Exam 18: Performance Measurement to Support Business Strategy

The Falisari Company collected the following information (in days): Inspecting product 4 Transporting product 14 Storing product 20 Manutacturing product 65 What is the manufacturing cycle efficiency?

Manufacturing cycle time is the total time involved in processing,moving,storing,and inspecting a good or providing a service.

Indiatlantic Corporation's management keeps track of the time it takes to process orders.During the most recent month,the following average times were recorded per order: Hours Processing Time 1.1 Inspection Time 0.4 Moving Time 0.8 Storing Time 4.8 Required: a.Compute the manufacturing cycle time.b.Compute the manufacturing cycle efficiency (MCE).c.What percentage of the production time is spent in non-value-added activities?

Shuster Metalworks Co.has provided the following information for last year: Pounds of metal input 21,000 Labor hours 8,000 Overhead costs \ 165,000 Pounds of output produced 12,000 Required: Calculate the partial productivity for: a.Metal.b.Labor.

David Palmer, manager of the Paper Products Division of a Graham Corporation, is a strong believer of outcome measures. During one of his management meetings, he impressed upon his management team that financial measures are the most important, and that his managers should only focus on improving those measures. Nina Meyers, a recent CMA who was at the meeting filling in for her superior, was not too impressed with Palmer's exclusive focus on financial measures. As the meeting was about to end, she nervously pointed out to Palmer that his focus on outcome measures could be detrimental to the performance of the company. Meyers: Excuse me, Mr. Palmer, but I think it is wrong to place exclusive emphasis on financial outcome measures. Instead, the emphasis must be on what are known as lead indicators, which provide information about the likely outcome of managerial decisions. Palmer: I commend you for your knowledge on recent developments. However, I have more than 20 years' experience in this field and I think I know what I am doing. After all, ultimately financial results are what we want. Meyers: I do not dispute that the ultimate result may largely be the financial returns to our shareholders. However, unless we pay attention to the drivers of the results, we will not understand the problems that exist in our processes. I can bring you up to date on a new performance measurement system known as the Balanced Scorecard if you like. Although Palmer was not too impressed at being challenged, he instructed Meyers to write him a report on the Balanced Scorecard. Required: Prepare a brief report on the Balanced Scorecard with particular emphasis on the following aspects: • What are leading and lagging indicators? • Why are leading indicators important? • What is the relationship between leading and lagging indicators (cause-effect relationships)? • What are the different dimensions of the Balanced Scorecard? • What are some examples of indicators pertaining to the different dimensions of the Scorecard?

Which of the following statements is(are)false regarding financial measures? (A)In general,the use of multiple measures to evaluate performance is better than the use of a single performance measure. (B)Managers evaluated using multiple measures will most likely act differently than managers evaluated using single measures.

Marion Forging Co.has provided the following information for last year: Tons of metal input 14,000 @\ 10 ton Labor hours 5,000 @\ 30 hour Overhead costs \ 125,000 Tons of forging produced 10,000 @ selling price of \ 60 thon Required: Calculate the total factor productivity measure.

What is a business model?

Total factor productivity:

One reason financial measures are used to evaluate performance is that they are easily quantifiable.

Describe the difference between a company's mission statement and its business-level strategy.

A balanced scorecard uses only nonfinancial measures to determine how well the organization is doing in view of competing stakeholder concerns.

What is the difference between continuous improvement and benchmarking?

A balanced scorecard is a set of:

In general,a balanced scorecard is used to evaluate an organization's performance using:

The Falisari Company collected the following information (in days): Inspecting product 4 Transporting product 14 Storing product 20 Manutacturing product 65 What is the manufacturing cycle time?

Sam Almasi, the CEO of Almasi Technologies Inc. (ATI), a biotechnology firm had recently returned from a conference on modern cost management and performance measurement methods where he was exposed to target costing, value-chain analysis, balanced scorecard, activity-based management, and other ideas. ATI is a five-year old company operating in a growing, but competitive market. It develops and produces a number of different enzymes for use by research scientists and pharmaceutical companies. Its main competitors are also small to medium sized firms just like ATI. The key to growth in this industry is the ability to develop new products in a short time. Gail Stevenson, the vice-president (VP) for research & development (R&D) has noticed that some of ATI's new developments did not perform well because of the delays in their introduction into the market. Stevenson is very keen on hiring the best scientists and ensuring that they stay current in their fields because knowledge is the key competitive weapon in the biotechnology industry. Bob Phillips, the controller of ATI had another concern. He has been noticing that the new products were not only delayed but their actual development costs were usually higher than budgeted. One of his goals was to see that the new products were profitable for the company. Linda Joseph, the production manager, had a different concern of her own. Based on her observation, the production of the new enzymes was taking longer. Her feeling was that the products spent too much time in the quality control (QC) department. Barry Laker, the manager of the QC department argued that the new enzymes lacked the rigorous specifications that are demanded in the marketplace. Consequently, the QC department has to perform additional tests to get to the root cause of the problems. Almasi had heard complaints from all quarters, and decided to convene a meeting of all the department heads. Almasi: Good afternoon, everyone. I am troubled that despite hiring a number of talented scientists, we are unable to compete effectively in the marketplace. Many of the recent entrants in the game seem to be beating us easily. Stevenson: Sam, the key to our growth is rapid introduction of new products. Although my scientists are developing new enzymes in record times, they seem to be getting held up in manufacturing and especially the QC department. Laker: Sam, I think I can pinpoint the root cause of the problem. I agree that our scientists are developing new enzymes in record times, but they do not seem to be paying any attention to standards. It looks like my department will have to provide training to them regarding quality control matters. Stevenson: With due respect, I do not think there is more to know about QC standards. It looks like the department wants more attention and is therefore creating all this unnecessary fuss. Joseph: I think I will agree with Barry that there are problems at the R&D side. My production scientists are also complaining that adequate specifications have not been developed; they have to constantly phone their R&D counterparts for clarifications. Stevenson: I do not believe that the production problems can be attributed to R&D. I have personally screened each and every scientist during the hiring process. Phillips: I don't think we will make much progress as a company if we keep pointing fingers at one another. We all must realize that all problems, regardless of their origin, finally affect the bottom-line of our company. Unless we set aside our differences and work together as a team, we will be unable to compete with our rivals. Some of our competitors follow best practices, which we must try to emulate. Almasi: I agree with Bob. We must all look for solutions. I recently attended a conference where noted speakers talked about the value-chain of a company, interrelationships between functions, and the balanced scorecard. In fact, some speakers suggested that companies must stop discussing in terms of individual functions or departments; instead they must talk in terms of processes and understand linkages among all the processes that exist in an organization. I believe there are a number of ideas that we could adopt. I will leave the conference proceedings in the library, and suggest that we all read about these different topics. How about getting together after six weeks and discussing a plan of action? Thank you and see you all after six weeks. Required: Assume the role of a consultant preparing a report for ATI. Discuss the following aspects in your report: The internal value-chain of ATI. The balanced scorecard. Identify the goals of the company under each perspective of the scorecard and cause-effect relationships, and develop potential measures that could be used. How the inter-departmental differences can be eliminated.

Travis Corporation keeps careful track of the time required to fill orders.The times recorded for a particular order appear below: Hours Processing Time 0.7 Inspection Time 0.3 Moving Time 2.9 Storing Time 8.7 The manufacturing cycle efficiency (MCE)was closest to:

The Miller Manufacturing Company collected the following information (in days)for April and May. April May Transporting product 2.0 3.0 Processing product 14.0 16.0 Inspecting product 0.5 0.8 Storing product 8.0 5.0 Required: a.Calculate the manufacturing cycle efficiency for April and May.b.Calculate the processing time required for May so that May's manufacturing cycle efficiency is equal to April's manufacturing cycle efficiency.

Maeve Co.has provided the following information for last year: Pounds of input 35,000 Labor hours 8,000 Overhead costs \ 142,000 Units of output produced 15,000 Required: Calculate the partial productivity for: a.Metal.b.Labor.