S. Chopra/Operations/Process Analysis & Apps1 Operations Management: Process Analysis and Applications Module u Operational Measures: Time T, Inventory.

S. Chopra/Operations/Process Analysis & Apps 1

Operations Management:

Process Analysis and Applications Module Operational Measures: Time T, Inventory I, Throughput rate R

Capacity and Flow Time Analysis» Pizza Pazza / Bariatric Surgery

» Levers for Improvement

Multi-product Capacity Management and Investment» Joint Marketing & Production Decisions

» Optimal Capacity Investment


Operational Performance Measures

How to measure and decrease flow times? How to measure and increase throughput?


Process Architecture is defined and represented by a process flow chart: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

– routes: precedence relationships (solid lines)

4. Resources & Allocation

5. Information Structure & flow (dashed lines)


Pizza Pazza Flow Chart


Operational Measure: Flow TimeDriver: Activity Times

(Theoretical) Flow Time

Critical Activity

Flow Time efficiency


Industry Process Average FlowTime

Theoretical FlowTime

Flow Time Efficiency

Life Insurance New PolicyApplication

72 hrs. 7 min. 0.16%

ConsumerPackaging

New GraphicDesign

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%

AutomobileManufacture

FinancialClosing

11 days 5 hrs 5.60%

Most time inefficiency comes from waiting: E.g.: Flow Times in White Collar Processes


Levers for Reducing Flow Time

Decrease the work content of critical activities

– work smarter

– work faster

– 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.


Operational Measure: CapacityDrivers: Resource Loads

(Theoretical) Capacity of a Resource

Bottleneck Resource

(Theoretical) Capacity of the Process

Capacity Utilization of a Resource/Process = throughput [units/hr]

capacity [units/hr]


A Recipe for Capacity Measurements

Resource Unit Load Resource Capacity Process Resource

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

* assuming system is processing at full capacity


Bariatric Surgery : Flow Chart

Initial phone call

5×1.2=6 min.receptionist , patient20% callback

Initial Consultation

30 min.surgeon patient

40% quit

Preliminary Test Request

10 min.surgeon patient

Test 1 Appointment

5 min.receptionistpatient

Test

60 min.nursepatient

2 dayspatient

Med. Nec. Letter

20 min.surgeonpatient

3 wkspatient More tests

(50%)

Yes (50%)

Test 230 min.nursepatient

2 dayspatient

Second Visit 15 min.surgeon patient

Test 2Appointment


2 wkspatient

20% Deny 80% approve

10% Quit

Visit 320 min.surgeonpatient

Scheduling10 min.nursepatient

Patients arrive

60 min.SurgeonPatient (x6)

Surgery Prep

30 min.nursepatient

Surgery Cleaning

15 min.2 NurseSurgery room

Surgery Laparoscopic

Surgery Open

x%

1-x%

75 min.2 nurses, surgeon, anesthetistPatient , surgery room

45 min.2 nurses, surgeon, anesthetistPatient, surgery room

STAY (from arrival)

2 daysPatient, room

STAY (from arrival)

4 daysPatient, room

Follow up

30 minutesnurse

Nurse Care120 minutes

Nurse Care 240 minutes

DelayCash /

InsuranceInsurance Insurance

ApprovalQuit

Or not90%

Delay

InsuranceApproval

Appointment


Scheduling

Cash

Seminar

Complete Flow Chart for Bariatric Patients

Team Prep

15 min.surgeon, anesthetist


Bariatric Clinic Capacity – Open Surgeries & Cash Payment

Cash-Open

Resource Load/patient Patients/hr Hrs/day Patient/day Patients/wk resources Capacity/wkreceptionist (min) 20 3.00 12.00 36.00 180.00 1 180.00surgeon (min) 150 0.40 12.00 4.80 24.00 4 96.00nurse surgery (min), team of 2 60 1.00 12.00 12.00 60.00 2 120.00nurse care (min) 370 0.16 12.00 1.95 9.73 10 97.30room-in (days) 4 1.25 63 78.75room-out (min) 80 0.75 24.00 18.00 126.00 2 252.00surgery room (min) 60 1.00 12.00 12.00 60.00 2 120.00anesthesist (min) 60 1.00 12.00 12.00 60.00 2 120.00

Capacity 78.75


Bariatric Clinic Capacity – Laparoscopic Surgeries & Cash Payment

Cash-Laparoscopic

Resource Load/patient Patients/hr Hrs/day Patient/day Patients/wk resources Capacity/wkreceptionist (min) 16 3.75 12.00 45.00 225.00 1 225.00surgeon (min) 180 0.33 12.00 4.00 20.00 4 80.00nurse surgery (min), team of 2 90 0.67 12.00 8.00 40.00 2 80.00nurse care (min) 250 0.24 12.00 2.88 14.40 10 144.00room-in (days) 2 2.50 63 157.50room-out (min) 80 0.75 24.00 18.00 90.00 2 180.00surgery room (min) 90 0.67 12.00 8.00 40.00 2 80.00anesthesist (min) 90 0.67 12.00 8.00 40.00 2 80.00

Capacity 80.00


Bariatric Clinic Capacity – Open Surgeries & Insurance Payment

Insurance- Open

Resource Load/patient Patients/hr Hrs/day Patient/day Patients/wk resources Capacity/wkreceptionist (min) 26.60 2.26 12.00 27.06 135.31 1 135.31surgeon (min) 198.00 0.30 12.00 3.64 18.18 4 72.73nurse surgery (min) 60.00 1.00 12.00 12.00 60.00 2 120.00nurse care (min) 402.59 0.15 12.00 1.79 8.94 10 89.42room-in (days) 4.00 1.25 63 78.75room-out (min) 112.59 0.53 24.00 12.79 63.95 2 127.89surgery room (min) 60.00 1.00 12.00 12.00 60.00 2 120.00anesthesist (min) 60.00 1.00 12.00 12.00 60.00 2 120.00

Capacity 72.73


Bariatric Clinic Capacity – Laparoscopic Surgeries & Insurance Payment

Insurance-Laparoscopic

Resource Load/patient Patients/hr Hrs/day Patient/day Patients/wk resources Capacity/wkreceptionist (min) 26.6 2.26 12.00 27.06 135.31 1 135.31surgeon (min) 228.0 0.26 12.00 3.16 15.79 4 63.15nurse surgery (min) 90.0 0.67 12.00 8.00 40.00 2 80.00nurse care (min) 282.6 0.21 12.00 2.55 12.74 10 127.39room-in (days) 2.0 2.50 63 157.50room-out (min) 112.6 0.53 24.00 12.79 63.95 2 127.89surgery room (min) 90.0 0.67 12.00 8.00 40.00 2 80.00anesthesist (min) 90.0 0.67 12.00 8.00 40.00 2 80.00

Capacity 63.15


Levers for Increasing Process Capacity

Decrease the work content of bottleneck activities– work smarter, work faster– do it right the first time– eliminate non-value added work from bottlenecks

» reduce/eliminate setups and changeovers– synchronize flows to & from bottleneck

» reduce starvation & blockage

Move work content from bottlenecks to non-bottlenecks– to non-critical resource or to third party

Increase Net Availability– work longer– increase scale (invest)– increase size of load batches– eliminate availability waste


Increasing Process Capacity in The Goal

“is to increase the capacity of only the bottlenecks”– “ensure the bottlenecks’ time is not wasted”

» increase availability of bottleneck resources

» eliminate non-value added work from bottlenecks reduce/eliminate setups and changeovers

» synchronize flows to & from bottleneck reduce starvation & blockage

– “ the load of the bottlenecks (give it to non-bottlenecks)”» move work from bottlenecks to non-bottlenecks

» need resource flexibility

– unit capacity and/or #of units.» invest


Other factors affecting Process Capacity

Batch (Order) Sizes

Product Mix

other managerial policies ...


Product Mix Decisions:Open or Laparoscopic Surgery

Revenue per open surgery: $15,000

Variable Cost of Materials: $1,000

Revenue per Laparoscopic surgery:$18,000

Variable Cost of Materials: $2,000


Product Mix Decisions

Open and Laparoscopic have exactly the same process. The

only difference is in surgery (laparoscopic takes 30 minutes

extra) and in the rooms (laparoscopic uses rooms for 2 days

whereas open uses rooms for 4 days.


Product Mix Decisions

Margin per Open surgery = $14,000

Margin per Laparoscopic surgery = $16,000

Margin per week from Open surgery = 72.72*(15,000 - 1,000) = $1,018,055 / week

Margin per week from Laparoscopic surgery = 63.15*(18,000 - 2,000) = $1,010,400 / week


Learning Objectives: Process Analysis Manage better with the three key operational measures and an

inter-functional macro process view of the organization Process measures:

– Flow time manage critical activities

– Capacity manage bottleneck resources

Levers for improving– Flow time manage critical activities

– Capacity & Throughput

Many marketing and financial decisions are linked to process– Effect of product mix decisions on process capacity

» marginal contribution per unit of bottleneck capacity used

– Bottleneck may shift on adding capacity diminishing returns to capacity investment

S. Chopra/Operations/Process Analysis & Apps1 Operations Management: Process Analysis and Applications Module u Operational Measures: Time T, Inventory.

Documents

process analysis u

capacity slide

bottleneck u

increasing process capacity

process u capacity utilization

goal u

unit of analysis

week slide