Performance Measurement
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Διάλεξη 9 Μέτρηση Απόδοσης και Βελτίωση Διαδικασίών Source: Archie Miles Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 A model of Opera-ons Management Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Teaching Objectives To illustrate the fundamental importance of performance measurement to any operations manager To relate performance measurement and improvement to each other and the overall topic of OM To present the Balance Scorecard technique for Performance Measurement Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 The Need for a Performance Measurement System ‘If you can’t measure it, you can’t manage it!’ Kaplan and Norton, The Balance Scorecard: Measures that drive performance , HBR, Jan-­‐Feb 1992 You Get What you Measure Bruggeman, W., Bartholomeeusen, L. and Heene, A. (1988) How Management Control Systems can affect the performance of service operaPons InternaPonal Journal of OperaPons and ProducPon Management, 8 (3) All opera<ons need some kind of performance measurement as a prerequisite for improvement Slack, N., et al. (2001) "OperaPons Management". UK Pearson EducaPon. (Chapter 18) Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Opera-ons Performance Measures Dependability Quality Dependability Cost Speed Flexibility Quality Cost Speed Flexibility Market requirements and opera:ons performance change over :me Performance of the opera:on Requirements of the market Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Typical Measures of Performance Performance Objective Some Typical Measures Quality • • • • • • Speed • • • • • Dependability • • • • • Flexibility • • • • • • • Cost • • • • • • • Number of defects per unit Level of customer complaints Scrap level Warranty claims Mean time between failures Customer satisfaction score Customer query time Order lead time Frequency of delivery Actual vs. theoretical throughput time Cycle time Percentage of orders delivered late Average lateness of orders Proportion of products in stock Mean deviation from promised arrival Schedule adherence Time needed to develop new product/service Range of products/services Machine change-­‐over time Average batch size Time to increase activity rate Average capacity/ maximum capacity Time to change schedules Maximum delivery time / average delivery time Variance against budget Utilisation of resources Labour productivity Added value Efficiency Cost per operation hour Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Performance Standards Historical Standards – Measure current performance against previous performance Target Performance Standards – They are arbitrary and reflect some level which is regarded as appropriate or reasonable Competitor Performance Standards – Compare performance against competitors (benchmarking) Absolute Performance Standards – It takes performance on theoretical limits (zero defects) Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Trade-­‐off Rela-onship Between Objec-ves Performance objec:ve 2 Performance objec:ve 1 Improve performance by raising the pivot Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Priori-zing Compe--ve Objec-ves Priori:es should be determined by ...... The IMPORTANCE Your PERFORMANCE in each of compe::ve objec:ves of each compe::ve objec:ve IMPROVEMENT PRIORITIES Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 9 Point Importance Scale For this product group does this performance objec:ve ...... ORDER WINNING OBJECTIVES QUALIFYING OBJECTIVES 1 -­‐ Provide a crucial advantage with customers 2 -­‐ Provide an important advantage with most customers 3 -­‐ Provide a useful advantage with most customers 4 -­‐ Need to be up to good industry standard 5 -­‐ Need to be around median industry standard 6 -­‐ Need to be within close range of the rest of the industry LESS IMPORTANT OBJECTIVES 7 -­‐ Not usually important but could become more so in future 8 -­‐ Very rarely rate as being important 9 -­‐ Never come into considera:on Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 9 Point Performance Scale For this product group is achieved performance ........ BETTER THAN COMPETITORS SAME AS COMPETITORS WORSE THAN COMPETITORS 1 -­‐ Consistently considerably be]er than our nearest compe:tor s 2 -­‐ Consistently clearly be]er than our nearest compe:tor s 3 -­‐ Consistently marginally be]er than our nearest compe:tor s 4 -­‐ O^en marginally be]er than most compe:tors 5 -­‐ About the same as most compe:tors 6 -­‐ O^en close (but slightly lower) to main compe:tors 7 -­‐ Usually marginally worse than main compe:tors 8 -­‐ Usually worse than most compe:tors 9 -­‐ Consistently worse than most compe:tors Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 The Importance-­‐Performance Matrix COMPETITORS PERFORMANCE BAD AGAINST PERFORMANCE GOOD 1 be]er than 2 3 4 same as 5 6 7 8 worse than 9 9 8 7 less important LOW 6 5 qualifying IMPORTANCE FOR CUSTOMERS 4 3 2 1 order winning HIGH Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 The Importance-­‐Performance Matrix with Zones of Improvement Priority 1 be]er than E COMPETITORS AGAINST PERFORMANCE GOOD F same as B D 5 IMPROVE 6 7 A URGENT ACTION 8 9 9 8 less important Lower bound of acceptability APPROPRIATE 3 4 worse than BAD EXCESS ? 2 LOW C 7 6 5 qualifying IMPORTANCE FOR CUSTOMERS 4 3 2 1 order winning HIGH Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Approaches to Improvement Performance Con:nuous and breakthrough improvement Breakthrough improvement Con:nuous improvement Time Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 The PDCA Cycle (Deming Wheel) Plan Examina:on of process or problem Collect and Analyse Data Do Act Implement Improvement plan Standardise and learn lessons change is consolidated (or not) Check Measure and confirm result whether it has resulted in the expected performance improvement Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Common Techniques for Process Improvement Input/output analysis Flow charts ScaMer diagrams x Input Out put x x Cause-­‐effect diagrams Pareto diagrams x x x x x x x x Why-­‐why analysis Why? Why? Why? Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Process Improvement Tools Tools for generating ideas – Check sheet – Scatter diagram – Cause and Effect diagram Tools to organise the data – Pareto charts – Process & flow charts Tools for identifying problems – Histograms – Statistical Process Control (SPC) chart Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Check Sheet for Data Collection Hour Defect 1 2 3 4 5 6 7 8 A B C Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Scatter Diagrams Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Cause and Effect Diagram Used to find problem source / solutions Also known as “fish-bone” diagram or Ishikawa diagram Steps: – Identify problem to correct – Draw main causes of problem as ‘bones’ – Ask “, where, how, who, where, what could have caused problems in these areas?” – Repeat for each sub-area, sub-sub-area… Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Cause and Effect Diagram : Main Causes – the Four Ms Methods Manpower Too many defects Materials Machinery Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Fish-bone chart for Problems with Airline Flight Departure Methods Acceptance of late passengers Manpower Overbooking policies Understaffed Delayed crew check-­‐in Understaffed check-­‐in Poorly trained agents Late fuel Late food Materials De-­‐icing equipment not available Delayed Flight Departure Aircra^ late to gate Mechanical failure Machinery Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Why-Why Analysis A varia:on on the fish-­‐bone diagram – iden:fy problem, then ask why it occurred. Take each major reason, and ask why it occurred … Not in budget Lack of training PROBLEM Cause of failure wrongly iden:fied Why? Why? No :me available High staff turnover Lack of product knowledge Why? Lack of customer knowledge Why? Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Pareto Analysis of Wine Glass Defects Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Process Flow Charts Shows sequence of events in processes and flow of resources Depicts activity relationships Has many uses – Identify data collection points – Find problem sources – Identify places for improvement – Identify where travel distances can be reduced Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Process Chart Example SUBJECT: Purchase request Dist Time Symbol (metres) (mins) Descrip:on Write order On desk 25 To buyer Examine = opera:on = transport = inspec:on = delay = storage Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Flow Chart Example User Purchasing Request goods Inform user Supplier Check request N OK? Y Send Purchase Order Receive goods Fill order Send goods to user Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Another Flow Chart Style Screen applicants Move to mortgage officer Wait to be processed Complete applica:on, verifica:on & disclosures Transport documents Request verifica:on of income, account balances and employment history Wait for verifica:on of documents Conduct property appraisal and land survey Conduct :tle search Request credit bureau analysis Wait for credit report Inspect property Wait for closing Transfer :tle Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Histograms Measurements of a variable taken during ‘normal’ opera:on will show some varia:on – these can be plo]ed as a histogram which (with a sufficiently large sample) will normally show a Normal distribu:on. Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Statistical Process Control (SPC) Statistical technique used to ensure process is meeting required standard All processes are subject to variability – Natural causes, i.e. random variation – Assignable causes, i.e. correctable problems • Machine wear, unskilled workers, poor material Objective: identify assignable causes Uses process control charts Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Process Control Charts Upper Control Limit Ac:on taken Lower Control Limit Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Patterns to look for on SPC Charts Value above Upper Control Limit, or below Lower Control Limit, may mean stopping process (expensive) so try to anticipate problems by looking for patterns, e.g.: UCL UCL UCL C/L C/L C/L LCL LCL LCL Alterna:ng and erra:c behaviour Apparent trend in one direc:on Two points near control limit UCL UCL UCL C/L C/L C/L LCL LCL LCL Suspiciously average behaviour Five points one side of centre line Sudden change in level Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Setting Control Limits Actual process state Decision In control Out of control Stop process Type I error Correct decision Leave alone Correct decision Type II error With Upper and Lower Control Limits set at +/-­‐ 3 standard devia:ons away from the mean, probability of a Type I error is 0.3% Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Further Reading Heizer & Render, Chapter 6 Slack et al, Chapters 17 & 18 Bicheno J, The Lean Toolbox, PICSIE, 2nd ed, 2000 Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 The Balanced Scorecard What is it? • A Strategic Communica:on and Performance Technique Origins • The first balanced scorecard was created in 1987 at Analog Devices, a mid-­‐ sized semiconductor company in the USA • Introduced by D. Norton and R. Kaplan in a series of ar:cles in Harvard Business Review in early ’90s. Philosophy • Communica:ng goals and priori:es clearly • Emphasising Learning and Team working Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 The Balanced Scorecard The BSC is a conceptual framework for translating an organisation's vision into a set of performance indicators distributed among four perspectives Financial Customer Internal Business Processes, and Learning and Growth. Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 A Typical Balanced Scorecard Goals Being a financially strong institution by maintaining certain available debt capacity and certain financial rations How do we look to our shareholders? Customer Perspec:ve Goals Continuously improving the quality of our products/services and giving priority attention to their concerns Measurements Financial Perspec:ve Measurements Revenue Growth Sales and market share No. of new products No. of new customers and markets No. of new market channels No. of new pricing strategies Cost Management Revenue per employee Unit cost reduction Percent use of low cost business processes Percentage of expenses measured by ABC Asset Utilisation Inventory reduction, increased turns Cash-to-cash cycle Return on capital Productivity / efficiency What must we excel at? Internal Business Process Measures Goals Market Share % of market segment captured % of each customer's total requirement served Customer Retention Number of customers who go elsewhere Vision Increase in sales to current customers Delivering Frequency of orders / visits / contacts with current customers and effective Customer Acquisition products/services Strategy Number of new customers, or total sales to new customers in terms of Average cost to acquire a new customer outcomes Average order size, or average revenue per customer interaction Customer Satisfaction Number of complaints Number of unsolicited thank you letters Number of individuals indicating that they are extremely satisfied Customer Profitability Total profit per customer Innova:on and Learning Perspec:ves Total cost per customer or per transaction Goals How do customers see us? Being involved in leading edge tertiary care research & training Measurements Identify or Make the Market Profitability Percent of revenue from new products Percent of revenue from new customers Design Time to market Break-even time Build Number of defects Process time Process cost Deliver Percent on-time delivery Stock-outs Percent defects Service (post-sales) Average satisfaction rating Number of customers re-ordering Number of customers who do not order again Measurements Employee Capabilities Employee satisfaction Staff turnover Productivity (revenue per employee, etc.) Information Technology Information coverage ratio - number of processes having adequate information on quality, cycle time, and cost Return on data - new revenue per database etc. Motivation and Alignment Suggestions received Suggestions implemented Rewards provided Time required to improve e.g. on-time deliveries by 50% Can we con:nue to improve and create value? Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Why Do Businesses Need a Balanced Scorecard? Financial ROCE Customer Customer Loyalty On-­‐:me Delivery Internal/Business Process Learning and Growth Process Quality Process Cycle Time Employee Skills Understanding the cause & effect rela:onship Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Performance Measurement: Key Points Performance measurement is central to TQM, Continuous Improvement Measuring one aspect of performance can have detrimental effects on another Too much emphasis on the bottom line can lead to short termism Often there is no such thing as a perfect measure: use a range of measures The costs of measuring performance should be weighed against the costs of not measuring Target setting forces the manager to think through the potential tradeoffs between different dimensions of performance Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007 Exercise Device an effective performance measurement system for a fast food restaurant – Decide on the most important performance objectives for this type of operation – Device performance measurements for these objectives – Debate on the most appropriate form of performance standards – Discuss the practical implications of how to make such a performance system work (how often should measurement be taken, who should take the measurements, etc.) – 15 minutes.. Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
