Module 1 Section F Flashcards
Performance Management System
-system for collecting, measuring, and comparing a measure to a standard for a specific criterion for an operation, item, good, service, business, etc.
-consists of a:
1. criterion - metric such as a ratio
2. standard - established norm against which measurements are compared; established norm of productivity defined in terms of units of output per set time (units/hour) or in standard time (minuters per unit); time allowed to perform a specific job including quantity of work to be produced
3. measure - actual measurement that is made
Levels of Performance Metrics
-strategic - performance measurements relate to long-term goals such as profitability, productivity, learning, growth, market share; used to monitor progress/trends as they relate to overall company strategy and objectivies not day to day
-tactical - show progress toward medium-term goals needed to realize strategy e.g. budgets, production plans, manufacturing metrics like inventory turnover or perfect orders; tactical metrics are link between day to day ops. and executive level to ensure org. is aligned in accomplishing the desired goals/objectives
-operational - performance metrics relate to daily work progress; measure immediate short-term on hourly or daily basis
Key Performance Indicator (KPI)
-financial or nonfinancial measure used to define and assess progress toward specific organizational goals and typicall is tied to org’s strategy and business stakeholders
-should not be contradictory to other departmental or strategic business unit performance measures
-metric used to measure overall performance or state of affairs
-SCOR level 1 metrics considered KPIs
Global Measurements
-strategic performance measurements, which related to long-terms goals of business
Local Measures
-set of measurements that relates to a resource, operation, process or part, e.g. errors printed per page, departmental efficiency, volume discounts
KPI Tree
-chart that shows performance metrics in a hierarchy
-given performance objective is at top of tree –> next level down are categories of enabling objectives –> various global KPIs are listed –> below this are local performance measures –> standards or targets
Upside Supply Chain Flexibility
discrete measurement of amount of time it takes a supply chain to respond to unplanned 20% increase in demand without service or cost penalty
SCOR Metrics
-metrics measure ability of processes to achieves strategic objectives associated with performance attributes
-SCOR recognizes three levels of predefined metrics
1. level 1 metrics are diagnostics for overall health of supply chain
2. level 2 metrics serve as diagnostics for level 1 metrics
3. level 3 metrics serve as diagnostics for level 2 metrics
Strategic Level Metrics - Balanced Scorecard
-list of financial and operational measurements used to evaluate organizational or supply chain performance
-dimensions of a balanced scorecard might include:
1. customer perspective e.g. meet customer delivery or quality expectations
- business process perspective e.g. maximize plant XYZ capacity; minimize need for WIP rework
- financial perspective e.g. maximize plant XYZ efficiency; minimize finished goods inventory
- innovation & learning perspectives e.g. plant XYZ can withstand economic downturns; workforce flexes to relieve bottlenecks
-formally connects overall objectives, strategies, and measurements
-each dimension has goals and measurements
Financial Ratios
-usually categorized into 5 groups:
1. liquidity
2. activity
3. leverage
4. profitability
5. market value
-measure an org’s ability to liquidate short-term assets and therefore satisfy its short-term debts and obligations
-org with good liquidity ratios has cash resources to survivie minor shocks and interruptions, such as an increase in price of raw materials or a temporary decline in sales or capacity
-poor liquidity ratios are a bad sign to a lender or supply chain partner –> a sign that org. may not be able to meet its debt obligations or pay its bills
-liquidity measures relate strongly to csh flows, specifically to maintaining positive net operating cash flows (difference between cash inflow and cash outflow for a given period)
-two key liquidity ratios:
1. current ratio - current assets divided by current liabilities
2. quick asset ratio - current assets minus inventory divided by current liabilities (removes inventory from calculation since it takes longer to convert to cash)
Activity Ratios
-show the efficiency with which org. has used its assets to produce value
-inventory turnover:
* # of times that an inventory cycles or turns over during the year; frequently used metod to compute inventory turnover is to dividie the annual cost of sales by avg. inventory level
- reflects average amount of time an org. holds inventory before inventory generates income
-higher ratio indicates inventory is sold and replenished more quickly; org. is not tying up its cash in excessive amounts of inventory
-temporary effects of sales promotions and advance discounted purchases of supplies should be taken into consideration when using this ratio
Leverage Ratios
-in business 2 levers that can be used to multiply effectiveness of owner investments are debt and fixed costs
*** debt costs **create financial leverage because it increases financial resources without diluting owner investment
fixed costs (e.g. fixed assets such as facilities) can be leveraged to create more output (operating leverage) –> good up to a point if able to break even
-leverage ratios also measure org’s solvency (its ability to satisfy its long term debt)
-example of leverage ratio is debt ratio, which measures proportion of total liabilities to total assets
Profitability Ratios
-org’s profit margin measures proportion of net income to net sales –> reflects effectiveness of org’s pricing, its cost structure and its production efficiency
-return on investment (ROI) ratios indicate degree to which an investment returns a profit
Market Value Ratio
-used to analyze attractivenss of an org’s stock to actual or potential investors
-earnings per share (EPS) calculates amount of net income distributed to holders of common stock (higher than avg. EPS indicated well performing investment)
