightforward way to set stretch targets. Notes Dave McGregor, BASF s senior vice president of logistics, Historically, business units have taken a bottom-up approach to incrementally improving productivity. The benchmarking data are allowing us to link theoretical opportunities with proven supply chain practices to achieve breakthrough performance. 3
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