Cost Accounting (14th Edition)

682 CHAPTER 19 BALANCED SCORECARD: QUALITY, TIME, AND THE THEORY OF CONSTRAINTS
On-time performance is delivery of a product or service by the time it is scheduled to
be delivered. Consider Federal Express, which specifies a price per package and a next-day
delivery time of 10:30 A.M. for its overnight courier service. Federal Express measures
on-time performance by how often it meets its stated delivery time of 10:30 A.M. On-time
performance increases customer satisfaction. For example, commercial airlines gain loyal
passengers as a result of consistent on-time service. But there is a trade-off between a customer’s
desire for shorter customer-response time and better on-time performance.
Scheduling longer customer-response times, such as airlines lengthening scheduled arrival
times, displeases customers on the one hand but increases customer satisfaction on the
other hand by improving on-time performance.
Bottlenecks and Time Drivers
Managing customer-response time and on-time performance requires understanding the
causes and costs of delays that occur, for example, at a machine in a manufacturing plant
or at a checkout counter in a store.
A time driver is any factor that causes a change in the speed of an activity when the
factor changes. Two time drivers are as follows:
1. Uncertainty about when customers will order products or services. For example, the
more randomly Airbus receives orders for its airplanes, the more likely queues will
form and delays will occur.
2. Bottlenecks due to limited capacity. A bottleneck occurs in an operation when the
work to be performed approaches or exceeds the capacity available to do it. For
example, a bottleneck results and causes delays when products that must be
processed at a particular machine arrive while the machine is being used to process
other products. Bottlenecks also occur on the Internet, for example, when many users
try to operate wireless mobile devices at the same time (see Concepts in Action,
p. 684). Many banks, such as Bank of China; grocery stores, such as Krogers; and
entertainment parks, such as Disneyland, actively work to reduce queues and delays
to better serve their customers.
Consider Falcon Works (FW), which uses one turning machine to convert steel bars into a
special gear for planes. FW makes this gear, which is its sole product, only after customers
have ordered it. To focus on manufacturing cycle time, we assume FW’s receipt time and
delivery time are minimal. FW’s strategy is to differentiate itself from competitors by
offering faster delivery. The company’s manager is examining opportunities to sell other
products to increase profits without sacrificing the competitive advantage provided by
short customer-response times. The manager examines these opportunities using the fivestep
decision-making process introduced in Chapter 1.
Step 1: Identify the problem and uncertainties. FW’s manager is considering introducing
a second product, a piston for pumps. The primary uncertainty is how the introduction of
a second product will affect manufacturing cycle times for gears.
Step 2: Obtain information. The manager gathers data on the number of orders for
gears FW has received in the past, the time it takes to manufacture gears, the available
capacity, and the average manufacturing cycle time for gears. FW typically receives
30 orders for gears, but it could receive 10, 30, or 50 orders. Each order is for 1,000 units
and takes 100 hours of manufacturing time (8 hours of setup time to clean and prepare
the machine, and 92 hours of processing time). Annual capacity of the machine is
4,000 hours. If FW receives the 30 orders it expects, the total amount of manufacturing
time required on the machine is 3,000 hours (100 hours per order * 30 orders), which is
within the available machine capacity of 4,000 hours. Even though capacity utilization is
not strained, queues and delays still occur, because uncertainty about when FW’s customers
place their orders causes an order to be received while the machine is processing
an earlier order.