Chapter 14, Problem 10E

Silver Lining Inc. has a balanced scorecard with a strategy map that shows that delivery time and the number of erroneous shipments are expected to affect the company’s ability to satisfy the customer. Further, the strategy map for the balanced scorecard shows that the hours from ordered to delivered affects the percentage of customers who shop again, and the number of erroneous shipments affects the online customer satisfaction rating. The following information is also available:

• The company’s target hours from ordered to delivered is 40.
• Every hour over the ordered-to-delivered target results in a 0.5% decrease in the percentage of customers who shop again.
• The company’s target number of erroneous shipments per year is no more than 65.
• Every error over the erroneous shipments target results in a 0.5 point decrease in the online customer satisfaction rating and an added future financial loss of $500.
• The company estimates that for every 1% decrease in the percentage of customers who shop again, future profit decreases by $4,000 and market share decreases by 0.3%.
• The company also estimates that for every 1 point decrease in the overall online customer satisfaction rating (on a scale of 1 to 10), future profit decreases by $3,000 and market share decreases by 0.6%.

Using these estimates, determine how much future profit and future market share will change if:

• Average hours from ordered to shipped is 27.5.
• Average shipping time (hours from shipped to delivered) is 16.3.
• Number of erroneous shipments is 80.

To determine

Compute the changes in future profit and future market share for Company SL.

Explanation of Solution

Compute the changes in future profit for Company SL:

$\begin{array}{c}\begin{array}{l}\text{Decrease in }\\ \text{future profit}\end{array}\}\text{ = }\left(\begin{array}{l}\text{Additional future}\\ \text{financial loss }\end{array}\right)+\left(\begin{array}{l}\text{Decrease of customers }\\ \text{who would shop again }\end{array}\right)+\left(\begin{array}{l}\text{Decrease in online}\\ \text{customer satisfaction}\end{array}\right)\\ =\$7,500\left(5\right)+\$7,600\left(6\right)+\$2,250\left(8\right)\\ =\$17,350\end{array}$

The changes in the future profit for Company SL is $17,350.

Compute the changes in future market share for Company SL:

$\begin{array}{c}\begin{array}{l}\text{Decrease in future}\\ \text{market share}\end{array}\}\text{ = }\left(\begin{array}{l}\text{Decrease of customers }\\ \text{who would shop again }\end{array}\right)+\left(\begin{array}{l}\text{Decrease in online}\\ \text{customer satisfaction}\end{array}\right)\\ =5.7\%\left(7\right)+0.45\%\left(9\right)\\ =1.02\%\end{array}$

The changes in the future profit for Company SL is $17,350.

Working Note (1):

Compute the average hours from ordered to delivery:

$\begin{array}{c}\begin{array}{l}\text{Hours from ordered}\\ \text{ to delivered}\end{array}\}\text{ = }\left(\begin{array}{l}\text{Hours from ordered}\\ \text{ to shipped}\end{array}\right)-\left(\begin{array}{l}\text{Hours from shipped }\\ \text{to delivered}\end{array}\right)\\ =27.5+16.3\\ =\text{43}\text{.8 hours}\end{array}$

The hours above the target average delivery time is 3.8 hours$\left(43.8\text{ hours }-40\text{ hours}\right)$.

Working Note (2):

Compute the decrease in percentage of customers who would shop again:

$\begin{array}{c}\begin{array}{l}\text{Number of customers}\\ \text{who would shop again}\end{array}\}\text{ = }\left(\begin{array}{l}\text{Hours above the target}\\ \text{delivery time}\end{array}\right)\times 0.5\%\\ =3.8\times 0.5\%\\ =\text{1}\text{.9\%}\end{array}$

The decrease in percentage of customers who would shop again is 1.9%.

Working Note (3):

Compute the effect of erroneous shipment above target:

$\begin{array}{c}\begin{array}{l}\text{Number of errors}\\ \text{above the target}\end{array}\}\text{ = Number of shipment errors}-\text{ Target errors}\\ =80-65\\ =\text{15 errors}\end{array}$

Working Note (4):

Compute the decrease in overall online customer satisfaction rating:

The decrease in overall online customer satisfaction rating is 0.75$\left(15\left(3\right)\times 0.05\right)$.

Working Note (5):

Compute the added future financial loss:

The added future financial loss is $7,500$\left(15\left(3\right)\times \$500\right)$.

Working Note (6):

Compute the effect of decrease in percentage of customers who would shop again on future profit:

$\begin{array}{c}\text{Effect on future profit = }\left(\begin{array}{l}\text{Decrease in customers}\\ \text{who would shop again}\end{array}\right)\times \$4,000\\ =1.9\%\left(2\right)\times \$4,000\\ =\text{\$7,600}\end{array}$

There will be a decrease of the future profit by $7,600.

Working Note (7):

Compute the effect of decrease in percentage of customers who would shop again on future market share:

$\begin{array}{c}\begin{array}{l}\text{Effect on future }\\ \text{market share}\end{array}\}\text{ = }\left(\begin{array}{l}\text{Decrease in customers}\\ \text{who would shop again}\end{array}\right)\times 0.3\%\\ =1.9\%\left(2\right)\times 0.3\%\\ =5.7\%\end{array}$

There will be a decrease of the future market share by 5.7%.

Working Note (8):

Compute the effect of decrease in overall online customer satisfaction rating on future profit:

$\begin{array}{c}\text{Effect on future profit = }\left(\begin{array}{l}\text{Decrease in online }\\ \text{customers satisfaction}\end{array}\right)\times \$3,000\\ =0.75\left(4\right)\times \$3,000\\ =\text{\$2,250}\end{array}$

There will be a decrease of the future profit by $2,250.

Working Note (9):

Compute the effect of decrease in overall online customer satisfaction rating on future market share:

$\begin{array}{c}\begin{array}{l}\text{Effect on future }\\ \text{market share}\end{array}\}\text{ = }\left(\begin{array}{l}\text{Decrease in online }\\ \text{customers satisfaction}\end{array}\right)\times 0.6\%\\ =0.75\left(4\right)\times 0.6\%\\ =0.45\%\end{array}$

There will be a decrease of the future market share by 0.45%.