Chapter 20Organizing for improvement

• Performance measurement (pp.606- mid 608)• Table 20.1 "some typical partial measures of performance", p.608• Benchmarking, p. 611

Performance measurement (pp.606- mid 608)

• Performance measurement is the activity of measuring or assessing the various aspects of a process or whole operations performance.

• It is process of quantifying actions.• Measurement is the quantification • Performance can be defined as the degree at which an

operations fulfills the five performance objectives.• The performance objectives are also known as the

dimensions of over all performance that satisfy customers.

Three main issues of performance measurement

1. What factors to include as performance measures.We use five generic performance objectives, ( quality, speed, dependability, flexibility and cost). These are further broke down into more detailed measures or can be aggregated as composed measures such as over all customer satisfaction, service level operations agility, etc.(p-607)

2. Which are the most important performance measures.( key performance Indicator KPI). Defining Kpi is to achieve the balance between few key measures( straight forward and simple but not reflect the full range of organizational objectives) and details measures( complex and difficult to manage but capable to convey many degrees of performance)

3. What detailed measure to use.

Table 20.1 "some typical partial measures of performance", p.608

Performance objectives Some typical measures

Quality No. of defects/unit. Level of customer complaints, scrap level, warranty claims, mean time between the failure, customer satisfaction score

Speed Customer quarry time, order lead time, frequency of delivery, actual versus theoretical throughput time, cycle time

Dependability % or orders delivered late, avg. lateness of order, proportion of products in stock, Mean deviation of promised arrival

Flexibility Time need to develop new product/service, range of product and services, machine change over time, avg. batch size, avg capacity/maximum capacity.

Cost Variance against budgets, utilizations of resources, labor productivity, added value, efficiency, min delivery time/ avg delivery time.

Benchmarking, p. 611

• Benchmarking is the process of learning from others and involves comparing one1s own performance or methods against other comparable operations.

Types of benchmarking• There are many different types of benchmarking.

– Internal benchmarking - Internal benchmarks are likely to be set by looking at historical performance or performances achieved by different branches or divisions. If last period’s actual results showed that it took 12 minutes to produce each unit, then it might be valid to set a benchmark of 11.5 minutes for the next period. Similarly, if the best branch achieved a net profit percentage of 15%, then that might be a valid target to set all branches.

– External benchmarking-For companies that have performed internal benchmarking and want to investigate new ways in which to improve performance of their internal processes, external benchmarking can produce significant improvements. Many companies believe that their processes are as efficient as possible, but quite often, the efficiencies are limited by the knowledge within the company. The external benchmarking process takes a company outside of its own industry and exposes them to different methods and procedures.

– Non- competitive benchmarking-(external organization do not compete directly in same market)• Hospitals comparing their asset utilization practices (beds, operating

theatres, etc.)• against those of industry Manufacturers comparing logistics against

those of fast moving consumer goods retailers.• Airlines comparing changeover practices (air-to-air time at airports)

with fast set-up time manufacturing– Competitive benchmarking:- Competitive benchmarking is where we

wish to discover what our company’s performance is compared with an immediate competitor. This can be across the entire spectrum of business comparators, i.e., finance, products and services, organization, technology, research and development, personnel policies, etc.

Examples of competitor benchmarking can be seen in aircraft turnaround times (how long the aircraft is on the ground between flights) and the load factor (what percentage of seats are occupied) for different airlines.

– Performance benchmarking.it is the comparison between the levels of achieved performance in different operations for examples an operation might compare its own performance in terms of performance objectives with other organizations performance in same dimensions( quality, speed, dependability, flexibility and cost).

– Practice bench marking. It is the comparison of organizations operation practices or way of doing things. In this approach, rather than comparing entire organizations, the individual activities of an organization are compared to those activities in other organizations where the activities are carried out really well.

So, it would be valid for a telephone-based bank to compare its call answering times to those in an organization in a different sector that had a very good reputation in dealing promptly with phone calls

Benchmarking as an improvement tool