EXERCISE 10-5 (CONTINUED)

4. The hypotheses underlying the balanced scorecard are indicated by the arrows in the diagram. Reading from the bottom of the balanced score-card, the hypotheses are: ° If the number of employees trained to support the flexibility strategy increases, then the average changeover time will decrease and the number of different paper grades produced and the average manu-facturing yield will increase. ° If the average change-over time decreases, then the time to fill an order will decrease. ° If the number of different paper grades produced increases, then the customer satisfaction with breadth of product offerings will increase. ° If the average manufacturing yield increases, then the contribution margin per ton will increase. ° If the time to fill an order decreases, then the number of new cus-tomers acquired, sales, and the contribution margin per ton will in-crease. ° If the customer satisfaction with breadth of product offerings in-creases, then the number of new customers acquired, sales, and the contribution margin per ton will increase. ° If the number of new customers acquired increases, then sales will increase. Each of these hypotheses is questionable to some degree. For example, the time to fill an order is a function of additional factors above and be-yond changeover times. Thus, MPC’s average changeover time could decrease while its time to fill an order increases if, for example, the shipping department proves to be incapable of efficiently handling greater product diversity, smaller batch sizes, and more frequent ship-ments. The fact that each of the hypotheses mentioned above can be questioned does not invalidate the balanced scorecard. If the scorecard is used correctly, management will be able to identify which, if any, of