Business Ratios and Formulas phần 7 ppt

some companies may want more open facilities for marketing reasons, since this configuration looks better when taking customers through the plant. Another consideration is whether any floor space can be sold off or subleased if a company uses this measurement as a catalyst to increase its floor space uti- lization. If a company’s production area is highly specialized or incapable of being segregated for other uses, it may not make sense to pursue a consolidation of floor space. Measurements for the Engineering Department / 207 Table 10.10 Current Theoretical Space used by machinery 12,000 8,000 Space used by operators 2,500 2,500 Space used for materials 7,500 2,500 Total floor space 25,000 25,000 Percentage of floor space utilization 88% 52% ch10_4711.qxd 9/13/06 1:06 PM Page 207 ch10_4711.qxd 9/13/06 1:06 PM Page 208 209 11 Measurements for the Human Resources Department T his chapter focuses on the measurements that can be used to determine the per- formance of the human resources department. The primary focus of the mea- surements described here is the department’s ability to efficiently hire employees. Also included is employee turnover, which is perhaps the most popular employee- related measurement in use today. The measurements discussed in this chapter include: Employee Turnover Average Time to Hire Late Personnel Requisitions Ratio Intern Hiring Percentage Ratio of Support Staff to Total Staff EMPLOYEE TURNOVER Description: In today’s knowledge economy, a company’s key assets (employ- ees) walk out the door every night. Given the high cost of recruiting and retaining qualified employees, a major performance measure is a company’s ability to keep the employee turnover level as low as possible. Formula: Summarize the number of full-time equivalent (FTE) employees leav- ing the firm during the measurement period, and divide by the average number of employees on staff during that period. The formula is: Number of FTE employees who resigned ———————————————————— (Total FTE employees at beginning of period + Total FTE employees at end of period) / 2 ch11_4711.qxd 9/13/06 1:06 PM Page 209 A full-time equivalent is the number of full-time employees that could have been employed if the reported number of hours worked by part-time employees had been worked by full-time employees. Example: Teacher turnover for all Nebraska school districts averages 18% per year. The superintendent of the Eagle school district wants to know by how much the turnover rate varies for her district. In the past year, the district employed an average of 412 full-time teachers, as well as 180 part-time instructors who work an average of 4 hours per day. During the year, 60 part-time instructors and 40 full-time teachers resigned. The total number of FTEs is calculated as: 412 full-time teachers + (180 part-time instructors × 1/2) = 502 FTEs The total number of resigning FTEs is calculated as: 40 full-time teachers + (60 part-time instructors × 1/2) = 70 FTEs The employee turnover calculation for the Eagle school district is: 70 FTE resignations ————————–– = 13% employee turnover 502 FTE positions Cautions: It can be extremely expensive to retain all employees, since a high- demand job market will inevitably result in some job shopping by employees in order to obtain the highest possible level of pay. As a result, employee turnover levels will inevitably be higher in certain geographical areas or for certain job po- sitions, irrespective of management’s efforts to retain staff. The employee turnover measure can be manipulated by shifting staffing needs to contractors, who are not usually included in the measure. Since contractors typically fill short-term positions, their use will improve turnover statistics. AVERAGE TIME TO HIRE Description: A key function of the human resources department is its ability to hire staff within a reasonable period of time. This can be a difficult and lengthy process that is also subject to the opinions of the interviewers, thereby making it an even longer process that is not entirely under the control of the human resources department. However, it is possible to judge the recruiting performance of the human resources department to some extent by using a measurement of the aver- age time required to hire employees. 210 / Business Ratios and Formulas ch11_4711.qxd 9/13/06 1:06 PM Page 210 Formula: Subtract the offer acceptance date from the job application date, sum- marized for all completed job searches, and then divide the result by the number of completed job searches. The formula is: Sum for all completed job searches [Job application date – Job application date] ————————————————————————————————— Number of completed job searches Example: InfoSiblings, a rapidly growing genetic matching company, is obtain- ing large increases in its order backlog, and needs more staff to meet the increased level of demand. It records the job application and acceptance information over the past four quarters as shown in Table 11.1. Based on the increased time to hire, InfoSiblings’ president concludes that the recruiting function has become a major bottleneck, and hires several additional re- cruiters to eliminate the bottleneck. Cautions: There are a number of issues with this measurement. First, the human resources manager may mandate the hiring of lower-quality employees in order to drive down the time to hire. Second, the measure only includes job postings for which the search has been completed; incomplete searches, which may have been open for many months, are not included at all. Third, department managers may continually reject candidates located by the human resources manager, which in- creases the length of the time to hire while not giving the human resources man- ager any real control over shortening the results. Thus, this measure should not be used as the sole criterion for human resources performance; using it in combination with other measures provides a better overall view of departmental performance. LATE PERSONNEL REQUISITIONS RATIO Description: The preceding “average time to hire” (ATH) measure does not in- corporate the impact of any unfilled jobs. The late personnel requisitions ratio is designed to supplement the ATH by specifically identifying the proportion of per- sonnel requisitions that have not been filled. It is useful for identifying the scale of a company’s recruiting difficulties. Measurements for the Human Resources Department / 211 Table 11.1 Number of Average Total Job Search Completed Time Time Period Duration in Days Searches to Hire Quarter 1 192 8 24 days Quarter 2 608 19 32 days Quarter 3 1,215 27 45 days Quarter 4 2,501 41 61 days ch11_4711.qxd 9/13/06 1:06 PM Page 211 Formula: Divide the number of personnel requisitions open more than a defined number of days by the total number of personnel requisitions opened during the past three months. The formula is: Number of personnel requisitions open more than xxx days ———————————————————————————– Number of personnel requisitions opened during past three months The three months figure used in the denominator is designed to cover a sufficient period of time to accumulate a reasonable number of personnel requisitions; a longer or shorter period can be used, based on a company’s individual hiring volume. Example: Wonder Electronics is a consumer electronics manufacturing company and has quarterly hiring requirements in its Modesto plant for approximately 800 assembly positions. Due to a tight labor market, it is having difficulty filling posi- tions. Table 11.2 shows Wonder’s proportion of personnel requisitions open past a 60-day benchmark. Table 11.2 shows an increasing problem with positions remaining open, so Won- der’s president authorizes a large hiring bonus to bring in more recruits. Cautions: This measure can be manipulated by canceling a personnel requisition and issuing a new one, thereby shifting the age of the requisition below the benchmark used to trigger the measurement. It also does not give a good feel for the severity of a hiring problem for specific positions; for example, not being able to fill a key engineering position may be much more important than being unable to fill a janitorial slot. INTERN HIRING PERCENTAGE Description: In some service industries, such as consulting, companies consider it important to bring in a large number of college interns during the summer months, and later hire a proportion of them as full-time staff, once they graduate from col- lege. This approach allows the company to evaluate prospective employees for a number of months, allowing for higher odds of retaining a long-term employee. 212 / Business Ratios and Formulas Table 11.2 Late Number of Personnel Number of Personnel Requisitions Open Personnel Requisitions Time Period > 60 Days Requisitions Proportion Quarter 1 > 60 days 790 10% Quarter 2 148 820 18% Quarter 3 183 795 23% ch11_4711.qxd 9/13/06 1:06 PM Page 212 Formula: Divide the total number of intern job offers accepted by the total num- ber of interns working during the previous year. The formula is: Number of intern job offers accepted ————————————————————————————— Number of interns working for the company during the preceding year Example: Wilson Ross, the famous consulting firm, regularly hires summer in- terns each year, and offers jobs to the best of this group once they graduate the fol- lowing year. Wilson’s human resources vice president is comparing the proportion of interns hired to their long-term survival with the company, in order to set a re- alistic intern hiring rate for all Wilson offices. She has obtained the information in Table 11.3 for four Wilson offices. Based on this information, it appears that the optimal intern hiring percentage is in the vicinity of 45%, since the employee turnover rate increases drastically once higher proportions of interns are hired. The human resources vice president im- mediately issues an edict to all Wilson offices to set the targeted intern hiring rate at 45%. Cautions: The objective is not to achieve a 100% intern hiring percentage, since the evaluation period will likely turn up a few people whom the company is not interested in hiring. Thus, most organizations should set a target intern hiring per- centage that may be closer to one-half (or less) of all interns, based on past expe- rience, and judiciously extend offers only to the best of the interns in order to meet that percentage. RATIO OF SUPPORT STAFF TO TOTAL STAFF Description: If a company employs a high proportion of billable employees, such as a consulting firm, a prime determinant of profitability is its ability to operate with the lowest possible proportion of support staff to the total number of em- ployees. Tracking the ratio of support staff to total staff is a good way to monitor overhead costs. Measurements for the Human Resources Department / 213 Table 11.3 Hired 5-Year Office Location Interns Interns Intern Hiring Rate Retention Chicago 81 65 80% 35% Denver 62 40 65% 50% Indianapolis 67 30 45% 85% Miami 50 15 30% 90% ch11_4711.qxd 9/13/06 1:06 PM Page 213 Formula: Divide the average number of full-time equivalent (FTE) support staff by the average number of all FTE employees. The formula is: (Beginning FTE support staff + Ending FTE support staff) / 2 —————————————————————————— (Beginning FTE employees + Ending FTE employees) / 2 An FTE is the number of full-time employees that could have been employed if the reported number of hours worked by part-time employees had been worked by full-time employees. An alternative version of this formula is to divide the fully burdened cost of the support staff by the fully burdened cost of all employees. By doing so, attention is focused on the more expensive support positions. Example: The Arthur Bulger engineering consulting firm has been suffering from declining profits for several years, despite rapid growth. The founder, Mr. Bulger, suspects that increasing numbers of support staff are the root cause of this prob- lem. He accumulates the information shown in Table 11.4. It is evident that the company’s rapid growth has masked a significant rise in overhead costs, represented by the large increase in the support staff. Mr. Bulger immediately initiates a cost-benefit review to determine which support staff posi- tions are really needed. Cautions: This measure can be manipulated by outsourcing some support func- tions, such as accounting and human resources; this improves the ratio, even though the cost of the support functions is still being paid to an outside provider. 214 / Business Ratios and Formulas Table 11.4 Total Support Ratio of Support Staff to Total Time Period Staff Total Staff Staff Three years ago 59 418 14% Last year 219 950 23% ch11_4711.qxd 9/13/06 1:06 PM Page 214 215 12 Measurements for the Logistics Department T he logistics function is composed of production scheduling, purchasing, mate- rials handling, and distribution. These areas are all central to the smooth func- tioning of a company’s production processes. A failure in any of these areas can severely impact or even halt production, so this is a prime area in which to set up and maintain a rigorous system of measurement tracking. The 28 measurements described in this chapter are intended to address the key operational aspects of lo- gistics and should be measured on a trend line to ensure that management can spot operational difficulties as soon as they arise. The measurements discussed are: Production Schedule Accuracy Economic Order Quantity Number of Orders to Place in a Period Economic Production Run Size Raw Material Inventory Turns Raw Material Content Finished Goods Inventory Turns Obsolete Inventory Percentage Percentage of Inventory > XX Days Old Percentage of Returnable Inventory Inventory Accuracy Percentage of Certified Suppliers Electronic Data Interchange Supplier Percentage Distribution Turnover On-Time Parts Delivery Percentage Purchased Component Defect Rate Incoming Components Correct Quantity Percentage Percentage of Actual Payments Varying from Purchase Order Price Percentage of Purchase Orders Issued below Minimum Dollar Level Proportion of Corporate Credit Card Usage Percentage of Receipts Authorized by Purchase Orders Freight Audit Recovery Ratio Picking Accuracy for Assembled Products Order Fill Rate Average Time to Ship On-Time Delivery Percentage ch12_4711.qxd 9/13/06 1:07 PM Page 215 PRODUCTION SCHEDULE ACCURACY Description: Without a production schedule that is carefully followed, the pro- duction department will find itself in a state of bedlam, with material shortages, irate customers, and projects being rushed through the production facility. To avoid this, the logistics staff must ensure that the jobs listed on the production schedule are completed in an orderly manner and in the scheduled sequence and quantities. The production schedule accuracy measurement is a useful tool for tracking this. Formula: Divide the number of scheduled jobs completed during the measure- ment period by the total number of jobs scheduled for completion. However, if there are large jobs that cross over multiple periods, they will fall outside of this measurement, which only tracks completed jobs. In such cases, it may be more ac- curate to divide the number of completed production tasks within each scheduled job by the total number of scheduled tasks for all jobs. The basic formula is: Number of scheduled jobs completed ————————————————— Number of jobs scheduled for completion Example: The Wilkerson Supercomputer Company produces the largest comput- ers in the world, which are used by many physics and weather-reporting laborato- ries. Each computer takes roughly three months to build when its production schedule is precisely followed. However, each one tends to take much longer, be- cause the product manager for each job interferes in the production process to leapfrog the job ahead in the work queue. The logistics manager has recently put a stop to this behavior by denying all nonproduction personnel access to the man- ufacturing facility, and now needs to prove the point by showing the before-and- after monthly production schedule accuracy. The manager prepares the information found in Table 12.1. 216 / Business Ratios and Formulas Percentage of Products Damaged in Transit Percentage of Sales through Distributors Table 12.1 Before After Total scheduled production tasks completed 29 43 Total production tasks scheduled 67 59 Production schedule accuracy 43% 73% ch12_4711.qxd 9/13/06 1:07 PM Page 216 [...]... $100, and a total of 13 positions can be eliminated if the prohibition is increased to cover all orders below $500 ch12_ 471 1.qxd 9/13/06 1: 07 PM Page 238 238 / Business Ratios and Formulas Table 12.11 Order Size $500,000+ $2,501–$499,999 $501–$2,500 $101–$500 $100 or less Total No of Orders Placed Cost per Order Total Ordering Cost 20 55 350 2,800 4,000 $1,350 $650 $225 $120 $65 $ 27, 000 $35 ,75 0 $78 ,75 0... obsolescence, scrap, shrinkage, insurance, and inventory taxes, and is expressed as a percentage of the dollar cost of inventory The cost per cubic foot includes the cost of warehouse space, utilities, maintenance, and property taxes, and is expressed as a dollar cost per cubic foot of storage ch12_ 471 1.qxd 9/13/06 1: 07 PM Page 218 218 / Business Ratios and Formulas Example: The Billings Pool Table... total amount of raw material dollars sold, and divide it by sales The amount of raw materials can be collected from the bills of material associated with each product sold, though this only summarizes the standard amount of raw materials used (which may not reflect actual scrap levels or the ch12_ 471 1.qxd 9/13/06 1: 07 PM Page 222 222 / Business Ratios and Formulas most current raw material costs) An... completely ignored the record accuracy of part descriptions, locations, and units of measure, and as a result has had multiple incorrect components of the measurement for some inventory items The manager informs the staff that they will be correcting records over the weekend ch12_ 471 1.qxd 9/13/06 1: 07 PM Page 228 228 / Business Ratios and Formulas Table 12.5 Audited Description Aneroid barometer Battery... using it to its maximum effect Also, the ch12_ 471 1.qxd 9/13/06 1: 07 PM Page 230 230 / Business Ratios and Formulas number of suppliers listed in the denominator should not include all incidental suppliers having minimal business with the company (since this can be a formidably large number), but rather the group of ongoing suppliers who regularly transact business with it The formula is: Number of suppliers... flame-retardant Spanish tiles, has been having trouble with the receipt of chemicals from a key supplier ch12_ 471 1.qxd 9/13/06 1: 07 PM Page 234 234 / Business Ratios and Formulas Table 12.8 Month 1 Barrels ordered Barrels rejected Purchased component defect rate Month 2 Month 3 512 31 6% 431 30 7% 602 72 12% The company operates a lean inventory system that does not allow it to go for more than two days without... eco- nomic order quantity, as shown in the preceding section The formula is: ch12_ 471 1.qxd 9/13/06 1: 07 PM Page 219 Measurements for the Logistics Department / 219 Table 12.2 Quarter 1 Usage in units EOQ Number of orders to place Quarter 2 Quarter 3 Quarter 4 120,000 275 436 158,000 275 575 143,000 275 520 1 17, 000 275 425 Total usage in units ———————— EOQ Example: The ViewBright Company, maker of rear... unit demand of a product by two, and then multiply the result by the run setup cost Then divide the result by the carrying cost per unit, and calculate the root of the result Of particular importance is the variety of costs that can be included in the carrying cost per unit, which includes incremental materials handling costs, the cost of extra warehouse space and storage ch12_ 471 1.qxd 9/13/06 1: 07 PM... $28,000,000 $2,350,000 11.0 28,000,000 1,285,000 21.8 ch12_ 471 1.qxd 9/13/06 1: 07 PM Page 232 232 / Business Ratios and Formulas ON-TIME PARTS DELIVERY PERCENTAGE Description: One of the key performance measures for rating a supplier is its ability to deliver ordered parts on time, since a late delivery can shut down a production line Furthermore, a long-standing ability to always deliver on time gives a company... $95,000 36.8 $3,500,000 $410,000 8.5 $3,500,000 $850,000 4.1 ch12_ 471 1.qxd 9/13/06 1: 07 PM Page 224 224 / Business Ratios and Formulas modifications to a labor routing document or the overhead allocation methodology Thus, the measurement can yield different results even when there is no change in the number of finished goods units on hand OBSOLETE INVENTORY PERCENTAGE Description: A company needs to . 143,000 1 17, 000 EOQ 275 275 275 275 Number of orders to place 436 575 520 425 ch12_ 471 1.qxd 9/13/06 1: 07 PM Page 219 racks to contain it, damage caused by storage, insurance fees, and property. facility, and now needs to prove the point by showing the before -and- after monthly production schedule accuracy. The manager prepares the information found in Table 12.1. 216 / Business Ratios and Formulas Percentage. order quantity, as shown in the preceding section. The formula is: 218 / Business Ratios and Formulas ch12_ 471 1.qxd 9/13/06 1: 07 PM Page 218 Total usage in units ———————— EOQ Example: The ViewBright