ACYMANS: Balanced Scorecard and Manufacturing Cycle Efficiency

Financial Performance Measures

Measures that merely summarize the results of past actions.

Financial Performance Measures

Are important to a firm's owners, creditors, employees and so forth. Thus, they must be watched carefully by management.

Nonfinancial Performance Measures

Measures that concentrate on current activities, which will be the drivers of future financial performance.

Balanced Scorecard

Is an approach to performance measurement that combines traditional financial measures with non-financial measures.

Balanced Scorecard

In this approach, the process usually starts with the determination of the firm's long-term goals. These goals are usually financial in nature, such as financial growth that can be expressed in profit growth percentage, revenue growth percentage, and return on sales.

Balanced Scorecard

Comes into play when we determine what the firm should be doing right now to ensure that its long-term financial goals will be met.

Financial Perspective

Performance measures that reflect financial performance.

Financial Perspective

Answers the question "How do we look to the firm's owners?"

E.g. Profit, Return on Investment, Cash Flow, Revenue Growth, Economic Value-Added.

Customer Perspective

Performance measures that have a direct impact on customers.

Customer Perspective

Answers the question "How do the customers see us?"

E.g., Customer satisfaction, customer retention, market share, customer complaints.

Learning and Growth Perspective

Performance measures that describe the company's employee learning curve.

Learning and Growth Perspective

Answers the question: "How can we continually improve and create value?"

E.g. Employee satisfaction, employee turnover, training and recreation.

Internal Business Process Perspective

Performance measure that show key business process performance.

Internal Business Process Perspective

Answers the question "In what business process must the firm excel in order to achieve its long-term financial goals?"

E.g. Manufacturing cycle efficiency, rejects and defects, quality costs, productivity measures.

Strategic Objectives

A statement of what the strategy must achieve and what is critical to its success.

Strategic Initiatives

Key action programs required to achieve strategic objectives.

Performance Measures

Describe how success in achieving the strategy will be measured.

Baseline Performance

The current level of performance for the performance measure.

Targets

The level of performance or rate of improvement needed in the performance measure.

Lead Indicators

Are measures of nonfinancial and financial outcomes that guide management in making current decisions that will result in desirable results in the future.

Lead Indicators

Indicators that guide management to take actions now that will have positive effects on the firm's performance later.

Lag Indicators

Are measures of the financial outcomes of earlier management decisions such as profit and cash flow.

Lag Indicators

These key financial measures only change well after the management has already made the important decisions that affect key operational results. They are less useful for performance management and control.

Raw Material and Scrap

An operational performance measure. Such measure continue to be a significant cost element in any manufacturing process, whether labor-intensive or highly automated. Purchasing performance has become an important area of measurement criteria, e.g., number of vendors, raw material as a percentage of total cost, lead time for material delivery, etc.

Inventory

An operational performance measure. It is a significant investment for any manufacturing or distribution company. Control measures of such operational performance include average value of inventory, average amount of time various inventory items is held, ratio of inventory value to sales revenue and number of inventoried parts.

Machinery

An operational performance measure. In relation to inventories, if they are kept low, then the production process must be capable of producing and delivering goods and services quickly. The goal requires that such measure must work when it is needed. Performance measures include hours of machine downtime, percentage of machine availability, setup time, percentage of bottleneck machine availability, etc.

Bottleneck Operations

Are those that limit the production capacity of the entire facility. Our goal is to have machinery used in bottleneck operations to be available 100% of the time, excluding the time for routine required maintenance.

Theory of Constraints

A management philosophy which seeks to maximize long-run profit through proper management of organizational bottlenecks or constrained resources.

Product and Service Quality

An operational measure. Refers to the adherence to strict quality standards for raw materials, manufactured components, and products and services are demanded by competitive markets.

Customer Acceptance Measures

Focus on the extent to which customers perceive its outputs to be of high quality. Typical performance measures include number of customer complaints, number of warranty claims, cost of repeat service visits.

In-Process Quality Controls

Procedures designed to assess product and service quality before production is completed. Performance measures include number of defects found and cost of rework.

Production and Delivery

An operational measure. Companies strive toward a goal of filling 100% of the orders on time. A company would not be successful if it does produce a great product but delivers it to customers a week late. Performance measures on this field include the percentage of on-time deliveries and the percentage of orders filled.

Delivery Cycle Time

The average time between the receipt of a customer order and delivery of the goods.

Manufacturing Cycle Time per Unit

The total amount of production time (or throughput time) required per unit.

Manufacturing Cycle Time per Unit

Total Production Time per Batch / Units per Batch

Velocity

The number of units products in a given period of time

Velocity

Units per batch / Total Production Time per Batch

Manufacturing Cycle Efficiency

It compares the amount of value-added time (Processing) to Value-Added (Processing) and Non-Value Added Time (Inspection, Waiting, and Moving)

Manufacturing Cycle Efficiency

Processing Time / (Processing Time + Inspection Time + Waiting Time + Move Time)

Aggregate (or Total) Productivity

Total Output / Total Input

Total Output

Is the sum of those products and services times their sales price.

Total Input

Is the sum of the direct material, direct labor, and overhead costs incurred.

Aggregate (or Total) Productivity

(Total products and Services) x (Sales Price) / (Direct Material + Direct Labor + Overhead Costs Incurred)

Innovation and Learning

An operating measure. Competition requires that companies continually improve and innovate. New products must be developed and introduced to replace those that have become or will become obsolete. New processes must continually be developed to make production more efficient.

Delivery Cycle Time

Waiting Time + Process Time + Move Time + Inspection Time

Partial Productivity for Direct Manufacturing for Labor

Units Produced and Sold / Direct Labor Hours

Partial Productivity for Direct Materials

Units Produced and Sold / Direct Materials Used

Total Factor Productivity

Units Produced and Sold / (DM Used x DM per Unit) + (DL Used x DL per Unit) + Overhead Used)

Theoretical Velocity

Theoretical Annual Capacity / Production Hours Available

Actual Velocity

Actual Production / Production Hours Available