Summer Time, Rate, and Productivity Management of Operations Brad C. Meyer

Summer Introduction Time, Production Rate, and Productivity are basic measures critical to managing operations. Operations can be considered a transformation process. Throughput items are transformed by processors in activity that takes time.

Summer Time Expressed in duration units: minutes hours days months Activity time is expressed as number of duration units per throughput item.

Summer Why determine activity time? To pay fair wages To know how much to rightfully expect from an employee To promise completion dates to customers To schedule processors and material purchases, to do capacity planning

Summer Example times 5 minutes per customer 10 seconds per part 7 weeks per installation time duration per throughput unit

Summer Rate the reciprocal of time number of throughput units per unit of time duration can be a measure of capacity or of actual output generated

Summer Example rates 12 customers per hour 6 parts per minute 7 installations per year number of throughput units unit of time duration

Summer Question… Suppose a barber can cut a head of hair in 15 minutes. How many customers does he serve per 8 hour day?

Summer And the answer is…. We dont know. All we know is that his capacity is 4 per hour or 32 per day. How many he serves depends on how many come to the shop looking for service. Be careful to distinguish between capacity and actual performance.

Summer Example 1 one customer every 6 minutes – time or rate? This is expressed like a rate: throughput per time, but the number 6 is a time: 6 minutes per customer. Rates should be expressed with a simple unit denominator, like per minute, not per 6 minutes

Summer One customer every six minutes: Time = 6 minutes per customer Rate = customers per minute or change time units to get: Rate = 10 customers per hour

Summer Example 2 A crew can clean 10 apartments in a four-hour morning. Time? Rate?

Summer Example 2 A crew can clean 10 apartments in a four-hour morning. Time? 4 hours / 10 apartments =.40 hours per apartment (or 24 minutes per apartment)

Summer Example 2 A crew can clean 10 apartments in a four-hour morning. Rate? 10 apartments / 4 hours = 2.5 apartments per hour.

Summer Example 2 - extended A crew can clean 10 apartments in a four-hour morning. The crew has 3 people. What is the time and rate per person? Time: 3 people working 4 hours is 12 hours total. 12 hours/ 10 apartments = 1.2 hrs per person per apartment

Summer Example 2 - extended A crew can clean 10 apartments in a four-hour morning. The crew has 3 people. What is the time and rate per person? Rate: 10 apartments per 12 total hours = 10/12 =.833 apartments per person per hour.

Summer Productivity a measure of ability to turn inputs to outputs. output productivity = input

Summer Productivity examples restaurant: customers per labor hour retail: sales per square foot utility plant: kilowatts per ton of coal bank: new loan $ per employee month

Summer Three kinds of productivity labor productivity value-added labor productivity multifactor productivity

Summer labor productivity amount a worker accomplishes units/ hr or $ / hr

Summer Example 128 garments produced in 360 hours 120 without defects, each 8 with defects, $90 each Material cost = $70 per dress labor prod. = 128 garments/360 hrs =.355 garments/hr or labor prod. = (120* *90)/360 hrs = $68.67/hr

Summer Note: this ignores the $70 material cost of the garments. To adjust for this, there is another kind of productivity: value-added productivity…

Summer Value added labor productivity =(ending value – starting value)/hrs such as: (selling price – cost of materials)*units made / hrs

Summer For garment problem: va prod. = [(200-70)*120 + (90-70)*8]/360 = $43.77 / hr

Summer Other assumptions: For value added labor productivity, some subtract overhead (from sales revenue) and some dont. For purposes of this class, I will specify in the problem which costs to subtract and which to ignore.

Summer Multifactor productivity Multifactor productivity = value of outputs/cost of inputs (a ratio, hopefully > 1) value of outputs = price*number of units cost of inputs = labor+material+overhead

Summer Example Making CD players, sell for $300 Quantity made was Labor = $30 per unit Material = $70 per unit Overhead = $50 per unit Multifactor productivity = (300*2000)/(( )*2000) = 2.0

Summer Example continued what percentage increase in productivity would occur with a 25% savings in material cost?.25*70 = $17.5 reduced material cost 70 – 17.5 = 52.5 Mf prod = 300*2000 / ( )*2000 = % change = 100*(new – old)/old = 100*( )/2 =13.2%

Summer Throughput time The term throughput time is commonly used to describe how long a customer or part stays in a system. It includes both processing time and waiting time. It could include transportation and handling time as well.

Summer Example At a dental office, a customer spends 8 minutes on average in the waiting room, 25 minutes in the dentists chair, and 5 minutes with the receptionist, checking in before the appointment and paying after the appointment. What is the throughput time for a customer at the dental office?

Summer Total time = = 38 minutes. Note, in a situation like this, the dentists processing rate would be based on the 25 minutes she spends per customer, not the 38 minutes in total that the customer spends at the office.