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PRO-TEC Coating Company is the industry leader in arivanced high-strength steel coating and ultra-high-strength steel coating. PRO-TEC uses a balanced-scorecard (BSC) approach to help align the company's six key success factors (KS Fs)- associate quality of life, customer service, technical in rovation and product development, system reliability, good citizenship, and long-term viability-with its mission, vision, and ralues; its quality, safety. and environmental policies; comparry policy manuals; and procedure and work instruction manua s for its integrated Quality and Environmental System.

The BSC uses a stoplight color-r.oded designation (green, yellow, red) tlrat reflects the actual performance (good, m;rrginal, or at-risk) against short-term targ:ts. The at-risk BSC measures require actir,n, and are reviewed at monthly plant managtement meetings. The BSC is also used for managing daily operations. For example, m(,asures for safety and health, such as conrpletion of housekeeping and quarterly sa,fety audit items, mobile equipment inspections, and the weekly safety binder sigrr-off, are reviewed each Monday.e

of value chain outputs. Measuring supplier perfornrance is critical to rranaging a value chain, Tlpical supplier perforrnance nrea- sures include quality of the inputs provided, price, delivery reliabiliry and service rnea- sures such as rates of problem resolution. Good, supplier-based performance data are also the basis for cooperative partnerships between suppliers and their customers.

Operations managers have the pri- mary responsibility to design and manage the processes and associated resources that create value for customers. Process dirta can reflect defect and error rates of intermediate operations, and also effi- ciency measures such as cost, florv time, delivery variability, productivity, schedule performance, equipment downtime, pre- ventive maintenance activity, rates of problern resolution, energy and equip- ment efficiency, and raw material usage. For example, Motorola measures nearly every process jn the company, including engineeringdesign, order entry rnanu- {acturing, hullan resources, purchasing, accounting, and marketing, for improve- ments in error rates and flow times. One of its key business objectives is to reduce total organizational flow time-the time frorn the point a customer expresses a need until the customer pays the company for the good or service.

Measuring goods and seryices outputs and out- comes tell a company whether its processes are

strategy and associated perforrnance measures (cllled conrpetitioe priorities) are discussed in Chapter 3. Top rranagernent's job is to guide the organiz:rtion, nrake trade-of{'s arnong these four perforrntrnce categories, and set future directions.

z-+c The Value Chain Model

A third way of viewing performance measureme rt is through the value chain concept itself. Of the four models of organizational performance presented in this chapter, the value chain rnodel is probably the dominant model, especially for operations manag- ers. Exhibit 2.7 shows the value chain structure and suggests some typical rreasures that managers would use to evaluate performance at each point in the value chain.

Suppliers provide goods and services inputs to the value chain that are used in the creation and delivery

CHAPTER 2: Measuring Performance in Operations and Value Chains 43

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providing the levels of quality and service that custorn-

ers expect. Organizations measure outputs and out- comes using measures such as unit cost, def'ects per miilion opportunities, and lead time. Through customer

and market in{brmation, an organization learns how sat-

isfied its custorners and stakeholders are with its goods and services and per:formance and how best to config-

ure the goods and serwices (i.e., customer benefit pzrck-

ages). Measures of customer satisfaction and retention

reveal areas that need improvement and show whether

changes actually result in improvement. Measurement and feedback provide the means of

coordinating the value chaint physical and informa- tion flows and for assessing whether the organization is achieving its strategic objectives. This is similar to the r:ole of Category 4 (Measurement, Analysis, and Knowledge Management) in the Malcolm Baldrige framework. One objective of tirnely in{brmation

sharing is to reduce or replace assets (employees, in- ventory trucks, buildings, etc.) with smart and timely

per{brmance inforrnation. For example, General Elec-

tric sells lightbulbs in Walmart stores; these sales ale recorded immediately at General Electric factories and

production is scheduled to real-time sales datir. Fewer

resources are needed to achieve performance goals when "information replaces assets"'That is, inventories

are reduced, flow tirnes are shorter, quality is better,

and costs are lower.

2-4d The Service-Profit Ghain

The Service-Profit Chain (SPC) was first proposed in

a 1994 HurDard. Business Reoiew article and is rnost applicable to service environtnents.to Exhibit 2.8 is one representation of the SPC, and many variations of this rnodel have been proposed in academic and

te financiat, rnarkpt, ;ource, tecnnlcal, ano :tional measures

Basic Concepts of OM and Value Chains