Process and Capacity Analysis Process Measurement What is process measurement? Why is it important? What do we measure? Measuring productivity Operational measures Compiled by: Alex J. Ruiz-Torres, Ph.D. From information developed by many.

What is process measurement? Understanding the behavior of the BP – its performance characteristics. Is it resulting in the desired output? How often does it fail to meet the customer needs? How much time it is taking? How busy are the resources involved in completing this process? How much is it costing? How much $ is it generating?

Why is it important? Measuring processes allows organizations to Understand their current situation. Track behavior over time. Understand effect of changes. Evaluate performance when compared to competitors. https://kcerny.wordpress.com/2011/03/18/measuring-high-performance-agile-teams/

What do we measure? The quality of the output is often the key measure. Examples: Recruiting process: was the right candidate hired? Cooking process: food tasted good? Assembly process: did the TV pass the quality test? TV worked correctly when customer uses it? Medical process: patient got well?

What do we measure? Other very important measurers relate to: How long did it take to complete the process? = cycle time (time from start to finish of a process) How long did the entity (person, car, loan application) have to wait? For processes associated with sales, of course a key measure is did we make money?

What do we measure? Critical measure: Productivity. Productivity = output/input. Productivity is measured at multiple levels (different process levels) Individual Group/ cell Area/department Facility/plant

Measuring productivity Labor Productivity = Output/Labor Input Labor Input is either hours of labor or dollars paid for labor. Week output =120 chairs Work hours to make them = 300 h Labor Productivity = 120 chairs/300 h = 0.4 chair/ h Inverse = 2.5 h/ chair Inverse is sometimes more intuitive

Measuring productivity Capital Productivity = Output/Capital Input Capital Input is dollars of capital resources needed to create the output. Facility/equipment/materials costs = $21,000 for the week; Capital productivity = 120 chairs/ $21,000 = 0.00571 chair/$ Inverse =$175 capital/chair

Measuring productivity 3. Multifactor Productivity = Output/Total Inputs Multifactor Input is dollars for all resources including labor and capital. Each work hour costs $30. Thus 300 hours = $9,000 for the week. Capital costs = $21,000. Combined costs = $30,000. Multifactor productivity = 120 chairs / $30,000 = 0.004 chair/$. Inverse = $250 /chair. Clearly these chairs must be sold for much more than $250 to generate a profit.

Week 1 2 3 4 Chairs produced 120 132 150 130 Hours used 300 320 340 235 Capital costs $ 21,000 $ 20,500 $ 22,400 $ 20,900 Multifactor cost $ 30,000 $ 30,100 $ 32,600 $ 27,950   Labor productivity (chair/hour) 0.40 0.41 0.44 0.55 Labor prod. Inverse (hours/ chair) 2.50 2.42 2.27 1.81 Capital productivity (chair/$) 0.0057 0.0064 0.0067 0.0062 Capital prod. Inverse ($/chair) 175 155.3 149.3 160.8 MF Productivity (chair/$) 0.0040 0.0044 0.0046 0.0047 Multifactor Inverse ($/chair) 250 228 217.3 215

Week 1 2 3 4 Chairs produced 120 132 150 130 Hours used 300 320 340 235 Capital costs $ 21,000 $ 20,500 $ 22,400 $ 20,900 Multifactor cost $ 30,000 $ 30,100 $ 32,600 $ 27,950   Labor productivity (chair/hour) 0.40 0.41 0.44 0.55 Labor prod. Inverse (hours/ chair) 2.50 2.42 2.27 1.81 Capital productivity (chair/$) 0.0057 0.0064 0.0067 0.0062 Capital prod. Inverse ($/chair) 175 155.3 149.3 160.8 MF Productivity (chair/$) 0.0040 0.0044 0.0046 0.0047 Multifactor Inverse ($/chair) 250 228 217.3 215

Week 1 2 3 4 Chairs produced 120 132 150 130 Hours used 300 320 340 235 Capital costs $ 21,000 $ 20,500 $ 22,400 $ 20,900 Multifactor cost $ 30,000 $ 30,100 $ 32,600 $ 27,950   Labor productivity (chair/hour) 0.40 0.41 0.44 0.55 Labor prod. Inverse (hours/ chair) 2.50 2.42 2.27 1.81 Capital productivity (chair/$) 0.0057 0.0064 0.0067 0.0062 Capital prod. Inverse ($/chair) 175 155.3 149.3 160.8 MF Productivity (chair/$) 0.0040 0.0044 0.0046 0.0047 Multifactor Inverse ($/chair) 250 228 217.3 215

Week 1 2 3 4 Chairs produced 120 132 150 130 Hours used 300 320 340 235 Capital costs $ 21,000 $ 20,500 $ 22,400 $ 20,900 Multifactor cost $ 30,000 $ 30,100 $ 32,600 $ 27,950   Labor productivity (chair/hour) 0.40 0.41 0.44 0.55 Labor prod. Inverse (hours/ chair) 2.50 2.42 2.27 1.81 Capital productivity (chair/$) 0.0057 0.0064 0.0067 0.0062 Capital prod. Inverse ($/chair) 175 155.3 149.3 160.8 MF Productivity (chair/$) 0.0040 0.0044 0.0046 0.0047 Multifactor Inverse ($/chair) 250 228 217.3 215

Week 1 2 3 4 Chairs produced 120 132 150 130 Hours used 300 320 340 235 Capital costs $ 21,000 $ 20,500 $ 22,400 $ 20,900 Multifactor cost $ 30,000 $ 30,100 $ 32,600 $ 27,950   Labor productivity (chair/hour) 0.40 0.41 0.44 0.55 Labor prod. Inverse (hours/ chair) 2.50 2.42 2.27 1.81 Capital productivity (chair/$) 0.0057 0.0064 0.0067 0.0062 Capital prod. Inverse ($/chair) 175 155.3 149.3 160.8 MF Productivity (chair/$) 0.0040 0.0044 0.0046 0.0047 Multifactor Inverse ($/chair) 250 228 217.3 215

Week 1 2 3 4 Chairs produced 120 132 150 130 Hours used 300 320 340 235 Capital costs $ 21,000 $ 20,500 $ 22,400 $ 20,900 Multifactor cost $ 30,000 $ 30,100 $ 32,600 $ 27,950   Labor productivity (chair/hour) 0.40 0.41 0.44 0.55 Labor prod. Inverse (hours/ chair) 2.50 2.42 2.27 1.81 Capital productivity (chair/$) 0.0057 0.0064 0.0067 0.0062 Capital prod. Inverse ($/chair) 175 155.3 149.3 160.8 MF Productivity (chair/$) 0.0040 0.0044 0.0046 0.0047 Multifactor Inverse ($/chair) 250 228 217.3 215

Other productivity measures There are many operations productivity measures that relate Outputs to Inputs: Pounds of tomatoes per acre Sales per square foot of retail space Tax forms prepared per hour Customers served per hour per worker Checks processed per machine Lines of code per programmer Orders delivered on time per truck Customers reached per Ad Products developed per team Cases won per lawyer …

Time based measures Time based measures: Cycle time: The time from start to finish of a process. Wait time: The time waiting for a resource or activity. Value time ratio: The ratio of time spent on value activities over the cycle time. Customer arrives for a car wash at 9am. Waits. The wash starts at 9:30. Ends at 10:15. Cycle time = 75 minutes (9am to 10:15). Wait time = 30 minutes (9am to 9:30) Value activity = 45 minutes (9:30 to 10:15). VTR = 45/75 = 0.6 = 60%. 1 is a perfect VTR.