Introduction to Operations Management:!

Session 2
Professor Gad Allon Kellogg School of Management, Northwestern University

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In this Session
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Whats a process? What are the main metrics? How should we improve a processes?

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Waiting in line for passport checks

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Time and Supply Chain Management

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Process View of Operations

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A process is a transformation of inputs into outputs through a network of activities and buffers, utilizing resources, IT and mgt

Process Management

Information structure

Inputs
Flow units/Entities
(customers, data, material, cash, etc.)

Network of Activities and Buffers

Outputs
Goods Services

Resources
Labor & Capital

Advantages of Adopting a Process View of Organizations

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Applies to any organization Applies at any level horizontal, i.e., across functions, view of the organization in contrast to the usual vertical views along the lines of functional departments
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Highlights integration and problems

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Is always customer aware

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Key Property: focus on ows rather than snapshots

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Rationalized management (vs. ghting res) Focus on process rather than people has higher likelihood of leading to cooperation and signicant improvement

the process view is a unied, customer-centric model of the organization that facilitates analysis and improvement in a systematic manner

Where should we target improvement? ! What metrics matter?

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Operational Performance Measures

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Flow time T
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Average time to convert one unit of input into one unit of output. Average number of units that are processed by the process, per unit of time. Average number of units that are within the boundaries of the process. Average cost to convert one unit of input to one unit of output.

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Throughput rate R
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Inventory I
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Process Cost
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The Important of Time

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The Importance of Time

August 20, 2011

October 31, 2011

January/February, 2012

The Importance of Time What is Toyota doing now? 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.
(Taiichi Ohno. Toyota Production System: Beyond Large-Scale Production. p. ix.)

Are Inventory, Throughput and Time related?

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How long shall I wait?

30 Customers per hour

6 Customers
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Waiting in line for coffee

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30 Customers per hour = Customer every two minutes

Time=0
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6 Customers
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30 Customers per hour = Customer every two minutes

Time =2
16

6 Customers
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30 Customers per hour = Customer every two minutes

Time =4
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6 Customers
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30 Customers per hour = Customer every two minutes

Time =6
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6 Customers
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30 Customers per hour = Customer every two minutes

Time =8
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6 Customers
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30 Customers per hour = Customer every two minutes

Time =10
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6 Customers
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30 Customers per hour = Customer every two minutes

Time =12
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6 Customers
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Littles Law
" customer per minute

6 Customers

6 Customers = ! Customer/min x 12 minutes

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Relating operational measures: Littles Law

Inventory I
[units]

Flow rate/Throughput R
[units/hr] ... ...

...

...

...

Flow Time T [hrs]

Inventory I

= Throughput x = R x

Flow Time T

Littles Law applied to different process ow examples

Cash Flow: Motorola sells $300 million worth of cellular equipment per year. The average accounts receivable in the cellular group is $45 million. What is the average billing to collection process cycle time?

Throughput R = $300M/year

Inventory I= $45M Flow Time T = ?

T =I/ R= 45 / 300 = 0.15 year = 1.8 months

Littles Law in the press

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Time in the Supply Chain

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How to Improve ?! - Flow Time ! - Throughput

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How to Improve Time?

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Pizza Pazza
job order = 2 identical pizzas

start Activity time: Resource:

Take Order

Sauce Prep 2 Jean

Dough Prep 3 Jean

Spread 1!2 = 2 Jean, Pan

end

Bill

Unload & Pack 1 !2 = 2 Jaqueline, Pan

cool 3 Pan

Bake 15 Oven, Pan

Load & Set timer 1 Jaqueline, Oven, Pan

Activity time: 2 Resource: Jaqueline

Pizza Pazza: Flow Time

Flow Time:
What is the minimum time to ll a rush order, assuming that all steps of the process are started only after the order is received?

Theoretical Flow Time is the minimum amount of time required to complete processing one ow unit (assuming all resources are available when we need them)

Theoretical Flow Time Theoretical Flow Time = 30 minutes

start Take Order Sauce Prep Dough Prep Spread

2
end Bill Unload & Pack

3
Bake

2 +
Load & Set timer

cool

+ 3 +

15

Critical Path = Longest Path

Making Coffee

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Levers for Reducing Flow Time

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Decrease the work content of critical activities

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work smarter work faster do it right the rst time

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Move work content from critical to non-critical activities

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to non-critical path or to ``outer loop

How to Improve Throughput?

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Pizza Pazza: Throughput/Capacity

What is the maximum number of orders that PP can ll per hour in steady state?

Capacity is the maximum sustainable throughput.

Pizza Pazza

start Activity time: Resource:

Take Order

Sauce Prep 2 Jean

Dough Prep 3 Jean

Spread 1!2 = 2 Jean, Pan

end

Bill

Unload & Pack 1 !2 = 2 Jaqueline, Pan

cool 3 Pan

Bake 15 Oven, Pan

Load & Set timer 1 Jaqueline, Oven, Pan

Activity time: 2 Resource: Jaqueline

Pizza Pazza

start Activity time: Resource:

Take Order

Sauce Prep

Dough Prep

Spread

2 Jean
Bill Unload & Pack 1 !2 = 2 Jaqueline, Pan

3 Jean
Bake 15 Oven, Pan

1!2 = 2 Jean, Pan

Load & Set timer 1 Jaqueline, Oven, Pan

end

cool 3 Pan

Activity time: 2 Resource: Jaqueline

Pizza Pazza

start Activity time: Resource:

Take Order

Sauce Prep 2 Jean

Dough Prep 3 Jean

Spread 1!2 = 2 Jean, Pan

end Activity time: Resource:

Bill

Unload & Pack

cool

Bake 15 Oven, Pan

Load & Set timer

2 Jaqueline

3 1 !2 = 2 Jaqueline, Pan

1 Jaqueline, Oven, Pan

Pizza Pazza

start Activity time: Resource:

Take Order

Sauce Prep 2 Jean

Dough Prep 3 Jean

Spread 1!2 = 2 Jean, Pan

end

Bill

Unload & Pack 1 !2 = 2 Jaqueline, Pan

cool 3 Pan

Bake

Load & Set timer

Activity time: 2 Resource: Jaqueline

15 Oven, Pan

1 Jaqueline, Oven, Pan

A Recipe for Capacity Measurements

Resource Unit Load (time/job) Resource Capacity Unit Capacity # of units Total Process Capacity

Jean Jacqueline Oven

2+3+2=7 1+2+2=5 1+15

60/7 = 8.6 60/5 = 12

1 1

8.6 12 3.75 3.75 order/hr = 7.5 pizza/hr

60/16 = 3.75 1

How increase capacity? ! Summary of Typical Actions

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action = optimize only bottleneck management

Decrease the work content of bottleneck activities !! work faster Move work content from bottlenecks to non-bottlenecks !! create exibility to ofoad tasks originally assigned to bottleneck to non-critical resource or to third party Increase Net Availability of Process !! work longer !! eliminate unscheduled downtimes

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Processes, Bottlenecks and Time

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Summary
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Process View Metrics: Inventory, Throughput, Time Littles Law I= R x T Theoretical Flow Time (Critical Path) Capacity (Bottleneck)

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Next:! Lean Operations

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