COMPETITIVE FACTORS AND PERFORMANCE-MEASUREMENT - APPLYING THE THEORYOF CONSTRAINTS TO MEET CUSTOMER NEEDS

This article presents an analysis describing how the selection of prop er competitive factors and modification to a firm's performance measur ement system provide the means to control, coordinate and communicate product flow, from order receipt to customer shipment, through the pro duction process, The article also discusses how modifications to the t raditional manufacturing planning and control model to reflect the pri nciples of the Theory of Constraints (TOC), along with the selection o f proper competitive factors provide a means of synchronizing the prod uction process to an ever-more demanding market. A performance measure ment system that directs management's attention to the needs of the cu stomers rather than to the internal concerns traditionally measured is advanced. A case study is included that characterizes the operation o f an engineer-to-order manufacturing organization. This firm changed i ts competitive focus and its performance measurement system in respons e to a erratic sales pattern brought about by an inability to respond to customers requirements in terms of lead time and delivery promises. Using the principles advocated by TOC the organization was able to re duce lead time and improve delivery performance to a point where the o peration became a preferred manufacturing location in the corporation. The cost measurement system was changed from a traditional standard c ost system to a system utilizing TOC principles. A cost measurement sy stem that measures global costs rather than individual component cost can also be a decisive factor in coordinating sales and manufacturing efforts within an organization. The relationship between these various factors is explored in the case study.