Session 4 Handout Part 1

DISCLAIMER: Use of any portion of these materials to aid in the preparation of a case write-up for this, or any other class; current or future, or sharing any portion of these materials with anyone who mustor might someday have toprepare a case write-up for this case constitutes a serious violation of the Olin School Honor Code.

Session 4
Cycle Time Management

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CYCLE TIME THROUGHPUT

CAPACITY

THE OPS QUADRANGLE

INVENTORY

Capacity and Bottlenecks

Capacity Makespan, INV, ! Capacity Investment Capacity Constraints Product-Mix Decisions Levers for Increasing Capacity

OMM

Chayet

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The Goal

Make Sure not Wasting Bottleneck Capacity

Idle during lunch breaks Bottleneck not making parts for nished goods inventory! Quality Control prior to Bottleneck
BN

QC
pass

defects

QC
pass

BN

defects
OMM Chayet

The Goal

Ofoad

Must all parts ow through the BN? Sub-Contract?

Heat Treatment Across Town Price? Shadow Prices: (NCC, Merton)

OMM

Chayet

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CYCLE TIME THROUGHPUT

CAPACITY

THE OPS QUADRANGLE

INVENTORY

Search for Clarity

throughput Bottlenecks different paths Critical Paths ! ! bottleneck
Drive

capacity Capacity cycle time Cycle Time

critical path
Drive

OMM

Chayet

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Of Bottlenecks and Critical Paths

6 13 A 10 15 B 11 19 E 12 C 5 5 D 4 4 F 3 16 H 11 9 G 7 5 I 3

max = ?

Critical Path ?
OMM Chayet

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Of Bottlenecks and Critical Paths

6 13 A 10 15 B 11 19 E 12 C 5 5 D 4 4 F 3 16 H 11 9 G 7 5 I 3

Critical Path Length = 53 min

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Are Bottlenecks Always on the Critical Path?

OMM

Chayet

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Washington University Olin Business School OMM 5704 Operations Management Chayet

Bottlenecks and Critical Paths: An Example

8

4t

4b

3 3t 2 2b 1 1b W Out

4t

Wait

3t

3t

3b

T3

3t

2t

T2

2t

2b

2t

T1

1t

1t

1b

In 1

1t

T1 T2 T3

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4b 2b 1b 3b
Cut

4t 3t 2t 1t

Are Bottlenecks Always on the Critical Path?

Top 1

Top 2

Top 3

Wait

1
Bottom

OMM

Chayet

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Are Bottlenecks Always on the Critical Path?

In Top 1 Top 2 Top 3 Bottom Wait Out 0

1t 1t

2t 2t 1t 1b 1b
1

3t 3t 2t 2b 2b
2

4t 4t 3t 3b 3b
3

4b

1 2 min

CT = 3 min

INV =

2+1 3 = 2 2
Chayet

OMM

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CT: Key Facts

Includes Waiting Times It is an Average Determined by Critical Path

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Customers Should Only See Value-Add!

Process Fire ghting Product development Retail ordering Home mortgage approval Order fulllment Complaint processing

Value-Add Spraying water Designing to meet specs Ordering hot-selling items Processing application Assembly Phoning customer

Non-Value-Add Testing the siren Perfecting a new technology Ordering slow-moving items Deciding lending policy Credit checking Management study

OMM

Chayet

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Focus

Focus promotes rapid learning and smooth ow (variance reduction) through simplicity and repetition.

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Chayet

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Riding the Learning Curve

quality Performance

time/cost Experience

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Chayet

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Session 4 Handout Part 2

DISCLAIMER: Use of any portion of these materials to aid in the preparation of a case write-up for this, or any other class; current or future, or sharing any portion of these materials with anyone who mustor might someday have toprepare a case write-up for this case constitutes a serious violation of the Olin School Honor Code.

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Washington University Olin Business School OMM 5704 Operations Management Chayet

Session 4
1. Assignment: Merton Truck Company Exercise II Testing Constraint: 1 1 X101 + X102 1100 2 4 Or equivalently: 2 X101 + X102 4400 The new decision variable graph:

Constraints Graph
X102 3000 2500 2000 1500 1000 500 0
M al et pi am St ng

30

00

X1

01

Eng

50

ine

00

X1

Ass em b

ti Tes ng

02

=5

ly

,00

0,0

500

1000

1500

00

2000

2500

3000

X101

The optimal solution is encircled. Using Excel Solver we conrm: X101 = 1600 X102 = 1200 Contribution = $10.8M . 1
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2. Assignment: Shouldice Hospital Limited

Annual net prot Hospital:

1 $111 patient day (4 day)(6850 patient) $2.8M = $241, 400.

1 Clinic: ($450 + $60 + (0.2) $75) patient (6850 patient) $2M = $1, 596, 250.

Average number of beds occupied according to Littles Law INV = CT = 6850/year 50 wk/year 4 day 7 day/wk = 78.29.

Recall that there are 89 regular and 14 hostel beds for a total of 103, well above 78.29. Although not part of the assignment, notice that if beds were the only limitation, 103 Shouldices capacity would be max = 4/ 7wk = 180.25/wk.

Please see the posted spreadsheet

Some available options and their associated costs: Conguration Su Current CT=4 CT=3 S CT=4 S Su CT=4 45 bed wing CT=4 S,No W CT=4 34 37 37 35 26 37 37 M 37 37 37 33 26 37 37 Schedule T W Th 15 15 29 21 26 37 0 14 14 37 14 25 37 29 37 37 37 35 26 37 37 Capacity (#/wk) 140 177 171 180 185 163 I NV 78.3 80.0 75.9 97.7 102.9 105.7 93.1 Revenue (per wk) $132,753 $135,660 $151,866 $165,699 $174,420 $179,265 $157,947 Increment (per year) $145,350 $955,650 $1,647,300 $2,083,350 $2,325,600 $1,259,700

F 0 0 0 33 26 0 23

S 0 0 0 0 25 0 0

2
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Washington University Olin Business School OMM 5704 Operations Management Fall B 2013, Chayet

Session 4: Lessons
1. Critical Path: We learned that the critical path is the sequence of steps through which all jobs must pass, having the longest total time, including wait time. If you want to reduce cycle-time, you must focus on the critical path. 2. Bottlenecks and Critical Paths: Using a simple example we saw how the critical path doesnt always include the bottleneck. We used a Gantt chart to illustrate the progress of jobs through the system. 3. Focus Strategy: By focusing, rm can reduce variability, simplify processes, and increase the rate of learning through repetition. The eect is to more quickly ride the learning curve of improving Time, Price, and Quality. We discussed in detail how Shouldice creates value through focus, as well as other examples. 4. Revenue as a Function of the Operations Quadrangle: We can use the Operations Quadrangle to understand how a rm makes money. In an INVbusiness, such as the hospital side of Shouldice, customers pay more as their cycle-time, i.e. length of stay, increases. In a -business customers pay for participation, such as the clinic side of Shouldice where customers pay per operation. Viewed on the whole, Shouldice is a mixture of both. We saw that because inventory is tightly held, i.e. INV INVmax , Shouldice can increase revenue by reducing cycle-time to increase , which follows from Littles Law. Shouldice can also increase INVmax by adding a 45-bed wing, or increase the weekly eective capacity by scheduling operations on Saturday. 5. Scheduling Constraints: Unlike all other situations we have faced so far, assessing the capacity of Shouldice cannot be done by looking at each resource pool in isolation. There are constraints that depend on time, i.e. patients cannot be admitted on Friday or Saturday, which interact with inventory constraints on the number of beds. We saw how Excel Solver can be used to obtain a schedule that maximizes weekly throughput, i.e. yields weekly eective capacity.

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