PROCESS

ANALYSIS
Introduction / The three
measures (pages 15-19) 
Subway – Sitting in Front of the Store
Subway – Sitting in Front of the Store

25 Minutes later….
Subway – Sitting in Front of the Store
 PROCESSES: THE THREE BASIC
MEASURES

• Flow rate / throughput: number of flow units going through the process per unit of time

• Flow Time: time it takes a flow unit to go from the beginning to the end of the process

• Inventory: the number of flow units in the process at a given moment in time

• Flow Unit: Customer or Sandwich

Process Analysis: The Three Measures

Immigration department Champagne MBA program Auto company

Units =Applications Bottle of champagne Student Car

Flow Rate :Approved or rejected cases Bottles sold per year Graduating class Sales per year

Flow Time : Processing time Time in the cellar 2 years 60 days

Inventory : Pending cases Content of cellar Total campus Inventory

population
Summary

When observing a process, always aim to understand the three process measures

• Flow rate / throughput: number of flow units going through the process per unit of time

• Flow Time: time it takes a flow unit to go from the beginning to the end of the process

• Inventory: the number of flow units in the process at a given moment in time

In the next session, we will discuss what drives these measures

We will then find out that the three measures are related to each other
PROCESS
ANALYSIS
Finding the bottleneck
(pages 32-43) 
Process Analysis

In this session, we will take you INSIDE the black box

Specifically, you will learn how to:

1. Create a process flow diagram

2. Find the bottleneck of the process and determine the maximum flow rate

3. Conduct a basic process analysis

Subway – Inside the Store
DRAWING A PROCESS FLOW DIAGRAM
 DRAWING
Station 1
A Station
PROCESS2
FLOW DIAGRAM
Station 3
Customers
   

Process
Flow unit Flow of Activity
Flow(capturing
Waiting
the Activity)
Symbols in a process flow diagram

Difference between project management and process management

Doing the things repeatedly.

So the flow of customer is
referred as process.
Basic Process Vocabulary

• Processing times: how long does the worker spend on the task?

• Capacity=1/processing time: how many units can the worker make per unit of time
If there are m workers at the activity: Capacity=m/activity time

• Bottleneck: process step with the lowest capacity

• Process capacity: capacity of the bottleneck

• Flow rate =Minimum{Demand rate, Process Capacity)

• Utilization =Flow Rate / Capacity

• Flow Time: The amount of time it takes a flow unit to go through the process

• Inventory: The number of flow units in the system

PROCESS
ANALYSIS
Labor productivity measures
(pages 60-63)
 LABOR PRODUCTIVITY MEASURES
Bottleneck
a4 =Idle Time =Processing time
Processing Time

a2

Labor Productivity Measures

a1
• Cycle time CT= 1/ Flow Rate
a3 Direct Labor Content=p1+p2+p3+p4
If one worker per resource:
Direct Idle Time=(CT-p1) +(CT-p2) +(CT-p3)

1 2 3 4 • Average labor utilization

labor content
Review of Capacity Calculations 
labor content  direct idle time
Number of Resourcesi
• Capacityi =
Processing Time i
• Cost of direct labor
• Process Capacity=Min{Capacity i}
Total wages per unit of time

Flow Rate per unit of time
• Flow Rate = Min{Demand, Capacity}
Flow Rate
• Utilizationi= Capacity
i
EXAMPLE: ASSEMBLY LINE WITH SIX
STATIONS

3 min/unit 5 min/unit 2 min/unit 3 min/unit 6 min/unit 2 min/unit

INSERT EXCEL ANALYSIS OF SUBWAY
LINE HERE
 THE ROLE OF LABOR COSTS IN
MANUFACTURING:
100%
90%
THE AUTO INDUSTRY Other
Overhead
Warranty
80% Quality
70%
60% Assembly and other
Labor costs
50% Purchased Parts and
40% parts and material
assemblies costs Logistics costs
30%
20%
10% Material costs
0%
Final Including Including Rolled-up
Assembler’s Tier 1 Tier 2 Costs over
cost Costs Costs ~ 5 Tiers

• While labor costs appear small at first, they are important

- look relative to value added
- role up costs throughout the value chain

• Implications
- also hunt for pennies (e.g. line balancing)
- spread operational excellence through the value chain
Source: Whitney / DaimlerChrysler
PROCESS
ANALYSIS
Little’s Law (pages 16-19)
PROCESSES: THE THREE KEY METRICS
LITTLE’S LAW: IT’S MORE POWERFUL
THAN YOU THINK...
 EXAMPLES FOR LITTLE’S LAW
APPLICATIONS
In a large Philadelphia hospital, there are 10 births per day.
80% of the births are easy and require mother and baby to stay for 2 days
20% of the cases are more complicated and require a 5 day stay

What is the average occupancy of the department?

Source: Graves and Little

 LITTLE’S LAW: SOME REMARKS

Not an empirical law

Robust to variation, what happens inside the black box

Deals with averages – variations around these averages will exist

Holds for every time window

Shown by Professor Little in 1961

PROCESS
ANALYSIS
Inventory Turns / Inventory costs
(pages 19-22)
 INVENTORY TURNS

Cost of Goods sold: 20,000 mill $/year Cost of Goods sold: 25,263 mill $/year
Inventory: 391 mill $ Inventory: 2,003 mill $

Inventory Turns
Computed as: COGS
Inventory turns=
Inventory

Based on Little’s law

Careful to use COGS, not revenues
INVENTORY TURNS AT DELL
 INVENTORY TURNS IN RETAILING
AND ITS LINK TO INVENTORY COSTS
Inventory Cost Calculation

Compute per unit inventory

costs as:
Annual inventory costs
Per unit Inventory costs=
Inventory turns
Capital, Storage,
Obsolescence etc.
Example:

• Annual inventory costs=30%

• Inventory turns=6
30% per year
Per unit Inventory costs=  5%
6 turns per year

Retailer A : 30%/ 5= 6 %
Retailer B : 30 % / 8 = 3.75 %
Source: Gaur, Fisher, Raman
PROCESS
ANALYSIS
Buffer or Suffer (pages 23-27)
 SIMPLE PROCESS FLOW – A FOOD
TRUCK
Food Truck
 
Every five minutes:
- You get 0, 1, or 2 orders with equal probability
- You have a capacity of 0, 1, or 2 with equal probability
- It is not possible to make a sandwich before the order
- Customers are not willing to wait

=> How many sandwiches will you sell per five minute slot?

As R= min { D, C} so here we have average demand of 1 and average

capacity of 1. So it suggests that our average flow rate is 1 which is
misleading.
Demand Capacity Flow rate
0 0 , 1, 2 0 ,0 ,0
1 0 , 1, 2 0, 1, 1
2 0 , 1, 2 0 , 1,2
So the average flow rate is(Utilization) FR/ Cap ----- 5/9. So we have lost the
half of the flow rate due to the effective variability.
 BUFFER OF SUFFER

• So the system which does not have the capacity to Buffer ultimately suffers.
• We have intentionally eliminated the inventory which results in decreased flow
rate.
- It is not possible to make a sandwich before the order
- Customers are not willing to wait
VARIABILITY WILL BE A KEY FACTOR IN
WAITING TIME

Why variability does not always average itself out

Buffer-or-suffer strategy

Buffering is easier in production settings than in services (make to order vs make to stock)
Preview two different models: Queue and Newsvendor
 DIFFERENCE BETWEEN MAKE-TO-ORDER
AND MAKE-TO-STOCK
McDonald’s Subway
1. Make a batch of sandwiches 1. Customer orders
2. Sandwiches wait for customer orders 2. Customer waits for making of sandwich
3. Customer orders can filled immediately 3. Customer orders can filled with delay
=> Sandwich waits for customer => Customer waits for sandwich

Which approach is better?

Make-to-Stock advantages include:

+ Scale economies in production
+ Rapid fulfillment (short flow time for customer order)

Make-to-Order advantages include:

+ Fresh preparation (flow time for the sandwich)
+ Allows for more customization (you can’t hold all versions
of a sandwich in stock)
+ Produce exactly in the quantity demanded
 EXAMPLES OF DEMAND WAITING FOR
SUPPLY
Service Examples
 ER Wait Times: 58-year-old Michael Herrara of Dallas died of a heart attack
after an estimated 19 hours in the local Hospital ER
Some ER’s now post expected wait times online / via Apps
 It takes typically 45 days do get approval on a mortgage; Strong link
between wait times and conversion
 Waiting times for drive-through at McDonald’s: 159 seconds; Long queues
deter customers to join

Production Examples
• Buying an Apple computer
• Buying a Dell computer
=> Make-to-order vs Make-to-Stock

http://www.minyanville.com/businessmarkets/articles/drive-thrus-emissions-fast-food-mcdonalds/5/12/2010/id/28261
 FIVE REASONS FOR INVENTORY

Pipeline inventory: you will need some minimum inventory because of the flow time >0

Seasonal inventory: driven by seasonal variation in demand and constant capacity

Cycle inventory: economies of scale in production (purchasing drinks)

Safety inventory: buffer against demand (Mc Donald’s hamburgers)

Decoupling inventory/ buffers: buffers between several internal steps

Source: De Groote
PROCESS
ANALYSIS
Multiple flow units
(pages 43-48)
Processes with Multiple Flow Units
Foreign Dep.
m=2
20 min/app
Contact faculty/
other persons

Foreign acc.
3 cases per hour File
11 cases per hour Regular m=1File
4 cases per hour EZ form 3 min/app
Print invoice
Department
Contact prior 1
m=3
employers m=1
Confirmation
15 min/app 2
letter min/app

Department 2
Benchmark
gradesm=2
8 min/app
Approach 1: Adding-up Demand Streams
Approach 2: A Generic Flow Unit (“Minute of Work”)
 STEPS FOR BASIC PROCESS ANALYSIS
WITH MULTIPLE TYPES OF FLOW UNITS

1. For each resource, compute the number of minutes that the resource can produce
2. Create a process flow diagram, indicating how the flow units go through the
process
3. Create a table indicating how much workload each flow unit is consuming at each
resource
4. Add up the workload of each resource across all flow units.
5. Compute the implied utilization of each resource as

The resource with the highest implied utilization is the bottleneck

Note: you can also find the bottleneck based on calculating capacity for each step
and then dividing the demand at this resource by the capacity
Processes with Attrition Loss

Where is the Bottleneck?

70/500 20/70 6/20 2/6

500 ideas
per year
Pitches Scripts Pilots Shows New
Series

Processing time 2 days 10 days 30 days 70 days 200 days

Resources 5 judges 3 script writers 2 pilot teams 2 Series crews 1 Main crew
(250 days per year)
• Bottlenecks in the New York Electricity Grid

• Japanese Production Output in the Automotive Industry

• College Admissions Process and Waiting Lists

I Love Lucy Assembly Line

https://www.youtube.com/watch?
v=Jm1VEO9C4VQ#t=0.018993