Process Analysis Guanyi Lu September 18, 2018

© All Rights Reserved, G. Lu, 2014 Learning Objectives Understand basic flowcharting of processes. Recognize various types of processes. Explain how to analyze processes using Little’s law. Understand how to calculate process performance measures. Understand the role and impact of bottleneck. Understand how to interpret and compute utilizations. © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Process Analysis Process Flowcharting Process flowcharting: the use of a diagram to present the major elements of a process Symbols: © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Process Analysis Process: any part of an organization that takes inputs and transforms them into outputs Cycle time: the average successive time between completions of successive units Utilization: the ratio of the time that a resource is actually activated relative to the time that it is available for use © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Process Analysis Single-stage vs. Multi-stage Stage 1 Single-stage process Multi-stage process Stage 1 Stage 2 Stage 3 © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Process Analysis Various Multi-stage Processes Serial flow process Alternative paths Different products © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Process Analysis Analyzing a Las Vegas Slot Machine © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Process Analysis Buffering, Blocking, and Starving Buffer: a storage area between stages where the output of a stage is placed prior to being used in a downstream stage Blocking: occurs when the activities in a stage must stop because there is no place to deposit the item Fast Slow © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Process Analysis Buffering, Blocking, and Starving Starving: occurs when the activities in a stage must stop because there is no work Bottleneck: stage that limits the capacity of the process Can a stage be bottleneck if it is blocking or starving? Slow Fast © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Process Analysis Example: Making Hamburgers at McDonald's (old process) © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Process Analysis Example: Making Hamburgers at McDonald's (current process) © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Process Analysis Pacing Pacing: Movement of items through a process is coordinated through a timing mechanism. Assembly lines are usually paced. Moving at a constant rate (demo) e.g., moving to the right by 1 position every 30 seconds © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Process Analysis Cycle time: The average time between completions of successive units Often used in the context of a process Can also be used in the context of a specific job or process stage Throughput rate (a.k.a. Flow rate): The output rate that the process is expected to produce over a period of time Process capacity: The maximum rate with which the process can generate outputs © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Process Analysis Example: The BBA Bagel Store Spread cream cheese Cut & Toast Customer places order Raw materials WIP 3 minutes/order 1 minute/order 2 minutes/order Assuming 1 bagel/order Process capacity = __________/hour If a customer arrives every 4 minutes, then cycle time = __________ minute(s) and throughput rate = __________ /hour © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Process Analysis Example: The BBA Bagel Store 0:00 1st customer arrives 0:02 The first order is taken and payment collected 0:05 The1st bagel is cut & toasted & the 2nd order has spent 1 minute with the order taker 0:06 The 1st order is completed & the 2nd order is taken & payment collected 0:09 The 2nd bagel is cut & toasted & the 3rd order has spent 1 minute with the order taker 0:10 The 2nd order is completed & the & 3rd order is taken & payment collected 0:13 The 3rd bagel is cut & toasted & the 4th order has spent 1 minute with the order taker 0:14 The 3rd order is completed & the 4th order is taken & payment collected © All Rights Reserved, G. Lu, 2014 15

© All Rights Reserved, G. Lu, 2014 Process Analysis Flow time: The average time that it takes a unit to move through an entire process. Includes the time that the unit spent actually being worked on together with the time spent waiting in a queue © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Process Analysis Spread cream cheese Cut & Toast Customer places order Raw materials WIP 3 minutes/order 1 minute/order 2 minutes/order Assuming 1 bagel/order Process capacity = __________/hour If a customer arrives every 4 minutes, then cycle time = __________ minute(s) and throughput rate = __________ /hour; flow time = __________ minute(s). © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Process Analysis Setup Time and Run Time Example Production plan: make 100 units of component A, then 100 units of component B, then 100 units of component A, then 100 units of component B, and so forth. What is the average hourly output? Manufacturing Packing setup time: 5 minutes run time: 20 minutes/100 units setup time: 10 minutes run time: 10 minutes/100 units run time: 2 seconds/unit negligible © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Process Analysis Efficiency and Productivity Efficiency: A ratio of the actual output of a process relative to some standard. Efficiency can be measured by dividing the actual output by the designed output Efficiency can indicate the loss or gain in a process Productivity = Outputs / inputs Both measures are related to throughput rate, which measures the actual output of a process. © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Process Analysis © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Process Analysis Inventory Inventory: The number or value of all the flow units in a process. Total average value of inventory: The total average investment in raw material, work-in-process, and finished goods. This is valued at the cost to the firm, usually for accounting purposes. © All Rights Reserved, G. Lu, 2014

Process Analysis Relevance of three Performance Measures Impact Inventory Use of working capital, reflected in the balance sheet Throughput rate Rate of revenue generation, reflected in the income statement Flow time Lead time, responsiveness © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Process Analysis Conveyer A conveyor moving at a constant rate Throughput rate: 2 / minute On average 6 pieces in the system Flow time ? © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Process Analysis Little’s Law Establishes a mathematical relationship between Inventory, Throughput rate and Flow time Inventory = Throughput rate x Flow time Inventory, [units] Throughput rate, [units/time unit] ... Throughput time, [time units] © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Process Analysis An intuitive example of Little’s Law: Student Flow Consider a 4-year college. Every year 200 high school graduates are admitted, on average. Every student admitted will graduate in 4 years, on average. On average, how many students are in the college at any given time? © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Process Analysis Recall that Inventory is the number or value of all the flow units in a process Indirect measures Days-of-supply: The (average) number of days until the firm would run out of an item if not replenished Days-of-supply is essentially flow time. Inventory turn: The cost of goods sold divided by the total average value of inventory Inventory turn is also the inverse of days-of-supply © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Process Analysis Raw Materials and WIP 12 hrs/car Assembly (1 battery/car) 200 cars/8-hr shift Raw materials 8,000 batteries are kept in Raw materials inventory, on average. Those batteries translate into _____ days of supply on average, assuming 8 hrs/day The average number of batteries in Assembly = __________. © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Process Analysis Inventory Turn Inventory turn = COGS / inventory Inventory turn = 1 / flow time © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Process Analysis Inventory Turn: practices K-Mart (01/29/02) Inventory = $4,825 million COGS = $26,258 million Inventory turn = Wal-Mart (01/29/02) Inventory = $22,749 million COGS = $171,562 million Inventory Turn = © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Process Analysis Material Flow: practice Wendy’s processes an average of 5,000 lb. of hamburgers per week. The typical inventory of raw meat is 2,500 lb. What is the average hamburger’s flow time and Wendy’s inventory turn? © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Process Analysis Job Flow: practice 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?” © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Process Analysis Cash Flow: practice 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 time between billing to revenue collection? © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Process Analysis Decipher News Reports The following was reported in the Wall Street Journal: “.. although GM and Toyota are operating with the same number of inventory turns, Toyota’s throughput rate is twice that of GM. The discrepancy could be due to much faster flow times and lower inventories by virtue of Toyota’s production system.” Anything wrong with this statement? © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Process Analysis The BBA Bagel Store Revisited Spread cream cheese Cut & Toast Customer places order Raw materials WIP 3 minutes/order 1 minute/order 2 minutes/order Assuming 1 bagel/order Process capacity = __________/hour If a customer arrives every 2 minutes, then cycle time = __________ minute(s) and throughput rate = __________ /hour; flow time = __________ minute(s). © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Process Analysis Bottleneck refers to a resource that limits the capacity or maximum output of the process © All Rights Reserved, G. Lu, 2014

Demand Constrained Process Bottleneck (Capacity) Input Throughput Rate Flow Rate Demand Excess capacity Throughput rate = demand for a demand constrained process © All Rights Reserved, G. Lu, 2014

Supply Constrained Process Bottleneck (Capacity) Input Throughput Rate Flow Rate Excess capacity Demand Throughput rate = process capacity for a supply constrained process © All Rights Reserved, G. Lu, 2014

Bottleneck and Inventory Buildup 60/hr 90/hr 120/hr 100/hr 120/hr 90/hr 60/hr 100/hr 90/hr 120/hr 60/hr 100/hr 120/hr 60/hr 90/hr 100/hr © All Rights Reserved, G. Lu, 2014

Inventory Buildup Computation Time Demand 12pm 2pm 6pm 10am 50 200 Process Capacity = 100 / hr. Time 200 Inventory 100 12pm 2pm 6pm 10am © All Rights Reserved, G. Lu, 2014

Wet Cranberry Processing Bins Bad berries (disposed) Separator Lines Shipping of good berries Kiwanee Dumpers Dechaffing Dryers Truck queue © All Rights Reserved, G. Lu, 2014

Cranberry Processing Example Bins Bad berries (disposed) Separator Lines Shipping of good berries Kiwanee Dumpers Dechaffing Dryers Truck queue 800 barrels/hr 2,400 barrels 1,500 barrels/hr 1,250 barrels/hr 600 barrels/hr © All Rights Reserved, G. Lu, 2014

Demand and Capacity Information Demand: 6000 barrels over 12 hrs Kiwanee dumpers: Capacity = 1500 barrels/hr Storage bins: Capacity = 2400 barrels Dechaffers: Capacity = 1250 barrels/hr Dryers: Capacity = 600 barrels/hr Separators: Capacity = 800 barrels/hr Process Capacity = __________ barrels/hr Throughput Rate = __________ barrels/hr © All Rights Reserved, G. Lu, 2014

Demand and Capacity Information Demand: 10800 barrels over 12 hrs Kiwanee dumpers: Capacity = 1500 barrels/hr Storage bins: Capacity = 2400 barrels Dechaffers: Capacity = 1250 barrels/hr Dryers: Capacity = 600 barrels/hr Separators: Capacity = 800 barrels/hr Process Capacity = __________ barrels/hr Throughput Rate = __________ barrels/hr © All Rights Reserved, G. Lu, 2014

Inventory Buildup Diagram Wet berries 7am 10am 1pm 4pm 7pm 10pm 1am Time © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Utilization Utilization of a resource is the ratio of the time that a resource is actually activated to the time that it is available for use. Utilization of a resource can also be expressed as throughput rate over resource capacity. Utilization never exceeds 100% (=1). When the utilization of a resource is 1, the resource may or may not be able to satisfy all the demand within its available time. © All Rights Reserved, G. Lu, 2014

Cranberry Processing Example Bins Bad berries (disposed) Separator Lines Shipping of good berries Kiwanee Dumpers Dechaffing Dryers Truck queue 800 barrels/hr 2,400 barrels 1,500 barrels/hr 1,250 barrels/hr 600 barrels/hr © All Rights Reserved, G. Lu, 2014

Utilization Computations Resource utilizations: (time available = 12 hrs) Kiwanee Dumpers Dechaffers Dryers Separators Capacity 1,500/hr 1,250/hr 600/hr 800/hr If demand = 500 barrels/hr If demand = 900 barrels/hr © All Rights Reserved, G. Lu, 2014

Two Types of Cranberries 800 barrels 400 barrels/hr Bins Bad berries (disposed) Separator Lines Shipping of good berries Kiwanee Dumpers Dechaffing Dryers Truck queue Destoning dry dry dry dry 800 barrels/hr wet wet wet wet 2,400 barrels 1,500 barrels/hr 1,250 barrels/hr 600 barrels/hr © All Rights Reserved, G. Lu, 2014

Utilization Computations (II) Demand = _______ barrels of wet berries and _______ barrels of dry berries per hour (from 7am to 7pm) Resource utilizations: Kiwanee Dumpers De-chaffers De-stoners Dryers Separators © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Recall Bottleneck Bottleneck: stage that limits the capacity of the process © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Identify Bottleneck © All Rights Reserved, G. Lu, 2014

© All Rights Reserved, G. Lu, 2014 Identify Bottleneck Time available = 480 minutes for each worker Utilizations: Station A: time available = time activated = ____________________; util. = __________ Station B: time available = Station C: time available = Station D: time available = Station E: time available = © All Rights Reserved, G. Lu, 2014

Kirsten’s Cookie Case (optional) What process type should Kirsten adopt? © All Rights Reserved, G. Lu, 2014