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XEROX - THE
BENCHMARKING STORY
BACKGROUND NOTE
ABOUT BENCHMARKING
continued
from page 3
Benchmarking was implemented at Xerox in the following manner:
SUPPLIER MANAGEMENT SYSTEM
Xerox found that all the Japanese copier companies put together had only 1,000 suppliers, while Xerox alone had 5,000. To keep the number of suppliers low, Japanese companies standardized many parts. Often, half the components of similar machines were identical. To ensure part standardization, Japanese companies worked closely with their suppliers. They frequently trained vendor's employees in quality control, manufacturing automation and other key areas. Cooperation between the company and the vendor extended to just-in-time production scheduling, i.e. delivery in small quantities, as per the customer's production schedule.
In line with the best practices, Xerox reduced the number of vendors for the
copier business from 5,000 to just 400. Xerox also created a vendor
certification process in which suppliers were either offered training or
explicitly told where they needed to improve in order to continue as a Xerox
vendor. Vendors were consulted for ideas on better designs and improved customer
service also.
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INVENTORY MANAGEMENTXerox's efforts to improve
inventory management practices drew inspiration from the innovative spare
parts management practices of its European operations. Traditionally,
technical representatives decided the level of spare parts inventory to be
carried; little information was available on the actual usage pattern of the
spare parts. Xerox's European operations developed a sophisticated
information system to get around this problem. Actual usage, rather than
mere withdrawal from the stocking point, was used to determine inventory
levels. In the late 1980s, Xerox replicated the system in the US and saved
tens of millions of dollars in the process. The stocking policy followed by
Xerox branch managers was to hold fully finished, fully configured products near
to the customer. Because of this policy, they carried vast amounts of inventory,
some of which was not even sold during a given period.
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The company changed the above setup by asking branch
managers to match the stocking policy to the customer's installation orders,
which considerably reduced the inventory holding time. As a result, working
capital cycle time was cut by 70% leading to savings of about $200 million.
Another innovative strategy, followed by Xerox to minimize inventory-carrying
costs, was to delay the assembly of the product into the final configuration as
much as possible. According to a Xerox executive, Graham Scout, "Some finished
goods are language sensitive, software sensitive, voltage sensitive and cycle
sensitive for different worldwide markets. We will build it to a level where
it's generic and then configure it and finish it when we have an order for it.
We may have to hold a little more work-in-progress inventory back in the plant
but we can certainly avoid holding lots of finished products out in the field."
Xerox thus built different machines for US and Canadian markets. Inventories
were held in Canada for Canadian machines and in the US for US machines. After
assembling of the machines, the only real difference between the two types of
machines was in the type of labeling required. Xerox redesigned the
manufacturing process and made all the parts the same. Customization was done
only at the time of shipment. Such process modifications helped it minimize the
number of unique stock locations.
MANUFACTURING SYSTEM
The process of benchmarking helped Xerox revamp its
manufacturing techniques. Each 'family unit' (a manager and his direct
subordinates) was encouraged to identify its internal as well as external
customers and to meet their needs. For instance, the group that built paper
trays identified its external customer as the end user who would load the paper.
Its internal customers were the assembly-line workers, who would combine the
paper tray with hundreds of other components to assemble the copiers. This
process significantly improved the operational efficiency of the work groups.
Marketing
Xerox introduced a Customer Satisfaction Measurement System that integrated
customer research and benchmarking activities. The company sent out over 55,000
questionnaires monthly to its customers to measure customer satisfaction and
record competitors' performance. It then benchmarked against those competitors
that had scored high marks on specific measures of customer satisfaction. Xerox
also used the vast amount of information gathered by the system to develop
business plans for improving quality and meeting customer needs.
Quality
As a part of its "Leadership Through Quality" program, Xerox reformulated its
quality policy. The new policy supplemented the company's benchmarking efforts.
Xerox's new quality policy stated, "Xerox is a quality company. Quality is the
basic principle for Xerox. Quality means providing our external and internal
customers with the innovative products and services that duly satisfy their
requirements. Quality improvement is the job of every Xerox employee" (Refer
Exhibit III for a comparison between new and old quality policies). Following
this, the company embarked on a complete organizational restructuring exercise
that focused on research and development, employee involvement and customer
orientation.
Xerox also formed a transition team consisting of 24 senior managers and
consultants from McKinsey & Co to help make Total Quality Management (TQM) a
part of its organizational culture. The transition team took action at two
levels. Firstly, it conveyed the message clearly to the world that Xerox was
pursuing more widespread use of TQM, and secondly, it identified and addressed
the obstacles that were likely to slow down the spread of TQM. These ranged from
the corporation's function-dominated matrix structure to the need for new
training programs. Consequently, the transition team also replaced the existing
complex matrix by three Strategic Business Units (SBUs) – Enterprise Service
Business, Office Copiers and Home Copiers. Each of these SBUs was given
considerable autonomy in engineering, marketing and pricing.
By the late 1980s, benchmarking had become a day-to-day activity in every
division of the company. According to company sources, Xerox's guiding principle
was, 'anything anyone can do better, we should aim to do at least equally well."
In 1991, Xerox developed Business Excellence Certification (BEC) to integrate
benchmarking with the company's overall strategies. This was also done to ensure
continuous self-appraisal of the overall quality performance of the company. The
key performance factors measured by BEC were management leadership, human
resource management, customer focus, quality support and tools, process
management and business priorities/results.
These factors, which were further divided into forty sub-factors, had their
specific measuring targets. Each unit's self-appraisal was validated by
representatives from sister divisions. BEC helped Xerox determine the causes for
the success or failure of a specific quality process and identify the key
success factors or obstacles for achieving a specific quality goal. It also
helped the company establish key functions for removing obstacles that prevented
it from reaching the set quality goals.
By the mid-1990s, benchmarking was extended to over 240 key areas of product,
service and business performance at Xerox. The initiatives were also adopted, at
varying levels, at Xerox units across the world. The benchmarking process
encouraged Xerox's employees to learn from every situation. This new philosophy
was dubbed 'steal shamelessly,' though the company used only those ideas that
the best practice companies willingly gave away. The salient rule at Xerox for
benchmarking was to 'ask no question of another firm that you would be unwilling
to answer about your own.' This change in attitude was just the beginning of the
payoffs of the benchmarking moves.
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This case study is intended to be used as a basis for class discussion rather
than to illustrate either effective or ineffective handling of a management
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