I sat in on a 1/2 day presentation by a company selling management services, one of their services was benchmarking. There are two types of benchmarking, your competitor's processes vs yours, and similar processes outside your sector.
The first one usually involves determining your competitor's costs (if lower than yours) and how they manage them. Also any type of known advantage they seem to be enjoying, shipping, lower complaints, etc. To be avoided here is their processes, since it is usually already old to them. (See the Ford / Camry story in another thread.) This is only a little tricky, since you certainly do not want to appear "spying." But information in this regard is usually available in some form or amount.
The other, more frequently used benchmarking technique is to find someone outside your arena that does something similar, and exchange information with them. Example, you may have a very good JIT delivery system, or a terrific order entry system, but you need to improve your mixing in a particular department. You might contact a bread manufacturer that has a reputation for excellent quality bread, and exchange information. This is non-competitive and can benefit both parties. In the bread example, Strohman bread used to advertise "no large holes." OK, so how do they do that?
An enhancement of the second example, there are companies that network multiple businesses so they can get together to exchange / benchmark information. Company A needs Company C's information on mixing, but can't offer Company C anything. However, Company B has information for Company C and can learn something from Company A. The benchmarking network company gets these businesses together. The company that organizes this usually agrees to some percentage of the profit gleaned from the improvements as payment.
This is what I remember of this company's presentation.
Now, my company has actually done little of this. We have done some customer satisfaction stuff, that was enough for the auditors. Benchmarking can be an improvement tool.