Deck 3: Measuring Performance in Operations

Question 1

As time-on-hold waiting decreases, customer satisfaction rating increases. This is an example of _____.

A) productivity index
B) interlinking
C) value of a loyal customer
D) flexibility

Answer 1

B

Question 2

Which of the following statements on organizational performance measures is FALSE?

A) The five dimensions to assess service quality are empathy, assurance, responsiveness, reliability, and tangibles.
B) Learning refers to the ability to create new and unique goods and services that delight customers and create competitive advantage.
C) The two types of performance measures related to time are the speed of doing something and the variability of a process.
D) Flexibility is the ability to adapt quickly and effectively to changing requirements.

Answer 2

B

Question 3

_____ is the ratio of the output of a process to the input.

A) Productivity
B) Flexibility
C) Variability
D) Reliability

Answer 3

A

Question 4

When Bill Gates stated that "Microsoft is always two years away from failure," he was emphasizing the importance of _____.

A) innovation and learning
B) productivity
C) design flexibility
D) speed

Question 5

Using the information provided in the table below, the percentage change in productivity from 2009 to 2010 is _____. $\begin{array}{|l|l|l|l|}\hline & & \underline{2009} & \underline{2010} \\\hline \text { OUTPUTS } & & & \\\hline & \text { Units } & 110,000 & 150,000 \\\hline \text { INPUTS } & & & \\\hline & \text { Direct Labor Costs } & \$ 250,000 & \$ 310,000 \\\hline & \text { Energy Cost } & \$ 6,000 & \$ 5,800 \\\hline & \text { Raw Material Cost } & \$ 40,000 & \$ 42,000\\\hline \end{array}$

A) less than or equal to 10%
B) more than 10% and less than or equal to 15%
C) more than 15% and less than or equal to 20%
D) more than 20% and less than or equal to 25%

Question 6

The ability to respond quickly to changes in the volume and type of demand is called _____.

A) learning
B) service quality
C) demand variability
D) volume flexibility

Question 7

It takes fifteen minutes to complete a drilling operation using a lathe. The duration of this operation is known as _____ time.

A) delay
B) queue
C) processing
D) standard

Question 8

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

A) Frequency
B) Depreciation
C) Variability
D) Quality

Question 9

Which of the following is NOT a financial performance measure at an organizational level?

A) Labor and material costs
B) Revenue and profit
C) Return on assets
D) Earnings per share

Question 10

Which of the following expressions is used to measure productivity?

A) Quality of output/Quantity of input
B) Quality of input/Quantity of output
C) Quantity of output/Quantity of input
D) Quantity of input/Quantity of output

Question 11

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

A) Measurement
B) Forecasting
C) Fulfillment
D) Deployment

Question 12

Which of the following is NOT a key dimension of service quality?

A) Conformance
B) Tangibles
C) Empathy
D) Reliability

Question 13

Which of the following is a quality performance measure at an operational level?

A) Customer ratings of goods and services
B) Customer retention
C) Service representative courtesy
D) Product recalls

Question 14

Dell's ability to provide a wide range of customized computer hardware to accommodate customers' needs best describes _____.

A) volume flexibility
B) design flexibility
C) cycle time
D) queue time

Question 15

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

A) Operational efficiency
B) Volume flexibility
C) Reliability
D) Sustainability

Question 16

_____ is the quantitative modeling of cause-and-effect relationships between internal and external performance criteria.

A) Learning
B) Strategic planning
C) Interlinking
D) Forecasting

Question 17

The triple bottom line (TBL or 3BL) refers to the measurement of sustainability in all of the following areas EXCEPT:

A) economic area.
B) social area.
C) technological area.
D) environmental area.

Question 18

Airline revenue per passenger mile and hotel revenue per full-time employee are examples of _____.

A) reliability
B) value of a loyal customer
C) sustainability
D) productivity

Question 19

Which of the following is an example of innovation and learning performance measure?

A) Employee satisfaction
B) Earnings per share
C) Design flexibility
D) Product-related litigation

Question 20

A manufacturer of paint has two factories located in France and Spain and due to economic conditions must close one of them. The factory productivity data is as follows: $\begin{array}{lcc}&\text { Gallons of Paint } & \text { Total Costs } \\&\text { Produced }(1,000 \mathrm{~s}) & \text { (millions \$) }\\\text { Factory (Spain) } & 4,600,000 & \$ 5,250,000 \\\text { Factory (France) } & 4,000,000 & \$ 3,500,000\end{array}$
Based on the productivity analysis of both the factories, which of the following statements is true?

A) The factory in Spain is more productive than the factory in France.
B) Based solely on this productivity analysis, the factory in Spain must be closed.
C) Based solely on this productivity analysis, the factory in France must be closed.
D) Both factories have identical productivity levels. So, other criteria must be used to make this decision.

Question 21

In the value chain model, efficiency, cost, and cycle time are related to _____.

A) management processes
B) inputs
C) value-creation processes
D) outputs and outcomes

Question 22

In the Service-Profit Chain model, which of the following is viewed as an external performance?

A) Customer satisfaction
B) Volume flexibility
C) Cycle time
D) Employee productivity

Question 23

A manufacturer of business copier workstations has a 75 percent customer retention rate. Their accounting department estimates the incremental contribution to profit and overhead as 40 percent. Customers purchase the workstations every three years at an average cost of $1,500. The average value of a loyal customer is _____.

A) more than $200 and less than or equal to $300
B) more than $300 and less than or equal to $400
C) more than $400 and less than or equal to $500
D) more than $500

Question 24

_____ provide the basis for decisions at the level at which they are applied-the value chain, organization, process, department, workstation, job, and service encounter.

A) Contribution margins
B) Actionable measures
C) Smoothing factors
D) Standard deviations

Question 25

_____ have the primary responsibility to design and manage the processes and associated resources that create value for customers.

A) Operations managers
B) Testers
C) First-line supervisors
D) End users

Question 26

A retail store sells a popular cosmetic called Rochelle and the store manager is given $100,000 by the corporate office to improve store performance any way she thinks best. The "base case" information is a price of $30 per bottle, a contribution margin of 0.50, a customer defection rate of 17%, and a repurchase frequency of 3 times a year. If these improvement funds could be used to either (a) increase the contribution margin to 0.58 or (b) reduce the customer defection rate to 15% or (c) increase the repurchase frequency to 4 times per year, what is the best way to spend these improvement funds by answering the next two questions? (Assume all other variables remain at the base case level for each of the three improvement options.) VLC = P*CM*RF*BLC
You may want to use the table below to help organize your computations and answer.
$\begin{array}{|c|c|c|c|c|}\hline \begin{array}{c}\text { Price \& } \\\text { Improvement } \\\text { Option }\end{array} & \begin{array}{c}\text { Contribution } \\\text { Margin }\end{array} & \begin{array}{c}\text { Repurchase } \\\text { Frequency }\end{array} & \text { Defection Rate }&\text { VLV in } \$ \\\hline \$ 30 \text { (base case) } & 0.50 & 3 & 17 \%& \\\hline \$ 30 \text { (option a) } & & & \\\hline \$ 30 \text { (option b) } & & & \\\hline \$ 30 \text { (option c) } & & &\\\hline\end{array}$

-The value of a loyal customer (VLC) for improvement option (a) is _____.

A) less than or equal to $100
B) more than $100 and less than or equal to $200
C) more than $200 and less than or equal to $300
D) more than $300 and less than or equal to $400

Question 27

Which of the following performance perspectives in the balanced scorecard model measures the ultimate value that a business provides to its shareholders?

A) Financial perspective
B) Internal perspective
C) Learning perspective
D) External perspective

Question 28

A retail store sells a popular cosmetic called Devine and the store manager is given $300,000 by the corporate office to improve store performance any way she thinks best. The "base case" information is a price of $30 per bottle, a contribution margin of 0.50, a customer defection rate of 20%, and a repurchase frequency of 3 times a year. If these improvement funds could be used to either (a) increase the contribution margin to 0.60 or (b) reduce the customer defection rate to 12% or (c) increase the repurchase frequency to 4 times per year, what is the best way to spend these improvement funds? (Assume all other variables remain at the base case level for each of the three improvement options.) VLC = P*CM*RF*BLC
You may want to use the worksheet below to help organize your computations and answer of the question(s).
$\begin{array}{|c|c|c|c|c|c|}\hline \begin{array}{c}\text { Improvement } \\\text { Option }\end{array} & \text { Price } & \begin{array}{c}\text { Contribution } \\\text { Margin }\end{array} & \begin{array}{l}\text { Repurchase } \\\text { Frequency }\end{array} & \begin{array}{l}\text { Defection } \\\text { Rate }\end{array} &\text { VLC in } \$\\\hline \text { Base case } & \$ 30 & 0.50 & 3 & 20 \%& \\\hline(\mathrm{a}) & \$ 30 & & & \\\hline \text { (b) } & \$ 30 & & & \\\hline \text { (c) } & \$ 30 & & & \\\hline\end{array}$

-The value of a loyal customer (VLC) for improvement option (a) is _____.

A) more than $100 and less than or equal to $150
B) more than $150 and less than or equal to $200
C) more than $200 and less than or equal to $250
D) more than $250

Question 29

A coffee shop's average transaction price is $4 and its contribution margin is 60 percent. A typical customer makes a purchase once a week or 52 times per year, and the management estimates the value of the loyal customer over the buying life cycle as $720. The customer defection rate is _____.

A) less than or equal to 0.10
B) more than 0.10 and less than or equal to 0.15
C) more than 0.15 and less than or equal to 0.20
D) more than 0.20 and less than or equal to 0.25

Question 30

Which of the following performance perspectives in the balanced scorecard model includes measures like productivity, flow time, and asset utilization?

A) Financial perspective
B) Customer perspective
C) Innovation and learning perspective
D) Internal perspective

Question 31

A retail store sells a popular cosmetic called Devine and the store manager is given $300,000 by the corporate office to improve store performance any way she thinks best. The "base case" information is a price of $30 per bottle, a contribution margin of 0.50, a customer defection rate of 20%, and a repurchase frequency of 3 times a year. If these improvement funds could be used to either (a) increase the contribution margin to 0.60 or (b) reduce the customer defection rate to 12% or (c) increase the repurchase frequency to 4 times per year, what is the best way to spend these improvement funds? (Assume all other variables remain at the base case level for each of the three improvement options.) VLC = P*CM*RF*BLC
You may want to use the worksheet below to help organize your computations and answer of the question(s).
$\begin{array}{|c|c|c|c|c|c|}\hline \begin{array}{c}\text { Improvement } \\\text { Option }\end{array} & \text { Price } & \begin{array}{c}\text { Contribution } \\\text { Margin }\end{array} & \begin{array}{l}\text { Repurchase } \\\text { Frequency }\end{array} & \begin{array}{l}\text { Defection } \\\text { Rate }\end{array} &\text { VLC in } \$\\\hline \text { Base case } & \$ 30 & 0.50 & 3 & 20 \%& \\\hline(\mathrm{a}) & \$ 30 & & & \\\hline \text { (b) } & \$ 30 & & & \\\hline \text { (c) } & \$ 30 & & & \\\hline\end{array}$

-Which of the following is the best way to use the $300,000 in improvement funds?

A) Do nothing (stay with base case).
B) Improve option (a).
C) Improve option (b).
D) Improve option (c).

Question 32

A coffee shop's average transaction price is $4, and the contribution margin is 60 percent. A typical customer makes a purchase once a week or 52 weeks per year, and the management estimates the value of the loyal customer over the buying life cycle as $520. The customer defection rate is _____.

A) less than or equal to 0.10
B) more than 0.10 and less than or equal to 0.15
C) more than 0.15 and less than or equal to 0.20
D) more than 0.20 and less than or equal to 0.25

Question 33

Which of the following categories in Baldrige model of organizational performance addresses how an organization designs, manages, and improves its work systems to deliver customer value?

A) Leadership
B) Workforce focus
C) Customer focus
D) Operations focus

Question 34

A guest at Raphael's Four-Star Italian Restaurant generally spends $150 on a meal. Most of Raphael's customers are from nearby localities and eat at the restaurant twice a month. If the restaurant's margin is 60 percent, and a loyal customer is estimated to be worth $4,000, determine the average defection rate.

A) Less than or equal to 0.15
B) More than 0.15 and less than or equal to 0.20
C) More than 0.20 and less than or equal to 0.25
D) More than 0.25

Question 35

Identify the performance perspective in the balanced scorecard model that includes measures like intellectual and research assets, employee satisfaction, and skills development.

A) Financial perspective
B) Customer perspective
C) Innovation and Learning perspective
D) Internal perspective

Question 36

Which of the following categories of the Malcolm Baldrige National Quality Award Program examines how an organization fulfills its ethical, legal, and societal responsibilities, and supports its key communities?

A) Leadership
B) Strategic planning
C) Customer focus
D) Results

Question 37

A retail store sells a popular cosmetic called Rochelle and the store manager is given $100,000 by the corporate office to improve store performance any way she thinks best. The "base case" information is a price of $30 per bottle, a contribution margin of 0.50, a customer defection rate of 17%, and a repurchase frequency of 3 times a year. If these improvement funds could be used to either (a) increase the contribution margin to 0.58 or (b) reduce the customer defection rate to 15% or (c) increase the repurchase frequency to 4 times per year, what is the best way to spend these improvement funds by answering the next two questions? (Assume all other variables remain at the base case level for each of the three improvement options.) VLC = P*CM*RF*BLC
You may want to use the table below to help organize your computations and answer.
$\begin{array}{|c|c|c|c|c|}\hline \begin{array}{c}\text { Price \& } \\\text { Improvement } \\\text { Option }\end{array} & \begin{array}{c}\text { Contribution } \\\text { Margin }\end{array} & \begin{array}{c}\text { Repurchase } \\\text { Frequency }\end{array} & \text { Defection Rate }&\text { VLV in } \$ \\\hline \$ 30 \text { (base case) } & 0.50 & 3 & 17 \%& \\\hline \$ 30 \text { (option a) } & & & \\\hline \$ 30 \text { (option b) } & & & \\\hline \$ 30 \text { (option c) } & & &\\\hline\end{array}$

-Which of the following is the best way to use the $100,000 in improvement funds?

A) Do nothing (stay with base case).
B) Improve option (a)-increase the contribution margin to 0.58.
C) Improve option (b)-reduce the defection rate to 15%.
D) Improve option (c)-increase the repurchase frequency to 4.
E) Two improvement options have equal VLC dollars, so split the funds between the two tied improvement options.

Question 38

Of the four models of organizational performance, which two focus on the "big picture" of organizational performance rather than on the operational-level framework?

A) Baldrige Performance Excellence framework and the value chain model
B) Balanced scorecard and the Service-Profit Chain
C) Baldrige Performance Excellence framework and the balanced scorecard
D) The value chain model and the Service-Profit Chain

Question 39

A family rents videos from a local video store. On an average, they spend $80 a month. The store's contribution margin is 45 percent and the average customer defection is 40 percent. Determine the value of a loyal customer.

A) Less than or equal to $500
B) More than $500 and less than or equal to $1,000
C) More than $1,000 and less than or equal to $1,500
D) More than $1,500 and less than or equal to $2,000

Question 40

A computer manufacturer currently has a 15 percent customer defection rate. Their accounting department estimates the incremental contribution to profit and overhead as 30 percent. Customers purchase computers every four years at an average cost of $1,200. In an effort to reduce the defection rate, the company is improving both the quality of its computers and its post-sale service. Determine the value of a loyal customer if the defection rate drops to 5 percent.

A) Less than or equal to $500
B) More than $500 and less than or equal to $1,000
C) More than $1,000 and less than or equal to $1,500
D) More than $1,500 and less than or equal to $2,000

Question 41

The five dimensions of service quality measurement pertain to behavioral characteristics, which are easier to measure than physical and technical characteristics.

Question 42

Speed is usually measured in clock time, whereas variability is measured by quantifying the variances around average performance or targets.

Question 43

Reliability is the ability to perform a service dependably and accurately.

Question 44

Quality measures the degree to which the output of a process conforms to the management's expectations and requirements.

Question 45

Customer ratings of goods and services are quality performance measurements at an operational level.

Question 46

Order fulfillment time is an example of productivity and operational efficiency measurement.

Question 47

The Service-Profit Chain model focuses on _____.

A) employees
B) costs
C) volume flexibility
D) equipment utilization

Question 48

Employee satisfaction and employee turnover are examples of flexibility measures at an organizational level.

Question 49

Service measures should be closely linked to customer satisfaction so that they can form the basis for improvement efforts.

Question 50

Queue time is a fancy term for service time variance.

Question 51

Good customer satisfaction measurement systems are designed to provide information about a customer's future buying behavior.

Question 52

Identify a true statement about models of organizational performance.

A) The theory of the balanced scorecard states that leadership drives the system that creates business results.
B) The Service-Profit Chain model focuses on learning, internal business, customers, and financial performance.
C) The five performance perspectives of the balanced scorecard model are cost, time, quality, flexibility, and innovation.
D) The Service-Profit Chain model is based on a set of cause-and-effect linkages between internal and external performance.

Question 53

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

Question 54

Which one of the following statements is true of the models of organizational performance?

A) The theory of the Service-Profit Chain model is that employees, through the service delivery system, create customer value and drive profitability.
B) The five performance perspectives of the balanced scorecard model are cost, time, quality, flexibility, and innovation.
C) The external perspective in the balanced scorecard model includes value-creation and support processes.
D) The strategic planning category of Baldrige model focuses on reviewing data and using the results to improve the performance of an organization.

Question 55

Service-quality measures are based primarily on human perceptions of service collected from customer surveys, focus groups, and interviews.

Question 56

Return on assets is normally classified as a productivity measure at an organizational level.

Question 57

Budget variance is a financial performance measure at an organizational level.

Question 58

Assurance is the willingness to help customers and provide prompt recovery to service upsets.

Question 59

Errors in service creation and delivery are sometimes called service upsets.

Question 60

Empathy is the caring attitude and individualized attention provided to customers.

Question 61

The balanced scorecard model uses the same categories as the Baldrige Award.

Question 62

With interlinking models, managers can objectively make internal decisions that impact external outcomes.

Question 63

The value chain model is probably the dominant model for operations managers.

Question 64

Explain the difference between goods and service quality, and how they are measured.

Question 65

The primary purpose of the Malcolm Baldrige National Quality Award Program is to provide a framework for performance excellence through self-assessment to understand an organization's strengths and weaknesses, thereby setting priorities for improvement.

Question 66

The Malcolm Baldrige National Quality Award Program was created to help stimulate American organizations to improve quality, productivity, and overall competitiveness.

Question 67

As output decreases for a constant level of input, productivity also decreases.

Question 68

The theory of Baldrige Award states that leadership drives the system that creates results.

Question 69

Why is measurement important?

Question 70

Goods-producing and service-providing organizations both benefit from understanding the value of a loyal customer performance relationship.

Question 71

The value of a loyal customer quantifies the total revenue or profit each target market customer generates over the buyer's life cycle.

Question 72

The balanced scorecard is designed to be linked to an organization's strategy.

Question 73

The value chain model of organizational performance is based on a set of cause-and-effect linkages among performance measures.

Question 74

The customer defection rate is expressed as 1/customer retention rate.

Question 75

Describe the five key dimensions of assessing service quality.

Question 76

Productivity is the ratio of the input of a process to the output.

Question 77

What are the major categories of organizational performance measures? Provide two example measures for each category at an organizational level.

Question 78

The leadership category of the Baldrige Performance Excellence criteria includes how an organization addresses its public and community responsibilities.

Question 79

In the Baldrige Award criteria, the strategic planning category focuses on how an organization selects, gathers, analyzes, manages, and improves its data, information, and knowledge assets.

Question 80

Which one of the following statements is TRUE with regard to the case study BankUSA: Credit Card Division?

A) Service upsets represented 17 percent of total transactions.
B) Current performance reports indicate that the credit card division is meeting 99.2 percent of its service requirements.
C) The relationship between customer satisfaction and operating costs is negatively correlated.
D) The ultimate (real) service level for this organization is internal performance metrics.