In a Total Quality Management program, one example of Benchmarking is measuring your company's effectiveness in controlling the manufacture of defective products.
Total Quality Management (TQM) involves engaging in an enterprise improvement program. The objective of such a program is to improve processes and procedures so that a company's customers receive the best products and/or services that a company can provide. Therefore, a TQM program works to incorporate best practices into a company's operations to ensure customers receive the best at all times. A first-rate TQM program involves all areas of a business organization. The goal is to ensure the entire organization at all levels is focused on customer satisfaction.
Reducing defective products contributes to satisfied customers and healthier profits for a business. There is less customer dissatisfaction when fewer defective products are produced. There are less costs associated with returns and replacements. Consequently, a company earns more pure profit by way of keeping expenses down.
However, a TQM program demands some type of measuring mechanism be in place. This is where Benchmarking comes in to play. Benchmarking allows an organization to measure their operations against the operations of companies deemed the best in an industry. With Benchmarking as part of a TQM program, a business will look at the rate of defective products produced by other businesses in their industry - or another industry - and compare how they are doing as compared to these companies categorized as successful.
As part of effective TQM, the company will institute solutions that cause them to attain the level of excellency of these top-notch organizations. Therefore, Benchmarking is a tool to see where you stand as a company, and to motivate you as a company to take measures to improve your manufacturing so you do not produce defective products.