MIM 524Class 4

AgendaQuality- Metrics & Incentives- Balanced Scorecard- Kropf Article- Manfield CaseThe Law:- UCC & CISG- China & IP- Questions on China Website articlesMidterm exam review

Metrics – Right ones?

Quality SystemsTQM / Lean / ISO

Above the Shop Floor – Value stream mapping can be applied everywhere

“What is measured improves”Overemphasis on a few can be riskyToo many? (Attention span?)

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Typical MetricsSales department measures

# of orders taken# of new customers# of potential customer contacts# of return orders

Shipping department measures# of orders shipped# of shipping errors

Innovation measures# of new inventions# of patents# of strategic business acquisitions

Metrics vs. incentivesFirst: What are the strategic objectives?

Reduce product development cycle time by 500 days in the next three years.

Second: How does this affect the customer?Increase Patient Satisfaction by 20%

Third: What are the key drivers?Market share, cost reduction, etc

Four: Define MetricsOn time Shipments to target goal

Five: Change and evaluate metrics7 deadly sins of performance

Six: Develop incentives to support metricsLimit Key metrics to between 5-7

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Who’s Measuring What?Time Warner

% of network upgraded# of subscribers served

Eli Lilly and Co.# of new product launches% of sales from new products

Dell Computer Corp.New plant constructionDays supply in inventory

AT&T# of calls on network# of new networks

IncentivesOn time shipments metric:

Hoard inventoryReduce inventory metric:

Buy based on historyImprove quality metric:

Test & quality check growthImprove forecasting metric:

Pay sales people based on on-time shipments

© 2009 South-Western, a division of Cengage Learning 8

The Balanced ScorecardDeveloped by Kaplan & Norton to align an

organization’s performance measures with its strategic plan & goals. The BSC framework consists of four perspectives:Financial perspectiveInternal business process perspectiveCustomer perspectiveLearning & growth perspective

© 2009 South-Western, a division of Cengage Learning 9

The Balanced Scorecard

Challenges with ScorecardsData collection can take on a life of its ownBalance of data collectedData integrityData feeds from disparate systemsUse of Third party information

credit reportsoutsourced partners

The whole story may not be present

Balanced Scorecard - KnopfWhat are the different definitions behind

TQRDCE?Do the expectations of suppliers make the

objectives clear?How would the weighting on p. 9 change for

Patagonia apparel or Intel CPUs?

7 Deadly Sins of Performance Measurements

1. Vanity – cognitive dissonance (IBM PC)2. Provincialism – only measure within an org group3. Narcissism – measure from your point of view, not the

customer4. Laziness – We know best5. Pettiness – only a small component of what matters6. Inanity – Measure what you want to change7. Frivolity – Not taking metrics seriously

Manfield CoatingsWhat do we know?- Short lead-times- Strong niche player- Uses quality as comparative

advantage- Cost containment and speed for

customers- Satisfy customers, not surpass

expectations

Manfield CoatingsHow does Manfield’s performance as a paint manufacturer

compare to another industry? How has Manfield’s performance changed over time & why?How does quality help Manfield?What made the quality system successful?What metrics would have made Manfield more successful?Are they moving in the right direction?Seven deadly sins & aligning incentives; how does this relate?What are your thoughts on the leadership at Manfield? is it

motivational?What is missing in this case?

Agency Law

• Agency– Definition: One who is legally empowered to

act for another– An agent has the legal authority to bind his or

her principal to a contract.• Principal

– Definition: Can be an individual person or a legal entity such as a corporation.

• “Agency” is a fiduciary relationship – which means the Agent must put the Principals interest ahead of their own.

Agency Authority

• Apparent Authority– Anyone that a 3rd party could “reasonably”

assume has the authority to bind a company• Real Authority

– Individuals such as Corporate Officers that a company has authorized to act on their behalf.

– Other specifically delegates organizations (procurement, real estate, etc.) or individuals that have accountability by the nature of their roles.

What is a Contract?• A promise or a set of promises, that the

law will enforce, or at least recognize in some way.

• If you have a contract, you may be entitled to legal remedies if that contract is not fulfilled.

• You need ALL 3 Basic elements to have a contract– Offer– Acceptance– Consideration

Contract/Procurement Law Essential Contracting Principles

• Contract Formation– Written vs. oral contract– Electronic contracts

• Terms and Conditions– Battle of the forms– What terms apply?

• Contracts for Services– Applicable law(s)– Legal differences

A contract can be any of the below…

• An exchange in writing such as a purchase order and the associated acknowledgement

• Oral promise• Combination of oral promises and writings• Formal signed agreement in writing• Promise by one party and performance by

another• NDA – Non disclosure agreements• LOI/MOU – Letter of Intent/Memorandum of

Understanding

Essential Contracting Principles

• Uniform Commercial Code (UCC) :– is not a code - state legislatures enact a version– is not uniform - nominal variations by state– creates substantial implied rights

• warranties• damages

– applies to purchase/sale of “goods”– N/A to services contracts– Contractual and legal rights may be waived if not

enforced or reserved

What is the Uniform Commercial Code? (UCC)Standard contract terms that provide a contract

structure for contracts for acquisition of goods.Key provisions for Definitions and RemediesProtection tends to favor the Buyer

Covers all aspects of goods contractingOffer, Acceptance, ConsiderationRight of Inspection & RejectionBuyer and Seller RemediesContracting managementWarranties

May also serve as a “gap filler” for incomplete contracts.

Not to be utilized for Service Contracts.Valid in 49 of the 50 United States

All except Louisiana

Buyer’s Remedies for Breach of Contract

Contract Assignment (2-210)Incidental and Consequential Damages (2-715)

CONSEQUENTIAL DAMAGES - Those damages or those losses which arise not from the immediate act of the party, but in consequence of such act

INCIDENTAL DAMAGES – Those damages for commercially reasonable expenses incurred as a result of the other party's breach, such as costs of inspecting and returning goods that do not conform to contract specifications.

Cost to “cover” (2-712)Cost for Buyer to find alternate method to fill needs

Liquidated Damages (2-718)LIQUIDATED DAMAGES - When the parties to a contract agree to the

payment of a certain sum as a fixed and agreed upon satisfaction for not doing certain things particularly mentioned in the agreement, the sum is called liquidated damages

Anticipatory Repudiation (2-610)Rejection of the contract

Deduction of Damages From Price (2-717)Notify supplier of intention to do soMust be deduction from same contract

Suppliers Remedies for Breach of ContractIf Buyer

Wrongfully rejectsWrongfully revokes acceptanceFails to PayRepudiates Agreement

In General (2-703)Withhold DeliveryStop DeliveryResell and Recover DamagesRecover Damages for Non-AcceptanceCancel

Incidental Damages (2-710)Reasonable charges/expensesTransportationCare and CustodyReturn costs

UCC is for domestic contracting, what about Global contracting…UN Convention on Contracts for International Sale of Goods

(CISG)Similar Objectives to UCCSimilar to UCC in Function

5 Significant DifferencesAcceptance of Offer: Mirror image or no contractContract Price: No Contract without firm priceRevocation of Offer: May be revoked at any time prior to

acceptanceFormation of Contract: At time of Receipt of AcceptanceOral Contracts: Valid and Enforceable

CISG may be Preferable to another country’s laws

When Do They Apply?UCC

Automatic application if “sale of goods” when U.S. law applies (any state) except Louisiana.

CISG

Sale of goods between parties in “contracting states.”

If only one party is in a contracting jurisdiction, CISG will not apply, unless both contracting parties agree.

Contracting Countries

Argentina, Australia, Austria, Belarus, Belgium, Bosnia, Herzegovina, Bulgaria, Burundi, Canada, Chile, China, Kirghizstan, Croatia, Cuba, The Czech Republic, Denmark, Ecuador, Egypt, Switzerland, Estonia, Finland, France, Georgia, Germany, Ghana, Greece, Guinea, Iraq, Italy, Yugoslavia, Latvia, Lesotho, Lithuania, Luxembourg, Mauritania, Mexico, Moldova, Mongolia, Norway, New Zealand, Holland, Peru, Poland, Romania, Russia, Singapore, Slovakia, Slovenia, Spain, Syria, Sweden, USA, Ukraine, Uganda, Uruguay, Uzbekistan, Venezuela, Zambia

Is the CISG “Law”?

• Only if you agree to it! Parties can opt out of these provisions through contractual language.

– Clearly specify an alternate choice of law to avoid CISG.

– Both parties must agree to the choice of law.

Intellectual Property

Three types of IP1.Patents2.Copyrights3.Trade secrets

IP types- Patent: Agreement between the

Government and inventor- First to file vs. first to invent- Only US, Canada, & Philippines- Must be filed in the country where

protection is expected- Copyright: protects innovators of music,

writing, software, logos, etc- Trade Secret: confidential information,

protected by NDA

TRIPS – Trade Related Aspects of IP Rights

- Part of the WTO requirements, China has observed since entering WTO

- Scope – Covers Patent, trademark, copyrights

- Remedies include – injunction to stop distribution & compensation to infringed- If unclear it is limited to $500K RMB

- Evidence is required on ownership of IP- Can be on litigant or infringed party

IP Articles questions

What are the characteristics of the Chinese judicial remedy to protect IP?

How does the first to file versus first to invent affect IP protection in Asia?

How does the author define trademark use?How does the fair use principle work as a

defense in China?