Business & Finance Productions and Operations Assignment

Measuring Performance in Operations and Value Chains

Part One Prof. Fiyinfoluwa Abioye

Bowie State University

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Content

• Types of Performance Measures

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Types of Performance Measures

©2023 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Measurement is the act of quantifying the performance of organizational units, goods and services, processes, people and other business activities.

Good measures provide a “scorecard” of performance, help identify performance gaps, and make accomplishments visible to the workforce, the stock market, and other stakeholders.

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Organizational performance measures can be classified into the following important categories:

• Financial

• Customer and market

• Quality

• Time

• Flexibility, agility, and resilience

• Innovation and learning

• Productivity and operational efficiency

• Sustainability

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Financial Measures

Financial measures, such as cost and revenue, often take top priority in for-profit organizations. Traditional financial measures that companies use include revenue, return on investment, operating profit, pretax profit margin, asset utilization, growth, revenue from new goods and services, earnings per share, and other liquidity measures.

Nonprofit organizations focus more on minimizing costs and maximizing value to their target markets, customers, and society. Monitoring cost and adherence to budgets are important factors in their operational success.

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©2023 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Performance Measurement Category

Typical Organizational-Level Performance Measures

Typical Operational- Level Performance Measures

Financial • Revenue and Profit • Returns on assets • Earnings per share

• Labor and material costs

• Cost of quality • Budget variance

Customer and Market Measures

Through customer and market feedback, an organization learns how satisfied its customers and stakeholders are with its goods and services and performance.

A customer-satisfaction measurement system provides a company with customer ratings of specific goods and services features and indicates the relationship between those ratings and the customer’s likely future buying behavior.

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©2023 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Performance Measurement Category

Typical Organizational-Level Performance Measures

Typical Operational- Level Performance Measures

Customer and market • Customer satisfaction

• Customer retention • Market share

• Customer claims and complaints

• Type of warranty failure/upset

• Sales forecast accuracy

Quality

Quality measures the degree to which the output of a process meets customer requirements.

Goods quality relates to the physical performance of and characteristics. Goods quality is generally measured using instruments, technology and data- collection processes.

Service quality is consistently meeting or exceeding customer expectations (external focus) and service- delivery system performance (internal focus) for all service encounters.

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Research has shown that customers use the following five key dimensions to assess service quality:

1. Tangibles

2. Reliability

3. Responsiveness

4. Assurance

5. Empathy

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Every service encounter provides an opportunity for error. Errors in service creation and delivery are sometimes called service upsets or service failures. Service measures should be linked closely to customer satisfaction so that they form the basis for improvement efforts.

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©2023 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Performance Measurement Category

Typical Organizational-Level Performance Measures

Typical Operational- Level Performance Measures

Quality • Customer ratings of goods and services

• Product recalls

• Defects/units of error/opportunity

• Service representative courtesy

Time

Time relates to two performance measures – the speed of doing something and the variability of the process.

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©2023 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Performance Measurement Category

Typical Organizational-Level Performance Measures

Typical Operational- Level Performance Measures

Time • Speed • Reliability

• Flow processing or cycle time

• Percent of time meeting promised due date

Flexibility, Agility, and Resilience

Flexibility refers to the ability to easily change.

Goods and service design flexibility is the ability to develop a wide range of customized goods or services to meet different customer service needs.

Volume flexibility is the ability to respond to the changes in volume and type of demand.

Process flexibility is the ability to manufacture different types of products in the same plant or production facility at the same time.

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Agility refers to the ability to change quickly. Beyond flexibility, agility requires speed and quick response.

Resilience is the ability to anticipate, prepare for, and recover from disruptions, and to protect and enhance all aspects of operations when disruptions occur.

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©2023 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Performance Measurement Category

Typical Organizational-Level Performance Measures

Typical Operational- Level Performance Measures

Flexibility, agility, and resilience

• Design flexibility • Volume flexibility

• Number of engineering changes

• Assembly-line changeover time

Innovation and Learning

Innovation refers to the ability to create new and unique goods and services that delight customers and create competitive advantage.

Learning refers to creating, acquiring, and transferring knowledge, and modifying the behavior of employees in response to internal and external changes.

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©2023 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Performance Measurement Category

Typical Organizational-Level Performance Measures

Typical Operational- Level Performance Measures

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

Productivity is the ratio of the output of a process to the input. A productivity measure describes how well the resources of an organization are being used to produce an output.

𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 = 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑜𝑓 𝑜𝑢𝑡𝑝𝑢𝑡

𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑜𝑓 𝑖𝑛𝑝𝑢𝑡

The measures for quantity of output and quantity of input do not need to be expressed in the same units.

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Operational efficiency is the ability to provide goods and services to customers with minimum waste and maximum utilization of resources.

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©2023 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Performance Measurement Category

Typical Organizational-Level Performance Measures

Typical Operational- Level Performance Measures

Productivity and operational efficiency

• Labor productivity • Equipment utilization

• Manufacturing yield • Order fulfillment

time

Sustainability

The triple bottom line (TBL or 3BL) refers to the measurement of environmental, social, and economic sustainability.

©2023 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

©2023 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Performance Measurement Category

Typical Organizational-Level Performance Measures

Typical Operational- Level Performance Measures

Sustainability • Environmental and regulatory compliance

• Product-related litigation

• Financial audits

• Toxic waste discharge rate

• Workplace safety violations

• Percent of employees with emergency preparedness training