Cycle time and cycle efficiency as useful measures of performance?


#1

Can management of a company such as Research in Motion (RIM) use cycle time and cycle efficiency as useful measures of performance? What would be another useful measure?


#2

Research in Motion Company designs, manufactures and markets wireless solutions for the mobile and telecommunications markets and is popular for its Black-Berry phones. For this company, Cycle time and cycle efficiency can be two parameters that can be used to measure the performance. The cycle time is the sum of value adding time / processing time and non-value adding time, that may be necessary or unnecessary steps like moving time, delay, waiting etc. For a Manager, it is necessary to identify the non-value adding time as they may add cost and decrease the efficiency of the company. The cycle efficiency is the ratio of value adding time / processing time to Cycle time, it ranges from 0-1. This ratio denotes the percentage of time dedicated to value-addition to customer and securing less than one denotes waste. Research in Motion must strive in Securing cycle efficiency ratio of 1 that means the value adding time and processing time will be equal and there will be no non-value adding /waste time in manufacturing plant of the company. Higher cycle efficiency ratio also helps company to become up-to-date or sensitive to market changes. The company can use these two factors to improve its efficiency in production.

Cycle time and cycle efficiency are two major components to be considered but they aren’t enough to measure every aspect of a company. The company has to look over its cashflows, liquidity, a range of ratios based on working capital (Neely, 2003) and has figured out five different factors

Current ratio : It is ratio of current assets to current liabilities. The current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months.

Quick ratio : It is ratio of quick asset (current asset- Inventories) to current liabilities. Quick ratio or liquidity ratio measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liabilities immediately. A company with a quick ratio of less than "1" cannot currently fully pay back its current liabilities.

Inventory turnover period : It is the ratio of inventories to Cost of goods sold but is unit-less.

Debtors to sales ratio

Creditors to purchase ratio

Similarly, other factors like Return on Investment (ROI) or Return on Asset (ROA) can also be measured to measure the performance of the company. So, the company must look to a different range of ratios to view the performance from multiple perspective.