T2-4: Enterprise performance Chin-Sheng Chen Florida International University

T2-4: Enterprise performance Performance measure types Performance measure types –Cost –Lead time –Quality –Benefit (profit)

The ESE Framework – Re-visit Enterprise element WorkDecisionResourceInformation System facet Strategy Competency (capability) CapacityStructure Engineering activity SpecificationAnalysisDesign implementat ion Performance measure QualityTimeCost Benefit (profit)

Readings & References Readings: Readings: –HEA: Reference Reference –Strategy Maps by Robert Kaplan and David Norton, HBS Press, 2004

Performance measure Foundation for performance measure Foundation for performance measure –Mission>value>vision>strategy (game plan)>strategy map (implementation plan)>performance measure

Performance measure Performance measure levels Performance measure levels –At corporate level (financial perspective) Core performance indicators (CPI) Core performance indicators (CPI) –At division (profit center) level (customer perspective) Key performance indicators (KPI) Key performance indicators (KPI) –At dept. (cost center) level (internal process perspective) Department performance indicators (DPI) Department performance indicators (DPI) – –At individual level (learning & growth perspective) Personal performance indicators (PI) Personal performance indicators (PI)

Performance measure CPI: From financial perspective for long-term shareholder value CPI: From financial perspective for long-term shareholder value –Strategy types Productivity strategy Productivity strategy –Improve cost structure Measures: cash expense reduction, defect elimination, yield improvement Measures: cash expense reduction, defect elimination, yield improvement –Increase asset utilization Measures: resource utilization, bottleneck elimination Measures: resource utilization, bottleneck elimination Growth strategy Growth strategy –Expand revenue opportunities Measures: new revenue sources (new products, markets, partners) Measures: new revenue sources (new products, markets, partners) –Enhance customer value Measures: profitability improvement (of existing customers) Measures: profitability improvement (of existing customers)

Performance measure KPI, From customer perspective – –Customer value proposition Product attributes: price, quality, availability, selection, and functionality Relationship: service and partnership Image: brand – –Cost-related strategy Measures: lowest cost supplier, – –Quality related strategy Measures: product performance, quality consistency, quality of solution to customer, – –Time related strategy Measures: availability, first to market, response time – –Benefit related strategy Measures: high switching cost to customers, customer retention, customer’s product lifetime profitability

Performance measure KPI Example KPI Example –Cost-related Meting target revenue Meting target revenue Indirect cost ratio Indirect cost ratio Labor resource utilization Labor resource utilization Direct/indirect labor ratio Direct/indirect labor ratio Equipment resource utilization Equipment resource utilization –Quality related CDR CDR Rework counts Rework counts T1 accomplishment rate T1 accomplishment rate # of Tests to delivery # of Tests to delivery Accomplishment rate Accomplishment rate –Time related Quotation/EC turnaround time Quotation/EC turnaround time In-time delivery In-time delivery –Benefit/goodwill Industrial safety Industrial safety Customer satisfaction Customer satisfaction

Performance measure DPI, from internal process perspective (1) DPI, from internal process perspective (1) –For operations management processes Supply Supply Production Production Distribution Distribution Risk management Risk management –For customer management processes Selection Selection Acquisition Acquisition Retention Retention growth growth

Performance measure DPI, from internal process perspective (2) DPI, from internal process perspective (2) –For innovation processes Opportunity ID Opportunity ID R&D portfolio R&D portfolio Design and development Design and development Launch Launch –For regulatory and social processes Environment Environment Safety and health Safety and health Employment Employment community community

Performance measure DPI, from learning and growth perspective DPI, from learning and growth perspective –For human resource Skills Skills Training Training Knowledge Knowledge –For information Systems Systems Database Database Network Network –For organization structure Culture Culture Alignment Alignment Leadership Leadership Teamwork Teamwork

Performance measure DPI, a generic example DPI, a generic example –Cost-related Sales, overhead, gross profit, average revenue per head count, worker & machine utilization Sales, overhead, gross profit, average revenue per head count, worker & machine utilization –Quality-related Number of try-outs, rework, IPQC, first article quality, product quality at shipping. Number of try-outs, rework, IPQC, first article quality, product quality at shipping. –Time-related Turnaround time Turnaround time –Benefit related Customer satisfaction Customer satisfaction

Performance measure DPI, specific example – production engineering DPI, specific example – production engineering –Department overall performance From sub-departments and/or From sub-departments and/or From all workers in the dept. From all workers in the dept. –Organization Resources readiness (counts) Resources readiness (counts) Resources readiness (competence) Resources readiness (competence) –Individual (head) Planning capability (% of work planned) Planning capability (% of work planned) TQM/6-sigma project TQM/6-sigma project Patent application Patent application Employee training Employee training Industrial safety Industrial safety

Performance measure PI, varying by individual’s functionality (& personal objectives) PI, varying by individual’s functionality (& personal objectives) –Cost-related Resources uptime Resources uptime Resources utilization Resources utilization Expense and overhead Expense and overhead –Quality-related Work quality Work quality Re-work rate Re-work rate –Time-related In-time work completion In-time work completion Response time Response time –Benefit related Customer satisfaction Customer satisfaction

Performance measure PI, an Example PI, an Example –For a machining worker Equipment uptime Equipment uptime In-time work completion In-time work completion Work quality Work quality Tooling consumption rate Tooling consumption rate Equipment utilization Equipment utilization –CAD/CAM worker Program error Program error In-time work completion In-time work completion Tooling consumption rate Tooling consumption rate Equipment utilization Equipment utilization –For a design worker In-time work completion In-time work completion Design change rate Design change rate Design for manufacturability Design for manufacturability

Performance measure Specific PI example – production engineer Specific PI example – production engineer –MPI accomplishment counts –EC accomplishment rate –Test accomplishment rate –Test counts to delivery –Work load –6 sigma –Training –Industrial safety

T7: Exercise Design a DPI and PI and justify your design for: Design a DPI and PI and justify your design for: –A machining department, or –An FIU academic department (say, ISE) The design should include, for each indicator The design should include, for each indicator –its name, formula, target value, data source, frequency, and weight. Due: Next Week Due: Next Week

Comments on T7 HW Each performance measure is a formula or model. It should be quantitative and thus objective. Each performance measure is a formula or model. It should be quantitative and thus objective. A target value can be a number, or a range. A target value can be a number, or a range. The measured value and target value of each performance measure forms the basis for its performance (rating). The measured value and target value of each performance measure forms the basis for its performance (rating).