Evaluating Process Capacity The maximum amount a process can produce in a given unit of time. CHAPTER 3 Objective: to take a fairly technical and complex operation and simplify it to a level suitable for managerial analysis. Elements: preparing a process flow diagram, finding the capacity and bottleneck of the process, computing the utilization of various process steps, and computing a few other performance measures.

Managing Toward Perfection A Toyota view: “We get brilliant results from average people managing brilliant processes. We observe that our competitors often get average (or worse) results from brilliant people managing broken processes.” Source: James P. Womack, “In Search of the Perfect Process.” 2 Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

3 3.1 How to Create a Process Flow Diagram? A process flow diagram is a graphical way to describe the process and it will help us to structure the information we collect during the process improvement project Activities Carried out by resources Add value and are required for completion of the flow unit May or may not carry inventory Have a capacity (maximum number of flow units that can flow through the activity within a unit of time) Arrows Indicate the flow of the flow unit Multiple flow unit types possible (see Section 3.5) Inventory / Buffers Do NOT have a capacity; however, there might be a limited number of flow units that can be put in this inventory space at any moment of time Multiple flow unit types possible Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

1.Reduce the work content of an activity on the critical path Eliminate non-value-adding aspects of the activity (“work smarter”). Increasing the speed at which the activity is done (“work faster”), Acquire faster equipment Increase incentives to work faster Reduce the number of repeat activities (“do it right the first time”), and Change the product mix to produce products with smaller work content with respect to the specified activity. 2.Move some of the work content off the critical path. Move work from a critical path to a non-critical path, and Move work from a critical path to the outer loop (pre- or post processing). Calculating times on paths through the network Determining the critical path through the network Theoretical flow time Anupindi, et al, Managing Business Process Flows 4 Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

“Just track any work items as it flows through the process and classify the time into one of three categories: (1) value-added work, (2) waste that is required for business reasons, and (3) delays/waste. Then draw a timeline and mark off the time segments for each of these categories. In the example shown, the value-added work (shaded above the centerline) shows the buyer in this purchasing organization is only working the order for 14 minutes of the 4 day cycle. The majority of the time, delineated by white space, is idle queueing time.” Value Added vs. NVA Time Lean Six Sigma by George, et al. 5 Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

6 Productivity The Seven Sources of Waste Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

81.6 kg of food are trashed by the average German 61% of the trashing happens by households Large package sizes is the main reason 7 Overproduction Match Supply with Demand To produce sooner or in greater quantities than what customers demand Overproduced items need to be stored (inventory) and create further waste Bad for inventory turns Products become obsolete / get stolen / etc To produce sooner or in greater quantities than what customers demand Overproduced items need to be stored (inventory) and create further waste Bad for inventory turns Products become obsolete / get stolen / etc Examples Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

Crabs fished in the North Sea Shipped 2,500km South to Morocco Produced in Morocco Shipped back to Germany 8 Transportation Examples Relocate processes, then introduce standard sequences for transportation Unnecessary movement of parts or people between processes Example: Building a dining room and kitchen at opposite ends of a house, then keeping it that way Result of a poor system design and/or layout Can create handling damage and cause production delays Unnecessary movement of parts or people between processes Example: Building a dining room and kitchen at opposite ends of a house, then keeping it that way Result of a poor system design and/or layout Can create handling damage and cause production delays Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

Readmissions to the ICU in a hospital (also called “Bounce backs”) Readmissions to the hospital after discharge (major component of Affordable Care Act) 9 Rework Examples Analyze and solve root causes of rework => More in quality module Analyze and solve root causes of rework => More in quality module Repetition or correction of a process Example: Returning a plate to the sink after it has been poorly washed Rework is failure to meet the “do it right the first time” expectation Can be caused by methods, materials, machines, or manpower Requires additional resources so that normal production is not disrupted Repetition or correction of a process Example: Returning a plate to the sink after it has been poorly washed Rework is failure to meet the “do it right the first time” expectation Can be caused by methods, materials, machines, or manpower Requires additional resources so that normal production is not disrupted Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

Keeping a patient in the hospital longer than what is medically required 10 Over-processing Examples Provide clear, customer-driven standards for every process Processing beyond what the customer requires Example: Stirring a fully mixed cup of coffee May result from internal standards that do not reflect true customer requirements May be an undesirable effect of an operator’s pride in his work Processing beyond what the customer requires Example: Stirring a fully mixed cup of coffee May result from internal standards that do not reflect true customer requirements May be an undesirable effect of an operator’s pride in his work Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

Ergonomics Look at great athletes 11 Motion Examples Arrange people and parts around stations with work content that has been standardized to minimize motion Unnecessary movement of parts or people within a process Example: Locating (and keeping) a refrigerator outside the kitchen Result of a poor work station design/layout Focus on ergonomics Unnecessary movement of parts or people within a process Example: Locating (and keeping) a refrigerator outside the kitchen Result of a poor work station design/layout Focus on ergonomics Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

Loan applications at a bank 12 Inventory Examples Improve production control system and commit to reduce unnecessary “comfort stocks” Number of flow units in the system “Product has to flow like water” For physical products, categorized in: raw material, WIP, or finished products Increases inventory costs (bad for inventory turns) Increases wait time (see above) as well as the customer flow time Often times, requires substantial real estate => the BIGGEST form of waste Number of flow units in the system “Product has to flow like water” For physical products, categorized in: raw material, WIP, or finished products Increases inventory costs (bad for inventory turns) Increases wait time (see above) as well as the customer flow time Often times, requires substantial real estate => the BIGGEST form of waste Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

13 Waiting Often, the time in the waiting room exceeds the treatment time by more than 5x Examples Understand the drivers of waiting; more in Responsiveness module Underutilizing people or parts while a process completes a work cycle Example: Arriving an hour early for a meeting Labor utilization Idle time Note: - Waiting can happen at the resource (idle time) - But also at the customer level (long flow time) Underutilizing people or parts while a process completes a work cycle Example: Arriving an hour early for a meeting Labor utilization Idle time Note: - Waiting can happen at the resource (idle time) - But also at the customer level (long flow time) Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

14 Wasteful vs Lean The IMVP Studies Source: Womack et al Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

15 Understand Sources of Wasted Capacity OverproductionTransportation Waiting Inventory Over-processingMotionRework The seven sources of waste (Muda) Potential eighth source of waste: The waste of intellect Not “orthogonal to each other” Poor flow – Waste of Customer’s time Poor use of capacity – Waste of the Resource’s time Taichi Ohno, Chief Engineer at Toyota The first five sources are RESOURCE centric (and correspond to capacity): Ask yourself: “What did I do the last 10 minutes? How much was value-add?” Look around at the work-place (360 degree) – what percentage of people are working? The last two sources are FLOW UNIT centric (and correspond to Flow Time and Inventory) Ask yourself: “Did I really have to be here that long?” Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

Source: Lean Learning Center, Value Stream Mapping Course Notes. 16 Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

Source: Lean Learning Center, Value Stream Mapping Course Notes. 17 Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

18 Process Analysis Introduction / The three measures Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

Flow rate / throughput: number of flow units going through the process per unit of time Flow Time: time it takes a flow unit to go from the beginning to the end of the process Inventory: the number of flow units in the process at a given moment in time Flow Unit: Customer or Sandwich 19 Processes: The Three Basic Measures Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

Process Analysis: The Three Measures Immigration department Applications Approved or rejected cases Processing time Pending cases Champagne Bottle of champagne Bottles sold per year Time in the cellar Content of cellar MBA program Student Graduating class 2 years Total campus population Auto company Car Sales per year 60 days Inventory 20 Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

Summary When observing a process, always aim to understand the three process measures Flow rate / throughput: number of flow units going through the process per unit of time Flow Time: time it takes a flow unit to go from the beginning to the end of the process Inventory: the number of flow units in the process at a given moment in time In the next session, we will discuss what drives these measures We will then find out that the three measures are related to each other 21 Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

22 Process Analysis Little’s Law Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

23 Processes: The Three Key Metrics Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

What it is: Inventory (I) = Flow Rate (R) * Flow Time (T) How to remember it: - units Implications: Out of the three fundamental performance measures (I,R,T), two can be chosen by management, the other is GIVEN by nature Hold throughput constant: Reducing inventory = reducing flow time Given two of the three measures, you can solve for the third: Indirect measurement of flow time: how long does it take you on average to respond to an ? You write 60 responses per day You have 240 s in your inbox 24 Little’s law: It’s more powerful than you think... Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

Not an empirical law Robust to variation, what happens inside the black box Deals with averages – variations around these averages will exist Holds for every time window Shown by Professor Little in Little’s law: Some remarks Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

26 Process Analysis Finding the bottleneck Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

Flow Rate=Min{Demand, Capacity} Demand Input Bottleneck (Capacity) Excess capacity Flow Rate Demand Input Bottleneck (Capacity) Excess capacity Flow Rate Demand constrained Demand Input Bottleneck (Capacity) Excess capacity Flow Rate Demand Input Bottleneck (Capacity) Excess capacity Flow Rate Supply constrained Demand constrained 27 Flow Rate R: Demand vs. Capacity Constrained 3.2 Bottleneck, Process Capacity and Flow Rate (Throughput) The overall process capacity is determined by the resource with the smallest capacity. We refer to that resource as the bottleneck. Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

28 Steps for basic process analysis with one type of flow unit 1.Find the capacity of every resource; if there are multiple resources performing the same activity, add their capacities together. 2.The resource with the lowest capacity is called the bottleneck. Its capacity determine the capacity of the entire process (process capacity). 3.The flow rate is found based on Flow Rate = Minimum {Available input, Demand, Process Capacity} We find the utilization of the process as Similarly, we find the utilization of each resource as Flow rate Utilization of resource = Capacity of resource Flow rate Process utilization = Process capacity Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

29 Drawing a Process Flow Diagram Symbols in a process flow diagram Difference between project management and process management Customers Station 1Station 2Station 3 Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

Basic Process Vocabulary Processing times: how long does the worker spend on the task? Capacity=1/processing time: how many units can the worker make per unit of time If there are m workers at the activity: Capacity=m/activity time Bottleneck: process step with the lowest capacity Process capacity: capacity of the bottleneck Flow rate =Minimum{Demand rate, Process Capacity) Utilization =Flow Rate / Capacity Flow Time: The amount of time it takes a flow unit to go through the process Inventory: The number of flow units in the system 30 Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

31 Process Analysis Multiple flow units Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

3 cases per hour 11 cases per hour 4 cases per hour Processes with Multiple Flow Units

Approach 1: Adding-up Demand Streams

Approach 2: A Generic Flow Unit (“Minute of Work”)

35 Steps for Basic Process Analysis with Multiple Types of Flow Units 1.For each resource, compute the number of minutes that the resource can produce 2.Create a process flow diagram, indicating how the flow units go through the process 3.Create a table indicating how much workload each flow unit is consuming at each resource 4.Add up the workload of each resource across all flow units. 5.Compute the implied utilization of each resource as The resource with the highest implied utilization is the bottleneck Note: you can also find the bottleneck based on calculating capacity for each step and then dividing the demand at this resource by the capacity Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

Pitches Processes with Attrition Loss Scripts Pilots New Series Shows 500 ideas per year 70/500 20/70 6/20 2/6 Processing time2 days 10 days30 days 70 days 200 days Resources5 judges 3 script writers 2 pilot teams 2 Series crews 1 Main crew (250 days per year) Where is the Bottleneck?