Organizations use both nonfinancial performance measures and financial performance measures in evaluating management performance. While financial measures help senior managers understand the results of what other managers in the organization do, they do not measure specifically what drives organizational performance. For example, sales volume and revenue measurements are good ways to summarize the results of efforts that focus on increasing sales of a product within an organization. They do not, however, detail what specific efforts led to the increase in sales. Did sales increase because marketing did a better job of presenting the product to customers? Or did product quality increase, making the product more attractive to the buying public? Maybe sales increased because the company became better at customer service and faster at shipping out customer orders, allowing for more sales volume. Financial performance measures will not capture this level of detail, but operations performance measures will.
Operations performance measurement is a combination of qualitative and quantitative evidence that shows progress toward achieving specific defined organizational goals. There are three primary operating performance measures that many organizations use.The first measurement is throughput time, which is a manufacturing cycle measurement that details how long it takes to manufacture a product from the start of production until the product ships.
- Process time is how long it takes to go from raw materials to a finished product.
- Inspection time is how long it takes to make sure a product meets quality standards. A company may inspect raw materials, partly finished products, and products that are ready to sell. There may be multiple inspections of the same product at different stages.
- Move time refers to how long it takes for a product to go into and out of the production area and from stage to stage as it is being manufactured. For instance, a product may need to sit for a specified period to allow parts to cool off or paint or varnish to dry.
- Queue time refers to the length of time a product sits in a warehouse or other storage facility before the company ships it to a customer.