Kristen's Cookies (Handout)

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Kristen’s Cookies

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Examples of a Processin Service Companies

Processing an insurance claim for an accident.

Admitting a patient to a hospital.

Performing the 30,000-mile maintenance on a car.

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Concepts

PROCESS FLOW DIAGRAMTHROUGHPUT TIME FOR AN ACTIVITYTHROUGHPUT TIME FOR THE PROCESSCAPACITY OF AN ACTIVITYCYCLE TIME OF AN ACTIVITYBOTTLENECKCAPACITY OF THE PROCESSCYCLE TIME OF THE PROCESSUTILIZATION OF A RESOURCEGANTT CHARTPROCESSINCREASING THE CAPACITY OF A PROCESS

This case will familiarize you with the following concepts:

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Process Flow Diagramfor Kristen’s Cookies

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Question 1Assume that Kristen’s most important customer has just submitted an order for one dozen cookies, and that she wants to give the highest priority to this order. How long will it take to fill this order?

NOTE: The answer of __ assumes that there no cookies in the oven, or, if there are cookies in the oven, the remaining baking time is at most 8 minutes. If cookies are in the oven and have a baking time in excess of 8 minutes, then, if the cookies are not removed from the oven, the time required to fill the “rush order” increases above __.

The time required to fill the “rush order” is:Process’s Throughput Time =

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Question 2Assuming that Kristen’s Cookie Company is open for four hours each night, how many orders can be filled each night?

The process’s bottleneck is

Which activity is the process’s bottleneck?

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Question 2 (continued)Assuming that Kristen’s Cookie Company is open for four hours each night, how many orders can be filled each night?

The process’s hourly capacity equals

Once it is “up and running”, what is the process’s hourly capacity?

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Question 2 (continued)Assuming that Kristen’s Cookie Company is open for four hours each night, how many orders can be filled each night?

If we stood at the end of the process, and, if the process were continually busy, how much time would elapse between the completion of successive units (in this case, successive dozens of cookies? The answer is known as the process’s cycle time.

Because the process’s hourly capacity is 6 dozen per hour, the process’s cycle time is

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Question 2 (continued)Assuming that Kristen’s Cookie Company is open for four hours each night, how many orders can be filled each night?

The process’s nightly capacity equalsWhat is the process’s nightly capacity?

NOTE: The process completes its first dozen after 26 minutes, and, thereafter, the process completes a dozen every 10 minutes. That is, process completes a dozen at the following times:

26, 36, 46, 56, …, 216, 226, 236

So, Kristen’s nightly capacity is actually __ dozen.

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Question 3During each night, what percentage of time will Kristen be busy, and what percentage of time will Kristen’s roommate be busy?

Recall that the process’s cycle time is 10 minutes.KRISTEN ROOMMATE

Mix + Spoon =

Total Busy Time

Within Each

10-minute Cycle

Load + Pack + Pay =

Total Busy Time

Within Each

10-minute Cycle

Kristen's Utilization = 8/10 = 80% Roommate's Utilization = 4/10 = 40%

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Question 3 (continued)From the previous slide, we know that Kristen will be idle 20% of the time, and her roommate will be idle 60% of the time.What can a worker do when he/she would otherwise be idle?

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Question 4Assume that Kristen pays herself and her roommate $12 per hour.

If Kristen and her roommate are not paid for idle time, what is the minimum amount Kristen should charge for one dozen cookies?

If Kristen and her roommate are paid regardless of whether they are busy or idle, what is the minimum amount Kristen should charge for one dozen cookies?

From the previous slide, recall that, in each 10-minute cycle, Kristen and her roommate work a total of

8 + 4 =12 minutes

Kristen’s and the roommate’s wage is

$12/hr or $0.20 /min

From the case, the materials cost per dozen is $0.60 for ingredients and $0.10 for the box, for a total of

$0.70

MATERIALS $0.70 MATERIALS $0.70LABOR ($0.20/min)(12 min) = $2.40 LABOR [($12/hr)(4 hrs)(2 persons)]/(24 dozen) = $4.00

TOTAL $3.10 TOTAL $4.70

LABOR IS A VARIABLE COST (not paid when idle)

LABOR IS A FIXED COST (paid when idle)

Nightly capacity is 24 dozen

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Question 5How many food processors and baking trays will Kristen need?

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Increasing Process Capacity

If Kristen wants to increase the process’s capacity, on which activity should she focus?

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Question 6What is the effect of adding a second oven?

If Kristen could lease a second oven, how could she compute the maximum daily rate she would pay for the lease?

What is the process’s new bottleneck and new hourly capacity?

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Question 6 (continued)What is the effect of adding a second oven?

If Kristen could lease a second oven, how could she compute the maximum daily rate she would pay for the lease? The process’s new bottleneck is “Mix & Spoon”.The process’s new hourly capacity is the new bottleneck’s hourly capacity – 7.5 dozen per hour.

Although Kristen doubled the hourly capacity of the former bottleneck “Load & Bake”, the process’s hourly capacity did NOT increase by 100%.Because there was a new bottleneck, the process’s hourly capacity increased not by 100% but by only 25% from 6 dozen per hour to 7.5 dozen per hour.

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Question 6 (continued)What is the effect of adding a second oven?

If Kristen could lease a second oven, how could she compute the maximum daily rate she would pay for the lease?

With the acquisition of the second oven, the process’s hourly capacity increases from 6 to 7.5 dozen per hour.So, the process’s nightly (4 hour) capacity increases from 24 to 30 dozen per night – an increase of 6 dozen per night.

Therefore, the nightly value of the 2-nd oven equals(6)[(Selling Price per Dozen)-(Variable Cost per Dozen)].

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Question 7Besides adding a second oven, are there other process improvements Kristen should consider? Because “Load & Bake” is the bottleneck, only adding a second oven can increase the process’s capacity.However, improvements to a non-bottleneck activity are worth considering.Examples of an improvement to a non-bottleneck activity:

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Question 7 (continued)Besides adding a second oven, are there other process improvements Kristen should consider?

Even if a process improvement to a non-bottleneck activity cannot increase the process’s capacity, it can do one or more of the following:

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Question 8Assuming there is only one oven, what would happen if Kristen attempted to run her business without her roommate?

There are two “clues” that, if Kristen attempted to run her business without her roommate, the process’s capacity would decrease:

Clue #1:

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Question 8 (continued)Assuming there is only one oven, what would happen if Kristen attempted to run her business without her roommate?

Clue #2:

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Question 8 (continued)Assuming there is only one oven, what would happen if Kristen attempted to run her business without her roommate?As indicated by the Gantt Chart below, if Kristen must work alone, the process’s cycle time is 12 minutes, equivalent to an hourly capacity of 5 dozen (a decrease from 6 dozen.)

The bottleneck is now is Kristen. Her utilization is 100%.This illustrates that the bottleneck can be either an activity (e.g., “Load & Bake) or a resource (e.g., Kristen).

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Summary of ConceptsPROCESS FLOW DIAGRAM. A diagram depicting the activities of a process and the flows between them.

THROUGHPUT TIME FOR AN ACTIVITY. The time it takes to perform an activity.

THROUGHPUT TIME FOR THE PROCESS. The total amount of time a unit spends in the process from beginning to end, including the time spent being actively work on at the activities of the process as well as any time spent waiting between activities.

PROCESS. A collection of activities and resources that transforms various inputs into more valuable outputs.

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Summary of Concepts(continued)

BOTTLENECK. The activity or resource that limits the capacity of the overall process. The bottleneck is usually the activity with the minimum capacity, but the bottleneck can sometimes be the labor available at a particular activity or set of activities.CAPACITY OF THE PROCESS. The maximum rate of output of the process, measured in units of output per unit of time (e.g., 4 dozen per hour). CYCLE TIME OF AN ACTIVITY. The time that elapses between the activity’s completion of successive units, assuming the activity operates continuously. (For example, if an activity has a capacity of 4 dozen per hour, then the activity’s cycle time is 15 minutes.)CAPACITY OF AN ACTIVITY. An activity’s maximum rate of output, measured in units of output per unit of time (e.g., 4 dozen per hour).

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Summary of Concepts(continued)

CYCLE TIME OF THE PROCESS. The time that elapses between completion by the process of successive units, assuming the process operates continuously. (For example, if a process has a capacity of 4 dozen per hour, then the cycle time of the process is 15 minutes.)

UTILIZATION OF A RESOURCE. The ratio of the time that the resource is actually used to the time that the resource is available to be used.

GANTT CHART. A chart that depicts for the process the times during which each activity is being performed and during which each resource is being utilized.

INCREASING THE CAPACITY OF A PROCESS. To increase the capacity of a process, you must increase the capacity of the bottleneck.