bs-om session 1c
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Business Services – Operations Management
Session 1 – Introduction & Overview
1
Business ServicesBusiness Services – –
Operations ManagementOperations Management
Facilitator:Facilitator:
Dr. Jonathan FarrellDr. Jonathan Farrell
Session 1 – Introduction &
Overview
2
This EveningThis Evening’’s Programs Program
•• IntroductionsIntroductions
•• Unit outlineUnit outline
•• LectureLecture -- Introduction to Operations ManagementIntroduction to Operations Management
•• Case StudiesCase Studies – – Concept Design Services, Central Evaluation Uni tConcept Design Services, Central Evaluation Uni t --
class discussionclass discussion
•• LittleLittle’’s Laws Law
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PlagiarismPlagiarism
• Plagiarism: “ using the work of another person and presenting it as your
own”
• If you use any source material from another source (e.g. text graphics,
charts, diagrams, etc.) you must acknowledge that source
• Contrary to popular belief, Plagiarism is easy to detect
• Your assignments will be checked for plagiarism, both manually and
electronically
• For more information, go to www.student.mq.edu.au/plagiarism
4
IntroductionsIntroductions(1 minute maximum)(1 minute maximum)
•• NameName
•• OrganisationOrganisation
•• PositionPosition
•• Type of operationType of operation
•• Why are you here?Why are you here?
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Gain an appreciation of technologies available, and how theyGain an appreciation of technologies available, and how they
are applied to operations.are applied to operations.
Develop an ability toDevelop an ability to integrateintegrate these technologies withthese technologies with
corporatecorporate and operationsand operations strategies.strategies.
RecogniRecognisse howe how successful osuccessful operationsperations mmanagementanagement can lead tocan lead to
ssustainableustainable ccompetitiveompetitive aadvantagedvantage..
Understand the dynamics of change management and theUnderstand the dynamics of change management and the
effects of changes on organisation culture.effects of changes on organisation cultu re.
Course ObjectivesCourse Objectives
6
The operations function is fashionable!The operations function is fashionable!
The consultancy services market
% of world revenues of 40 largest firms
Marketing/sales
2
Operations and process
management
31
Corporate strategy
17
IT strategy
17
Benefits/Actuarial16
Organizational design
11
Financial
6
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They are all
operations
Retail
operation
Back office
operation in a
bank
Take-out /
restaurant
operation
Kitchen unit
manufacturing
operation
8
A general model of operations management A general model of operations management
Inputtransformedresources
MaterialsInformationCustomers
FacilitiesStaff
Inputtransforming
resources
Planning and
control
ImprovementDesign
The operation’s
competitive role
and position
Operation’sstrategic objectives
Operations
strategy
Customers
Output products
and servicesInput resources
ENVIRONMENT
ENVIRONMENT
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Where does the business getWhere does the business get
its competitive advantage?its competitive advantage?
The way itThe way it
produces itsproduces its
goods andgoods and
services?services?
The way itThe way itpositions itselfpositions itself
in its market?in its market?
TheThe ““ technologicaltechnological ””
specification of itsspecification of its
product/service?product/service? Product/
Service
Technology
Marketing Operations
10
The three functions working together ....The three functions working together ....egeg. Swatch. Swatch
but
also
Standardise,
easy to make
product at high
volume so low
cost
Product/
service
design
OperationsMarketing
Further
innovations
which funds
which
funds etc.
Increased variety
does not increase
costsbut because volume
is high
Extended
range
Mass fashion
orientation
allows
which
gives
Innovative
plastic design
with few parts
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Core and support functionsCore and support functions
Account ing
and finance
function
Human
resources
function
Others
Engineering/
technicalfunction
Information/technical (IT)
function
Marketingfunction
Product/servicesdevelopment function
Operationsfunction
Core functions
Support functions
A broad defini tion ofoperationsmanagement
12
The posit ion of the operations functionThe position of the operations function
Marketing Operations
ChurchCall onnewcomers
Manageappeals
Retranslatescriptures
Conductweddings
Advert ise ontelevision
Paysuppliers
Designhamburgers
Makehamburgers
Sell tostores
Pay staff Design newfurniture
Assemblefurniture
Identifyneeds
Raisecapital
Developproduct
Make anddistribute
Account ing
and finance
Product
development
Fast food
chain
Furniture
manufacturer
Process
perspective
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The best way to start understanding the nature of“ Operations” is to look around you
Everything you can see around you (except the flesh and
blood) has been processed by an operation
Every service you consumed today (radio station, bus
service, lecture, etc.) has also been produced by an
operation
Operations Managers create everything you buy , sit on,
wear, eat, throw at people, and throw away
We will start by examining a “ high street” operation
14
IKEA STORE
Design elegant products
which can be flat-packed
efficiently
Design a store layout
which gives smooth and
effective flowEnsure that the jobs of all
staff encourage their
contribution to business
success
Maintain cleanlinessand safety of storage
area
Arrange f or f ast
replenishment of
products
Monitor and enhancequality of service to
customers
Site stores of an
appropriate size in
the most effective
locations
Continually examine
and improve operations
practice
Some operations management activ itiesSome operations management activ ities
at IKEAat IKEA
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PretPret a Mangera Manger“ High-end” sandwich and
snack retailer
Use only “ wholesome” ingredients
Al l shops have own kitchens which make fresh
sandwiches every day
Fresh ingredients delivered early every morning
Same staff who serve you at lunch made the sandwiches
that morning
“ We don’t work nights, we wear jeans, we party…”
16
The three basic funct ions atThe three basic funct ions at
PretPret a Manger a Manger
Marketing Operations
Promotional activities,
market research, etc.
Design, location and
management of st ores and
in-store processes and the
network that supplies them
Nutritional “ mechanical” and aesthetic
design of the sandwiches and snacks
Product/
Service Technology
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All o All operationsperations are transformationare transformation
processesprocesses
ENVIRONMENT
ENVIRONMENT
INPUT OUTPUTGOODS
AND
SERVICES
TRANSFORMED
RESOURCES
MATERIALS
INFORMATION
CUSTOMERS
FACILITIES STAFF
TRANSFORMING
RESOURCES
TRANSFORMATION
PROCESS
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At At PretPret a Manger a Manger
ENVIRONMENT
ENVIRONMENT
INPUT OUTPUT
CUSTOMERS
“ ASSEMBLED”TO SNACKS
TRANSFORMED
RESOURCES
Food ingredients
Packaging
Customers
Kitchen equipmentShop fittings, Staff
TRANSFORMING
RESOURCES
TRANSFORMATION
PROCESS
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Operations ManagementOperations Management – – BasicBasic
PrinciplesPrinciples
Al l types of enterprise have an operations funct ion, even if it
isn’t called ‘operations.
Most operations produce both p roducts and services.
Materials
Products and
servicesInformation
Customers
Operations
management is
concerned with
producing and
delivering products
and services
20
Television programme and videoTelevision programme and video
production companyproduction company
Set and propsmanufacture
Engineering
Marketing andsales
Broadcasting andprogramme making
equipment
Test and repair
equipment
Staff
Adap ted ,
maintained
and repaired
equipment
Wood, steel
plastic etc.
Carpenters
Machines
Scenery
and props
Information
from customers
Computer
systems
Surveys and
analysis staff
Market
forecasts,
sales
proposals
and plans
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The two main processes at aThe two main processes at a
PretPret a Manger storea Manger store
INPUT OUTPUTTRANSFORMATION
PROCESS
Sandwichproduction
Bread, mayo,
fillings, packing,etc.
Staff
Packed, f resh
sandwiches
SandwichproductionStaff
Satisfied
customers
“assembled” tosandwiches
Packed, fresh
sandwiches
Customers
22
The three core functions as transformationThe three core functions as transformation
processprocess ‘‘operationsoperations’’
Designers
Designsoftware
App rop riat edesigns aspromised andto budget
Producing
effective new
products and
services
Marketingfunction
Product/services
developmentfunction
Operationsfunction
Transformed/transformingresources
Productsand servicesProducingservice value for
customers
Sales people
Marketeers
Marketinformation
Orders
Marketing plansas promisedand to budget
Producing
sales and
market plans
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The output from most types of operation is aThe output from most types of operation is a
mixture of goods and servicesmixture of goods and services
C r u d e o i l p r o d u c t i o n
Pure goodsTangible
Can be storedProduction precedes
consumptionLow customer contact
Can be transportedQuality is evident
IntangibleCannot be storedProduction andconsumption aresimultaneousHigh customer contact
Cannot be transportedQuality difficu lt to judge
Pure services
A l u m i n i u m s
m e l t i n g
S p e c i a l i s t m a c h i n e t o o l
m a n u f a c t u r e r
R e s t a u r a n t
C o m p u t e r s y s t e m s
s e r v i c e s
M a n a g e m e n t
c o n s u l t a n c y
P s y c h o t h e r a p y c l i n i c
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The output from most operations is aThe output f rom most operations is a
mixture of goods and servicesmixture of goods and services
C R U D E O I L P R O D U C T I O N
A L U M I N I U M S
M E L T I N G
S P E C I A L I S T M A C H I N E T O O L
M A N U F A C T U R E R
R E S T A U R A N T
C O M P
U T E R
S Y S T E M S
S E R V I C E S
M A N A
G E M E N T
C O N S
U L T A N C Y
P S Y C H O T H E R A
P Y C L I N I C
PURE GOODSTangible
Can be stored
Production pr ecedesconsumption
Low customer contact
Can be transported
Quality i s evident
PURE SERVICES
Quality difficult to judge
Cannot b e transported
High customer contact
Production and
consumption aresimultaneous
Cannot be stored
Intangible
P r e t a M a n g e r
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A Typology of Operations A Typology of Operations
IMPLICATIONS IMPLICATIONS
High LowVisibilityVisibility
High LowVariation i n demandVariation i n demand
High LowVarietyVariety
Low HighVolumeVolume
Time lag between product ionand consumption
Standardised
Low contact skills
High staff utilisation
Centralization
Low unit costs
Short waiting tolerance
Satisfaction governed by
customer perceptionCustomer contact skillsneeded
Received variety is high
High unit cost
Changing capacity
Ant ici pati on
Flexibility
In touch with d emand
High unit cost
Flexible
Complex
Match customer needs
High unit cost
Low repetition
Each staff member performsmore of job
Less systemisation
High unit costs
Stable
Routine
Predictable
High utilisation
Low unit costs
Well defined
Routine
Standardised
Regular
Low unit costs
High repeatability
SpecialisationSystemisation
Capital int ensive
Low unit cost
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Some configurations ofSome configurations of FormuleFormule 11
prepre--manufactured room unitsmanufactured room units
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Profile of two operationsProfile of two operations
Low
High
High
High
High
Low
Low
Low
Volume
Variety
Variation
Visibility
Island Resort Formule 1
28
Volume
Important to understand how different operations are positioned
on the 4 V’s.
Is their position w here they want to be?
Do they understand the strategic implications?
Variety
Variation
Visibility
Low
High
High
High
High
Low
Low
Low
Island
Resort
Hotel
Formule
1 type
Hotel
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Volume
Variety
Variation
Visibility
Low
High
High
High
High
Low
Low
Low
Pret a
Manger
IKEA
PretPret a Manger and IKEAa Manger and IKEA
4 V4 V’’s analysiss analysis
30
The activi ties of operations managementThe activi ties of operations management
ENVIRONMENT
ENVIRONMENT
INPUT OUTPUTGOODS
AND
SERVICES
INPUT
TRANSFORMED
RESOURCES
MATERIALS
INFORMATION
CUSTOMERS
FACILITIES STAFF
INPUT
TRANSFORMING
RESOURCES
OPERATIONS
STRATEGY
DESIGN
PLANNING ANDCONTROL
IMPROVEMENT
OPERATIONS
STRATEGIC
OBJECTIVES
THE
OPERATIONS
COMPETITIVE
ROLE AND
POSITION
Operations
strategy
Operations
management
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Operations Activities as Feedback LoopsOperations Activities as Feedback Loops
Design activities set the basic configu ration
Planning & control activiti es guide short/medium term changes
Planning & Control
Design
Improvement
Improvement activities guide longer term changes
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Case StudyCase Study – – Central Design ServicesCentral Design Services
•• What are the inputs, transformation processes andWhat are the inputs, transformation processes and
outputs?outputs?
•• Why is operations management important to CDS?Why is operations management important to CDS?
•• Draw the four Vs forDraw the four Vs for CDSCDS’’ss products & services.products & services.
•• What would you recommend to CDS if you were askedWhat would you recommend to CDS if you were asked
to advise on improving its operations?to advise on improving i ts operations?
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Process DesignProcess Design
Processes that Design
Products
and Services
Concept Generation
Screening
Preliminary Design
Evaluation and
Improvement
Prototyping and final design
Processes that
Produce Products
and Services
Supply Network Design
Layout
and Flow
Process
TechnologyJob
Design
34
Nature and purpose of the design activityNature and purpose of the design activi ty
Products, services and the processes which
produce them all have to be designed
Decisions taken during the design of a product or
service will have an impact on the decisions taken
during the design of the process which produces
those products or services and vice versa.
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The pThe purposeurpose of design is to satisfyof design is to satisfy
customerscustomers
Product designers wil l seek to create things that:
- are aesthetically pleasing;
- satisfy needs;
- meet expectations;
- perform well;
- are reliable;
- are easy to manufacture and deliver.
Operations managers tend to focus on the design of thetransformation process
36
Design of the
Service
Design of the
Process
Design of the
ProductDesign of the
Process
In most service operations theoverlap between service and
process design is implicit in the
nature of service
In manufacturing operationsoverlapping the activities of
product and process design is
beneficial
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Decisions taken during the design of the product or service will have animpact on the process that produces them and vice versa
Products and servicesshould be designed in
such a way that they canbe created effectively
Processes should bedesigned so they can
create all products andservices which the
operation is likely tointroduce
Designing theProduct or Service
Designing theProcesses thatProduce the Product o r
Service
38
Finished designs which are:
High quality
Speedily produced
Dependably delivered
Produced flexibly
Low cost
TRANSFORMED
RESOURCES
Technical information
Market information
Time information
TRANSFORMING
RESOURCES
Test and design
equipment
Design and technicalstaff
THE DESIGN
ACTIVITYOUTPUTINPUTS
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Relatively early in the design activ ity theRelatively early in the design activi ty the
decisions taken will commit the operationdecisions taken will commit the operation
to costs which will be incurred later to costs which will be incurred later
100%
0%
Percentage of final
product cost
committed by the
design
Percentage of
design costs
incurred
Start of the
design activity
Finish of the
design activity
40
Broad categories of evaluation criteria for assessingBroad categories of evaluation cr iteria for assessing
design optionsdesign options
FEASIBILITY
How difficult is
it?
ACCEPTABILITY
How worthwhile is
it?
VULNERABILITY
What could go
wrong?
THE CRITERIA FOR ASSESSING
PROPOSED DESIGN OPTIONS
What INVESTMENT bot hmanagerial and financial
will be needed?
What RETURNin terms of f inancial and
performance improvementwill it give?
What RISKSdo we run if things
go wrong?
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Operation (an activity t hat
directly adds value)
Inspection (a check ofsome sort)
Transport (a movement ofsome thing)
Delay (a wait, e.g. for materials)
Storage (deliberate storage, as
opposed to a d elay)
Process mapping symbols derived
from “ Scientific Management”
Decision (exercising disc retion)
Process mapping symbols derived from
Systems Analysis
Direction of flow
Input or Output from the process
Act ivi ty
Beginning or end of process
Process Mapping SymbolsProcess Mapping Symbols
42
Standard sandwich process
Raw
Materials Assembl y Stored
SandwichesMove toOutlets
StoredSandwiches
SellTake Payment
Customer Request
Raw
Materials Assembl y Take Payment
Customer Request
Customised sandwich - old process
Process MappingProcess Mapping – – An Example An Example
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Prepare Assembl e asrequiredTake
payment
Bread and
Base filling
Stored
“Bases”
Fillings
Assembl e who le
sandwich
Customer Request
Use standard
“base”?
Assembl e fro m
standard “base”
No
Yes
The operation of making andselling customised sandwiches
The outline process of making andselling customised sandwiches
The detailed pr ocess of
assembling customised
sandwiches
Sandwich materials
and customers
Customers
“assembled” to
sandwiches
44
Bread and Base
filling
Assembl y of
“sandwich
bases”
Stored “Bases”
Fillings
Assemble whole
sandwich
Take
Payment
Customer Request
Customised sandwich new
process
Use standard
“base”?
Assembl e from
standard “base”
No
Yes
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Left hand Right hand
Pick up base plate
Insert into fixture
Pick up two supports
Locate back plate
Pick up screws
Locate screws
Pick up air driver
Fasten screws
Replace air driver
Pick up centre assembly
Inspect centre assembly
Locate and fix
Switch on timer
Wait to end test
Inspect
Transfer grasp
Put aside
Wait
Hold base plate
Wait
Hold centre assembly
Inspect
Transfer grasp
Wait
‘‘Two handedTwo handed’’ process chartprocess chart
46
VolumeLow High VolumeLow High
V a r i e t y
L o w
H i g h
V a r i e t y
L o w
H i g h
Project
Jobbing
Batch
Mass
Contin--uous
Professionalservice
Service shop
Mass service
Service processService processtypestypes
ManufacturingManufacturingprocess typesprocess types
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Project ProcessesProject Processes
•• OneOne--off,off, ccomplexomplex, large scale, high work content, large scale, high work content ““ productsproducts””
•• SpeciallySpecially made, every onemade, every one customicustomisseded
•• Defined start and fin ish:Defined start and fi nish: tt imeime, quality and cost objectives, quality and cost objectives
•• Many different skills have to be coordinatedMany different skills have to be coordinated
•• Fixed position layout, resources brought to productFixed position layout, resources brought to product
48
Jobbing ProcessesJobbing Processes
• Very small quantities: “ one-offs”, or on ly a few required
• Specially made. High variety, low repetition. “Strangers”
• Skill requirements are usually very broad
• Skilled jobber, or team of jobbers complete whole product
• Fixed position or process layout (routing decided by jobbers)
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Batch ProcessesBatch Processes
• Higher volumes and lower variety than for jobbing
• Standard products, repeating demand. But can make specials
• Specialized, narrower skills
• Set-ups (changeovers) at each stage of production
• Process or cellular layout, predetermined planned routing
50
Mass (Line)Mass (Line) ProcessesProcesses
• Higher volumes than Batch
• Standard, repeat products (“ runners” )
• Low and/or narrow skills
• No set-ups, or almost instantaneous ones
• Cell or product layout: a fixed sequence of operations
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Continuous ProcessContinuous Process
• Extremely high volumes and low variety: often single product
• Standard, repeat products (“ runners” )
• Highly captial-intensive and automated
• Few changeovers required
• Difficult and expensive to start and stop the process
• Product layout: usually flow along conveyors or pipes
52
The Product/Process MatrixThe Product/Process Matrix
Low volume
Low
standardisation
INCREASING VARIETY
Low volume
Multiple products
Higher volume
Few major
products
High volume
High
standardisation
PRODUCT CHARACTERISTICS
INCREASING VOLUME
Jumbledflow
(jobbing)
Disconnectedline flow
(batch)
Connectedline flow(mass )
Smooth f low(Continuous) P
R O C E S S C H A
R A C T E R I S T I C S
Randomflow
(project)
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The Product/Process MatrixThe Product/Process Matrix
Low volume
Low
standardisation
INCREASING VARIETY
Low volume
Multiple products
Higher volume
Few major
products
High volume
High
standardisation
PRODUCT CHARACTERISTICS
INCREASING VOLUME
Too much
flexibility so high
costs
Too little
flexibility so high
costs
Jumbledflow
(jobbing)
Disconnectedline flow(batch)
Connected
line flow(mass )
Smooth f low(Continuous) P
R O C E S
S C H A R A C T E R I S T I C S
Randomflow
(project)
54
The Product/Process MatrixThe Product/Process Matrix
Low volume
Low
standardisation
INCREASING VARIETY
Low volume
Multiple products
Higher volume
Few major
products
High volume
High
standardisation
PRODUCT CHARACTERISTICS
INCREASING VOLUME
Machine
tool maker
Custom
furniture
maker
Automobi le
factory
Petro-
chemical
refinery
Jumbledflow
(jobbing)
Disconnectedline flow
(batch)
Connectedline flow(mass )
Smooth f low(Continuous) P
R O C E S S C H A
R A C T E R I S T I C S
Randomflow
(project)
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The Product/Process MatrixThe Product/Process Matrix
Low volume
Low
standardization
INCREASING VARIETY
Low volume
Multiple products
Higher volume
Few major
products
High volume
High
standardization
PRODUCT CHARACTERISTICS
INCREASING VOLUME
Customer
service
branch
Investment
banking
Bank call
centre
Credit card
processing
Jumbledflow
(jobbing)
Disconnectedline flow(batch)
Connected
line flow(mass )
Smooth f low(Continuous)
P R O C E S
S
C H A R A C T E R I S T I C S
Randomflow
(project)
56
Deviating f rom theDeviating f rom the ‘‘naturalnatural ’’ diagonal on thediagonal on the
productproduct--process matrix has consequences forprocess matrix has consequences forcost and flexibilitycost and flexibility
Project
Jobbing
Batch
Mass
Continuous
Professionalservice
ServiceShop
Massservice
None
None
Less processflexibilitythan is
needed sohigh cost
More processflexibility
than isneeded sohigh cost
The ‘natural’ line of fit of processto volume/variety characteristics
Manufacturingoperations process
types
Service operationsprocess types
Variety
Volume
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Case StudyCase Study – – Central Evaluation CentreCentral Evaluation Centre
Processing UnitProcessing Unit
•• Construct a Process Map for the new applicationsConstruct a Process Map for the new applications
•• Calculate the cycle time for the processCalculate the cycle time for the process
•• Calculate the number of people involved in theCalculate the number of people involved in the
processing of an applicationprocessing of an application
•• Why is it difficult to locate an individual file?Why is it difficult to locate an individual file?
•• What are the prob lems?What are the prob lems?
•• What suggestions would you make to Veronique toWhat suggestions would you make to Veronique to
improve her process?improve her process?
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CECPU Process MapCECPU Process Map
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Process Cycle TimeProcess Cycle Time
The total work in progress (applications i n the in-trays) = 600 + (4 × 130) + 220= 1340 applications
Average th roughput tim e = 36 working days
Therefore, from Little’s Law: Throughput time = cycle time × work in progress (and working inhours)
36 × 7 = cycle time × 1340
Therefore, cyc le time = (36 × 7)/1340 = 0.188 hours
In other words, a fully processed application form i s emerging from the process every 0.188hours.
That is, in a 35 hour week, the Centre will process 35/0.188 = 186.17 applications per week
This is an im portant findi ng because 200 applications per week are entering the process, but
only 186.17 applications per week are emerging from the pro cess. In other words, inventor y
must be building up within the process.
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Throughput (TH) = Work in process (WIP) × Cycle time (CT)
LittleLittle’’s Laws Law
Cycle time =
2 minutes
Throughput time = ?
WIP = 10
Throughput time = 10 × 2 minutes= 20 minutes
Also st ated as :
“ The average number of customers in a stablesystem (over some t ime interval) is equal to t heir average
arrival rate, multiplied by their average time in the system. “
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Throughput (TH) = Work in process (WIP) × Cycle time (CT)
LittleLittle’’s Laws Law
Throughput time = 5 days × 7 hours = 35 hours
500 exam scripts need to be marked in 5 days (working 7 hours a day).
It takes 1 hour to mark a script. How many markers are needed?
35 hours = 500 scripts × Cycle time
Cycle time = 35 hours500 scripts
= 0.07 hours
Number of markers = Work content = 1 hour = 14.29Cycle time 0.07
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LittleLittle’’s Laws Law – – An Example An Example
Think of a tank of water with a constant in flow and a constant,
identical outflo w.
In this analogy, the input tap represents orders coming to the
factory. The outlet tap represents finished product. Water in the
tank represents WIP inventory. Average throughput or dwell time
in the tank i s 100 minutes.
(If we set the level to 100 gallons and maintain the same flow,
throughput time is only 10 minutes).
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Throughput efficiency =Work content
Throughput time× 100
Throughput efficiency is the work content of whatever is being
processed as a percentage of its throughput time
Throughput efficiencyThroughput efficiency
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LittleLittle’’s Laws Law – – More ExamplesMore Examples
• At the supermarket a checkout operator has on average 4
customers and customers arrive every 2 minutes. Therefore
customers on average will be in line for 8 minutes.
• A restaurant holds about 60 people, and the average person
will be in there about 2 hours, so they're entering at the rate of
about 30 people an hour. The queue for the restaurant has 30
people in it, so that means I'll wait about an hour for a table.
• A fi nancial services organisat ion receives on average 160
enquiries per day about its products and services. If it takesaround 30 minutes to process each enquiry and management
want to ensure each enquiry is responded to on the same day
its received, how many people are needed to process the
enquiries?
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