In this case, the benchmark will be used as quantitative basis for structure and costing. The benchmark illustrates how the structure, volumes and costs deviate from the industry averages. This is no final judgement; however it gives guidance for management on areas with room for improvement.
Benchmark research offers insight on your organisation overhead volumes, costs and structure, compared to peers and other similar organisations. This knowledge provides a basis and guidance for further discussions on how to improve performance. We believe that it is critical to set a standard for the volume of the overhead.
A benchmark research does not offer a final judgement on your overhead situation, since it insufficiently considers your specific company situation. Therefore, further analysis is required in order to set a standard for your organisation. Further analysis typically involves
a) Analysis of management and structure of overhead functions
b) Overhead Value Analysis
c) Lean Six Sigma
Analysis of management and structure of overhead functions
Often we find that bottlenecks – which are in fact key performance improvement areas – originate from ambiguous management and structure of the overhead functions.
The ideal solution does not exist. What is the best solution for the one organisation is not necessarily ideal for another. Therefore, overhead restructuring needs careful attention and overhead expert knowledge and experience.
However, theoretically there are three general models for management of overhead functions:
- Central management. Off take is obligatory for internal users, without any influence on volume and the service content. Management is input focused.
- Central management with interface. The off take is budgeted for further discussions between suppliers and the off takers of the overhead services. Supplier and off take agreements are in place, and negotiations on volume and quality are agreed on periodically.
- Internal market dynamics. The supplier establishes a tariff for its service. Internal users are free to buy externally or internally. The supplier can also offer the services externally. Management is output based. An extreme form of this concept is outsourcing, when the overhead function is bought externally.
What works well in this case is establishment of agreements with internal and external clients and off takers on service delivery, in combination with a central management of the volume of overhead. (model 2)
Overhead Value Analyse (OVA)
Through an Overhead Value Analysis, the volume of the overhead (in terms of structure and costs) is compared to the added value of the overhead. The added value of the support functions is established by a thorough document study and interviewing the off takers and suppliers (also joint together in a workshop) within the organisation on quality, the need and the frequency of use. As part of an OVA, we also examine the management and structure of the overhead, for which we use the benchmark findings as a basis. This is focused on creating a balance between supply and demand. After the Overhead Value Analysis has been conducted, an organization will know in detail where and how they can adapt their overhead to the specific needs of their people.