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Posted on Aug 18, 2023 in Other subjects

1. MGMT270 Topic 2: Measuring Performance in Operations 1 Learning Objectives MSCI/MGMT 270 Measuring Performance in Operations 2 3-1 Describe the types of measures used for decision making. 3-2 Explain the use of analytics in OM and how internal and external measures are related. 3-3 Explain how to design a good performance measurement system. 3-4 Describe four models of organizational performance. 3 LO 3-1 Describe the types of measures used for decision making. Measurement is the act of quantifying the performance criteria (metrics) 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. Types of Performance Measures Important categories of organizational performance measures: • Financial • Customer and Market • Quality • Time • Flexibility • Innovation and Learning • Productivity and Operational Efficiency • Sustainability Financial Measures • Often take top priority in for-profit organizations. • Traditional financial measures 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. Customer and Market Measures • Customer measures: Customer satisfaction, customer retention, gains and losses of customers and customer accounts, customer complaints, warranty claims, measures of perceived value, loyalty, positive referral, and customer relationship building. • Market measures: Market share, business growth, new product and geographic markets entered, percentage of new product sales. Quality • Quality measures the degree to which the output of a process meets customer requirements. • Goods quality relates to the physical performance and characteristics of a good. • Service quality is consistently meeting or exceeding customer expectations (external focus) and service delivery system performance (internal focus) for all service encounters. Service Quality Dimensions 1. Tangibles—physical facilities, uniforms, equipment, vehicles, and appearance of employees (i.e., the physical evidence). 2. Reliability—ability to perform the promised service dependably and accurately. 3. Responsiveness—willingness to help customers and provide prompt recovery to service upsets. 4. Assurance—knowledge and courtesy of the service providers, and their ability to inspire trust and confidence in customers. 5. Empathy—caring attitude and individualized attention provided to its customers. Time Time relates to two types of performance measures: 1. the speed of doing something 2. the variability of the process Processing time is the time it takes to perform some task. Queue time is a fancy word for wait time—the time spent waiting. EXERCISE: Each day, a FedEx competitor processes approximately 70,000 shipments. Suppose that they use the same Service Quality Index as FedEx and identified the following numbers of errors during a 5-day week (see the “FedEx: Measuring Service Performance” box). These values are hypothetical and do not reflect any real company’s actual performance. Complaints reopened: 125 Damaged packages: 18 International: 102 Invoice adjustments: 282 Late pickup stops: 209 Lost packages: 2 Missed proof of delivery: 26 Right date late: 751 Traces: 115 Wrong day late: 15 Compute the Service Quality Indicator by finding the weighted sum of errors as a percentage of total shipments. Flexibility • Flexibility is the ability to adapt quickly and effectively to changing requirements. • Goods and service design flexibility is the ability to develop a wide range of customized goods and services to meet different or changing customer needs. − Measures include the rate of new product development or percent of product mix developed over the past three years. • Volume flexibility is the ability to respond quickly to changes in the volume and type of demand. − Measures include the time to change machine setups or time required to “ramp up” to an increased production volume. 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 change. • Measures of innovation and learning include intellectual asset growth, patent applications, best practices implemented, new product development, employee training and skills development, satisfaction, work system performance, and effectiveness. Productivity and Operational Efficiency • Productivity is the ratio of the output of a process to the input. • Productivity = Quantity of Output/Quantity of Input • Operational Efficiency is the ability to provide goods and services to customers with minimum waste and maximum utilization of resources. Productivity and Operational Efficiency Sustainability • The Triple bottom line (TBL or 3BL) refers to the measurement of environmental, social, and economic sustainability. − Environmental sustainability measures include energy consumption, recycling, air emissions, and solid and hazardous waste rates. − Social sustainability measures include consumer and workplace safety, community relations, corporate ethics and governance, and ethical violations. − Economic sustainability measures include financial audit results, regulatory compliance, sanctions and fines, and accomplishment of strategic initiatives. 20 LO 3-2 Explain the use of analytics in OM and how internal and external measures are related. Analytics in Operations Management • As we noted in Chapter 1, business analytics is helping operations managers to analyze data more effectively and make better decisions. • Typical applications of business analytics include visualizing data using charts to examine performance trends; calculating basic statistical measures such as means, proportions, and standard deviations; comparing results relative to other business units, competitors, or bestin-class benchmarks; and using correlation and regression analysis to help understand relationships among different measures. • Understanding the cause and effect linkages between key measures of performance is an important application of analytics. • The quantitative modeling of cause and effect relationships between external and internal performance criteria is called interlinking. MSCI/MGMT 270 Forecast and Dmd Mgmt 23 EXERCISE 8 (p.66): A key hospital outcome measure of clinical performance is length of stay (LOS); that is, the number of days a patient is hospitalized. For patients at one hospital with acute myocardial infarction (heart attack), the length of stay over the past four years has consistently decreased. The hospital also has data for various treatment options such as the percentage of patients who received aspirin upon arrival and cardiac medication for Left Ventricular Systolic Dysfunction (LVSD). The data are shown below. Develop a graphical interlinking model by drawing charts (using Excel if possible) showing the LOS as a function of the other variables. What does the model tell you? Year Average LOS Aspirin on Arrival LVSD Medication 2007 4.35 days 95% 89% 2008 4.33 days 98% 93% 2009 4.12 days 99% 96% 2010 4.15 days 100% 98% Linking Internal and External Performance Measures • The value of a loyal customer (VLC) quantifies the total revenue or profit each target market customer generates over the buyer’s life cycle. • By multiplying the VLC times the absolute number of customers gained or lost, the total market value can be found. Value of Loyal Customer Solution (continued): EXERCISE 10: What is the average value of a loyal customer (VLC) in a target market segment if the average purchase price is $75 per visit, the frequency of repurchase is six times per year, the contribution margin is 10 percent, and the average customer defection rate is 25 percent? Use Excel VLC Template to solve this problem. 28 LO 3-3 Explain how to design a good performance measurement system. Designing Measurement Systems in Operations Key Questions: • Does the measurement support our mission? • Will the measurement be used to manage change? • Is it important to our customers? • Is it effective in measuring performance? • Is it effective in forecasting results? • Is it easy to understand/simple? • Is the data easy/cost-efficient to collect? • Does the measurement have validity, integrity, and timeliness? • Does the measurement have an owner? Designing Measurement Systems in Operations Good performance measures are actionable. Actionable measures provide the basis for decisions at the level at which they are applied—the value chain, organization, process, department, workstation, job, and service encounter. EXERCISE: An airline is interested in measuring on-time departures of their planes. How should they set-up this measure? 32 LO 3-4: Describe four models of organizational performance Models of Organizational Performance Baldrige Performance Excellence framework Balanced scorecard Value chain model Service-profit chain 34 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. OM6 | CH2 Exhibit 2.5 Baldrige Model of Organizational Performance LO 2-4 Baldrige Performance Excellence Framework • Primary purpose of the program is to provide a framework for performance excellence through selfassessment to understand an organization’s strengths and weaknesses, thereby setting priorities for improvement. www.nist.gov/baldrige • Organizations in manufacturing, small business, service, education, health care, and non-profit sectors may receive the Malcolm Baldrige Award. MSCI/MGMT 270 Forecast and Dmd Mgmt 36 Exhibit 3.4 Baldrige Performance Model of Organizational Performance Source: 2011-12 Baldrige Criteria for Performance Excellence, U.S. Depart. of Commerce 38 CASE STUDY: Rapido Burrito 40 MSCI/MGMT 270 Forecast and Dmd Mgmt 41 Q1: What conclusions do you reach when you calculate descriptive statistics for the answers to each of the survey questions in the database? • Use Excel spreadsheet (available on Learn). Calculate Mean scores and standard deviation for each question. 42 43 Customer survey responsesCustomer Number 1 2 3 4 5 6 7 8 9 10 11 Menu was easy to read 4 3 5 4 5 5 5 5 5 5 3 Order was prepared correctly 4 4 5 3 4 5 5 5 4 5 4 Food was tasty 5 3 4 3 4 5 4 3 4 5 3 Food was served hot 4 2 3 1 5 5 3 4 5 5 2 Employees were courteous and polite 5 4 4 3 4 5 4 4 4 4 4 Restaurant was clean 5 5 4 3 4 5 4 4 4 4 5 Value for price paid 5 4 3 2 5 5 3 3 5 5 4 Overall satisfaction 4 3 4 3 4 5 4 4 4 5 3 Likely to dine with us again? 4 3 3 2 4 5 3 3 4 5 3 Likely to recommend us to friends? 4 2 3 2 4 5 3 3 4 5 2 Q2. If you average the responses to the first seven questions by customer, how closely are those averages correlated to the satisfaction score? Include a scatter chart in your analysis 44 • Use Excel spreadsheet (available on Learn). Calculate Mean scores and standard deviation for each question. Q3. Analyze the data on burrito weights using descriptive statistical measures such as the mean and standard deviation, and tools such as a frequency distribution and histogram. What do your results tell you about the consistency of the food servings? 45 • Use Excel spreadsheet (available on Learn). Calculate Mean scores and standard deviation for each question. Q4: What recommendations for decision-making and improvement can you make to the store manager? 46