Lecture 2. Process Flow Management

Process Flow Management

Lecture 2


Professor Kihoon Kim

BUSS211 OM


Outline

Changing Sources of Competitive Advantage

Process Analysis

Operational Measures: Time T, Inventory I, Throughput rate R

Link through Littles Law

Link to Financial Measures

Which process should be improved first?

Management of Flow Time and Capacity

Critical Activities

Flow Time Efficiency

Sequencing Multiple Jobs

Single Machine Dispatch Rules

Two-Machine Flow Shop Sequencing


How can operations help a company compete? The changing sources of competitive advantage

Low Cost & Scale Economies (< 1960s)

You can have any color you want as long as it is black

Focused Factories (mid 1960s)

Flexible Factories and Product variety (1970s)

A car for every taste and purse.

Quality (1980s)

Quality is free.

Time (late 1980s-1990s)

We love your product but where is it?

Dont sell what you produce. produce what sells.


We have already learned The Importance of Time

What is Toyota doing now?

All we are doing is looking at the time line from the moment the customer gives us an order to the point when we collect the cash. And we are reducing that time line by removing the non-value-added wastes.

-- Taiichi Ohno. Toyota Production System: Beyond Large-Scale Production.

Lower flow time

lower Inventory, shorter response time to market changes.


(Average) Flow time T The time a typical flow unit spends within the process boundaries

(Average) Throughput rate R # of units processed per unit of time

e.g., dollars per year, customers per week

(Average) Inventory I # of units within the process boundaries at any point

(Average) Process Cost Cost incurred in moving a flow unit through the process

Identify/Monitor Operational Performance Measures


Price

Quantity

Material

Labor

Energy

Overhead

PP&E

Inventory

Other

Revenues

Costs

Capital invested

Weighted average cost of capital

x

+

+

+

+

+ x

Profit

Opportunity cost

-

Economic value added (EVA)

Financial metrics Operational metrics

1. Increase price 2. Increase

throughput

Improvement levers

3. Reduce costs 4. Improve quality

5. Reduce capital intensity

6. Reduce inventory

Reduce time

-

Link b/w Operational and Financial Measures


Relating operational measures (flow time T, throughput R & inventory I) with Littles Law

Inventory Turnover = Throughput / Inventory

= 1/ T

Inventory / [units]

Flow rate (Throughput R) [units/hr] ... ... ... ... ...

Flow Time T [hrs]

Inventory = Throughput x Flow Time I = R x T


Littles Law applied to different process flow examples

Cash Flow: Motorola sells $300 million worth of cellular equipment per year. The average accounts receivable in the cellular group is $45 million. What is the average billing to collection process cycle time?

Customer Flow: Taco Bell processes on average 1,500 customers per day (15 hours). On average there are 75 customers in the restaurant (waiting to place the order, waiting for the order to arrive, eating etc.). How long does an average customer spend at Taco Bell and what is the average customer turnover?

Job Flow: The Travelers Insurance Company processes 10,000 claims per year. The average processing time is 3 weeks. Assuming 50 weeks in a year, what is the average number of claims in process.

Question: A general manager at Baxter states that her inventory turns three times a year. She also states that everything that Baxter buys gets processed and leaves the docks within six weeks. Are these statements consistent?


Littles Law applied to different process flow examples

Patient

checks in

Initial

doctor

consultation

Doctor

Requests

Tests for

patient

Nurse

takes

tests wait wait

4 patients/hr

5 min 2 patients

15 min 30 min 5 min 1 patient

25% quit

75%

Q: Will the service system be stable? 1. Total flow time

Quit:

Continue:

2. Average flow time:


Q: What is the total flow time from the moment we put a dollar in the factory until we get the offsetting revenues from A/R?

MBPF Inc.: Applying Littles Law to Financial

Statements


MBPF Inc.: Balance Sheet

CURRENT ASSETS

Cash 2.1

Short-term investments at cost (approximate mkt.) 3.0

Receivables, less allowances of $0.7 mil 27.9

Inventories 50.6

Other current assets 4.1

TOTAL CURRENT ASSETS 87.7

PROPERTY, PLANT AND EQUIPMENT (at cost)

Land 2.1

Buildings 15.3

Machinery and equipment 50.1

Construction in progress 6.7

Subtotal 74.2

Less accumulated depreciation 25.0

NET PROPERTY, PLANT AND EQUIPMENT 49.2

Investments 4.1

Prepaid expenses and other deferred charges 1.9

Other assets 4.0

TOTAL ASSETS 146.9

(Selected) CURRENT LIABILITIES

Payables 11.9


MBPF Inc.: Consolidated Statement

Net Sales 250.0

Costs and expenses

Cost of Goods Sold 175.8

Selling, general and administrative expenses 47.2

Interest expense 4.0

Depreciation 5.6

Other (income) expenses 2.1

TOTAL COSTS AND EXPENSES 234.7

INCOME BEFORE INCOME TAXES 15.3

PROVISION FOR INCOME TAXES 7.0

NET INCOME 8.3

RETAINED EARNINGS, BEGINNING OF YEAR 31.0

LESS CASH DIVIDENDS DECLARED 2.1

RETAINED EARNINGS AT END OF YEAR 37.2

NET INCOME PER COMMON SHARE 0.83

DIVIDEND PER COMMON SHARE 0.21

How long will it take to collect sales dollars from a customer?


MBPF Inc.: Inventory and Cost of Goods

INVENTORYRaw materials (roof) 6.5

Fabrication WIP (roof) 15.1

Purchased parts (base) 8.6

Assembly WIP 10.6Finished goods 9.8

TOTAL 50.6

COST OF GOODS SOLD

Raw materials 50.1

Fabrication (L&OH) 60.2

Purchased parts 40.2Assembly(L&OH) 25.3

TOTAL 175.8

How long does it take for invested money for manufacturing to leave the factory?


Raw Materials (roofs)

Fabrication (roofs)

$60.2/yr

Assembly

$25.3/yr

Purchased Parts (bases)

Finished Goods

$6.5 $50.1/yr

$40.2/yr $8.6

$15.1

$10.6

$110.3/yr

$40.2/yr

$175.8/yr $9.8

$175.8/yr

MBPF Inc.: Detailed Financial Flows


MBPF Inc.: Detailed Flow Times

Raw

Materials

Fabrication Purchased

Parts

Assembly Finished

Goods

Throughput R

$/Year 50.1 110.3 40.2 175.8 175.8

$/Week 0.96 2.12 0.77 3.38 3.38

Inventory I ($) 6.5 15.1 8.6 10.6 9.8

Flow Time T =

I/R (weeks)

6.75 7.12 11.12 3.14 2.90

6.75+7.12+11.12+3.14+2.90 >> 15 weeks (Why?)


Inventory = Rate x Flow Time

Flow rate R ($/week)

0.96

Flow Time T (weeks)

Accounts

Receivable

Finished

Goods

Assem

bly

Fabrication

Raw Materials Purchased Parts

11.12 6.75 7.12 3.14 2.90 5.80

0.77

2.12

3.38

5.0

Supply Chain Management

How to Manage Flow Time and Capacity


Information structure

Remind: Process is

Outputs

Goods Services

Inputs

Flow units/Entities (customers, data,

material, cash, etc.)

Labor & Capital

Resources

Process Management

Network of Activities and Buffers


Process is

Process = network of activities performed by resources

1. Process Boundaries:

input

output

2. Flow unit: the unit of analysis

3. Network of Activities & Storage/Buffers

activities with activity times

Buffers with waiting flow times

routes: precedence relationships (solid lines) with throughputs

4. Resources & Allocation

- who does what?

5. Information Structure & flow (dashed lines)


How to Draw a Process Flow Chart

Decisions are represented by Diamonds.

The remaining activities are represented by

Rectangles.

Solid Arrow: Precedence Relationship between two

activities

Buffer: Triangle

Information flow: dashed arrow


Process Flow Chart Example (Pizza Delivery)

start Take Order Sauce Prep Dough Prep Spread

Activity time: 2 3 1

Resource: Jean Jean Jean, Pan

end Bill Unload &

Pack Bake

Load & Set

timer

Activity time: 2 1 3 15 1

Resource: Jaqueline Jaqueline, Pan Pan Oven, Pan Jaqueline, Oven, Pan

cool


Process Flow Chart: Resources and Capacity

How long will it take?

How much work can we do? / What is the capacity of the process?

A

Activity time: 20 min/job

Resource: Kyle

D

30 min/job

Stan

B

20 min/job

Kenny

C

E

20 min/job

Eric

20 min/job

Timmy


How long: Theoretical flow time (TFT)

TFT: Time to complete the process assuming: 1. All activities are done at their average speed. 2. All resources are immediately available when needed. (no waiting time)

Look at paths through the process:

Here: A-B-C-E & A-D-E

Longest path (critical path) determines the theoretical flow time.

A-B-C-E = 20 + 20 + 20 + 20 = 80 min A-D-E = 20 + 30 + 20 = 70 min

A

Activity time:

20min/job

Kyle

D

30 min/job

Stan

B

20min/job

Kenny

C

E

20 min/job

Eric

20 min/job

Timmy


How much work: Theoretical capacity

Resource Unit Load Resource Capacity Process Resource

(time/job) Unit Capacity # of units Total Capacity Utilization*

Kyle 20min/job 3 jobs/hr 1 3 jobs/hr

66.67%

Kenny 20 3 jobs/hr 1 3 jobs/hr

66.67%

Eric 20 3 jobs/hr 1 3 jobs/hr

66.67%

Timmy 20 3 jobs/hr 1 3 jobs/hr

66.67%

Stan 30 2 jobs/hr 1 2 jobs/hr

100%

* assuming system is processing at full capacity

A

Activity time:

20min/job

Kyle

D

30 min/job

Stan

B

20min/job

Kenny

C

E

20 min/job

Eric

20 min/job

Timmy

2 jobs/hr


Process Changes: Impact on capacity and flow time

Process Change TFT Capacity

None

Reduce the average time for activity B by 5 mins

Kenny and Eric work in parallel

Reduce the average time for activity D(Stan) by 10 mins

Move 10 mins work from Stan to Timmy

Kenny is fired and Kyle takes over


Process Changes: Impact on capacity and flow time

Process Change Concept TFT Capacity

None Baseline 80 min 2 jobs/hr

Reduce the average time for activity B by 5 min.

Work faster 75 min 2 jobs/hr

Kenny and Eric work in parallel Work

smarter 70 min 2 jobs/hr

Reduce the average time for activity D(Stan) by 10 min.

Work faster 80 min 3 jobs/hr

Move 10min.s work from Stan to Timmy Work

smarter 90 min 2 jobs/hr

Kenny is fired and Kyle takes over ??? 80 min 1.5 jobs/hr


Levers for Reducing

Flow Time

Decrease the work content of

critical activities

work faster

work smarter

do it right the first time

change product mix

Move work content from critical to

non-critical activities

to non-critical path or to outer

loop

Reduce waiting time

Levers for Increasing Process Capacity

Decrease the work content of bottleneck resources

work smarter

work faster

do it right the first time

change product mix

Move work content from bottlenecks to non-bottlenecks

create flexibility to handle tasks originally assigned to bottleneck

to non-critical resource or to third party

Increase Net Availability

work longer: increase scheduled availability

increase scale (invest)

increase size of load batches/reduce or eliminate setups & changeovers

eliminate availability waste


Most time inefficiency comes from waiting:

Industry Process Average Flow Time

Theoretical Flow Time

Flow Time Efficiency

Life Insurance New Policy Application

72 hrs. 7 min. 0.16%

Consumer Packaging

New Graphic Design

18 days 2 hrs. 0.14%

Commercial Bank

Consumer Loan 24 hrs. 34 min. 2.36%

Hospital Patient Billing 10 days 3 hrs. 3.75%

Automobile Manufacture

Financial Closing

11 days 5 hrs 5.60%

Theoretical Flow Time: the minimum amount of time required for processing a unit without any waiting Flow Time: Theoretical Flow Time + Waiting Time


Critical Path based on Theoretical Flow Time

Theoretical flow time = minimum time to transform inputs into output:

Consider the following ABC example:

What is the theoretical flow time of each path?

TAC =

TBC =

Critical path

Critical Activities =

Part A production

Part B production

C = Final Assembly

1min/part A

2min/part B

3min/FA unit


Critical Path based on Flow Time

Average Flow Time = average time of transformation, including waiting time.

Part A production

Part B production

C = Final Assembly

1min/part A

2min/part B

3min/FA unit

R = 1 FA unit/3min 10

5

ABC Example continued, but now assume that the ABC process is processing at the rate of R = 1 units/3min = 0.33 units/min and that there are two buffers with on average 10 units and 5 units, as shown in the picture. Given this setting:

average waiting time in the buffers is: Tbuffer part A = Tbuffer part B =

And average flow time becomes: Tpath A = Tpath B =

Critical path becomes: T =

Flow Time efficiency = Tth / T =

Supply Chain Management

Sequencing Multiple Jobs


Single-machine Sequencing

Each job can have a different processing time and a different

due date

"local" dispatching rules:

FCFS: First-come, first-served

SPT: Shortest processing time (first)

EDD: Earliest due date (first)

CR: Critical Ratio = (Remaining Proc. Time)

(Remaining time to Due Date)

The job with the largest CR goes first

START 000 A DONE


Theoretical results

SPT (Shortest Processing Time) minimizes:

mean flow time

mean waiting time

mean lateness

EDD (Earliest Due Date) minimizes maximum lateness

(If the processing times are deterministic)


Two-Machine Flow Shop

START 000 A B000 DONE

Ai = processing time of job i on machine A

Bi = processing time of job i on machine B

To minimize makespan, optimal schedule is always a

permutation schedule (no passing)

Makespan: the total elapsed time from the start of the first job on

the first machine until the completion of the last job on the

last machine.


Gantt Chart (permutation schedule):

JOB 2

JOB 1MACHINE A

MACHINE B

TIME

JOB 2

JOB 1


To Minimize the Makespan

1. List Ai , Bi in two columns

2. Find smallest remaining value;

If in A, schedule i next (1st, 2nd, ...,)

If in B, schedule i last (last, 2nd-to-last, ...)

3. Cross off scheduled job, go to step 2.

Johnson's Algorithm


Example of Johnsons Algorithm

job i Ai Bi

1 5 2

2 9 7

3 10 4

1. 2 in B1 so job 1 goes last: _ _ 1

2. Cross out row 1

3. 4 in B3

so job 3 goes 2nd-to-last: 3 1

4. Cross out row 3

5. Done: optimal sequence is 2 3 1


Gantt Chart of Solution:

Makespan =

MACHINE A

MACHINE B

TIME 9 16 19 23 24 26


Summary: Sequencing Multiple Jobs

To improve mean flow time for a single machine

Do shortest-processing-time jobs first

10 or less items for a grocery store (Not 10 or more

items)

To minimize the makespan for flow shop

Do a job early if the job needs short processing time for

upstream operations

Do a job late if the job needs short processing time for

downstream operations

Lecture 2. Process Flow Management

Documents

management of flow time

customer flow

throughput x flow time

flow time t hrs inventory

unit of time

time line

typical flow unit

collection process cycle