3 a manufacturing company has been plagued by the

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3. A manufacturing company has been plagued by the chronic failure to ship orders to customers by the promised do date. To solve this problem, the production manager has been given the responsibility of increasing the percentage of orders shipped on time. When a customer calls in an order, the production manager and the customer agreed to a delivery date. If the order is not completed by that day, it is counted as a late shipment. In real life, the production manager simply added several weeks to the delivery cycle time. In other words, instead of promising to deliver an order in four weeks, the manager promise to deliver in six weeks. This increase in delivery cycle time did not, of course, please customers and drove some business away, but it dramatically improved the percentage of orders delivered on time. 4. Concerned with the productivity of employees, the Board of Directors of a large multinational corporation has dictated that the manager of each subsidiary will be held responsible for increasing the revenue per employee of his or her subsidiary. As stated above, ratios can be improved by changing either the numerator or the denominator. Managers who are under pressure to increase the revenue per employee may find it easier to eliminate employees than to increase revenues. Of course, eliminating employees may reduce total revenues and total profits, but the revenue per employee will increase as long as the percentage decline in revenues is less than the percentage cut in number of employees. Suppose, for example, that a manager is responsible for business units with a total of 1,000 employees, $120 million in revenues, and profits of $2 million. Further suppose that a manager can eliminate one of these business units that has 200 employees, revenues of $10 million, and profits of $1.2 million. Before After Eliminating Eliminating the Business the Business Unit Unit Total revenue $120,000,000 $110,000,000 Total employees 1,000 800 Revenue per employee $120,000 $137,500 Total profits $2,000,000 $800,000 As these examples illustrate, performance measures should be selected with a great deal of care. Managers should avoid placing too much emphasis on any one performance measure.
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Problem 11-22 Internal Business Process Performance Measures Given: Exeter Corporation has recently begun a continuous improvement campaign. As a consequence, there have been many changes in operating procedures. Progress has been slow, particularly in trying to develop new performance measures for the factory. Management has been gathering the following data over the past four months: Months Quality control measures: 1 2 3 4 Customer complaints as a % of units sold 1.40% 1.30% 1.10% 1.00% Warranty claims as a % of units sold 2.30% 2.10% 2.00% 1.80% Defects as a % of units produced 4.60% 4.20% 3.70% 3.40% Material control measures: Scrap as a % of total cost 3.20% 2.90% 3.00% 2.70% Machine performance measures: Percentage of machine availability 80% 82% 81% 79% Use as a percentage of availability 75% 73% 71% 70% Average setup time (hours) 2.7 2.5 2.5 2.6 Delivery performance measures: Throughput time ? ? ? ?
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