Managing Process Flows

Chapter 5
Business Process Modeling, Simulation and Design

Organizational Reengineering
BPR Changes/improves three areas Plans Process Information Business process engineering is the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service & speed. Hammer & Champy, 1994

Key words in BPR definition

Four key words in the definition Fundamental Radical Processes Dramatic We can only reengineer processes not organizations evolved to accomplish them

Overview
Processes and Flows Important Concepts
Throughput (Process flow rate) WIP Cycle Time (Throughput time) Littles Formula

Cycle Time Analysis Capacity Analysis Managing Cycle Time and Capacity
Cycle time reduction Increasing Process Capacity

Theory of Constraints

Processes and Flows Concepts

A process = A set of activities that transforms inputs to outputs Two main methods for processing jobs
1. Discrete Identifiable products or services
Examples: Cars, cell phones, clothes etc.

2. Continuous Products and services not in identifiable distinct units

Examples: Gasoline, electricity, paper etc.

Three main types of flow structures

1. Divergent Several outputs derived from one input Example: Dairy and oil products 2. Convergent Several inputs put together to one output Example: Car manufacturing, general assembly lines 3. Linear One input gives one output Example: Hospital treatment, Restaurant
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Process Throughput
Inflow and Outflow rates typically vary over time
IN(t) = Arrival/Inflow rate of jobs at time t OUT(t) = Departure/Outflow rate of finished jobs at time t IN = Average inflow rate over time OUT = Average outflow rate over time

A stable system must have IN=OUT=

= the process flow rate = process throughput

Process inflow and outflow vary over time

Work-In-Process
All jobs that have entered the process but not yet left it A long lasting trend in manufacturing has been to lower WIP by reducing batch sizes
The JIT philosophy Forces reduction in set up times and set up costs

WIP = Average work in process over time WIP(t) = Work in process at time t
WIP(t) increases when IN(t)>OUT(t) WIP(t) decreases when IN(t)<OUT(t)

Process Cycle Time

The difference between a jobs departure time and its arrival time = cycle time
One of the most important attributes of a process Also referred to as throughput time

The cycle time (or throughput time) includes both value adding and non-value adding activity times
Processing time Inspection time Transportation time Storage time Waiting time

Cycle time analysis is a powerful tool for identifying process improvement potential
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Littles Formula
(Due to J.D.C. Little (1961)) States a fundamental and very general relationship between the average: WIP, Throughput (= qty / unit time) and Cycle time (CT) [Cycle time here is the Throughput time]
The cycle time refers to the time the job spends in the system or process

Littles Formula: WIP = CT Implications, everything else equal

Shorter cycle time lower WIP If increases to keep WIP at current levels CT must be reduced

A related measure is (inventory) turnover ratio

Indicates how often the WIP is entirely replaced by a new set of jobs

Turnover ratio = 1/CT

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Cycle Time Analysis

The task of calculating the average cycle time for an entire process or process segment
Assumes that the average activity times for all involved activities are available

In the simplest case a process consists of a sequence of activities on a single path

The average cycle time is just the sum of the average activity times involved

but in general we must be able to account for

Rework Multiple paths Parallel activities
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Rework
Many processes include control or inspection points where if the job does not conform it will be sent back for rework
The rework will directly affect the average cycle time!

Definitions
T = sum of activity times in the rework loop r = percentage of jobs requiring rework (rejection rate)

Assuming a job is never reworked more than once

CT = (1+r)T

Assuming a reworked job is no different than a regular job

CT = T/(1-r)
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Example Rework effects on the average cycle time

Consider a process consisting of
Three activities, A, B & C taking on average 10 min. each One inspection activity (I) taking 4 minutes to complete. X% of the jobs are rejected at inspection and sent for rework
A (10) B (10) C (10) I (4)

0.75

0.25

What is the average cycle time?

a) If no jobs are rejected and sent for rework. b) If 25% of the jobs need rework but never more than once. c) If 25% of the jobs need rework but reworked jobs are no different in quality than ordinary jobs.

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Multiple Paths
It is common that there are alternative routes through the process
For example: jobs can be split in fast trackand normal jobs

Assume that m different paths originate from a decision point

pi = The probability that a job is routed to path i Ti = The time to go down path i

CT = p1T1+p2T2++pmTm= pi Ti
i 1

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Example Processes with Multiple Paths

Consider a process segment consisting of 3 activities A, B & C with activity times 10,15 & 20 minutes respectively On average 20% of the jobs are routed via B and 80% go straight to activity C.
A (10)

0.8

C (20)

0.2
B (15)

What is the average cycle time? Average CT = 10 + 0.8 * 20 + 0.2*(15+20) = 33 Or Average CT = 10 + 20 + 0.2*15 = 33
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Processes with Parallel Activities

If two activities related to the same job are done in parallel the contribution to the cycle time for the job is the maximum of the two activity times. Assuming
M process segments in parallel Ti = Average process time for process segment i to be completed

CTparallel = Max{T1, T2,, TM}

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Example Cycle Time Analysis of Parallel Activities

Consider a process segment with 5 activities A, B, C, D & E with average activity times: 12, 14, 20, 18 & 15 minutes
(14)

(12)

(20)

(15)

(18)

What is the average cycle time for the process segment? Average CT = 12 + Max (14, 20, 18) + 15 = 47
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Cycle Time Efficiency

Measured as the percentage of the total cycle time spent on value adding activities.
Theoretical Cycle Time Cycle Time Efficiency = CT

Theoretical Cycle Time = the cycle time which we would have if only value adding activities were performed
That is if the activity times, which include waiting times, are replaced by the processing times

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Capacity Analysis
Focus on assessing the capacity needs and resource utilization in the process
1. Determine the number of jobs flowing through different process segments 2. Determine capacity requirements and utilization based on the flows obtained in 1.

The capacity requirements are directly affected by the process configuration

Flowcharts are valuable tools Special features to watch out for Rework Multiple Paths Parallel Activities

Complements the cycle time analysis!

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The Effect of Rework on Process Flows

A rework loop implies an increase of the flow rate for that process segment Definitions
N = Number of jobs flowing through the rework loop n = Number of jobs arriving to the rework loop from other parts of the process r = Probability that a job needs rework

Assuming a job is never reworked more than once N = (1+r)n Assuming a reworked job is no different than a regular job N = n/(1-r)
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Example Capacity Analysis with Rework

100 jobs
A

125 jobs B

125 jobs C

125 jobs I 0.75

0.25

N = (1+r)n = (1+0.25)100 = 125 N = n/(1-r) = 100/(1-0.25) = 133

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Multiple Paths and Parallel Activities

Multiple Paths and process flows
The flow along a certain path depends on
The number of jobs entering the process as a whole (n) The probability for a job to go along a certain path

Defining
Ni = number of jobs taking path i pi = Probability that a job goes along path i

Ni = npi

Parallel Activities and process flows

All jobs still have to go through all activities
if they are in parallel or sequential does not affect the number of jobs flowing through a particular activity
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Analyzing Capacity Needs and Utilization (I)

Need to know
Processing times for all activities The type of resource required to perform the activity The number of jobs flowing through each activity The number of available resources of each type

Step 1 Calculate unit load for each resource The total resource time required to process one job
Ni = Number of jobs flowing through activity i for every new job entering the process Ti = The processing time for activity i in the current resource M = Total number of activities using the resource

Unit load for resource j = N i Ti

i 1
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Analyzing Capacity Needs and Utilization (II)

Step 2 Calculate the unit capacity
The number of jobs per time unit that can be processed Unit capacity for resource j = 1/Unit load for resource j

Step 3 Determine the resource pool capacity

A resource pool is a set of identical resources available for use Pool capacity is the number of jobs per time unit that can be processed
Let M = Number of resources in the pool

Pool capacity = MUnit capacity = M/unit load

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Analyzing Capacity Needs and Utilization (III)

Capacity is related to resources not to activities! The process capacity is determined by the bottleneck
The bottleneck is the resource or resource pool with the smallest capacity (the slowest resource in terms of jobs/time unit) The slowest resource will limit the process throughput

Capacity Utilization
The theoretical process capacity is obtained by focusing on processing times as opposed to activity times
Delays and waiting times are disregarded The actual process throughput The theoretical capacity!

Actual Throughput Capacity Utilization = Theoretical Pr ocess Capacity

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Cycle time Reduction

Cycle time and capacity analysis provide valuable information about process performance
Helps identify problems Increases process understanding Useful for assessing the effect of design changes

Ways of reducing cycle times through process redesign

1. 2. 3. 4. 5. 6. Eliminate activities Reduce waiting and processing time Eliminate rework Perform activities in parallel Move processing time to activities not on the critical path Reduce setup times and enable batch size reduction
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Example Critical Activity Reduction

Consider a process with three sequences or paths
B 14 A 12 D C 20 E 15

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Sequence (Path)
1. AB E 2. AC E 3. A D E

Time required (minutes)

12+14+15 = 41 12+20+15 = 47 = CT 12+18+15 = 45

Critical path

By moving 2 minutes of activity time from path 2 to path 1 the cycle time is reduced by 2 minutes to CT=45 minutes
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Increasing Process Capacity

Two fundamental ways of increasing process capacity
1. Add resource capacity at the bottleneck Additional equipment, labor or overtime Automation 2. Reduce bottleneck workload Process redesign Shifting activities from the bottleneck to other resources Reducing activity time for bottleneck jobs

When the goal is to reduce cycle time and increase capacity careful attention must be given to
The resource availability The assignment of activities to resources
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Theory of Constraints (TOC) (I)

An approach for identifying and managing bottlenecks
To increase process flow and thereby process efficiency

TOC is focusing on improving the bottom line through

Increasing throughput Reducing inventory Reducing operating costs Need operating policies that move the variables in the right directions without violating the given constraints

Three broad constraint categories

1. Resource constraints 2. Market constraints 3. Policy constraints
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Theory of Constraints (TOC) (II)

TOC Methodology
1. Identify the systems constraints 2. Determine how to exploit the constraints
Choose decision/ranking rules for processing jobs in bottleneck

3. Subordinate everything to the decisions in step 2 4. Elevate the constraints to improve performance
For example, increasing bottleneck capacity through investments in new equipment or labor

5. If the current constraints are eliminated return to step 1

Dont loose inertia, continuous improvement is necessary!

See example 5.18 , Chapter 5 in Laguna & Marklund

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Example Applying the TOC Methodology

Consider a process with 9 activities and three resource types. Activities 1, 2 & 3 require 10 minutes of processing and the other activities 5 minutes each. There are 3 jobs, following different paths being processed
Job
A

Routing
4, 8, and 9 1, 2, 3, 5, 6, 7, and 8

Demand
(Units/week)

Profit Margin
20
75

50 100 60

B
C

2, 3, 4, 5, 6, 7, 8, and 9

60

Activities 1, 2 & 3 utilize resource X, activities 4, 5, & 6 resource Y and activities 7, 8 & 9 resource Z. Each resource have 2400 minutes of weekly processing time available 30