OPSM 301 Operations Management Spring 2012 Class 7 Business Process Analysis: Flow Rate and Capacity

Theoretical Capacity Theoretical capacity: The capacity (throughput rate) of a process under ideal conditions (units / time) Effective capacity: The capacity that one expects of a process under normal working conditions (units/time) Effective capacity < Theoretical capacity

Effective Capacity (scheduled availability) Effective capacity depends on the following Number of shifts Product variety Maintenance Idleness

Realized Capacity (net availability) Actual production or realized throughput rate Usually lower than effective capacity. Machine and equipment failures Quality problems Workforce losses Other uncertainties

Multi-Stage Processes Processes can be either single-stage or multiple-stage. For multiple-stage processes buffers or storage areas may exist between activities Key issues that can arise from multiple-stage operations, include buffering, blocking, starving, and bottlenecks

One unit is completed in 30 seconds One unit is completed in 45 seconds

Smiley Faces Factory... Volunteers? 1 3 2

Smiley Faces Factory... Modification: 1 3 2

The bottleneck of a process is the factor which limits production

Bottleneck in Traffic

Tools: Gantt Chart Gantt charts show the time at which different activities are performed, as well as the sequence of activities 1 2 3 4 activities Resources time

Gantt Chart Time A A A A Resources and Activities 5 20 10 15 B B B B 7 12 17 22 Takt time=5min

Example of a two-stage production line B 5 min A2 2 min 5 min

Gantt Chart A1 A1 A1 A1 15 5 10 20 A2 A2 A2 A2 5 17 22 12 B B B B B B 9 12 14 17 19 22 24 2 min 3 min Takt time=2.5 min

Theoretical Capacity Capacity of the Process= Capacity of the Bottleneck Theoretical capacity: The capacity (throughput rate) of a process under ideal conditions (units / time) If resource is fully utilized during scheduled availability (e.g. 8 hr per day) Effective capacity: The capacity that one expects of a process under normal working conditions (units/time) If resource is fully utilized during net availability Effective capacity < Theoretical capacity (net availability<scheduled availability)

Effective Capacity (net availability) Scheduled availability: The amount of time that a resource is scheduled for operationtheoretical capacity Net availability:The actual time during which a resource is available for processing flow unitseffective capacity Effective capacity depends on the following Number of shifts Product variety (setups) Maintenance Idleness

Operational Measure: Capacity Drivers: Resource Loads (Theoretical) Capacity of a Resource Bottleneck Resource (Theoretical) Capacity of the Process Capacity Utilization of a Resource/Process = ........................................................................................................................................................................................................................................ ........................................................................................................................................................................................................................................ ........................................................................................................................................................................................................................................ Realized throughput [units/hr] Theoretical capacity [units/hr]

Unit Load Unit Load of a resource: Total amount of time the resource works to process each unit (time/flow unit) Note that this is different than the activity time! If the same resource performs more than one activitiy on a flow unit, then Unit Load is found by adding those activitiy times

Theoretical Capacity of a Resource Pool Theoretical capacity of a resource=1/unit load=1/Tp Example: If a machine works for 15 min on each flow unit, the theoretical capacity=(1/15)*60=4 per hr If more than one resource exits to do the same job, capacity of the resource pool is calculated as, Rp= (# of resources in the pool)/Tp Example:If there are 3 machines in the pool, capacity=3x4=12 per hour.

Bottleneck Resource A resource pool with minimum theoretical capacity is called a theoretical bottleneck Theoretical capacity of a process is equal to the theoretical capacity of the theoretical bottleneck

Analyzing Process Performance 20min Assembly R5 15min R1 15min To illustrate the concepts, consider a simple example—which could be that of requesting a home mortgage. Q1: What is the minimal amount of time to process an input into an output? Find the critical activities = longest path = bottom path = 1 hour = theoretical flow time. Q2: What is the maximal number of flow units we can process per hour? Find the slowest resource = bottleneck = R2 whose resource capacity is 1 every 20 min. The weakest link determines the chain’s strength, so process capacity can not go above 3/hr. Note: BN need not be on the critical path. Both concepts address different questions: critical activities is about input-output flow/response time bottleneck resources are about throughput rate R3 15min R4 15min J.A. Van Mieghem/Operations/Strategy

X-ray revisited 3 7 1 2 9 10 6 12 7 75% 4 5 6 7 8 start end 5 3 2 3 25% 11 20 6 20 transport support Dark room dark room technician messanger X-ray technician receptionist Changing room X-ray Lab Value added decision

X-Ray revisited Resource Pool Res. Unit Load Load Batch Theoretical Capacity of Res. unit No of units in pool Theoretical capacity of pool Messenger 20+20 min/patient 1 6 Receptionist 5 X-ray technician 4 X-ray lab 2 Darkroom technician 3 Darkroom Changing room

X-Ray revisited Resource Pool Res. Unit Load Load Batch Theoretical Capacity of Res. unit No of units in pool Theoretical capacity of pool Messenger 20+20 min/patient 1 60/40=1.5 patients/hr 6 9 patients/hr Receptionist 5 60/5=12 12 X-ray technician 6+7.5+2.5=16 60/16=3.75 4 15 X-ray lab 7.5 8 2 16 Darkroom technician 15 (12x1.25) 3 Darkroom Changing room 3+3=6 10 20

Utilizations given an observed throughput of 5.5 patients/hr Resource pool Theoretical capacity Patients/hr Capacity utilization Messenger 9 5.5/9=61.11% Receptionist 12 5.5/12=45.83% X-ray technician 15 36.67% X-ray lab 16 34.38% Darkroom technician 45.83% Darkroom 8 68.75% Changing room 20 27.50%

A Recipe for Capacity Measurements ........................................................................................................................................................................................................................................ ........................................................................................................................................................................................................................................ ........................................................................................................................................................................................................................................ * assuming system is processing at full capacity

Effect of Product Mix- Example 5.7 Resource pool Unit Load (Physician) Unit Load (Hospital) Unit Load (60%-40% mix) Mailroom clerk 0.6 1.0 0.76 Data-entry clerk 4.2 5.2 4.60 Claims processor 6.6 7.5 6.96 Claims supervisor 2.2 3.2 2.60

Theoretical capacity for hospital claims Resource Sch. availability Unit Load min/claim Th. Capacity resource Number in pool Th. Capacity pool Mailroom clerk 450 1.0 450/1=450 1 Data entry clerk 5.2 450/5.2=86.5 8 692 Claims processor 360 7.5 360/7.5=48 12 576 Claims supervisor 240 3.2 240/3.2=75 5 375

Theoretical capacity for 60%-40% mix Resource Sch. availability Unit Load min/claim Th. Capacity resource Number in pool Th. Capacity pool Mailroom clerk 450 0.76 592 1 Data entry clerk 4.60 98 8 784 Claims processor 360 6.96 51.7 12 621 Claims supervisor 240 2.60 92 5 460

Levers for Increasing Process Capacity Decrease the work content of bottleneck activities work smarter work faster do it right the first time change product mix 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 Note that the bottleneck may shift after improvement! ........................................................................................................................................................................................................................................ ........................................................................................................................................................................................................................................ ........................................................................................................................................................................................................................................

Structuring The Service Enterprise Example: Automobile’s Driver’s License Office License Renewal Process Activity Description Time (Sec) 1 Review application for correctness 15 2 Process and record payment 30 3 Check for violations and restrictions 60 4 Conduct eye test 40 5 Photograph applicant 20 6 Issue temporary license 30

Present Flow Diagram Flow time: sec Throughput rate: per hour Activity Activity Activity 2 120 30 Activity Activity 4 90 40 Activity 5 180 20 6 120 30 1 240 15 3 60 60 /hr /hr /hr /hr /hr /hr sec sec sec sec sec sec Flow time: sec Throughput rate: per hour What happens if you hire one more employee? Activity flow rate per hour time (sec)

Throughput rate: per hour Proposed Flow Diagram Activity Activity 1,4 65 55 3 60 60 /hr /hr sec sec Activity Activity 2 120 30 Activity 5 180 20 6 120 30 /hr /hr /hr sec sec sec Activity Activity 1,4 65 55 3 60 60 /hr /hr sec sec Flow time: sec Throughput rate: per hour

Throughput rate: per hour Another Design 1-5 22 165 sec /hr Activity 1-5 22 165 sec /hr Activity 1-5 22 165 sec /hr Activity Activity 6 120 30 /hr 1-5 22 165 sec /hr Activity sec 1-5 22 165 sec /hr Activity Flow time: sec Throughput rate: per hour 1-5 22 165 sec /hr Activity

Study question: Consider the following process for production of wooden toys. The artist works for 8 hours a day. Cutting wood WIP Painting Cutting machine Artist 2 min. 4 min. What is the bottleneck of this process? Assume there is demand for 350 toys per day. Find the capacity and average flow time of this process. Hints: The bottleneck works for more hours than the non-bottleneck. Use Little’s Law to find waiting time in the WIP. Average Inventory=Maximum Invenotry/2

Summary of fundamental process principles identify and eliminate bottlenecks reduce as much variability as possible eliminate handoffs, improve communication to minimize resource interference for high utilization processes build-in more slack

Assignments Read and be ready to analyze Kristen’s Cookie Case on Thursday (March 1) Assignment 2 on Thickedwood case – you may work in groups of 2 (due March 6): Draw the process flow chart for Thicketwood Find the capacity of the current process and the bottleneck. Find the flow time for a cabinet. Calculate the net benefits of both used and new CNC routers Identify the qualitative pros and cons of each machine Are there other factors that Taylor should consider? (Think about implications on labor relations, and sales) Which machine would you purchase? What is the future demand for cabinets? Balance the process so that it meets the demand. What changes if any, do you suggest?