Supply Chain management journal
yufeng33
8Performancemeasures.pptxPerformance Measures
John Wu, Ph.D.
Professor of Supply Chain and Transportation
CSU San Bernardino
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You Can’t Manage What You Can’t Measure?
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Or is it you can’t manage what you DON’T measure? See the differences between the slide title and this statement? Which one is true or truer? While you are at it, read about Peter Drucker. It would be a shame graduating with a management/business degree without knowing about him.
Business Performance Dashboard
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Modeled after a car’s dashboard, business performance dashboards collect information and present a visual display in a glance for managers. Dashboards are usually color coded, again, just like traffic lights with red signaling warning, yellow, caution, and green, good. Dashboards direct managers’ attention to where it is needed and enable quick actions taken by the management.
Key Performance Indicator (KPI)
KPI is an industry jargon term for a type of measure of performance, usually used to evaluate success of a particular strategic activity or some operational goals (zero defects, 10/10 customer satisfaction etc.). (Wikipedia)
KPIs are tied to an organization’s reward system, strategic objectives, and long term sustainable successes.
KPIs are part of the performance metrics and the overall performance measure in an organization.
KPIs can change employees’ behaviors with goals and incentives tied to KPIs.
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What are your organization’s KPIs? Does everyone know about them and does everyone agree to their measurements?
KPI: Financial Ratios
Liquidity ratios
Current ratio, quick ratio
Leverage / Solvency ratios
Debt equity ratio
Turnover / Activity ratios
Inventory turnover, average collection period, fixed assets turn over ratio
Profitability ratios
Gross/net profit margin, return on investment
Valuation ratios
Earning per share, PE, dividend yield
Traditionally, firms use financial ratios to measure their performance. They are easy to use, standardized, and sometimes required by regulatory agencies and stakeholders. However, financial ratios are not all leading indicators and they lack the performance details that managers need to improve operations. They are only unidimensional.
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Other Competitive Priorities
Speed/Lead Time
Flexibility
Quality
Costs
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There are other measurements in addition to fiancials. From the PPT on competition, these are the other measurable dimensions. Everything here can be measured: performance, cost, quality, speed, flexibility. How do we create values and how do we measure them?
Value Revisited
The value equation
Value = Performance / cost
where Performance = f [quality, speed, flexibility]
When, then, do we mean by:
Quality
Speed
Flexibility
Cost
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Organizations create values. Everything here in the formulas can be measured: performance, cost, quality, speed, flexibility. How do we create values and how do we measure them?
Value Analysis/Value Engineering
These tools seek to improve an existing product’s design while maintaining its functional characteristics and market appeal.
These methods ask questions such as:
Can the function be eliminated entirely?
Can the function be done some other way?
Can the part or product be simplified?
Can standard materials do the job as well?
Can the specs be changed to enhance the product?
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What do you find when you Google value analysis and value engineering? Every component, part, package, color, and mechanism in your cell phone is there for a reason. Every form, process, motion, and activity in the manufacturing or service process serves a purpose as well. Everything has to justify its existence. The first thing I did when I bought my Harley was to give it an upgrade by replacing the muffler and the air filter with more powerful ones. My question is, why the hell did Harley put them on in the first place? An average Harley buyer spends 30% of purchase price accessorizing their new “toy.” Is Harley doing any value analysis?
Scope of Performance Measures
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Financial measures are the most common and standardized ones. Customer and market measures are also typical and can compare across companies and industries. Quality is more subjective and usually involves customer perceptions, rather than objective measures. Time is getting more recognized because customers are becoming more impatient and consistency of deliveries is getting more important. Time measures include length and variability. Sustainability has also become an important measure as more organizations are feeling the need to be socially and environmentally responsible. The other dimensions are important to future growth but are more difficult to measure and cannot easily compare against benchmarks.
Examples of SCM Metrics (SCOR)
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Developed by the Supply Chain Council, SCOR has over 200 performance metrics for organizations. What are they? What do they measure? Does your organization use any of these or something similar to these? Why or why not?
The Balanced Scorecard
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Kaplan and Norton proposed the balanced scorecard model to replace the traditional financial measures that overemphasized one dimension, instead of all four that are critical to organizational growth.
Benchmarking
BENCHMARKING: the process of comparing your own practices against similar practices of firms in the same or different industries, recognized as the most effective at some specific task.
Types of Benchmarking
Product–goods or services
Process–manufacturing or management processes
Strategic–management directions
Customer surveys and benchmarking are used to establish standards.
Examples: customer experience against Disney, quality against Toyota, e-commerce against Amazon
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What is your organization’s benchmarking? How do you set standards with or without benchmarking? Do you constantly measure yourself against competition? Do you change your benchmarking over time?
Productivity
Productivity is output/input
Different types of productivity measures:
labor productivity
capital productivity
Partial factor vs. total factor productivity
Importance of measuring productivity and productivity changes: benchmarking, longitudinal studies, management
Ways to increase productivity: increasing outputs vs. decreasing inputs
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Output and input can be measured in different terms, money, time, man-hours, physical units, or otherwise. Each production factor has its own productivity measurement and combined factors can measure either partial or total factor productivity. Productivity changes over time or comparisons between one’s own organization and competitors are more meaningful than productive measures alone. Once we know how we compare in productivity with previous year/quarter/time period or against our peers, the next question is how we can improve our productivity? There are only two ways to do it: increase your output or decrease your input (or both of course). How does one do it in reality?
Effectiveness vs. Efficiency
Effectiveness is doing the right things
Peter Drucker’s quest
Don’t touch it if you are not adding value…
Teachers should teach while nurses nurse.
Efficiency is doing things right
Fred Taylor’s quest
Do more with less
What’s the one best way to get things done?
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Fred Taylor asks how we can do things faster with less resources. Peter Drucker, on the other hand, asks the fundamental question of why we do it. The fact that we can do it faster doesn’t mean we are doing the right things. One has to ensure that one adds value whenever one does things or there is no reason to do it. Google search Drucker and Taylor to find out what they advocate and their fundamental differences.
Effectiveness vs. Efficiency
Dr. Wu shredding papers, fastest in the department.
Let nurses nurse and professors profess…
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Fred Taylor asks how we can do things faster with less resources. Peter Drucker, on the other hand, asks the fundamental question of why we do it. The fact that we can do it faster doesn’t mean we are doing the right things. One has to ensure that one adds value whenever one does things or there is no reason to do it. Research Drucker and Taylor to find out what they advocate and what their fundamental differences are. (The fact that Dr. Wu shreds papers the fastest in the department does not mean he should focus on shredding papers…or does it?)
Triple Bottom Line (TBL) Reporting
Economic
Typical financial reporting
Balanced scorecard: customers, suppliers, employees
Social
Bribery and corruption, political contributions
Child labor, indigenous rights
Training and diversity
Environmental
Energy
Water
Biodiversity
Emissions, effluents, and waste
An increasing number of companies are adopting TBL reporting standards. What else are they reporting other than the economic performance of the firm? Are they useful in helping managers run a better operation? Do consumers pay attention to these reports?
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Measuring Academic Success?
What is a successful graduate? Definition first!
Measurements:
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When a graduate of CSUSB walks in the commencement, what is this person? How do we measure success?
