Process Analysis Introduction of Process www.ePowerPoint.com
Jan 21, 2016
Process AnalysisIntroduction of Process
www.ePowerPoint.com
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