1. OM&PM/Class 2b1 1Operations Strategy –Class 1a: Introduction to OM –Class 1b: Strategic Operational Audits 2 Process Analysis –Class 2a + 2b: Process Flow Analysis »CRU Computer Rentals presentation »Detailed Capacity Analysis: Kristen’s Cookies »Key levers for improving process capacity and flow time 3Lean Operations 4Supply Chain Management 5Capacity Management in Services 6Total Quality Management 7Business Process Reengineering Operations Management & Performance Modeling

2. OM&PM/Class 2b2 CRU Computer Rentals: Revenue and Cost Drivers Customer I c ReceivingRepairs Pre-Config Parts places order Receives from Supplier Repairs Status 40 Status 24 Status 41 Status 42 Status 20 Config 30% 70% 15% Ship Status 32 Ship R R1R1 R2R2

3. OM&PM/Class 2b3 Kristen’s Cookies: Flow Chart Take Order Wash & Mix Spoon Load & Set Timer Bake UnloadCoolPackPay Order Ready You 6min / 1-3doz You 2min / doz Roommate, Oven 1 min / doz Oven 9 min/doz Roommate --- 5 min Roommate 2 min /doz Roommate 1 min / order

4. OM&PM/Class 2b4 Process Architecture is defined and represented by a process flow chart: Process = network of activities performed by resources 1. Process Boundaries: –input –output 2. Flow unit: the unit of analysis 3. Network of Activities & Storage/Buffers –activities with activity times –routes: precedence relationships (solid lines) 4. Resources & Allocation 5. Information Structure & flow (dashed lines)

5. OM&PM/Class 2b5 Operational Measure: Flow Time Driver: Activity Times  (Theoretical) Flow Time  Critical Activity  Flow Time efficiency

6. OM&PM/Class 2b6 Levers for Reducing Flow Time  Decrease the work content of critical activities –work smarter –work faster –do it right the first time –change product mix  Move work content from critical to non-critical activities –to non-critical path or to ``outer loop’’  Reduce waiting time.

7. OM&PM/Class 2b7 Most time inefficiency comes from waiting: E.g.: Flow Times in White Collar Processes

8. OM&PM/Class 2b8 Operational Measure: Capacity Drivers: Resource Loads  (Theoretical) Capacity of a Resource  Bottleneck Resource  (Theoretical) Capacity of the Process  Capacity Utilization of a Resource/Process = throughput [units/hr] capacity [units/hr]

9. OM&PM/Class 2b9 A Recipe for Capacity Measurements * assuming system is processing at full capacity

10. OM&PM/Class 2b10 Cost Capacity Profile Capacity [units/time] Marginal Investment Cost [$/unit/time] Resource xNCX-10Furnaces Demand Process Capacity

11. OM&PM/Class 2b11 Levers for Increasing Process Capacity  Decrease the work content of bottleneck activities –work smarter –work faster –do it right the first time –change product mix  Move work content from bottlenecks to non-bottlenecks –to non-critical resource or to third party  Increase Net Availability –work longer –increase scale (invest) –increase size of load batches –eliminate availability waste

12. OM&PM/Class 2b12 Increasing Process Capacity in The Goal  “is to increase the capacity of only the bottlenecks” –“ensure the bottlenecks’ time is not wasted” »increase availability of bottleneck resources »eliminate non-value added work from bottlenecks u reduce/eliminate setups and changeovers »synchronize flows to & from bottleneck u reduce starvation & blockage –“ the load of the bottlenecks (give it to non-bottlenecks)” »move work from bottlenecks to non-bottlenecks »need resource flexibility – unit capacity and/or #of units. »invest

13. OM&PM/Class 2b13 Pricing and Capacity Investment: Trays + Rent another oven at $10/hr?  Resource cost =  Material cost =  Minimum sale price =  Contribution margin if sale price is $5 / dozen =

14. OM&PM/Class 2b14 Other factors affecting Process Capacity  Batch (Order) Sizes  Product Mix  other managerial policies...

15. OM&PM/Class 2b15 Chocolate Chip and Peanut Butter Data

16. OM&PM/Class 2b16 Class 2b Learning Objectives  CRU: manage better with the three key operational measures and an inter-functional macro process view of the organization  Process measures: –Flow time  manage critical activities –Capacity  manage bottleneck resources  Levers for improving –Flow time  manage critical activities –Capacity & Throughput  Process capacity depends on a zillion things