1. III. Operational Measures
Flow Time
Capacity and Flow Rate

2. Operational Measures and Direct Cost
Inputs
Outputs
Inventory (in production setting, referred to as Working in Process WIP): the number of units contained within the process.
Working capital shown in your balance sheet
Flow Time (throughput time): the time it takes a unit to get through the process.
Shorter flow times reduce the time delay between occurrence of demand and its fulfillment in the form of supply
Flow Rate (throughput rate, output rate): the rate at which the process is delivering output.
Higher flow rate generates more revenues shown in your income statement when capacity is tight.
The maximum rate with which the process can generate supply is called the capacity of the process.
Direct Cost: incurred when transforming a unit from input to output
Inventory could take the form of the number of insurance claims or tax returns at the IRS, patients, students.
How do these measures relate to the idea of matching supply with demand? Why no mention of profit? Higher flow rate increases supply and translate into more revenue if you have sufficient demand. Shorter flow time reduces delay btw the occurrence of demand and its fulfillment in the form of supply.

3. Flow Time Active Non-Active Flow Time =
Meas. &
Mix
Spoon
Clean & Hash
Spread Toppings
Pick Fillings
Load & Set Timer
Bake
Box
Payment
Take Orders
1 min.
5 min.
3 min.
2 min.
8 min.
Theoretical vs. Actual Flow Time
Actual = Value-Added and Non-Value-Added Activities
Active and Non-Active Times VA
NVA
Active
Non-Active
Flow Time efficiency

4. Flow Time Efficiency

5. Performance in Auto IndustryGM
Ford
Daimler-Chrysler
Toyota
Honda
Nissan
Flow Time (hrs)
40.5
39.9
44.8
31.1
29.1
27.6
Quality (probs/car)
1.46
1.62
1.54
1.45
Market Share
28%
21%
13.2%
Profit/car in 2001
$367
< 0
In Jan, 2000, 43% of GM cars were flunking inspection as soon as they rolled off the line. Today, it is down to 16%. These improvement + strong balance sheet + lower cost structure = sell more at 0% financing campaign. Market share for GM is steady at 28% while Ford dropped 1.1% and DC dropped 1.3%.
“Finally, Skid Control at GM”, BusinessWeek, March 25, 2002.
Most data are for 2001.
“Pick Me as Your Strike Target! No, Me!”, BusinessWeek, April 21, 2003
Business Week, March 25, 2002 GM
Ford
Daimler-Chrysler
Japanese
Automakers
Flow Time (hrs) 26 27 31
17-22
Business Week, April 21, 2003

6. Levers for Reducing Flow Time
See page 73-76: 4.5 – 4.6
Flow time:
Levers:

7. Capacity (units/unit time)
Capacity: maximal units a process can process per unit of time
Capacity of a Single Resource
Capacity of the oven =
Capacity of c Identical Resources
capacity of bake operation =
Capacity of a network of resources (system capacity)
Process time Tp
oven
Process time Tp
c ovens
From a supply perspective, the most important question that arises is how much a process can supply in a given unit of time, say one day. This measure is called process capacity.

8. Flow Rate (units/unit time)
Flow rate R =
Cycle time =
Process utilization =
Pipeline Principle: In the long run, on average,
input rate = output rate R
Flow rate: the units that a process actually does process per unit of time
Input rate
Output rate R
The process actually does produce, not what it can produce.

9. Flow Rate (cont.) Time to produce X units =
Time to complete X units starting with an empty system
Utilization of a resource in the process
r = R
Process time Tp c

10. Bottlenecks
10 min.
20 min.
8 min.
5 min.
c = 2
c = 1
c = 3
c = 1 Tp

11. Bottlenecks: Multiple types of flow units
10 min.
20 min.
8 min.
5 min.
15 min.
40 min.
12 min.
7 min.
Cookies
Pizzas 2 1 3

12. Bottlenecks: Multiple flows
15 min.
10 min.
1 min.
Mix
Bake bread
Spoon
Bake cookies
Pay
20 min.
8 min.

13. Levers for Increasing Throughput
See page 99: 5.7. Levers for Managing Flow Rate
Throughput:
Levers:

14. Case Discussion: Manzana Insurance 1991 Second Quarter Performance

15. Manzana Insurance (cont.)
28.4 min./request
Distribution Clerks (4)
Underwriting Team #1
Underwriting Team #3
Raters (8)
Underwriting Team #2
Policy Writers (5)
41 min./request
70.4 min./request
54.8 min./request
Weighted average

16. Today’s Takeaways Operational Measures: Flow Time
Critical path
Theoretical vs. actual, value added vs. non value added
Levers for improving flow time
Flow Rate (cycle time)
Capacity, bottleneck, levers for improving throughput
Utilization, server or machine idle time
Pipeline principal
Inventory (next lecture)
Articles:
Can Marketing and Manufacturing Coexist? – HBR
Competing on Capabilities: The New Rules of Corporate Strategy – HBR