Operations Management Session 4: Kristine Cookies Case

Last Class in Process Analysis Module What did we learn? Throughput rate Capacity What’s the difference between capacity and throughput rate? Bottleneck resource Utilization rate Throughput time WIP Little’s Law: Throughput Time = (Average) WIP / Throughput Rate Session 4 Operations Management

Operations Management Today Team Presentations Lecture (Kristen’s cookies and additional comments on capacity management) Session 4 Operations Management

Operations Management Team Presentations Session 4 Operations Management

Operations Management What is it all about? Process Characteristics Capacity of a System How much can you process in a week/day? Response Time How quickly can you meet demand? Session 4 Operations Management

Operations Management Process Flow What are the inputs? What are the outputs? What are the activities? Session 4 Operations Management

Operations Management Process Flow Chart MIX LOAD TRAY SET OVEN BAKE COOL PACK PAY DOUGH YOU MIXER ROOMIE Session 4 Operations Management

Operations Management Activity 4 8 12 16 20 24 28 32 36 Time Resource Operations Management

Operations Management Activity PAY PACK COOL BAKE SET OVEN LOAD MIX Time 4 8 12 16 20 24 26 28 32 36 You Oven Resource Tray RM Operations Management

Kristine Cookies and Measures What is the Throughput time? From the moment an order arrives till it is finished, it takes 26 min. Can the throughput time be reduced? Session 4 Operations Management

Operations Management Activity PAY PACK COOL BAKE SET OVEN LOAD MIX Time 4 8 12 16 20 24 26 28 32 36 You Oven Resource Tray RM Operations Management

Operations Management Activity PAY PACK COOL BAKE SET OVEN LOAD MIX Time 4 8 12 16 20 24 26 28 32 36 You Oven Resource Tray RM Operations Management

Kristine Cookies and Measures What is the capacity of the system? What is the slowest resource? (Assume that the we have enough trays.) Session 4 Operations Management

Operations Management Activity PAY PACK COOL BAKE SET OVEN LOAD MIX Time 4 8 12 16 20 24 26 28 32 36 10 You Oven Resource Tray RM Operations Management

Operations Management Bottleneck Analysis It is clear that the bottleneck is the Oven It is the only resource that once we start producing is not idle. It is the slowest resource: One dozen every 10 min. Session 4 Operations Management

Operations Management Capacity It seems that if they have enough trays they can produce a dozen of cookies every 10 min. 1.2 cookies per min. In 4 hours (240 min) you can finish 22 trays: 240 – 26 = 214 214 / 10 = 21.4 or 21 trays. Given the bottleneck is the oven, to maximize capacity we must ensure that the oven runs continuously: once every 10 min. Session 4 Operations Management

Operations Management Process Flow Chart Order Size (Dozens): 1 Dozens YOU MIXER YOU TRAY ROOMIE OVEN TRAY OVEN TRAY TRAY ROOMIE TRAY ROOMIE DOUGH MIX LOAD TRAY SET OVEN BAKE COOL PACK PAY TIME: 6 2 1 9 5 2 1 TOTAL TIME YOU: 6 + 2= 8 minutes MIXER: 6 minutes TRAY: 19 minutes ROOMIE: 1 + 2 +1 = 4 minutes OVEN: 1+ 9 = 10 minutes Session 4 Operations Management

Operations Management Process Flow Chart Order Size (Dozens): 1 Dozen YOU MIXER YOU TRAY ROOMIE OVEN TRAY OVEN TRAY TRAY ROOMIE TRAY ROOMIE DOUGH MIX LOAD TRAY SET OVEN BAKE COOL PACK PAY TIME: 6 2 1 9 5 2 1 Dozens / Day = 22 TOTAL TIME YOU: 6 + 2= 8 minutes MIXER: 6 minutes TRAY: 19/2 minutes ROOMIE: 1 + 2 +1 = 4 minutes OVEN: 1+ 9 = 10 minutes Session 4 Operations Management

Operations Management Process Flow Chart Order Size: 2 Dozens YOU MIXER YOU TRAY ROOMIE OVEN TRAY OVEN TRAY TRAY ROOMIE TRAY ROOMIE DOUGH MIX LOAD TRAY SET OVEN BAKE COOL PACK PAY TIME: 6 4 2 18 10 4 1 TOTAL TIME YOU: 6 + 2= 8 minutes MIXER: 6 minutes TRAY: ROOMIE: 1 + 2 +1 = 4 minutes OVEN: 2+ 18 = 20 minutes Session 4 Operations Management

Operations Management Activity PAY PACK COOL BAKE SET OVEN LOAD MIX Time 4 8 12 16 20 24 26 28 32 36 10 You Oven Resource Tray 1 Tray 2 Operations Management RM RM

Operations Management How many dozen per day? 60 minutes x 4 = 240 available minutes each evening 240-36=204 available minutes after the first two dozen is finished 204/20=10.2 two dozens finished in the remaining 204 minutes 2x11=22 dozens per day Does it make sense to give a discount for an order size of two dozen? Session 4 Operations Management

Operations Management Capacity Investment Should we invest in a second Oven? Session 4 Operations Management

Operations Management Activity Two Ovens. Order Size: 1 dozen PAY PACK COOL BAKE SET OVEN LOAD MIX Time 4 8 12 16 20 24 26 28 32 36 8 You You Oven Resource Tray RM RM Operations Management

Operations Management Bottleneck Analysis Who is the bottleneck now? The entrepreneur Why did the bottleneck shift? Could the numbers (as opposed to the graph) indicate were the bottleneck is? Now should we give a discount for ordering 2 dozen? Session 4 Operations Management

Operations Management Bottleneck Analysis Your capacity: 1 dozen cookies / 8 minutes = 0.125 dozen cookies per minute (or 1 dozen cookies every 8 minutes) Oven capacity: 1 dozen cookies / 10 minutes 2 ovens x .1 dozen cookies per minute = 0.2 dozen cookies per minute (or 1 dozen cookies every 5 minutes) Mixer: 1/6=0.167 dozen cookies per minute Roommate ¼=0.25 dozen cookies per minute What is the slowest resource? Note: same calculation as made in the previous class in Burger’s example. Session 4 Operations Management

Dozens per day with two ovens 240-26=214 minutes for the first dozen 214/8=26.75 dozens in the next 214 minutes 27 dozen per day with two ovens. Session 4 Operations Management

Operations Management Economic Analysis Having two ovens increase the capacity from 60/10=6 dozens per hour to 60/8=7.5 dozens per hour. What is the value of the additional oven? (27-22)*300*Profit per dozen = Additional profit = $1,500*profit per dozen # of selling days New capacity Old capacity Session 4 Operations Management

Economic Analysis Example Suppose we sell each dozen cookies for $1.50 per dozen. Assume there is no cost on your time. The profit per dozen is then $1.50-$0.60-$0.10=$0.80. Therefore, the additional profit after being open 300 days is: 5x300x$0.80=$1200. We are willing to buy another oven if it costs less than $1200 and we have enough demand so that it will be in use. Session 4 Operations Management

Operations Management Activity Two Ovens Order Size: 2 Dozens PAY PACK COOL BAKE SET OVEN LOAD MIX Time 4 8 12 16 20 24 26 28 32 36 You You Oven Resource Tray RM Operations Management

Operations Management Process Flow Chart OVENS = 2 and Order size =2 Dozen YOU MIXER YOU TRAY ROOMIE OVEN TRAY OVEN TRAY TRAY ROOMIE TRAY ROOMIE DOUGH MIX LOAD TRAY SET OVEN BAKE COOL PACK PAY TIME: 6 4 2 18 10 4 2 TOTAL TIME Dozens / Day = 44 doz / day YOU: 6+4 = 10 MIXER: TRAY: ROOMIE: OVEN: (18 +2) /2 = 10 Session 4 Operations Management

Operations Management Summary Tools & Techniques Identification of Bottleneck System Capacity Throughput Time Concepts Bottleneck & Capacity depend of product mix In high variety systems bottlenecks shift Session 4 Operations Management