Performance Benchmarking is a process of measuring performance relative to defined parameters in the manufacturing, supply or distribution, and financial processes. The goal is to identify and measure those processes which can be improved and monitored to ensure long term performance improvements in all processes. Performance benchmarking helps to understand and quantify a company's performance relative to industry benchmarks and their competitors. Periodic real-time performance benchmarking can set a consistent feedback loop which will help optimize productivity and efficiency across the whole enterprise.
Performance benchmarking deals with the discipline of measuring, comparing, and evaluating performance on a continuous basis in the business activity. It includes five major components namely Gathering of Information, Controlling, Reporting, and Communicating the Results. Gathering of Information involves collection of relevant data and analyzing it to get meaningful data. Controlling involves exercising authority or having the responsibility of making decisions based on the information gathered; reporting deals with communicating the results of the research to key decision makers who may be managers, other employees, investors, and customers etc. Finally, Communicating the results involves communicating the benchmarking process results to the organization and also to the outside world.
While implementing performance management systems and improving business processes, companies have to ensure the collection, analysis, interpretation, reporting and communication of performance metrics. It is a tool that enables organizations to set performance goals and compare and contrast their performance against pre-defined benchmarks and standard performance indicators. It has become an important part of various areas of business activities from sales activities to quality control to warehouse and supply chain management. It provides information about business performance and helps to make effective decisions for future improvements in all areas of activity.