The The ten tende denc ncy y to cut cut cos costs ts in in a way way that that und under erm mines ines demand for the product or service.
Dif Differen erenti tiat atio ion n
The The firm firm’s ten tendency ency to to und underm ermine its its stren strengt gth h by attempting to lower costs or by lacking a continual and aggres aggressi sive ve marke marketi ting ng plan plan to reinf reinforc orcee the the perceived perceived diffe differenc rence. e.
Focus
The ma market ni niche may su suddenly disappear du due to to technological change in the industry or change in consumer tastes.
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The balance balanced d scorecard scorecard is an accounti accounting ng report report that includ includes es the firm’ firm’ss critical critical success success factors in four areas! custom customer er satisfactio satisfaction" n" financial financial performance" performance" internal internal business business processes" processes" and innovatio innovation n and learning learning #human resources$. The primary ob%ective of the balanced scorecard is to serve as an action plan" a basis for implementing the strategy e&pressed in the critical success factors.
'.
The balanced balanced score scorecard card is import important ant to integra integrate te both both financia financiall and non( non( financi financial al inform informatio ation n into into managem management ent reports. reports. Financia Financiall measures measures reflect reflect only a partial( partial( and short(term short(term measure measure of the firm’s firm’s progress progress.. )ithout strategic non(financial information" the firm is likely to stray from its competitive course and to make strategically wrong product decisions decisions * to choose choose the wrong products" products" the wrong customers. customers. The balanced scorecard provides provides a basis for a more complete complete analysis than is possible possible with financial financial data alone.
+.
,n analys analystt can incorporat incorporatee other other factors factors such as the growt growth h in the overa overall ll market and reductions in selling prices resulting from productivity gains into into a strategic strategic analys analysis is of operatin operating g income. income. To do so" the analyst analyst attributes attributes the sources sources of operatin operating g incom incomee changes changes to the particular factors of interests. For e&le" the analyst analyst will combine combine the the operating income effects of strategic price reductions and any resulting growth with 23-1
the productivity component to evaluate a company’s cost leadership strategy. -.
, company’s balanced scorecard should be derived from and support its strategy. ince different companies have different strategies" their balanced scorecards should be different.
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The difference between the delivery cycle time and the throughput time is the waiting period between when an order is received and when production on the order is started. The throughput time is made up of process time" inspection time" move time" and 0ueue time. These four elements can be classified between value(added time #process time$ and non(value(added time #inspection time" move time" and 0ueue time$.
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The balanced scorecard is constructed to support the company’s strategy" which is a theory about what actions will further the company’s goals. ,ssuming that the company has financial goals" measures of financial performance must be included in the balanced scorecard as a check on the reality of the theory. If the internal business processes improve" but the financial outcomes do not improve" the theory may be flawed and the strategy should be changed.
2.
If a company has an 3C4 of less than 1" it means the production process includes non(value(added time. ,n 3C4 of 5.+5" for e&le" would mean that +56 of the throughput time consists of actual processing" and that the other /56 consists of moving" inspection" and other non(value( added activities.
II. Problem (Measures of Internal Business ro!ess erfor"an!e# Requirement 1 a" b" and c
Month 1
Throughput time in days! 7rocess time................................................. 5./ .. Inspection time............................................... 5. 3ove time...................................................... 5.8ueue time..................................................... './ Total throughput time..................................... -.+ 3anufacturing cycle efficiency #3C4$!
11.16 9.+6 7rocess time ÷ Throughput time............................................................. ...
1.26
1'.26
-.' '.9 9.
+. .9 ./
Delivery cycle time in days! )ait time........................................................ 9./ 2. Total throughput time..................................... -.+ -.' Total delivery cycle time................................. 1-.5 1+.5 Requirement 2
The general trend is favorable in all of the performance measures e&cept for total sales. :n(time delivery is up" process time is down" inspection time is down" move time is basically unchanged" 0ueue time is down" manufacturing cycle efficiency is up" and the delivery time is down. 4ven though the company has improved its operations" it has not yet increased its sales. This may have happened because management attention has been focused on the factory * working to improve operations. ;owever" it may be time now to e&ploit these improvements to go after more sales * perhaps by increased product promotion and better marketing strategies. It will ultimately be necessary to increase sales so as to translate the operational improvements into more profits. Requirement 3 a and b Month 5
6
Throughput time in days! 7rocess time................................................... Inspection time............................................... 3ove time...................................................... 8ueue time..................................................... Total t hroughput time.....................................
5.+ 5.' 5.-
5.+
1.
5.9
3anufacturing cycle efficiency #3C4$! 7rocess time ÷ Throughput time..................
''.'6
++.+6
5.-
,s a company pares away non(value(added activities" the manufacturing cycle efficiency improves. The goal" of course" is to have an efficiency of 1556. This will be achieved when all non(value(added activities have been eliminated and process time e0uals throughput time. 23-3
