Business operating management

Yuzhi Zhao

chapter2.pptx

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Measuring Performances in Operations and Value Chains

COLLIER/EVANS

Operations + Supply Chain Management

LEARNING OUTCOMES

Describe the types of measures used for decision making

Explain the use of analytics in operations management and how internal and external measures are related

Explain how to design a good performance measurement system

Describe four models of organizational performance

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Measurement

LO 2-1

Act of quantifying the performance of:

Organizational units and goods and services

Processes, people, and other business activities

Provides a scorecard of performance

Helps identify performance gaps

Makes accomplishments visible to workforce, stock market, and other stakeholders

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Exhibit 2.1

Scope of Business and Operations Performance Management

LO 2-1

EXHIBIT 2.1 Scope of Business and Operations Performance Measurement

Performance Measurement Category	Typical Organizational-Level Performance Measures	Typical Operational- level performance measures
Financial	Revenue and profit, Return on assets Earning per share	Labor and material costs Cost of quality Budget variance
Customer and market	Customer satisfaction Customer retention Market Share	Customer claims and complaints Type of warrant failure/upset Sales forecast accuracy
Quality	Customer ratings of goods and services Product recalls	Defects/unit or error/opportunity Service representative courtesy
Time	Speed Reliability	Flow processing or cycle time Percent of time meeting promised due date
Flexibility	Design flexibility Volume flexibility	Number of engineering changes Assembly-line changeover time
Innovation and learning	New product development rates Employee satisfaction Employee turnover	Number of patent applications Number of improvement suggestions implemented Percent of workers trained on statistical process control
Productivity and operational efficiency	Labor productivity Equipment utilization	Manufacturing yield Order fulfillment time
Sustainability	Environmental and regulatory compliance Product-related litigation Financial audits	Toxic waste discharge rate Workplace safety violations Percent of employees with emergency preparedness training

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Customer-Satisfaction Measurement System

LO 2-1

Provides a company with customer ratings of specific goods and service features

Indicates the relationship between customer ratings and a customer’s likely future buying behavior

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Quality, Part 1

LO 2-1

Measures the degree to which the output of a process meets customer requirements

Goods quality: Physical performance and characteristics of a good

Service quality

Consistently meeting or exceeding customer expectations and service-delivery system performance for services

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Quality, Part 2

LO 2-1

Assessed by measuring:

Tangibles

Reliability

Responsiveness

Assurance

Empathy

Affected by errors made during service encounters

Service failures/upsets: Errors in service creation and delivery

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Time

LO 2-1

Performance measures

Speed of performing a task

Measured by processing time and queue/wait time

Variability of processes

Measured using standard deviation or mean absolute deviation

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Flexibility

LO 2-1

Ability to adapt quickly and effectively to changing requirements

Goods and service design flexibility

Ability to develop a wide range of customized goods or services to meet different or changing customer needs

Volume flexibility: Ability to respond quickly to changes in the volume and type of demand

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Innovation and Learning

LO 2-1

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Productivity and Operational Efficiency

LO 2-1

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Triple bottom line (TBL or 3BL), Part 1

LO 2-1

Measurement of sustainability related to:

Environmental factors

Energy consumption, recycling, resource conservation activities, air emissions, solid and hazardous waste rates, etc.

Social factors

Consumer and workplace safety, community relations, and corporate ethics and governance

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Triple bottom line (TBL or 3BL), Part 2

LO 2-1

Economic factors

Auditing, regulatory compliance, sanctions, donations, fines, etc.

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Business Analytics

LO 2-2

Helps operations managers analyze data effectively and make better decisions

Applications

Visualizing data to examine performance trends

Calculating basic statistical measures

Comparing results relative to other business units, competitors, or best-in-class benchmarks

Using correlation and regression analysis

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Interlinking

LO 2-2

Quantitative modeling of cause-and-effect relationships between external and internal performance criteria

Helps quantify performance relationships between all parts of a value chain

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Exhibit 2.3

Interlinking Internal and External Performance Measures

LO 2-2

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Value of a Loyal Customer (VLC)

LO 2-2

Quantifies total revenues or profits each target market customer generates over a buyer’s life cycle

Total market value - Multiplying VLC by the absolute number of customers gained or lost

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Actionable Measures

LO 2-3

Provide the basis for decisions at the level at which they are applied

Levels include value chain, organization, process, department, workstation, job, and service encounters

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Models of Organizational Performance

LO 2-4

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Baldrige Performance Excellence Framework

LO 2-4

Helps in the process of self-assessment to understand an organization’s strengths and weaknesses

Self-assessment:

Helps improve quality, productivity, and overall competitiveness

Encourages development of high-performance management practices

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Exhibit 2.5

Baldrige Model of Organizational Performance

LO 2-4

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Balanced Scorecard Model, Part 1

LO 2-4

Translates strategies into measures that uniquely communicate an organization’s vision

Performance perspectives

Financial - Measures value provided to shareholders

Customer - Focuses on customer needs and satisfaction and market share and its growth

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Balanced Scorecard Model, Part 2

LO 2-4

Innovation and learning

Emphasizes people and infrastructure

Internal

Focuses attention on the performance of key internal processes that drive a business

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Value Chain Model

LO 2-4

Evaluates performance throughout the value chain by identifying measures associated with:

Suppliers

Inputs

Value creation processes

Goods and service outputs and outcomes

Customers and market segments

Supporting and general management processes

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Service-Profit Chain Model, Part 1

LO 2-4

States that employees create customer value and drive profitability through a service-delivery system

Based on a set of cause-and-effect linkages between internal and external performance

Helps define key performance measurements on which service-based firms should focus

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Exhibit 2.8

Service-Profit Chain Model, Part 2

LO 2-4

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KEY TERMS, Part 1

Measurement

Customer-Satisfaction measurement system

Quality

Goods Quality

Service Quality

Service failures/upsets

Processing time

Queue/wait time

Flexibility

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KEY TERMS, Part 2

Goods and service design flexibility

Volume flexibility

Innovation

Learning

Productivity

Operational efficiency

Triple bottom line (TBL or 3BL)

Interlinking

Value of a loyal customer (VLC)

Actionable measures

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SUMMARY

Applications of business analytics help managers with effective decisions

Interlinking helps quantify performance relationships between all parts of a value chain

VLC helps understand operational decisions on revenue and customer retention

Four models of organizational performance help in designing, monitoring and evaluating performance

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4LTR Press

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