Ninth editionNinth edition

OPERATIONS MANAGEMENT

Nigel Slack • Alistair Brandon-Jones

OPERATIONS MANAGEMENT

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208 PART TWO DESIGNING THE OPERATION

were to be changed with the same variability, the blue line in Figure 6.17 would show the relationship between average waiting time and process utilization. As the process moves closer to 100 per cent utilization, the average waiting time will become longer. Or, to put it another way, the only way to guarantee very low waiting times for the items is to suffer low process utilization.

The greater the variability in the process, the more the waiting time–utilization relationship devi-ates from the simple rectangular function of the ‘no variability’ conditions that was shown in Figure 6.17. A set of curves for a typical process is shown in Figure 6.18(a). This phenomenon has important implications for the design of processes. In effect, it presents three options to process designers wishing to improve the waiting time or utilization performance of their processes, as shown in Figure 6.18(b). Either,

▶ Accept long average waiting times and achieve high utilization (point X)▶ Accept low utilization and achieve short average waiting times (point Y), or▶ Reduce the variability in arrival times, activity times, or both, and achieve higher utilization and

short waiting times (point Z).

To analyse processes with both inter-arrival and activity time variability, queuing or ‘waiting line’ analysis can be used. This is treated in the supplement to Chapter 11. But do not dismiss the relationship shown in Figures 6.17 and 6.18 as some minor techni-cal phenomenon. It is far more than this. It identifies an important choice in process design that could have strategic implications.

Figure 6.18 The relationship between process utilization and number of items waiting to be processed for variable arrival and activity times

Utilization

0 20 50 60 70 80 90 100403010 0 20 50 60 70 80 90 100403010

Avera

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of

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Avera

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(b) Managing process capacity and/or variability(a) Decreasing variability allows higher utilization

without long waiting times

Decreasing

variability

Utilization

High utilization but

long waiting time

Reduction in

process variability

Short waiting

time but low

utilization

Which is more important to a business, fast throughput time or high utilization of its resources? The only way to have both of these simultaneously is to reduce variability in its processes, which may itself require strategic decisions such as limiting the degree of customization of products or services, or imposing stricter limits on how products or services can be delivered to customers, and so on. It also demonstrates an important point concerned with the day-to-day management of process – the only

Operations principle

Process variability results in simultaneous waiting and resource under-utilization.

CHAPTER 6 PROCESS DESIGN 209

way to absolutely guarantee 100 per cent utilization of resources is to accept an infinite amount of work-in-progress and/or waiting time.

Summary answers to key questions

What is process design?

▶ Design is the activity which shapes the physical form and purpose of both products and services and the processes that produce them.

▶ The design activity is more likely to be successful if the complementary activities of product or service design and process design are coordinated.

What should be the objectives of process design?

▶ The overall purpose of process design is to meet the needs of customers through achieving appropriate levels of quality, speed, dependability, flexibility and cost.

▶ The design activity must also take account of environmental issues. These include examination of the source and suitability of materials, the sources and quantities of energy consumed, the amount and type of waste material, the life of the product itself and the end-of-life state of the product.

How do volume and variety affect process design?

▶ The overall nature of any process is strongly influenced by the volume and variety of what it has to process.

▶ The concept of process types summarizes how volume and variety affect overall process design.▶ In manufacturing, these process types are (in order of increasing volume and decreasing variety) pro-

ject, jobbing, batch, mass and continuous processes. In service operations, although there is less con-sensus on the terminology, the terms often used (again in order of increasing volume and decreasing variety) are professional services, service shops and mass services.

How are processes designed in detail?

▶ Processes are designed initially by breaking them down into their individual activities. Often common symbols are used to represent types of activity. The sequence of activities in a process is then indicated by the sequence of symbols representing activities. This is called ‘process mapping’. Alternative process designs can be compared using process maps and improved processes considered in terms of their operations performance objectives.

▶ The throughput time, work-in-progress and cycle time aspects of process performance are related by a formula known as Little’s law: throughput time equals work-in-progress multiplied by cycle time.

▶ Variability has a significant effect on the performance of processes, particularly the relationship between waiting time and utilization.

210 PART TWO DESIGNING THE OPERATION

IntroductionAction Response is a London- based charity dedicated to providing fast responses to critical situations through-out the world. It was founded by Susan N’tini, its Chief Executive, to provide relatively short-term aid for small projects until they could obtain funding from larger donors. The charity receives requests for cash aid usually from an interme-diary charity and looks to process the request quickly, providing funds where and when they are needed. ‘Give a man a fish and you feed him today, teach him to fish and you feed him for life. It’s an old saying and it makes sense but, and this is where Action Response comes in, he might starve while he’s training to catch fish’ (Susan N’tini).

Nevertheless, Susan does have some worries. She faces two issues in particular. First, she is receiving complaints that funds are not getting through quickly enough. Second, the costs of running the operation are starting to spiral. She explains: ‘We are becoming a victim of our own success. We have striven to provide greater accessibility to our funds; people can access application forms via the internet, by post and by phone. But we are in danger of losing what we stand for. It is taking longer to get the money to where it is needed and our costs are going up. We are in danger of failing on one of our key objectives: to minimize the proportion of our turnover that is spent on administration. At the same time we always need to be aware of the risk of bad publicity through making the wrong decisions. If we don’t check appli-cations thoroughly, funds may go to the “wrong” place and if the newspapers gets hold of the story we would run a real risk of losing the goodwill, and therefore the funds, from our many supporters.’

Susan held regular meetings with key stakeholders. One charity that handled a large number of applications for people in Nigeria told her of frequent complaints about the delays over the processing of the applications. A second charity representative complained that when he

The Action Response Applications Processing Unit (ARAPU)

CASE STUDY

telephoned to find out the status of an application the ARAPU staff did not seem to know where it was or how long it might be before it was complete. Furthermore, he felt that this lack of information was eroding his relation-ship with his own clients, some of whom were losing faith in him as a result: ‘trust is so important in the relationship’, he explained.

Some of Susan’s colleagues, while broadly agreeing with her anxieties over the organization’s responsiveness and effi-ciency, took a slightly different perspective. ‘One of the really good things about Action Response is that we are more flexi-ble than most charities. If there a need and if they need support until one of the larger charities can step in, then we will always consider a request for aid. I would not like to see any move towards high process efficiency harming our ability to be open-minded and consider requests that might seem a little unusual at first’ (Jacqueline Horton, Applications Assessor).

Others saw the charity as performing an important coun-selling role. ‘Remember that we have gained a lot of experience in this kind of short-term aid. We are often the first people that are in a position to advise on how to apply for larger and longer-term funding. If we developed this aspect of our work, we would again be fulfilling a need that is not adequately supplied at the moment’ (Stephen Nyquist, Applications Assessor).

CHAPTER 6 PROCESS DESIGN 211

The Action Response Applications Processing Unit (ARAPU)Potential aid recipients, or the intermediary charities repre-senting them, apply for funds using a standard form. These forms can be downloaded from the internet or requested via a special help line. Sometimes the application will come directly from an individual community leader but more usually it will come via an intermediary charity that is can help the applicant to complete the form. The application is sent to ARAPU, usually by fax or post (some are submitted online, but few communities have this facility).

ARAPU employs seven applications assessors with support staff who are responsible for data entry, coding, filing and ‘completing’ (staff who prepare payment, or explain why no aid can be given). In addition, a board of non-paid trustees meets every Thursday, to approve the assessors’ decisions. The unit’s IT system maintained records of all transactions, provid-ing an update on the number of applications received, approved and declined, and payments allocated. These reports identified that the Unit received about 300 new applications per week and responded to about the same number (the Unit operates a 35-hour week). But while the Unit’s financial targets were being met, the trend indicated that cost per application was increasing. The target for the turnaround of an application, from receipt of application to response, was 20 days, and although this was not measured formally, it was generally assumed that turnaround time was longer than this. Accuracy had never been an issue as all files were thoroughly assessed to ensure that all the relevant data were collected before the applications were processed. Productivity seemed high and there was always plenty of work waiting for process-ing at each section with the exception that the ‘completers’ were sometimes waiting for work to come from the commit-tee on a Thursday. Susan had conducted an inspection of all sections’ in-trays that had revealed a rather shocking total of about 2,000 files waiting within the process, not counting those waiting for further information.

Processing applicationsThe processing of applications is a lengthy procedure requiring careful examination by applications assessors trained to make well-founded assessments in line with the charity’s guidelines and values. Incoming applications are opened by one of the four ‘receipt’ clerks who check that all the necessary forms have been included in the applica-tion ; the receipt clerks take about 10 minutes per application. These are then sent to the coding staff, in batches twice a day. The five coding clerks allocate a unique identifier to each application and key the information on the application into the system. The coding stage takes about 20 minutes for each application. Files are then sent to the senior applications assessors’ secretary’s desk. As

assessors become available, the secretary provides the next job in the line to the assessor.

About 100 of the cases seen by the assessors each week are put aside after only 10 minutes’ ‘scanning’ because the infor-mation is ambiguous, so further information is needed. The assessor returns these files to the secretaries, who write to the applicant (usually via the intermediate charity) requesting additional information, and return the file to the ‘receipt’ clerks who ‘store’ the file until the further information even-tually arrives (usually between 1 and 8 weeks). When it does arrive, the file enters the process and progresses through the same stages again. Of the applications that require no further information, around half (150) are accepted and half (150) declined. On average, those applications that are not ‘recy-cled’ take around 60 minutes to assess.

All the applications, whether approved or declined, are stored prior to ratification. Every Thursday the Committee of Trustees meets to formally approve the applications assessors’ decisions. The committee’s role is to sample the decisions to ensure that the guidelines of the charity are upheld. In addition, they will review any particularly unusual cases highlighted by the applications assessors. Once approved by the committee the files are then taken to the completion officers. There are three ‘decline’ officers whose main responsibility is to compile a suitable response to the applicant pointing out why the appli-cation failed and offering, if possible, helpful advice. An experienced declines officer takes about 30 minutes to finalize the file and write a suitable letter. Successful files are passed to the four ‘payment’ officers where again the file is completed, letters (mainly standard letters) are created and payment instructions are given to the bank. This usually takes around 50 minutes, including dealing with any queries from the bank about payment details. Finally, the paperwork itself is sent, with the rest of the file, to two ‘dispatch’ clerks who complete the documents and mail them to the applicant. The dispatch activity takes, on average, 10 minutes for each application.

The feeling among the staff was generally good. When Susan consulted the team, they said their work was clear and routine, but their life was made difficult by charities that rang in expecting them to be able to tell them the status of an application they had submitted. It could take them hours, sometimes days, to find any individual file. Indeed, two of the ‘receipt’ clerks now were working almost full time on this activity. They also said that charities frequently complained that decision making seemed slow.

QUESTIONS

1 What objectives should the ARAPU process be trying to achieve?

2 What is the main problem with the current ARAPU process?

3 How could the ARAPU process be improved?

212 PART TWO DESIGNING THE OPERATION

All chapters have ‘Problems and application’ questions that will help you practise analysing operations. They can be answered by reading the chapter. Model answers for the first two questions can be found on the companion website for this book.

1 Visit a branch of a retail bank and consider the following questions: (a) What categories of service does the bank seem to offer? (b) To what extent does the bank design separate processes for each of its types of service? (c) What are the different process design objectives for each category of service?

2 Revisit the ‘Operations in practice’ example that examines some of the principles behind supermarket process design. Then visit a supermarket and observe people’s behaviour. You may wish to try and observe which areas they move slowly past and which areas they seem to move past without paying attention to the products. (You may have to exercise some discretion when doing this; people generally don’t like to be stalked round the supermarket too obviously.) Try and verify, as far as you can, some of the principles that were outlined in the box. (a) What layout type is a conventional supermarket and how does it differ from a manufacturing operation using the same layout type? (b) What are the benefits of using customer tracking technology that traces the flow of customers through the shop?

3 One of the examples at the beginning of the chapter described ‘drive-through’ fast food processes. Think about (or better still, visit) a drive-through service and try mapping what you can see of the process (plus what you can infer from what may be happening ‘behind the scenes’).

4 ‘It is a real problem for us’, said Angnyeta Larson. ‘We now have only ten working days between all the expense claims coming from the departmental coordinators and authorizing payments on the next month’s payroll. This really is not long enough and we are already having problems during peak times.’ Angnyeta was the department head of the internal financial control department of a metropolitan authority in southern Sweden. Part of her department’s responsibilities included checking and process-ing expense claims from staff throughout the metropolitan authority and authorizing payment to the salaries payroll section. She had 12 staff who were trained to check expense claims and all of them were devoted full-time to processing the claims in the two weeks (10 working days) prior to the deadline for informing the salaries section. The number of claims submitted over the year averaged around 3,200, but this could vary between 1,000 during the quiet summer months up to 4,300 in peak months. Processing claims involved checking receipts, checking that claims met with the strict financial allow-ances for different types of expenditure, checking all calculations, obtaining more data from the claimant if necessary, and (eventually) sending an approval notification to salaries. The total processing took on average 20 minutes per claim. (a) How many staff does the process need on average, for the lowest demand, and for the highest demand? (b) If a more automated process involving electronic submission of claims could reduce the average processing time to 15 minutes, what effect would this have on the required staffing levels? (c) If department coordinators could be persuaded to submit their batched claims earlier (not always possible for all departments) so that the average time between submission of the claims to the finance department and the deadline for informing the salaries section was increased to 15 working days, what effect would this have?

5 The headquarters of a major creative agency offered a service to all its global subsidiaries that included the preparation of a budget estimate that was submitted to potential clients when making a ‘pitch’ for new work. This service had been offered previously only to a few of the group’s subsid-iary companies. Now that it was to be offered worldwide, it was deemed appropriate to organize the process of compiling budget estimates on a more systematic basis. It was estimated that the worldwide demand for this service would be around 20 budget estimates per week, and that, on average, the staff who would put together these estimates would be working a 35-hour week. The elements within the total task of compiling a budget estimate are shown in Table 6.3. (a) What is the required cycle time for this process? (b) How many people will the process require to meet the anticipated demand of 20 estimates per week? (c) Assuming that the process is to be designed on a ‘long thin’ basis, what elements would each stage be responsible for completing? And what would be the balancing loss for this process? (d) Assuming that instead of the long thin design, two parallel

Problems and applications