Process AnalysisIntroduction of Process

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Agenda

Process AnalysisWhat is a processThree basic performance measuresFinding the bottleneckLittle’s ruleLabor productivity measuresThe product-process matrixInventory turns/Inventory costsBuffer or sufferMultiple flow units

Process: Is any part of an organization that takes inputs and transforms them into outputs (products or services) by using various of resources

What is a process?

Transformation Process

System Primary Inputs

Resources Primary Transformation Function(s)

Typical Desired Output

Hospital Patients Nurses, medical supplies, equipment

Health care Healthy individuals

Restaurant

Hungry

customers

Food, chef, wait staff, environment

Well-prepared, well-served food

Satisfied customers

Automobile

factory

Sheet steel,

engine parts

Tools, equipment, workers

Fabrication and assembly of cars

(physical)

High-quality cars

Process AnalysisThe Product-Process Matrix

A Process Flow Structure refers to how a factory organizes material flow using one or more of the process technologies.

Job shop Production of small batches of a large number of different products, most of which require a different set or sequence of processing steps. (e.g., Commercial printing firms, airplane manufacturers, machine tool shops, and plants that make custom-designed printed circuit boards) (low-volume/high-variety)

A typical example would be a machine shop who makes specialized components for the aerospace industry. Such parts are made in relatively small quantities compared to components such as standard bolts or rivets.

Job Shop Scheduling (JSS): dealing with the assignment

of jobs on machines subject to precedence constraints, NP-hard (nondeterministic polynomial time) problem

Batch shop. Essentially, a somewhat standardized job shop. Such a structure is generally employed when a business has a relatively stable line of products, each of which is produced in periodic batches, either to customer order or for inventory. Most of these items follow the same flow pattern through the plant. (ex. Copy center making 10,000 copies of an ad piece for a business)

Assembly Line. Production of discrete parts moving from workstation to workstation at a controlled rate, following the sequence needed to build the product. (ex. Automobile manufacturer)

When other processes are employed in a line fashion along with assembly, it is commonly referred to as a production line.

Assembly Line

Continuous Flow. As on assembly lines, production follows a predetermined sequence of steps, but the flow is continuous rather than discrete. Such structures are usually highly automated and, in effect, constitute one integrated “machine” that must be operated 24 hours a day to avoid expensive shutdowns and start-ups. (ex. Petroleum manufacturer, chemicals, beer, iron and steel enterprise)

The material flow for an integrated iron and steel enterprise

From: Tang and Wang, Decision support system for the batching problems of steelmaking and continuous-casting production, Omega, 2008, 36(6):976-991

IV.Continuous

Flow

III.Assembly

Line

II.Batch

I.Job

Shop

LowVolume,One of a

Kind

MultipleProducts,

LowVolume

FewMajor

Products,HigherVolume

HighVolume,

HighStandard-

izationCommercial

PrinterFrench Restaurant

HeavyEquipment

AutomobileAssembly

Burger King

SugarRefinery

Flexibility (High)Unit Cost (High)

Flexibility (Low)Unit Cost (Low)

These are the major stages of product and process life cycles

These are the major stages of product and process life cycles

Product-Process Matrix

Process AnalysisThree Performance Measures

KFC– Sitting in Front of the Store

Sitting in Front of the Store

Source: Cachon, Gerard, Christian Terwiesch, Matching Supply with Demand: An Introduction to Operations Management, 2nd edition, Irwin - McGraw Hill, 2009

• Flow Unit: Customer or Sandwich

•Flow rate / throughput: number of flow units going through the process per unit of time

• Flow Time: time it takes a flow unit to go from the beginning to the end of the process

• Inventory: the number of flow units in the process at a given moment in time

Processes: The Three Basic Measures

Process Analysis: The Three Measures

Immigration department

Applications

Approved or rejected cases

Processing time

Pending cases

Champagne

Bottle of champagne

Bottles sold per year

Time in the cellar

Content of cellar

Auto company

Car

Sales per year

60 days

Inventory

Those three are the most important performance measures in any operations

In the US economy alone, in a typical year, we have about 1 trillion dollors inventory, this is just the manufacturing section, because this is the accounting inventory

Inventory happens whenever the miss match happens between supply and demands

Understanding the inventory, flow rate, flow time, are indeed the most important issues, not just in our operations, but in management in general

Process AnalysisFinding the bottleneck

Process Analysis

In this session, we will take you INSIDE the black box

Specifically, you will learn how to:

1. Create a process flow chart (diagram)

2. Find the bottleneck of the process and determine the maximum flow rate

3. Conduct a basic process analysis

Inside the Store

Tasks or operations Examples: Giving an admission ticket to a customer, installing a engine in a car, etc.

Examples: Giving an admission ticket to a customer, installing a engine in a car, etc.

Decision Points Examples: How much change should be given to a customer, which wrench should be used, etc.

Examples: How much change should be given to a customer, which wrench should be used, etc.

Purpose and Examples

Examples: Sheds, lines of people waiting for a service, etc.

Examples: Sheds, lines of people waiting for a service, etc.

Examples: Customers moving to a seat, mechanic getting a tool, etc.

Examples: Customers moving to a seat, mechanic getting a tool, etc.

Storage areas or queues

Flows of materials or customers

Flowchart Process Flow Diagram

Drawing a Process Flow Diagram

Difference between project managementand process management

Customers Station 1 Station 2 Station 3   

Basic Process Vocabulary

• Processing times: how long does the worker spend on the task?

• Capacity=1/processing time: how many units can the worker make per unit of time If there are m workers at the activity: Capacity=m/processing time

• Bottleneck: process step with the lowest capacity

• Process capacity: capacity of the bottleneck

Basic Process Vocabulary (Cont’d)

Flow rate =Minimum{Demand rate, Process Capacity)

Utilization =Flow Rate / Capacity

Flow Time: The amount of time it takes a flow unit to go through the process

Inventory: The number of flow units in the system

Illustration of the calculation in EXCEL

Process AnalysisLabor productivity measures

a1

Pro

cess

ing

Tim

e

a2

a3

a4

1 2 3 4

Bottleneck

=Idle Time

• Capacityi =

• Process Capacity=Min{Capacityi}

• Flow Rate = Min{Demand, Capacity}

• Utilizationi=

Review of Capacity Calculations

iCapacity

Rate Flow

iTime Processing

Resources ofNumber i

Labor Productivity Measures

=Processing time

time idle direct content labor

content labor

time of unit per Rate Flow

time of unit perwages Total

• Cycle time(takt time) CT= 1/ Flow Rate Direct Labor Content=p1+p2+p3+p4

If one worker per resource: Direct Idle Time=(CT-p1) +(CT-p2) +(CT-p3)

• Average labor utilization

• Cost of direct labor

Labor Productivity Measures

Example: Assembly Line with Six Stations

3 min/unit 5 min/unit 2 min/unit 3 min/unit 6 min/unit 2 min/unit

Insert Excel analysis of KFC line here

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Final Assembler’s cost

IncludingTier 1Costs

IncludingTier 2Costs

Rolled-upCosts over~ 5 Tiers

Purchasedparts andassemblies

Parts andmaterialcosts

Material costs

Logistics costs

Assembly and otherLabor costs

QualityWarrantyOverheadOther

• While labor costs appear small at first, they are important - look relative to value added - role up costs throughout the value chain

• Implications - also hunt for pennies (e.g. line balancing) - spread operational excellence through the value chain

The Role of Labor Costs in Manufacturing: The Auto Industry

Process AnalysisLittle’s Law

Processes: The Three Key Metrics

What it is: Ave. Inventory (I) = Ave. Flow Rate (R) * Ave. Flow Time (T)

Implications:• Out of the three fundamental performance measures (I,R,T), two can be chosen by management, the other is GIVEN by nature• Hold throughput constant: Reducing inventory = reducing flow time

Little’s law: It’s more powerful than you think...

Throughput time = work-in-process Throughput

rate

•Given two of the three measures, you can solve for the third:• Indirect measurement of flow time: how long does it take you on average to respond to an email?•You write 60 email responses per day•You have 240 emails in your inbox

Examples for Little’s Law Applications

In a large Philadelphia hospital, there are 10 births per day.•80% of the deliveries are easy and require mother and baby to stay for 2 days•20% of the cases are more complicated and require a 5 day stay

What is the average occupancy of the department?

Source: Graves and Little

Not an empirical law

Robust to variation, what happens inside the black box

Deals with averages – variations around these averages will exist

Holds for every time window

Shown by Professor Little in 1961

Little’s law: Some remarks

Process AnalysisInventory Turns / Inventory costs

Cost of Goods sold: 25,263 mill $/yearInventory: 2,003 mill $

Cost of Goods sold: 20,000 mill $/yearInventory: 391 mill $

Inventory Turns

Inventory TurnsComputed as:

Based on Little’s lawCareful to use COGS, not revenues

Inventory

COGSInventory turns=

Inventory Turns At Dell

Inventory Cost Calculation

Compute per unit inventory costs as: Per unit Inventory costs=

turnsInventory

costsinventory Annual

Example:

• Annual inventory costs=30%• Inventory turns=6 Per unit Inventory costs= %5

year per turns 6

year per 30%

Process AnalysisBuffer or Suffer

Simple Process Flow – A Food Truck

Food Truck

 

Every five minutes:- You get 0, 1, or 2 orders with equal probability- You have a capacity of 0, 1, or 2 with equal probability- It is not possible to make a sandwich before the order - Customers are not willing to wait

How many sandwiches will you sell per five minute slot?

Variability Will Be a Key Factor in Waiting Time

Why variability does not always average itself out

Buffer-or-suffer strategy

Buffering is easier in production settings than in services (make to order vs make to stock)Two different models: Queue and Newsvendor

Difference Between Make-to-Order and Make-to-Stock

McDonald’s1. Make a batch of sandwiches

2. Sandwiches wait for customer orders

3. Customer orders can filled immediately

Sandwich waits for customer

Subway1. Customer orders

2. Customer waits for making of sandwich

3. Customer orders can filled with delay

Customer waits for sandwich

Which approach is better?

Make-to-Stock advantages include:+ Scale economies in production+ Rapid fulfillment (short flow time for customer order)

Make-to-Order advantages include:+ Fresh preparation (flow time for the sandwich)+ Allows for more customization (you can’t hold all versions of a sandwich in stock)+ Produce exactly in the quantity demanded

Examples of Demand Waiting for Supply

Service Examples ER Wait Times: 58-year-old Michael Herrara of Dallas died of a heart attack

after an estimated 19 hours in the local Hospital ERSome ER’s now post expected wait times online / via Apps

It takes typically 45 days do get approval on a mortgage; Strong link between wait times and conversion

Waiting times for drive-through at McDonald’s: 159 seconds; Long queues deter customers to join

Production Examples• Buying an Apple computer • Buying a Dell computer

Make-to-order vs Make-to-Stock

http://www.minyanville.com/businessmarkets/articles/drive-thrus-emissions-fast-food-mcdonalds/5/12/2010/id/28261

Pipeline inventory: you will need some minimum inventory because of the flow time >0 (Little’s Law)

Seasonal inventory: driven by seasonal variation in demand and constant capacity (dismatching between supply and demand)

Cycle inventory: economies of scale in production (purchasing drinks) (created due to a cost motivation)

Safety inventory: buffer against demand (Mc Donald’s hamburgers), especially for the stochastic demand.

Decoupling inventory/ buffers: buffers between several internal steps

Five Reasons for Inventory

Source: De Groote

Process AnalysisMultiple flow units

The two most common complications of multiple flow units are: (1)The flow of the unit moving through the process breaks up into multiple flows.

(2)There are multiple types of flow units, representing different customer types or product mix.

Implied utilization=Capacity requested by demand(workload)/Available capacity

3 cases per hour11 cases per hour4 cases per hour EZ form

Regular

Foreign acc.

File

Contact faculty/other persons

Contact prioremployers

Benchmarkgrades

Confirmationletter

Filem=1

3 min/app

Foreign Dep.m=2

20 min/app

Print invoicem=1

2 min/app

Department 1m=3

15 min/app

Department 2m=2

8 min/app

Processes with Multiple Flow Units

Approach 1: Adding-up Demand Streams

Unlike utilization, implied utilization can exceed 100 percent

The fact that a resource has an implied utilization above 100 percent does not make it the bottleneck. The bottleneck is the resource where the implied utilization is the highest.

It is important to keep in mind that in the case of a capacity expansion of the process, it might be worthwhile to add capacity to these other resources as well, not just to the bottleneck.

Approach 2: A Generic Flow Unit (“Minute of Work”)

Demand can be expressed in terms of number of “Minute of Work” it requests from the resource.

Steps for Basic Process Analysis with Multiple Types of Flow Units

1. For each resource, compute the number of minutes that the resource can produce

2. Create a process flow diagram, indicating how the flow units go through the process

3. Create a table indicating how much workload each flow unit is consuming at each resource

4. Add up the workload of each resource across all flow units.

5. Compute the implied utilization of each resource as

Implied utilization = Result of step 4/(result of step 1)

The resource with the highest implied utilization is the bottleneck

Note: you can also find the bottleneck based on calculating capacity for each step and then dividing the demand at this resource by the capacity