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Chapter 3
Process Analysis
Operations Management, 2nd Edition
Gerard Cachon and Christian Terwiesch
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Chapter3 Learning Objectives

 Determine the capacity for a one-step process.
 Compute the flow rate, utilization and cycle
time of a process.
 Find the bottleneck of a multistep process and
determine its capacity.
 Determine how long it takes to produce a
certain order quantity

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Process Analysis & Process Flow Diagrams

Process Analysis – a rigorous framework for understanding the
detailed operations of a business :
- determines process capacity
- utilization
- etc.
The best way to begin any analysis of an operation is by drawing a
Process flow diagram.
Process flow diagram – graphical way to describe a process

Boxes to depict
resources Arrows to
Triangles
performing depict Flows
to depict 3
activities Inventory
location

3.1 Process flow diagram

Flow unit – unit of analysis
Arrows capture the flow unit’s journey from input to output

In this situation, waiting customers are considered

inventory.
Why? 4
Inventory: No. of flow units within a process

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Relationships in a Process flow

Upstream -> Downstream

What is the relationship
a. between Employee 1 and Employee 2 ?
b. between Employee 2 and Employee 3 ? 5
c. between Employee 1 and Employee 3 ?

Alternative Process flow diagrams

stations
stations

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Process flow diagram for Airport security

Airport security consists of the following steps
Station 1: Verifying ID and boarding pass
Station 2: Passenger Metal-detector scan
Station 3: Carry-on luggage X-ray machine check
There is a long line of passengers before the first
station, but sometimes lines also build up at
stations 2 and 3, which run in parallel - travellers
go through the metal detector while their
luggages are going through the X-ray machine.
Draw a process flow diagram of this process. 7

Process flow diagram for Airport security

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3.2 Processing time

Processing time:
The time it takes a resource to complete one flow unit

Characteristics of Processing times:

 Units: time/flow-unit
 Averages

3.2 Activity times & Processing time

Processing time: time it takes a resource to complete one flow unit

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Capacity
Capacity – The maximum number of flow units that can
flow through that resource per unit of time
So, in our sandwich example
(Processing time = 120s) :
Capacity
=

= customer/sec

= 0.008333 customer/sec
= ½ customer/min 11
= 30 customers/hr

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Capacity of color printer

1. It takes a color printer 10 seconds to print a large
poster. What is the capacity of the printer, expressed in
posters per hour?
Capacity = (1/10) per second
= 360/hour
2. A call center has one operator answering incoming
calls. It takes the operator 6 minutes, on the average,
to answer one call. What is the capacity of the call
center expressed in calls per hour?
Capacity = (1/6) calls/minute
= (1/6)(60) calls/hour 12
= 10 calls/hour

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Process Capacity
- maximum flow rate a process can handle per unit time
- determines maximum supply of the process
Capacity of process with serial stations/resources:
- smallest capacity of all resources in the process:

Capacity of process with parallel stations/resources:

e.g. if the sandwich shop has three employees (each
doing everything from greeting customer to ringing up 13
bell on register) then capacity of this “parallel” process is:
3*30 = 90 customers/hour

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Process Capacity
Process capacity
- smallest capacity of all resources in the process:

Minimum { Capacity of Resource 1,

Capacity of Resource 2,
…,
Capacity of Resource n }

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3.3 Capacity vs Demand-constrained

Flow rate = Min {Demand, Process capacity}
Demand Rate – The number of flow units that
customers want per unit time.
Capacity-constrained (full capacity)
 demand > supply
 flow rate = process capacity
Demand-constrained (excess capacity)
 process capacity > demand
 flow rate = demand rate
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Throughput / throughput rate = flow rate

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3.3 Flow rate, Utilization & Cycle time

Flow rate = Min (Demand rate, Process capacity)

𝑭𝒍𝒐𝒘 𝒓𝒂𝒕𝒆
Utilization = (usually expressed as a %tage)
𝑪𝒂𝒑𝒂𝒄𝒊𝒕𝒚

Cycle time = time between completion of 2

consecutive flow units
=
16

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Flow rate, Utilization & Cycle time

A doctor has time to see 16 patients per day.
However, the demand is only 12 patients per day.
a. What is the flow rate?

b. What is the utilization of the doctor?

c. What is the cycle time, assuming a 10-hour workday?

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Lead time vs Cycle time

It is important to distinguish between cycle time & lead time:
Cycle time = 1/Flow rate = 1/R = processing time
Note: throughput & flow rate are identical (pg47, Cachon)
Lead time = flow time = T
 time between when an order is placed and when it is received …
 includes queue time

Remember Little’s Law :

I = RT
Flow time = Cycle time x I
Lead time = Cycle time x WIP

Example: There are 4 patients in a clinic …

The doctor spends 15 min with each patient ... 18
Processing time = cycle time = 15 min
The lead (flow) time for a 5th walk-in patient is one hour

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Analyzing Multistep Processes

Ref : Sandwich processing example on pg 50/51
Given Demand rate is 100 customers per hour
Let us compare 2 systems:
1) Parallel: 3 employees each serving a customer from beginning to end.
Each employee has a capacity of (1/120) customer/sec = 30 customers/hr
Total capacity with 3 employees = 90 customers/hr
Flow Rate = MIN [ Capacity, Demand ] = MIN (90, 100) = 90 customers/hr
2) Series: 3 employees working in series, each taking up a sub-set of activities.
We now have three processing times:
Processing time Capacity
Process
Resource
sec/customer customer/sec customers/hour
1 37 0.027 97.3
2 46 0.022 78.3
3 37 0.027 97.3
In a process with multiple resources/steps/stations (multiple boxes that 19
are not in parallel), each resource has its own capacity.
Process capacity = Min{Capacity(i)} = 78.3 customers/hour.

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Is System 1 always better than System 2?

Yes.
The mathematical reasoning is as follows (NOT for quiz/exam):

Let x, y, and z be the processing times of employees 1, 2, and 3

respectively. Then we have to see whether
3/(x + y + z) ≥ min(1/x, 1/y, 1/z)
i.e. 3/(x + y + z) ≥ 1/max(x, y, z)
i.e. (x + y + z)/max(x, y, z) ≤ 3
which is true.
Similar reasoning applies to n employees instead of three
employees.
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3.4 Locating Bottlenecks

Bottleneck – Resource with the lowest capacity in a process.
Locating the bottleneck(s) is critical for improving a process.
We may think of demand as being the bottleneck for a demand-
constrained process. One may argue that there is NO bottleneck in
such a process.
However, it is good to identify the resource with the lowest capacity,
because that’s a POTENTIAL bottleneck …
Demand is dynamic. A demand-constrained process should NOT stay
that way forever. WHY?
So every process has a bottleneck, even if the capacity constraint
created by the bottleneck may not be binding.
In general, a resource may have utilization < 100% for these reasons:
1. By definition, a non-bottleneck resource will have extra capacity 21
2. For a demand-constrained process, even the bottleneck would not
be working at 100%

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Process Analysis: Airport Security

Consider again the example of the 3-step airport security:
Step 1, verifying ID & boarding pass - 30 sec/passenger
Step 2, searching passenger for metal objects using metal
detector - 10 sec/passenger
Step 3, running carry-on luggage through X-ray machine -
60 sec/passenger.
Assume that there are many travelers waiting in the
process.
a. Which resource is the bottleneck?
b. What is the capacity of the process?
c. What is the flow rate?
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d. What is the utilization of the metal detector?
e. What is the cycle time?
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Process Analysis: Airport Security

Ref: Cachon/Terwiesch pg53

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Process Analysis: Airport Security

Recommended Solution Format:
Processing time Capacity
Step Process
sec/passenger passenger/min
1 ID & Boarding Pass 30 2
2 Metal Detector 10 6
3 X-ray of luggage 60 1
a. Which resource is the bottleneck? Step 3: X-ray
b. What is the capacity of the process?
Capacity of process = capacity of bottle-neck step = 1 passenger/min
c. What is the flow rate?
Flow rate = Min (Demand rate, capacity) = 1 passenger/min
“Many travelers waiting” => process is capacity-constrained
d. What is the utilization of the metal detector?
Utilization of metal detector = MD Flow rate/capacity = 1/6 = 16.7%
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e. What is the cycle time?
Cycle time = 1 / Process flow rate = 1min/passenger

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3.5 Time to Produce a Certain Quantity

Q: In the Subway example, how long will it take to serve 20 customers?
Worker paced: A process line in which each resource is free
to work at its own pace … If the first resource finishes before
the next one is ready to accept the flow unit, the first
resource puts the completed flow unit in inventory
Time through an empty worker-paced process
= Sum of all processing times (120s in our Subway example)
Machine Paced: A process in which all steps are connected
through a conveyor; all steps must work at the same rate
even if some of them have more capacity than others.
Time through an empty machine-paced process
= (# of stations)(cycle time)
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3.5 Time to Produce a Certain Quantity

P&A Q5 Glenn Dental Clinic

Time required to produce quantity X,

starting with an empty system:

Time through an empty worker-paced process

= Sum of all processing times

Time through an empty machine-paced process 26

= (# of stations)(cycle time)

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Chapter 4

Process
Improvement
Operations Management, 1st Edition
Gerard Cachon and Christian Terwiesch
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Ch4 Learning Objectives

LO 4-1 Compute costs of direct labor, labor content,
idle time, and average labor utilization.
LO 4-2 Compute takt time of a process and translate
this to a target manpower.
LO 4-3 Find ways to improve process efficiency by
off-loading the bottleneck.
LO 4-4 Balance a process by reallocating work
LO 4-5 Pros & Cons of Specialization
LO 4-6 Financial Impacts of
Process improvements 29

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4.1 Measures of Process Efficiency

Obtaining high output at low costs is the key
idea behind efficiency
A process is efficient if it is able to achieve a
high flow rate with little resources.

Efficiency is only one of multiple dimensions of

operational performance. Businesses should
not set efficiency as their only goal.

Can you think of one other important goal 30

businesses should focus on?

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4.1 Labor Costs

P&A Q1 p98
Cost of direct labor
= cost of labor to serve one customer
𝑾𝒂𝒈𝒆𝒔 𝒑𝒆𝒓 𝒖𝒏𝒊𝒕 𝒕𝒊𝒎𝒆 𝑾𝒂𝒈𝒆𝒔
= 𝑭𝒍𝒐𝒘 𝒓𝒂𝒕𝒆
=
𝒕𝒊𝒎𝒆
𝒄𝒚𝒄𝒍𝒆 𝒕𝒊𝒎𝒆
= ( )

Labor content =

= amount of work that goes into serving one customer

(generally one flow unit)
= sum of the processing times involving labor
 Lower number is more desirable
 Focus on ratio of input to output
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In our Subway example,
Labor content = (37 + 46 + 37) = 120 sec/customer
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Idle time
Idle time – The amount of time per flow unit for which a
resource is paid but is not actually working.

Idle time (Resource i)

= Cycle time – Process time (Resource i)

• A un-utilized worker creates unnecessary expense

• An efficient process is one in which the average labor
utilization is as high as possible
Processing time Capacity Utilization
• Measures how long the resource Process
is idle for each flow unit it serves sec/customer customers/hour %
• Idle time is expressed in 1 37 97.3 80.4%
2 46 78.3 100% 33
units of time
3 37 97.3 80.4%

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Total Idle time

Total idle time – The amount of idle time per flow
unit added up across all resources.
Total idle time = Sum of idle time across resources.
• For every customer we serve, we incur and pay for
idle time.
• Laborers get paid while they are working and while
they are idle.
• Labor content is the productive time of our
resources.
• To evaluate the cost of idle time it is necessary to
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compare idle time with the labor content.
• Idle time is the flip side of utilization.
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Average labor utilization

Based on idle time: In our Subway example,
Average labor utilization
= = 120/(120+18)
𝑰𝒅𝒍𝒆 𝒕𝒊𝒎𝒆
= Avg (80.4%, 100%, 80.4%)
Based on cycle time: = 87.0%
𝑳𝒂𝒃𝒐𝒓 𝒄𝒐𝒏𝒕𝒆𝒏𝒕 Processing time Idle time
= 𝑵𝒐. 𝒐𝒇 𝒆𝒎𝒑𝒍𝒐𝒚𝒆𝒆𝒔 (𝑪𝒚𝒄𝒍𝒆 𝒕𝒊𝒎𝒆)
Process
sec/customer sec/customer
1 37 9
2 46 0
 Measure of efficiency.
3 37 09
 Should be as high as possible. 120 18

Processing time Capacity Utilization

In a perfectly balanced process (avg Process
sec/customer customers/hour %
labor utilization = 100%), the labor 1 37 97.3 80.4% 35
content is divided up equally amongst 2 46 78.3 100%
the number of employees 3 37 97.3 80.4%

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Equivalence of Average Labor Utilization

based on idle time and based on cycle time
This reasoning is just FYI (NOT for quiz/exam):
Suppose n is the number of employees,
pj is the processing time of employee j (j = 1…n),
and Ij is his/her idle time.
Then,
Labor Content + Total idle time of all labor resources
=∑ 𝑝 +∑ 𝐼 =∑ 𝑝 +𝐼
= Cycle time * Number of employees
Hence, we obtain
Labor content/(Labor content + Total idle time of all labor resources)
= Labor content/Number of employees 36
Cycle time

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Example: Labor content

Consider the following 3-step process:
Step 1 20 minutes/unit.
Step 2 10 minutes/unit.
Step 3 15 minutes/unit.
Each step is staffed by one worker.
a. What is the labor content of the process?
b. What is the total idle time, assuming unlimited demand
Answers:
a. Labor content = 20+10+15 = 45 minutes/unit.
b. Step 1 is the bottleneck.
Capacity of process is 3 units/hour
Flow rate = Min (Demand, Process capacity) = 3 units/hr 37
Cycle time = 1/flow rate = 20 min/unit
Total idle time = (0+10+5) = 15 min/unit
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Labor utilization & Cost of DL

Still on our 3-step process:
Step 1 20 minutes/unit.
Step 2 10 minutes/unit.
Step 3 15 minutes/unit.
c. Average Labor Utilization = Avg (100% + 50% +75%)
= 75%
d. Cost of Direct Labor (Assuming wages of $15/hour/employee)

=
( )( )
= $
38
= $15

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Another Example
P&A Q3a-e p99
Activity A Activity B
10 minutes 5 minutes
Resource X Resource Y

Resources X and Y are employees.

Each is paid $15/hour.
Calculate the following measures:
 Cost of Direct Labor $5/unit
 Labor Content 15 min
 Idle times of resources X and Y 0, 5min
 Average Labor Utilization 75% 39

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4.2 Takt time & Cycle time

Suppose demand rate = 30 units/hr
This means the producer has 2 min to make a unit …
takt time =

• Takt time does not depend on process capacity

• Takt time is entirely driven by demand
cycle time = [Flow rate = Min (Dmd, process capacity)]
• Cycle time depends on process capacity
• Takt time ≤ Cycle time. Because demand rate ≥ flow rate
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In matching supply with demand, the goal is to have
a cycle time that is as close to the takt time as possible.

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4.2 Staffing to Meet Demand

P&A Q2
Matching supply with demand
- takes demand rate as given; staffs to meet that demand
Target manpower
=

- minimum number required to meet demand.

- can be a decimal number (staffing level must be an integer)
- assumes all resources are perfectly utilized
- Higher demand
=> shorter takt time 42
=> more workers required for the given labor content

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4.2 Leveling the Demand

In most businesses, demand is very dynamic and

varies, by the hour of the day, day of the week, or
time of year …
For planning purposes, the Operations Manager
should be prepared to level the demand …

Leveling the Demand – Setting an expected

demand rate for a given period of time so that an
appropriate staffing plan/level can be determined.
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4.2 Leveling the Demand

Peak demand
= 160 sandwiches/hr

Takt time (peak)

=
= 22.5s

Target manpower
45
=
= 5.33

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4.2 Leveling the Demand

Avg lbr utilization

= 120/[3(46)]
= 87%

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4.2 Leveling the Demand

Activity time
Activity
(sec/customer)
Greet customer 4
Take order 5
Station 1

Get bread 4
Cut bread 3
Meat 12
Cheese 9
Onions 3
Lettuce 3
Tomatoes 4
Cucumbers 5
Station 2

Pickles 4
Green peppers 4
Black olives 3
Hot peppers 2
Place condiments 5
Wrap and bag 13
47
Station 3

Offer fresh value meal 3

Offer cookies 14
Ring up Register 20
Total 120

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4.2 Leveling the Demand

Total labor content = (16 + 21 + 19 + 14 + 16 + 14 +20) = 120 sec

Total Idle time = (6.5 + 1.5 + 3.5 + 8.5 + 6.5 + 8.5 +2.5) sec = 37.5 sec 48
Average Labor utilization = ( )% = 76.2%
.

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4.3 Off-Loading the Bottleneck

Any process
improvement
starts by looking
at the bottleneck …
We can “off-load the bottleneck” in a few ways:
1. Line balancing - reassigning activities to other resources with
more capacity
2. Automating time-consuming bottleneck activities
3. Outsourcing time-consuming bottleneck activities
Process capacity can also be increased by:
1. Adding an employee to the bottleneck resource 49
2. Having the bottleneck resource work OT
3. Training the bottleneck resource to shorten processing time

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4.4 How to Balance a Process

P&A Q5

50

Line balancing -> improved labor utilization, higher capacity & flow rate

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4.5 Pros and Cons of Specialization

Subway example -
Comparison of 3 task-assignment processes :
• 3 workers (specialized): 78.2 sandwiches/hr
• 3 workers (specialized but more balanced): 83.7 sandwiches/hr
• 3 workers – integrate work strategy (each does all tasks):
90 sandwiches/hr

Integrate work is the opposite of Specialization

Since the integrate work strategy will always give the highest
capacity, why aren’t most processes organized this way?
2 assumptions:
1. Processing times remain 51
2. The workers don’t get in one another’s way

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4.5 Pros and Cons of Specialization

P&A Q2f - h
Pros
• Reduction in processing times due to elimination of setups
• Reduction in activity times due to learning - practice
makes perfect
• Lower skilled labor required - shorter training
• Reduced equipment/tool replication

Cons
• Increased idle time
• Worker Boredom
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4.6 Profit calculations

P&A Q8 p102/3
 Profit = Flow rate (Price – Variable costs) - Fixed costs
 Profit = R(P-VC) – FC

 Variable costs - proportional to quantity produced

e.g. material costs, overtime pay

 Fixed costs - independent of quantity produced/sold

- time-relative
e.g. rent, marketing, salaries of permanent staff

 Analyze the units for the 4 components in the Profit formula

above. Hence, deduce the units for “Profit”

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4.6 Process Improvements: Financial Impact

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Profit = Flow rate (Price – Variable costs) – Fixed costs
= $[76.6 (6 – 1.5) - 48 - 250]/hr = $46.68/hr for the Base Case

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4.6 Process Improvements: Financial Impact

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Conclusion
Improving efficiency is an important task for
any organization.

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Glossary of terms

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Seminar 2 Learning objectives

• Determine the capacity for a one-step process.
• Determine the flow rate, the utilization and the cycle
time of a process.
• Find the bottleneck of a multistep process and
determine its capacity.
• Compute the costs of direct labor, labor content, idle
time, and average labor utilization
• Compute takt time of a process and translate this to a
target manpower
• Process Impovement
• Off-loading the bottleneck & balancing the process
• Pros and cons of specialization 59
• Financial impact of Process improvements

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