Process Analysis

Ronald S. Lau, Ph.D.

HKUST – ISOM
What are the key elements of a business process?

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What is a business process?

 A business process is any part of  Activities could be:

an organization that transforms  Value-added
inputs into outputs, preferably  Non-value-added but required
through value-added activities  Non-value-added and not required

Process
Inputs Outputs
Raw Materials, Goods,
Customers Services

Activity: Buffer:
(Delay/Inventory)
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Key elements of a business process
 Flow unit is what flows through the process
 Example: A customer or a piece of material

 Resource refers to which or who performs the

activity on the flow unit
 Example: An employee or a machine (could be
multiple resources/activities in a process)

 Inventory refers to those flow units in the

process at any given moment in time

 Buffer is where inventory (or customer) is

waiting

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Process flow analysis

50 orders 40 orders 60 orders

per hour per hour per hour

 Key concepts to understand process flow

 Effect of capacity variation
 Buffer
 Bottleneck operations
 Blocking vs. starving
 …

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 How do process variations impact actual output?
Average rate of Average rate of
processing for A processing for B

Average number of
customers arriving
Customers exiting the Managerial implications:
system (process)
• How many customers do you
expect to serve per hour given
the current capacity?
Actual processing rate of B
• What impact does capacity
<100/hr ≥100/hr utilization have on customer
Actual Possible starving for B, service and waiting time?
<100/hr <100/hr for sure
processing most likely <100/hr
• What should be the capacity of
rate of A ≥100/hr Possible blocking for A, Min(avg customers arriving, A and B to ensure an average
most likely <100/hr A, B), most likely <100/hr
output of 100/hr?

Average number of
customers served

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How to measure flow time performance in a process?

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Some process performance measures (and terms) that are
very important for you to understand…
 Process capacity = min{capacity of resource 1, capacity of resource 2,…}

 Flow rate = min{input rate, process capacity}

= Output rate
= 1 / Flow time (for a simple process with only one resource or serial activities)
= 1 / Cycle time (for a more general process with multiple resource pools,
determined by the bottleneck)

 Flow time = 1 / Flow rate (for a simple process with only one resource)
= Total processing time for a simple process with only serial activities
= The length of critical path (the longest path from the beginning to the end)
for a process with parallel activities

 …
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Example: Identifying the critical activities to minimize
aircraft’s ground turnaround time
Arrival Departure  What is the relationship
Turnaround Time between critical path
and critical activities?
Passenger Catering
Deplaning Offload  How to determine the
critical path?
Toilet
Servicing
Cabin
Cleaning
Crew
Boarding
Catering
Uplift
Security
Check
Passenger
Boarding  Why critical activities
are significant in
process analysis?
Cargo/Bag Cargo/Bag Door Departure
Offload Uplift Close Clearance

Routine Pre-Flight
Fuelling
Maintenance Preparation

Source: David Brown, Manager of Operations Services at Cathay Pacific Airways.

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Example: Processing mortgage loan applications

Verify/Check
employment etc.
20 min

Application review, Assemble,

data entry present to client
5 min 15 min

Credit rating Initial policy

options/rates
15 min 15 min

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Example: Processing mortgage loan applications

 What is the flow time to process an input into an output?

 Flow time = Length of the critical path: 50 minutes

 What is the maximum number of flow units to process per hour?

 From the bottleneck: 1 every 20 minutes  3 applications per hour

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Levers for reducing flow time
 Move work content off the critical path
 Work in parallel

 Eliminate non-value-added activities

 Work smarter

 Reduce the amount of rework

 Do it right the first time

 Increase the speed of operation

 Work faster

 …

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How flow time, inventory, and throughput relate to each
other in a process?

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Basic process flow measures
 Flow time
 Sum of activity (processing or task) time for a unit to flow through the process
 Theoretical vs. Actual flow time

 Flow rate (or throughput)

 Number of units that flow through a specific (exit) point in the process per unit of time
 Throughput = Average flow rate = 1 / Cycle time

 Inventory
 Number of units present within the process boundaries, when the inflow rate exceeds
(temporarily) the processing rate

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Key questions in process flow analysis

R = Throughput
Flow units I = Inventory [# units/time]
... ... ... ... ...

T = Flow time [time]

 Key questions:
 On average, how much time does a typical flow unit spend within the process
boundaries? (T)
 On average, how many flow units pass through the process per unit of time? (R)
 On average, how many flow units are within the process boundaries at any point in
time? (I)

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Relating average flow time, throughput, and average
inventory
 In a stable process:
 Average inflow rate = Average outflow rate, in the long run
 Throughput = Average flow rate (i.e., average # of units that flow out of the process
per unit of time)

 Little’s Law

Average inventory = Throughput x Average flow time

I = R x T

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Example: Airport passport control

R = Throughput
I = # Passengers [# passengers/minute]
waiting in line
... ... ... ... ...

T = Flow time [minutes]

 R = 120 passengers per minute

 T = 2 minutes Inventory = Flow Rate× Flow Time

 I = ??? Note: In general, Flow rate ≠ 1/Flow time unless you

have only one resource in the process performing
the task. If that’s the case, Inventory = 1 since the
single resource can serve only 1 customer at a time
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Intuitive explanation of Little’s Law

R = Throughput
I = # Passengers [# passengers/minute]
waiting in line
... ... ... ... ...

T = Flow time [minutes]

Let us mark and track an arbitrary passenger (flow unit). After the marked flow unit enters
the process boundaries, it spends T time units before departing. During this time, new
flow units enter the process at rate R. During the time T that our marked flow unit spends
in the system, R xT new flow units arrive. As a result, by the time the marked flow unit
exits the system, the inventory is I = R xT.

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Examples of using the Little’s Law

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Implications of the Little’s Law
 Of the three measures of performance, a process manager needs only focus
on any two measures
 Example: For a given level of throughput in a process, the only way to reduce flow time
is to reduce inventory and vice versa

 Application examples
 Material flow Process
 Customer flow
 Cash flow
 Job flow
Flow rate = 2 units/minutes
Inventory = 2*3 = 6 units
Flow time = 3 minutes

Inventory = Flow Rate× Flow Time

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Example 1: Material flow problem
 Material flow
 Assuming a KFC outlet sells an average of 5,000 kg of fried chicken per week and
carries an average of 2,500 kg of frozen chicken in inventory
 From Little’s Law: I = R x T
where R = 5,000 kg per week and I = 2,500 kg
 Therefore, average flow time T = 2,500 / 5,000 = 0.5 week

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Example 2: Customer flow problem
 Customer flow
 Assuming a restaurant serves an average of 100 customers per hour (R) and an average
of 75 customers, either waiting to place an order or eating, are in the restaurant area
(I)
 Average flow time T = 75 / 100 = 0.75 hours

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Example 3: Cash flow problem
 Cash flow
 A major manufacturer sells $300 million worth of products per year (R) and average
amount of accounts receivable is $45 million (I)
 Average flow time T = 45 / 300 = 0.15 year (or 1.8 months)
 On average, it takes 1.8 months before the manufacturer can collect the payment from
its customers

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Example 4: Job flow problem
 Job flow
 A branch office of an insurance company processes 10,000 claims per year (i.e., R =
200 claims per week), and the office works only 50 weeks per year
 The average processing time is three weeks (i.e., T = 3 weeks)
 On average, there are I = 200 x 3 = 600 claims in various phases of the claim process

 Assume improvement is made with new process design and technology…

 New processing time can be reduced by 80% (i.e., from 3 weeks to 0.6 week)
 R = 200 claims per week and T = 0.6 weeks
 That means I = 200 x 0.6 = 120 claims

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