Business Performance Measures
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Transcript of Business Performance Measures
Value Chain Analysis
Definition
Interlinked value-
adding activities that convert inputs
into outputs which, in turn, add to
the bottom line and help create
competitive advantage.
Linked set of activities all the way
from basic material sources for
components suppliers through the
ultimate end-use product or service
delivered to the customer.
• A value chain analysis allows firms to understand the parts of its operations that create value and those that do not.
• Primary activities are directly concerned with creating and delivering a product. It involved a product’s physical creation, sales and distribution to buyers and after sales service.
• Support activities provide the assistance necessary for the primary activities to take place. Even though it is not directly involved in production, it may increase the effectiveness or efficiency of the processes.
• Primary activities consist of
inbound distribution or logistics,
manufacturing operations,
outbound distribution or
logistics, marketing and selling
and after sales service.
• Primary activities are supported
by purchasing or procurement,
research and development,
human resource development
and corporate infrastructure.
• If primary and support activities
are not the source of core
competence therefore the
company can outsource these
activities.
All those activities concerned with receiving and
storing externally sourced materials.
The manufacture of products and services - the way in
which resource inputs (e.g. materials) are converted
to outputs (e.g. products)
All those activities associated with getting finished
goods and services to buyers.
Essentially an information activity - informing buyers
and consumers about products and services (benefits,
use, price etc.)
All those activities associated with maintaining
product performance after the product has been sold.
Primary Activities
Procurement
This concerns how resources are acquired for a
business (e.g. sourcing and negotiating with
materials suppliers)
Human
Resource
Management
Those activities concerned with recruiting,
developing, motivating and rewarding the
workforce of a business.
Technology
Development
Activities concerned with managing information
processing and the development and protection of
"knowledge" in a business.
Infrastructure
Concerned with a wide range of support systems
and functions such as finance, planning, quality
control and general senior management.
Support Activities
• A value chain analysis is used to
analyze, coordinate and optimize
linkages in the value chain.
• Coordinating the individual parts
of the value chain together
creates the conditions to improve
customer satisfaction particularly
in terms of cost efficiency,
quality and delivery.
• A firm which performs the value
chain activities more efficiently
and at lower cost than its
competitors will gain a
competitive advantage.
• It consists a system of
interdependent activities in which
the performance of one activity
affects the performance and cost
of other activities.
• A linkage occurs when
interdependence exists between
activities and the higher the
interdependence between activities
the greater is the required
coordination.
• Whatever activities that a business
undertakes are directly linked to
achieving competitive advantage. For
example, a business which wishes to
outperform its competitors
through differentiating itself through
higher quality will have to perform its
value chain activities better than the
opposition. By contrast, a strategy
based on seeking cost leadership will
require a reduction in the costs
associated with the value chain
activities, or a reduction in the total
amount of resources used.
1. Value chain is a very flexible
strategy tool for looking at the
company’s business, the
competitors and the respective
places in the industry’s value
system.
2. The value chain can be used to
diagnose and create competitive
advantages on both cost and
differentiation.
3. It helps to understand the
organization issues involved with
the promise of making customer
value commitments and promises
because it focuses attention on
the activities needed to deliver the
value proposition.
Advantages
4. Comparing the company’s
business model with the
competitors using the value chain
can give the company a much
deeper understanding of its
strengths and weaknesses to be
included in the SWOT analysis.
5. The value chain is well known and
has been a mainstay of strategy
teaching in business schools for
the last 20 to 25 years. The
book, competitive advantage was
published in 1985.
6. It can be adapted for any type of
business – manufacturing, retail
or service, big or small.
Advantages
1. The format of the value chain
laid out in Porter’s
book Competitive Advantage,
is heavily oriented to a
manufacturing business and
the language can be off-putting
for other types of business.
2. The scale and scope of a value
chain analysis can be
intimidating. It can take a lot of
work to finish a full value chain
analysis for the company and
for the main competitors so
that the company can identify
and understand the key
differences and strategy
drivers.
Disadvantages
3. Many people are familiar with
the value chain but few are
experts in its use.
4. The value chain idea has been
adopted by supply chain and
operations experts and
therefore its strategic impact
for understanding, analyzing
and creating competitive
advantage has been reduced.
5. Business information systems
are often not structured in a
way to make it easy to get
information for value chain
analysis.
Disadvantages
Electronic Commerce, MRP and ERP
E-commerce
• Electronic commerce or e-commerce is a term for any type of business, or commercial transaction, which involves the transfer of information across the Internet.
• E-commerce has provided the potential to develop new ways of doing things that have enabled considerable cost savings to be made from streamlining business processes and generating extra revenues from on-line sales facilities.
Impact
Consumers will be more sensitive in
buying products or services.
Development of electronic
marketplaces.
-supplies and demands
E-commerce ought to lead to intensified price
competition.
Larger firms have grown to the expense of
smaller ones.
Types of business
Pure Click
• Those businesses that have launched a website without any previous existence as a firm.
Brick and Click
• Those existing companies that have added an online site for e-commerce. They are more skeptical whether or not to add online e-commerce channel.
Linkages
Business to Business (B2B)
• Activities that take place between a business and its suppliers or customers.
Business to Customer (B2C)
• Exchanges between business and its non-business customers.
Materials Requirement Planning
• A computerized approach for coordinating the planning of materials acquisition and production.
• An MRP system is intended to simultaneously meet three objectives: – Ensure materials are available for production and products
are available for delivery to customers.
– Maintain the lowest possible material and product levels in store.
– Plan manufacturing activities, delivery schedules and purchasing activities.
Features
Estimation of the quantity and timing of
finished goods demanded
Determine the requirements for components/sub-
components at each of the prior stages of
production.
Basis for determining the quantity and
timing of purchased materials and any
bought-in components
Operation
Master Production
File
• It specifies both the timing, and quantity demanded of each of the finished goods items.
Bill of Materials
File
• Specifies the components/sub-components and materials required for each finished product.
Master Parts File
• Containing planned lead items of all items to be purchased and internally produced components.
Inventory File
• Each item of material and component/sub-component containing details of the current balance available, scheduled orders and items allocated to production but not yet drawn from stocks.
The major problem
• The integrity of data.
• Data integrity is also affected
by inaccurate cycle count
adjustments, mistakes in
receiving materials, scrap not
reported, production reporting
errors, and system issues.
Solutions
• Bill of material - The best
practice is to physically verify
the bill of material either at the
production site or by un-
assembling the product.
• Cycle count - The best practice
is to determine why a cycle
count that increases or
decreases inventory has
occurred. Find the root cause
and correct the problem from
occurring again.
Solutions
• Scrap reporting - Start with
isolating the scrap by providing
scrap bins at the production site
and then record the scrap from
the bins on a daily basis.
• Production reporting - The best
practice is to use bar code
scanning to enter production
into inventory. Product that is
rejected should be moved to an
MRB (Material Review Board)
location.
Benefits
Reduced Inventory
Levels
Reduced Component Shortages
Improved Shipping
Performance
Improved Productivity
Simplified and Accurate Scheduling
Improve Production Schedules
Reduced Lead Times
Less Scrap and Rework
Higher Production
Quality
Enterprise Resource Planning
• It comprises a set of integrated software application modules
that aim to control all information flows within a company.
• All the modules are fully integrated in a common database and
users can access real-time information on all aspects of
business.
• Its purpose is to facilitate the flow of information between all
business functions inside the boundaries of the organization
and manage the connections to outside stakeholders.
Benefits
• Integrate financial information.
• ERP creates a single version of the
truth that cannot be questioned
because everyone is using the same
system.
• Integrate customer order
information.
• ERP systems can become the place
where the customer order lives from
the time a customer service
representative receives it until the
loading dock ships the merchandise
and finance sends an invoice.
Benefits
• Standardize and speed up
manufacturing processes.
• ERP systems come with standard
methods for automating some of
the steps of a manufacturing
process. It can save time, increase
productivity and reduce head count.
• Standardize HR information.
• Especially in companies with
multiple business units, HR may not
have a unified, simple method for
tracking employees’ time and
communicating with them about
benefits and services.
Benefits
• Reduce inventory.
• ERP helps the manufacturing
process flow more smoothly, and it
improves visibility of the order
fulfillment process inside the
company.
• That can lead to reduced inventories
of the stuff used to make products
and it can help users better plan
deliveries to customers
Problems
You’ve got a bad
system. This category includes ERP
processes that don't match business
processes
You've got a good
system, but you set it
up incorrectly. These problems include incorrect
configuration settings and other
problems with how the
implementation was performed.
Problems
You've got a good
system, but you're
using it ineffectively.
In this category, I lump together all
kinds of problems with business
practices, such as data inaccuracy,
lack of user procedures, lack of
training, lack of discipline, and
organizational problems.
CAD/CAM Robotics
Computer Aided Design
• CAD is the use of computer technology for the
process of design and design-documentation.
• It is commonly used by engineers and architectures
because CAD has shortened time taken for the initial
design stage of a product.
• CAD software is used for nearly all three-dimensional
and 2D designing. Objects created with CAD software
can be moved, resized, and rotated instantly.
Computer Aided Manufacturing
• CAM is the use of computer software to control machine tools
and related machinery in the manufacturing of work pieces.
• Significant elements of CAM are Computer Numerical Control
(CNC) and robotics.
• CAM software converts 3D models generated in CAD into a set
of basic operating instructions written in G-Code.
– G-code is a programming language that can be understood by numerical
controlled machine tools and the G-code can instruct the machine tool to
manufacture a large number of items with perfect precision and faith to
the CAD design.
Benefits
• Enables manufacturers to
reduce the costs of producing
goods.
• CAM is not time consuming.
• CNC machines are able to
repeat the same operation
continuously in an absolutely
identical manner.
Problem
• The setting up of infrastructure
to begin with can be extremely
expensive.
• Numerical controlled machine
tools.
• CAD/CAM software and
hardware to develop the design
models.
• Training operatives or
employees to run the
machines.
Business Process Re-engineering vs Continuous Improvement
BPR CI
Radical redesign
of business
processes
Used with ABM
Constant effort to
improve methods
Used with TQM,
Benchmarking
BPR Steps…
e.g. process of filling a customer order
in a metal castings production company
Pattern design
Moulding
Metal melting
Finishing
Sales and
dispatch
Administration
ABC - ABM
Activities and Processes
Value analysis and Cost
driver analysis
Root cause cost driver
CI Steps…
Defined loosely: orders delivered within
20 minutes after
Defined more tightly: complete orders delivered
within 20 minutes after orders are made
More challenging target: a series of monthly targets
that gradually reduces targeted delivery time
e.g. pizza home
delivery services
of a pizza restaurant
Relevant
performance
measures:
• Delivery time (as e.g.)
• Cost of making a
delivery
• Quality of product as
it has been delivered
Defined loosely: orders delivered within
20 minutes after
Defined more tightly: complete orders delivered
within 20 minutes after orders are made
More challenging target: a series of monthly targets
that gradually reduces targeted delivery time
e.g. pizza home
delivery services
of a pizza restaurant
Relevant
performance
measures:
• Delivery time (as e.g.)
• Cost of making a
delivery
• Quality of product as
it has been delivered
CI with TQM
CI with Benchmarking