Managing Business Process Flows: Ch 3-5

Managing Business Process Flows: Ch 3-5
Process Analysis and Improvement Key Operational Measures: Time T, Inventory I, Throughput rate R Link through Little’s Law and scorecard representation Link to Financial Measures Targeting Improvement Firm & Divisional Level: MBPF Inc. Mkt-Ops: CRU Computer Rentals Responsiveness vs. Capacity Flow Time vs. Bottleneck Analysis Pizza Pazza Company Levers for Improvement Multi-product Capacity Management and Investment Joint Marketing & Production Decisions Optimal Capacity Investment Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

Strategic Fit & capabilities Financials & process view
What is an improvement? Strategic Fit & capabilities Financials & process view Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

Operational Performance Measures
Flow (Cycle) time - T Throughput / flow rate – R Takt Time Inventory - I Process Cost Quality Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

What is Toyota doing now?
Taiichi Ohno’s answer was very simple: “All we are doing is looking at the time line from the moment the customer gives us an order to the point when we collect the cash. And we are reducing that time line by removing the non-value-added wastes.” Simple but brilliant. (Taiichi Ohno. Toyota Production System: Beyond Large-Scale Production. p. ix.) Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

How reduce flow time? There are only two available levers
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Takt Time Willys Jeep Takt time = Example:
Total time available Customer demand “The rhythm of the conductor to keep the orchestra in time” Takt time = Takt time yields the rate at which customers demand product and the production rate to stay synchronized with demand Example: Demand = 150,000 cars per year Total available production time = 2 x 8 hrs/day x 250 days/yr = 4,000 hrs/year Takt = 4,000 hrs/150,000 cars = 1hr/37.5 cars = 96 sec / car What does Little’s Law say about takt time? metronome Key: Takt Time = 1/Throughput Thus, LL says: Flow time = Inventory x Takt Time Willys Jeep Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

Linking operational measures: Little’s Law
Flow rate/Throughput R [units/hr] Inventory I [units] ... ... ... ... ... Flow Time T [hrs] Inventory = Throughput x Flow Time I = R x T Inventory Turnover = Throughput / Inventory = 1/ T Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

Inventory Turns in Retailing and Its Link to Inventory Costs
Home Depot (1/30/2011) Wal-Mart (1/31/2011) Net Sales $67,997 $418,952 Cost of sales $44,693 $315,287 Net Income $ 3,338 $ 15,355 Inventories $10,625 $ 36,318 Months of Inventory If Wal-Mart carried the same months of inventory as Home Depot, its inventories would be I = This would tie up about $ billion extra in inventory. MOI: 10625/44693 *12 = 2.85 months = 4.2 times/year 36318/315287*12 = 1.38 months = 8.7 times/year If Wal-Mart carried 2.85 months of inventory, I = RT = ($315,287/12)*2.85 = $74,880 it would have about $39 billion extra in inventory Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

A Process Example using Little’s Law
25% quit 4 patients/hr Patient checks in Wait Initial doctor consultation Doctor requests tests for patient Wait Nurse takes tests 75% 5 min 2 patients 12 min 5 min 1 patient 30 min Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

Process Analysis and Improvement Module
Changing Sources of Competitive Advantage Operational Measures: Time T, Inventory I, Throughput rate R Link through Little’s Law Link to Financial Measures Targeting Improvement Firm & Divisional Level: MBPF Inc. Mkt-Ops: CRU Computer Rentals Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

MBPF Inc.: Consolidated Statement
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MBPF Inc.: Balance Sheet
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Cash-to-Cash Cycle At MBPF Inc, cash-to-cash cycle =
Cash-to-Cash Cycle Times by Industry in the US (measured in days): Industry Best in class Average Median Pharmas and Chemical 31.3 120.2 96.8 Computers 27.5 62.1 51.5 Consumer Package Goods 19.9 77.0 63.6 Defense and Industrial 20.8 70.3 67.1 Electronic Equipment 31.6 116.3 103.1 Semiconductors 49.4 110.3 104.5 Telecommunications 19.4 90.5 85.8 Source: Supply Chain Council, Aug. 2000

MBPF Inc.: Inventory and Cost of Goods

MBPF Inc.: Detailed Financial Flows
$60.2/yr Labor & OH $25.3/yr Labor & OH $50.1/yr $110.3/yr $6.5 $15.1 Raw Materials (roofs) Fabrication (roofs) $175.8/yr $175.8/yr $10.6 $9.8 $40.2/yr Notes: Assembly Finished Goods $8.6 $40.2/yr Purchased Parts (bases) Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

MBPF Inc.: Detailed Flow Times

Case: CRU Computer Rentals Linking Financial and Operational Flows & Targeting Areas for Improvement
Handouts to be distributed in class Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

CRU Computer Rentals: Flow Chart
Status 40 Ship Receiving 30% Repairs 70% Status 24 15% Parts places order Receives from Supplier Customer Pre-Config Status 41 Status 32 Ship Config Repairs Status 20 Status 42 Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

Questions to ask when adopting a process view
1. What are the process boundaries: what is the input and output? 2. What is the flow unit or the unit of analysis? 3. “Attach yourself to” the flow unit and record its process steps through the process What are the value-added and necessary activities? What are the associated processing times or work content? Where does the flow unit wait (buffers)? What are the associated waiting times? What are the routes a flow unit can take? What are necessary precedence relationships? (i.e., what must be done sequentially?) Note that the first improvement step will be to delete non-value-added and unnecessary activities and buffers = waste 4. Who does the work? What are the resources for each activity? What are all the activities a given resource performs? (cross-training , flexibility) What are the resource constraints? What determines the flow rate? (demand or capacity) How is quality measured? What is the cost of each resource? 5. What information is required to perform each activity? Where does this information come from? This specifies the information flow (dashed lines) Purpose: think about the process. Identifying the different components. If we want to look at the Pizza Pazza case we have to look at the process. Question: What kind of things do we need to specify Input – order, output – packed and billed oreder Flow unit – customer order of two pizzas We need to be aware of economies of scale – what I mean by that the activity time does not change at least within some range of the batch size. We need to make sure what routes are possible. Clearly we need to make dough before we bake the pizza. On the other hand – we can either make the dough first and then the sauce or vise versa. We will make some assumption as to the current setting of the system. We need to know the resources that are available to us and how they are matched up with the specific activities. Key for Capacity Analysis Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

CRU Computer Rentals: Revenue and Cost Drivers
Status 40 Ship Receiving 30% Repairs R3 = 300/wk 70% R = 1000/wk Status 24 15% Parts places order Receives from Supplier R2 = 105/wk Customer Ic Pre-Config Status 41 R1 = 595/wk Status 32 Ship Config Repairs Status 20 Status 42 @MBPF: Principles of Operations Management Copyright Principles of Operations Management

CRU Situation last year: Customer term = 8 wks, Demand = 1000 units/wk

CRU Situation last year: Financial Performance: per week
Number of units on rent = 8,000 Total number of units = 14,405 Utilization = 0.56 (56%) Revenue rate = 8,000 x $30 = $240,000/wk Variable Cost rate = $25 x 1,000 (receive) + $25 x 1,000 (ship) + $4 x 595 (preconfig) + $150 x 405 (repair) = $113,130/wk Contribution Margin = $126,870/wk Depreciation = 14,405 x ($1000/156wks) = $92,340/wk Operating Margin = $34,530/wk Notes: Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

CRU Situation last year: Financial Performance: per route & per computer
R1: True Non-Defectives R2: False Non-Defectives R3: Defectives Duration of a cycle (weeks) = 12.64 = 18.57 = 16.43 Cost per cycle ($) = 54 = 200 Depreciation per cycle ($) 12.64 weeks × $6.41/week = $81 18.57 weeks × $6.41/week = $119 16.43 weeks × $6.41/week = $105 Margin per cycle ($) 240 – 54 – 81 = 105 240 – 200 – 119 = -79 240 – 200 – 105 = -65 Margin per week ($/wk) 105/12.64 = 8.31 -79/18.57 = -65/16.43 = Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

CRU Potential situation this year: without sales drive, Demand = 600 units/wk
R : what about I and T? Assume T remains as before: what about I? @MBPF: Principles of Operations Management Copyright Principles of Operations Management

CRU Potential situation this year: without sales drive, Demand = 600 units/wk
Number of units on rent = 4,800 Total number of units = 8,643 Utilization = 0.56 (56%) Revenue = 4,800 x 30 = $144,000/wk Cost = $25 x 600 (R) + $25 x 600 (S) + $4x(420-63) + $150 x 243 = $67,878/wk Contribution Margin = $76,122/wk Depreciation = 8,643 x (1000/156) = $55,404/wk Operating Margin = $20,718/wk = 60% of 1996 OpMargin Notes: Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

CRU Situation this year: Target short term market
CRU Situation this year: Target short term market. Total demand = 1400units/wk What about I? At the customer: I4wk = , I8wk = , Tmarket = In the process: Assume T remains as before: Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

CRU Situation this year: flow times unchanged, Demand = 1400 units/wk
Number of units on rent = 8,000 Total number of units = 16,967 Utilization = 0.47 (47%) Revenue = 4,800 x ,200 x 35 = $256,000/wk Cost = 25 x 1,400 (R) + 25 x 1,400 (S) + 4 x 980x x 567 = $158,382/wk Contribution Margin = $97,618/wk Depreciation = 16,967 x (1000/156) = $108,763/wk Operating Margin = - $11,145/wk Notes: Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

Case Take-aways: CRU Three key operational measures: flow time, inventory, and throughput Little’s law connects them The business flow paradigm links operational measures to financial flows This inter-functional macro process view of the organization incorporates both the revenue and cost side of a business It highlights operational key performance indicators (KPIs) that are leading indicators of financial performance and make up a “dashboard” Use it to identify, value, and prioritize improvement areas for performance measures: need more than only “utilization” for targeted improvement of customers segments + internal ops On the analysis side: distinguish throughput rate from flow time: costs: throughput driven (“cycle costs”) revenues: flow time driven (“length of rental”) Analyze different routes and product segments: Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

Learning Objectives Basic Process Analysis
Process Measures: time, inventory, and throughput What is an improvement? Link financial measures to operational ones Good operational measures are leading indicators of financial performance Using Little’s law for process flow analysis Notes: Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

Process Analysis and Improvement Module: Ch4-5
Operational Measures: Time T, Inventory I, Throughput rate R Link through Little’s Law Link to Financial Measures Targeting Improvement Firm & Divisional Level: MBPF Inc. Mkt-Ops: CRU Computer Rentals Responsiveness vs. Capacity Flow Time vs. Bottleneck Analysis Pizza Pazza Company Levers for Improvement Multi-product Capacity Management and Investment Joint Marketing & Production Decisions Optimal Capacity Investment Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

Concepts to Cover and Analyze
Flow Time Critical Path (Theoretical) Capacity of a Resource Bottleneck Resource (Theoretical) Capacity of the Process Will use Pizza to illustrate. Pizza Goal = Concepts and calculations Shows how some decisions (finance, investment, pricing) should be interfunctional and process view is helpful. Need to understand 2 points about BNs: What is their capacity? What is their cost? Simple point: you typically don’t want an inexpensive resource to be your BN Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

Analyzing Process Performance: Mortgage Application
Verify/Check Employment etc Marcus 20min Assemble, Present to client Karolien 15min Application review, Data entry Shannon 5min Credit rating Kiki 15min Initial policy options/rates Maxi 15min To illustrate the concepts, consider a simple example—which could be that of requesting a home mortgage. Q1: What is the minimal amount of time to process an input into an output? Find the critical activities = longest path = bottom path = 1 hour = theoretical flow time. Q2: What is the maximal number of flow units we can process per hour? Find the slowest resource = bottleneck = R2 whose resource capacity is 1 every 20 min. The weakest link determines the chain’s strength, so process capacity can not go above 3/hr. Note: BN need not be on the critical path. Both concepts address different questions: critical activities is about input-output flow/response time bottleneck resources are about throughput rate Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

Pizza Pazza: Flow Chart if job order = 2 identical pizzas
start Take Order Sauce Prep Dough Prep Spread Activity time: 2 3 12 = 2 Resource: Jean Jean Jean, Pan Unload & Load & Set end Bill Bake Pack cool timer Activity time: 2 1 2 = 2 3 15 1 Resource: Jaqueline Jaqueline, Pan Pan Oven, Pan Jaqueline, Oven, Pan Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

Pizza Pazza: Flow Time vs. Throughput/Capacity
What is the minimum time to fill a rush order, assuming that all steps of the process are started only after the order is received? Without spending money, how would you reduce this response time? Maximal throughput = capacity: What is the maximum number of orders that PP can fill per hour in steady state? Discuss a two-route example: - House Game: PC (15min) > B1 (15min) – B2 (15) > FA (15) > Roof (20min) > - CP = lower but BN = upper! Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

Operational Measure: Flow Time How to quote a due-date at Pizza Pazza
3. Assume that there is one order waiting to be processed, Jean is just about to start mixing the sauce for a second order and Jacqueline is just about to start loading the two pizza pans of a third order into the oven. A customer calls in with a new order for two pizzas and wants to know when she can pick up her order. What due-date time should Jean promise assuming that they process all orders in the sequence received? Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

Gantt Charts A Gantt chart is a graphical representation of the duration of tasks against the progression of time. It is a useful tool for planning and scheduling projects. It also is helpful when monitoring a project's progress. Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

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Most time inefficiency comes from waiting: E. g
Most time inefficiency comes from waiting: E.g.: Flow Times in White Collar Processes Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

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’’ Restructure sequential activities into parallel activities Reduce waiting time. Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

A Recipe for Capacity Measurements: Minimal resource capacity = bottleneck
Define a “job” = … *assuming system is processing at full capacity Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

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Pizza Pazza: Flow Rate/Capacity Analysis
Pizza Pazza: Flow Rate/Capacity Analysis if job order = 2 identical pizzas * What is the maximum number of orders that PP can fill per hour in steady state? 4. If the Jacqueline calls in sick one day, what is the maximum number of orders that PP can fill? 5. What is the minimum number of pizza pans needed to ensure that no order has to wait for a pan? Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

Pizza Pazza: Financial Flows & Pricing
Pizza Pazza: Financial Flows & Pricing if job order = 2 identical pizzas 6. Assume Jean and Jacqueline decide to hire two employees to perform their respective tasks; each paid €8 per hour. What is the contribution margin (revenue - variable costs) generated per hour of operation of the process if pizzas sell for €5 each? Throughput R = … pizzas/hr Revenue rate if sale price is €5 = Resource cost rate per hour = Material cost rate per hour = Contribution margin rate = 7. What is the minimum amount that Jean can charge per pizza, and still make a positive contribution margin? Minimum sale price = Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

Pizza Pazza: Capacity Investment if job order = 2 identical pizzas
8. The pizzas have become wildly popular and Jean feels that they can easily sell thirty pizzas per hour. To increase capacity, he is thinking of renting additional industrial ovens, which would cost €10 for each hour that an oven is used. Should Jean rent more ovens, assuming the rest of the process is kept as is? How many? What would be the contribution margin from each hour of operation of the process (assume the employees do all the work)? Rent second oven Rent third oven Bottleneck Additional throughput Additional revenue Additional costs Additional profit ROI Say demand is 25 pizzas/hr > How many ovens? Three? > No b/c BN shifts and we don’t get full paypack! Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

Pizza Pazza: Capacity Investment if job order = 2 identical pizzas
9. Can Jean do better, relative to question 8 above, by restructuring the process? For example, can he increase profits by reallocating tasks between the employees? (Assume all orders are for two pizzas.) Rent third oven after process change = Bottleneck Additional throughput Additional revenue Additional costs Additional profit ROI Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

Product Mix Decisions: Pizza Pazza offers 2 pizza types
Sale Price of thin crust: €5 Cost of Direct Materials: €1.40 Sale Price of deep dish: €7.50 Cost of Direct Materials: €2.10 Which of these two products should Jean push to customers that call in and are undecided? Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

Product Mix Decisions Unit margin of thin crust pizza = €3.60 Unit margin of deep dish pizza = €5.40 Margin rate from thin crust = €3.60 * 7.5/hr = € 27/hr Margin rate from deep dish = €5.40 * 4/hr = € 21.60/hr Think of a process as printing cash = speed (throughput) x unit margin. Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

Pizza Pazza: Other factors affecting Process Capacity
Batch (Order) Sizes: Is it worth offering any discount to encourage all orders to be for three pizzas? If so, how much? other managerial policies ... Product Mix Discount: not if 1 oven; yes if Jean & Jackie are BNs (b/c they have EoS) Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

How increase capacity? Summary of Typical Actions
Key action = optimize only bottleneck management Decrease the work content of bottleneck activities Never unnecessarily idle (“starve”) bottlenecks = eliminate bottleneck waits: Reduce variability if it leads to bottleneck waiting Synchronize flows to and from the bottleneck: sync when resources start an activity work smarter: Reduce & externalize setups/changeover times, streamline + eliminate non-value added work do it right the first time: eliminate rework/corrections work faster Move work content from bottlenecks to non-bottlenecks create flexibility to offload tasks originally assigned to bottleneck to non-critical resource or to third party Can we offload tasks to cross-trained staff members? Increase Net Availability of Process work longer: increase scheduled availability increase scale of process: invest in more human and capital resources eliminate unscheduled downtimes/breakdowns Preventive maintenance, backups, etc. Pizza Goal = Concepts and calculations Shows how some decisions (finance, investment, pricing) should be interfunctional and process view is helpful. Need to understand 2 points about BNs: What is their capacity? What is their cost? Simple point: you typically don’t want an inexpensive resource to be your BN Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

“Theory of Constraints” in The Goal Increasing Process Capacity
“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 reduce/eliminate setups and changeovers synchronize flows to & from bottleneck 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 Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

Bariatric Surgery Flow Chart
40% quit 10% quit Cash Initial phone call Initial consultation Request tests Set appointmt for test 1 Test 1 delay decide Medical Necessity Letter Insurance Approval decide Set appointmt Insurance Yes (50%) 90% More tests (50%) 5 x 1.2 = 6 min (20% callback) Patient Receptionist 30 min Patient Surgeon 10 min Patient Surgeon 5 min Patient Receptionist 60 min Patient Care-nurse Outpatient room 2 days Patient 20 min Patient Surgeon 5 min Patient Receptionist Set appointmt for test 2 5 min Patient Receptionist Visit 2 15 min Patient Surgeon Test 2 30 min Patient Care-nurse Outpatient room 80% approved Insurance Approval delay 2 wks Patient 2 days Patient 20% denied & quit To illustrate bottleneck and capacity concepts in more complex processes, consider Bariatric Surgery. The complications here are: Not everyone that enters goes through the entire process > drop-out or yield rates. Not everyone follows the same process > There are several types of flow units (“product mix”) Dealing with 2 is not to difficult: we simply focus on a specific type of flow unit; e.g. “patients that pay cash and select open surgery”. Let us discuss how to deal with drop-out or yield rates for such specific flow unit. Check-ups & Recovery Laparoscopic Surgery 15 min 2 s-nurses OR OR Cleaning x % Follow Up Patient Leaves 2 days Patient, Inpatient room Care nurse 120min (10minx6x2) 75 min 2 surgery nurses Anesthetist, surgeon patient, OR Drs. Prep Pre- surgery Seminar Patients Arrive & Check-in Schedule surgery Pre- surgery Visit 3 15 min Surgeon anesthetist 30 min Patient Care-nurse 1- x % 60 min 6 Patients Surgeon Seminar room 10 min Patient Care-nurse 20 min Patient Surgeon Outpatient room Check-ups & Recovery Open Surgery Patient Prep 30 min Patient Care-nurse 4 days Patient, Inpatient room Care nurse 240min (10minx6x4) 45 min 2 surgery nurses Anesthetist, surgeon patient, OR Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

Bariatric Surgery Flow Chart for “cash & open surgery”
40% quit Cash Initial phone call Initial consultation Request tests Set appointmt for test 1 Test 1 delay decide Set appointmt 5 x 1.2 = 6 min (20% callback) Patient Receptionist 30 min Patient Surgeon 10 min Patient Surgeon 5 min Patient Receptionist 60 min Patient Care-nurse Outpatient room 2 days Patient 5 min Patient Receptionist First, this simplifies the flow chart greatly. Second, note that outflow rate < inflow rate. We can express throughput & capacity either in “inflow patients” or “served patients.” Either way works b/c one can reconvert: #outflows = 60% #inflows. But this has a great impact on resource consumption. To illustrate, let us calculate the unit load of surgeons (in terms of inflow units): Surgeons’ unit load = %*( / ) = %*(100 min) = 90 min. Thus, surgeons’ capacity = 1 inflow patient/90min = 2/3 /hr = .66/hr. Equivalently (multiplying by 60%) = .6 x 2/3 = .40 served patients/hr. Doing this now for each resource pool, we get the capacity table on next page. 15 min 2 s-nurses OR OR Cleaning Follow Up Patient Leaves Drs. Prep Pre- surgery Seminar Patients Arrive & Check-in Schedule surgery Pre- surgery Visit 3 15 min Surgeon anesthetist 30 min Patient Care-nurse 60 min 6 Patients Surgeon Seminar room 10 min Patient Care-nurse 20 min Patient Surgeon Outpatient room Check-ups & Recovery Open Surgery Patient Prep 30 min Patient Care-nurse 4 days Patient, Inpatient room Care nurse 240min (10minx6x4) 45 min 2 surgery nurses Anesthetist, surgeon patient, OR Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

Bariatric Surgery Capacity – Open Surgeries & Cash Payment
Expected unit workload per inflow patient Notice: the surgeon capacity is .4/hr, total pool capacity = 96/hr BN = inpatient-rooms: patients only check in on Sunday – Thursday = 5 days/wk. Unit load = 4 days. Thus, 1.25 patients/room,wk. Why would they have excess staff and doctors? Consider Laproscopic surgery: (next page) Now surgeons are BN. * inpatient rooms used 5 days/wk Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

Bariatric Surgery Capacity – Laparoscopic Surgeries & Cash Payment
Now surgeons are BN. > insight: capacity depends on “product mix”. Say we have 50% “cash & open” and 50% “cash and Lapa”, what is capacity? In general, it is not 50%* %* b/c the BN may shift. Rather, you should recalculate the average unit workload. Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall @MBPF: Principles of Operations Management Copyright Principles of Operations Management

Bariatric Surgery Capacity – Open Surgeries & Insurance Payment
As a last exercise, let us calculate the unit load of surgeons for the “open & insurance”. (go back to full flowchart) First, compute drop-out rates: starting from 100 patients flowing in > 60 > 30 (more test) > (30+24).9=48.6 served. 2. Surgeon expected workload on 1 inflow patient thus is: (10+20) + .3 x (20+60/ ) = = min/inflow patient. 3. Equivalently, this is 96.24/.486 = min/served patient. [Sunil gets same, but the spreadsheet above and TN have wrong number.] @MBPF: Principles of Operations Management Copyright Principles of Operations Management

Bariatric Surgery Capacity – Laparoscopic Surgeries & Insurance Payment
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All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall Copyright Principles of Operations Management

Managing Business Process Flows: Ch 3-5

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