Sie sind auf Seite 1von 127

OPERATIONS MANAGEMENT

with Gopesh Anand

MODULE 2
Process Analysis

Lesson 2-1
Types and Metrics

Video 2-1.1
Lesson Objectives

LESSON 2-1 OBJECTIVES


By the end of this lesson you will be
able to:
Recognize the need for different process
arrangements.
Use basic metrics to assess process
performance.
Describe Littles Law.
Apply Littles Law in practical contexts.

OPERATIONS MANAGEMENT
with Gopesh Anand

MODULE 2
Process Analysis

Lesson 2-1
Types and Metrics

Video 2-1.2
Process Types

PROCESS CHOICE
Choices for how work will flow for
goods and services
Two basic arrangements:
Linear
Jumbled

LINEAR ARRANGEMENT IN A HEALTH CLINIC

JUMBLED ARRANGEMENT IN A HEALTH CLINIC

IMPACT OF PROCESS
CHOICE
Cost
Speed
Flexibility
Quality
Customizability

PRODUCT-PROCESS MATRIX
High
Process Flexibility

Project
Job Shop
Large Batch
Small Batch
Line
Continuous

Low
Low

Product Variety

High

PROJECT ONE UNIT AT A TIME

(U.S. Dept .of Labor, Bureau of Labor Statistics, n.d.)

JOB SHOP SIMILAR FUNCTIONS/EQUIPMENT


GROUPED TOGETHER

Department 1

Department 2

Department 3

Department 6

Department 5

Department 4

Start of job
Finished job
(commons.wikimedia.org/Younes2000, 2006)

BATCH SOMEWHAT STANDARDIZED JOB SHOP


OR A SOMEWHAT FLEXIBLE ASSEMBLY LINE

Left: (Kabel, 2005) Right: (commons.wikimedia.org/Emil76, 2008)

LINE DISCRETE UNITS


MOVING THROUGH
SPECIALTY ACTIVITIES

(commons.wikimedia.org/Siyuwj, 2011)

CONTINUOUS FLOW
AUTOMATIC
TRANSFORMATION

(pixabay.com, n.d.)

PROCESS ARRANGEMENTS

Project

Job
Shop

Batch
Process

Assembly
Line

Continuous
Flow

None

Jumbled

In-between

Connected

Continuous

Flexibility

Very High

High

Moderate

Low

Very Low

Product
Types

Unique

Many

Several

Few

One

Expansion

Gradual

Gradual

Gradual or
In Chunks

In Chunks

In Chunks

Broad or
Specialized

Broad

Broad

Specialized

Specialized

One Unit

Low

Moderate

High

Very High

Features
Flow

Human Skills
Volume

PROCESS SELECTION RELATED TO MARKET


Product Market

Process
Arrangement

Low Volume Med. Volume High Volume


High Variety Med. Variety Med. Variety

Job
Shop

Batch

Line

High Volume
Low Variety

A position off the diagonal


indicates a bad fit.

PROCESS ARRANGEMENT COMBINATIONS


Exclusive process:
Hospital specializing in one procedure, e.g.,
Shouldice

(shouldice.com, n.d.)

PROCESS ARRANGEMENT COMBINATIONS


Exclusive process:
Hospital specializing in one procedure, e.g.,
Shouldice

Multiple process arrangements:


Bakery making breads, pastries, and sandwiches,
e.g., Au Bon Pain

(aubonpain.com, n.d.)

PROCESS ARRANGEMENT COMBINATIONS


Exclusive process:
Hospital specializing in one procedure, e.g.,
Shouldice

Multiple process arrangements:


Bakery making breads, pastries, and sandwiches,
e.g., Au Bon Pain

Split process:
Monogrammed shirts, e.g., Polo Ralph Lauren

(polo.com, n.d.)

PROCESS ARRANGEMENT COMBINATIONS


Exclusive process:
Hospital specializing in one procedure, e.g.,
Shouldice

Multiple process arrangements:


Bakery making breads, pastries, and sandwiches,
e.g., Au Bon Pain

Split process:
Monogrammed shirts, e.g., Polo Ralph Lauren

Distinct processes:
Customized and standard motorcycles, e.g.,
Harley Davidson
(harley-davidson.com, n.d.)

IN-VIDEO QUESTION 1
Take any fast food chain and
another luxurious sit-down
restaurant that you are familiar with.
Which type of process arrangement
would you consider for the food
preparation process in the fast food
chain restaurant and in the luxurious
sit-down restaurant?

IN-VIDEO QUESTION 1
Take any fast food chain and
another luxurious sit-down
restaurant that you are familiar with.
Which type of process arrangement
would you consider for the food
preparation process in the fast food
chain restaurant and in the luxurious
sit-down restaurant?

(flickr.com/taymazvalley, 2010)

IN-VIDEO INSIGHTS 1
Take any fast food chain and
another luxurious sit-down
restaurant that you are familiar with.
Which type of process arrangement
would you consider for the food
preparation process in the fast food
chain restaurant and in the luxurious
sit-down restaurant?

PRODUCT-PROCESS MATRIX

Wedding Cake
by an Artist
Individual Meals in
Project
Sit-Down Restaurant
Job Shop
Desserts in

Process Flexibility

High

Restaurant
Small Batch
Burgers in
Fast Food
Sugar
Refinery

Large Batch

Line
Continuous

Low
Low

Product Variety

High

IN CLOSING
Process arrangements are related to
Product versus process focus
Made to stock versus made to order
Stages in product life cycle

REFERENCE
Image Credits
Aerospace engineering and operations [Online image]. 2014. Retrieved October 7, 2015 from http://www.bls.gov/ooh/architectureand-engineering/aerospace-engineering-and-operations-technicians.htm#tab-3
Au bon pain [Online image]. Retrieved October 7, 2015 from http://aubonpain.com
Geely assembly line in Beilun, Ningbo [Online image]. (2011). Retrieved October 7, 2015 from
https://commons.wikimedia.org/wiki/File:Geely_assembly_line_in_Beilun,_Ningbo.JPG
Harley Davidson [Online image]. Retrieved October 7, 2015 from http://www.harley-davidson.com
Job shop [Online image]. (2006). Retrieved October 7, 2015 from
https://commons.wikimedia.org/wiki/File:Job_Shop_Ordonnancement.JPEG
Kabel, M. (2005) Production of cheese [Online image]. Retrieved October 7, 2015 from
https://commons.wikimedia.org/wiki/File:Production_of_cheese_1.jpg
Sheep cheese production [Online image]. (2008). Retrieved October 7, 2015 from
https://commons.wikimedia.org/wiki/File:Sheep_cheese_production.jpg
Shouldice Hospital [Online image]. Retrieved October 7, 2015 from http://www.shouldice.com/
Polo [Online image]. Retrieved October 7, 2015 from http://www.polo.com
[Untitled illustration of industrial petroleum]. (2015). Retrieved December 5, 2010 from https://pixabay.com/p-720706/?no_redirect
Valley, T. (2010). Think [Online image]. Retrieved October 7, 2015 from https://www.flickr.com/photos/taymazvalley/5209251530/

OPERATIONS MANAGEMENT
with Gopesh Anand

MODULE 2
Process Analysis

Lesson 2-1
Types and Metrics

Video 2-1.3
Process Flow Analysis

PROCESS
A process is a collection of activities
that takes one or more kinds of
inputs and creates outputs (or
outcomes) that are of value to
customers external and internal to
(Silver, 2004)
the organization.
Processes can be for manufacturing,
service, or transactions

(commons.wikimedia.org/Pluke, 2011)

PROCESS FLOW ANALYSIS


Flow unit
Goods being produced
Orders being fulfilled
Customers being provided service
Money flowing out and in
Projects being completed
Information being transformed

Key performance metrics


Flow time, flow rate, inventory
(Anupindi et al., 2011)

FLOW TIME (T)


Also known as throughput time
Total time spent by a flow unit in a process, from start to end of
process
Start and end are as determined by process analyst
Includes activities that make up the process
Includes waiting time or inventory between activities
Is the time of the longest path in case of parallel paths

Measured in units of time, i.e., days, minutes, etc.

IN-VIDEO QUESTION 2
How does reducing the flow time for
any process benefit cost, quality,
delivery, and flexibility?

IN-VIDEO QUESTION 2
How does reducing the flow time for
any process benefit cost, quality,
delivery, and flexibility?

(flickr.com/taymazvalley, 2010)

IN-VIDEO INSIGHTS 2
How does reducing the flow time for
any process benefit cost, quality,
delivery, and flexibility?

POTENTIAL BENEFITS OF
REDUCING FLOW TIME
Reduced costs from less inventory
Faster feedback on quality problems
Decreased order lead time
More responsiveness to order
changes
Faster new product development

FLOW RATE (R)


Number of flow units that flow out of the activity or through a
specific point in the process or entire process per unit of time
Is usually an average

Measured in units of flow units per unit time, i.e., customers per
day, or pieces per minutes, etc.
Reciprocal of flow rate, i.e., (1 R) is cycle time (CT)
Average time interval between two successful flow units departing the activity
or process
Flow units may depart in single units or in batches

BOTTLENECK ACTIVITY
Activity in the process that has the
lowest flow rate
As cycle time is the reciprocal of
flow rate, bottleneck is also the
activity with the longest cycle time
Flow rate of any multi-activity
process is determined by the flow
rate of the bottleneck activity

INVENTORY (I)
Number of flow units within the
process boundaries
Sum of the flow units at different stages
in various levels of completion and
waiting between stages in the process
Usually assessed as an average of
quantities observed at different points in
time

Measured in units of flow unit in the


process, e.g., customers, pieces,
etc.

EXAMPLE FOR FLOW TIME AND FLOW RATE (1 OF 2)


Consider a process to assemble desk lamps. The base of the lamp is put together
in Activity 1 and the top piece is produced in Activity 2. Activities 1 and 2 are
simultaneous. The two subassemblies are combined in Activity 3 to finish the lamp.
Report the flow time for making a complete desk lamp and the flow rate of the
process. Also, report the cycle time.

(commons.wikimedia.org/hunterdt, 2014)

EXAMPLE FOR FLOW TIME


AND FLOW RATE (2 OF 2)

Flow Time: 17 minutes


Flow Rate: 1/9 unit per minute or
6.67 units per hour
Cycle Time: 9 minutes

UNDERLYING
ASSUMPTIONS
No waiting between activities
Material is released into the system
at the rate of the slowest activity
Demand is equal to or exceeds flow
rate
Flow rate and cycle time apply when
the system has reached steady state

REFERENCE
Academic Citations
Anupindi, R., Chopra, S., Deshmukh, S. D., Van Mieghem, J. A., & Zemel, E. (2011). Managing business process flows.
Boston, MA: Pearson Higher Ed.
Silver, E. A. (2004). Process management instead of operations management. Manufacturing & Service Operations
Management, 6(4), 273-279. doi: 10.1287/msom.1040.0055.

Image Credits
Desk lamp [Online image]. (2014). Retrieved October 7, 2015 from
https://commons.wikimedia.org/wiki/File:Desk_lamp.jpg
Pluke, (2011). CPT hardware input output [Online image]. Retrieved October 7, 2015 from
https://commons.wikimedia.org/wiki/File:CPT_Hardware-InputOutput.svg
Valley, T. (2010). Think [Online image]. Retrieved October 7, 2015 from
https://www.flickr.com/photos/taymazvalley/5209251530/

OPERATIONS MANAGEMENT
with Gopesh Anand

MODULE 2
Process Analysis

Lesson 2-1
Types and Metrics

Video 2-1.4
Littles Law

EXAMPLE FOR RELATING I, T, AND R

Flow rates for each of the activities:


A: 1/10 unit per minute or 0.1 unit/min.
B: 1/8 unit per minute or 0.125 unit/min.

Flow rate (R) for the process:


0.1 unit per minute

Flow time (T):


18 minutes

With a continuous process, in every ten-minute period, visualize


how busy A and B will be

COMPUTING AVERAGE
INVENTORY (I) (1 OF 2)
With a continuous flow, step 1 will
always have one unit, and step 2 will
have a unit 80% of the time (it will
starve for the other 20%).
WIP or I will be 1 unit for 20% of the
time and 2 units for 80% of the time.

COMPUTING AVERAGE
INVENTORY (I) (2 OF 2)
Thus, (.2*1)+(.8*2) = 1.8 units
Also:
I = Flow time * Flow rate
=T*R
= 18 min. * 0.10 unit per min.
= 1.8 units

LITTLES LAW
The average number of items in a system (I) is the product of the
average length of time an item spends in the system (T) and the
average flow rate of the system (R).
I=T*R
Same as I = T CT
Consistency in measurement units across all elements is critical,
i.e., pieces, minutes, and units per minute; alternatively, batches,
hours, and batches per hour.
(Little, 1961; Little and Graves, 2008)

ASSUMPTIONS FOR LITTLES LAW


Deterministic world
Only averages count
Everything acts as predicted

Processes are stable


Average arrival rate = Average departure rate
Accept units in the system at the rate at which they depart the system
Over the period of time the system is being observed
Average inventory in the system is constant
Average age of the inventory in the system is constant

Littles Law applies when system is in steady state

SO WHAT?

I=T*R
Measure and manage two out of
Flow time
Flow rate
Inventory

For a given level of flow rate, the


only way to reduce flow time is to
reduce inventory (and vice versa).

EXAMPLE APPLICATIONS
Computing average response time for an order from
Average number of orders in the system
Average rate at which orders are being delivered

Assessing average number of people waiting in line at airport


security based on
Average rate of passengers going through
Average time spent by the passengers in the line

Calculating the average age of wine in a wine rack from


Average bottles in the wine rack
Average consumption (and replenishment) rate

IN-VIDEO QUESTION 3: COMPLETE THE TABLE

Rate

In-queue and
in-process

Semiconductor factory

1,000 wafers per day

45,000 wafers

E-mail management

50 messages per day

150 messages

Maternity ward

5 mothers per day

Toll booths

3,600 vehicles per hour

Real estate
Doughnut shop
3rd party logistics provider
(Chhajed and Lowe, 2008)

____________
20 vehicles

___ houses per day OR


25 on sale
___ per year
____ cust./min. OR
10 customers (cust.)
___ cust./hour
10,000 toys per day

____________

Total time in
queue and system
____________
____________
90% 2 day stays
10% 7 day stays
____________
120 days
3 minutes
5 days

IN-VIDEO QUESTION 3: COMPLETE THE TABLE

Rate

In-queue and
in-process

Semiconductor factory

1,000 wafers per day

45,000 wafers

E-mail management

50 messages per day

150 messages

Maternity ward

5 mothers per day

Toll booths

3,600 vehicles per hour

Real estate
Doughnut shop
3rd party logistics provider
(flickr.com/taymazvalley, 2010)

____________
20 vehicles

___ houses per day OR


25 on sale
___ per year
____ cust./min. OR
10 customers (cust.)
___ cust./hour
10,000 toys per day

____________

Total time in
queue and system
____________
____________
90% 2 day stays
10% 7 day stays
____________
120 days
3 minutes
5 days

IN-VIDEO QUESTION 3: COMPLETE THE TABLE

Rate

In-queue and
in-process

Semiconductor factory

1,000 wafers per day

45,000 wafers

E-mail management

50 messages per day

150 messages

Maternity ward

5 mothers per day

Toll booths

3,600 vehicles per hour

Real estate
Doughnut shop
3rd party logistics provider

____________
20 vehicles

___ houses per day OR


25 on sale
___ per year
____ cust./min. OR
10 customers (cust.)
___ cust./hour
10,000 toys per day

____________

Total time in
queue and system
____________
____________
90% 2 day stays
10% 7 day stays
____________
120 days
3 minutes
5 days

IN-VIDEO INSIGHTS 3

Rate

In-queue and in-process

Total time in queue and


system

Semiconductor factory

1,000 wafers per day

45,000 wafers

45 days

E-mail management

50 messages per day

150 messages

3 days

Maternity ward

5 mothers per day

12.5 mothers

90% 2 day stays


10% 7 day stays

Toll booths

3,600 vehicles per hour

20 vehicles

20 seconds

25 on sale

120 days

10 customers

3 minutes

Real estate
Doughnut shop

25/120 houses per day OR


76 per year
10/3 cust./min. OR
200 cust./hour

REFERENCE
Academic Citations
Chhajed, D., & Lowe, T. J. (2008). Building intuition: Insights from basic operations management models and principles
(Vol. 115). New York, NY: Springer Science & Business Media.
Little, J. D. C. (1961). A proof for the queuing formula: L = W. Operations Research 9(3): 383-387. doi:
10.1287/opre.9.3.383
Little, J.D.C., & Graves, S.C. (2008). Littles law. In C. Dilip and T. J. Lowe (Ed.), Building intuition: Insights from basic
operations management models and principles (Vol. 115). New York, NY: Springer Science & Business Media.

Image Credits
Valley, T. (2010). Think [Online image]. Retrieved October 7, 2015 from
https://www.flickr.com/photos/taymazvalley/5209251530/

OPERATIONS MANAGEMENT
with Gopesh Anand

MODULE 2
Process Analysis

Lesson 2-1
Types and Metrics

Video 2-1.5
What Weve Learned in Lesson 2-1

LESSON 2-1 RECAP


In this lesson you learned how to:
Select appropriate process arrangements
Combine different process arrangements
Assess processes using basic metrics
Apply Littles Law in practice

OPERATIONS MANAGEMENT
with Gopesh Anand

MODULE 2
Process Analysis

Lesson 2-2
Process Capacity

Video 2-2.1
Lesson Objectives

LESSON 2-2 OBJECTIVES


You will learn how to:
Calculate process capacity
With different assumptions
Relying on available information

Calculate capacity utilization


Consider the potential impacts of
variability

OPERATIONS MANAGEMENT
with Gopesh Anand

MODULE 2
Process Analysis

Lesson 2-2
Process Capacity

Video 2-2.2
Assessing Capacity

PROCESSING TIME OF AN
ACTIVITY
Time taken to complete that activity
Activity may involve single flow unit
or a batch of flow units being
processed together, such as cookies
in an oven

CAPACITY OF ACTIVITY WITH MULTIPLE


STATIONS
E.g.: Manual activity such as packing cookies with two parallel
stations, i.e., two people packing simultaneously
Each employee takes 2.5 minutes to pack one packet
Processing time (time taken to complete activity)
2.5 minutes
Cycle time (average time between two units)
1.25 minutes
Flow rate (or capacity of the packing activity)
0.8 packets per minute = 48 packets per hour

CAPACITY OF ACTIVITY UNDER BATCH


PRODUCTION
E.g.: Machine activity such as baking cookies with one oven that
can bake 40 cookies at a time
Requires 30 minutes baking time
Processing time (time taken to complete activity)
30 minutes
Cycle time (average time between two units)
0.75 minute (or 45 seconds)
Flow rate (or oven capacity for baking)
80 pieces per hour

SET-UP TIME OR CHANGEOVER TIME


Fixed time for preparing an activity
for its work content
Time needed to be spent between end of
one batch and start of next
Generally unaffected by size of batch
processed
Usually impacts batch size decision
Economies of scale

Takes time away from that available for


activity

CAPACITY OF ACTIVITY WITH SETUP TIME


E.g.: Machine activity such as baking cookies with one oven that
can bake 40 cookies at a time with setup time of 10 minutes
Requires 30 minutes baking time + 10 minutes setup time
Effective processing time including run time and setup time
40 minutes for the batch
Effective cycle time (average time between two units)
1 minute (or 60 seconds)
Effective flow rate (or oven capacity for baking)
60 pieces per hour

COMPUTING CYCLE TIME


AND FLOW TIME
Cycle time of an activity
Processing time of activity divided by
number of units processed at a time

Flow time of a process


Sum of processing times of all activities +
time spent waiting between activities
Counting only the longest path when
there are parallel paths in a process

IN-VIDEO QUESTION 4

In the two-step process, what is the impact on the flow rate and the
flow time of the process when the resource for activity A is
doubled?
And, what is the impact on inventory in the system, applying Littles
Law, I = T * R?

IN-VIDEO QUESTION 4

In the two-step process, what is the impact on


the flow rate and the flow time of the process
when the resource for activity A is doubled?
And, what is the impact on inventory in the
system, applying Littles Law, I = T * R?
(flickr.com/taymazvalley, 2010)

IN-VIDEO INSIGHTS 4

In the two-step process, what is the impact on the flow rate and the
flow time of the process when the resource for activity A is
doubled?
And, what is the impact on inventory in the system, applying Littles
Law, I = T * R?

INCREASING RESOURCE AT AN ACTIVITY

Before doubling resource at A:


Bottleneck activity is A
Process Cycle Time = 10 minutes
Process Flow Rate = 1 10 = 0.1 units per minute
Flow Time = 18 minutes

(1 OF 2)

INCREASING RESOURCE AT AN ACTIVITY

After doubling resource at A:


Bottleneck activity is now B
Process Cycle Time = 8 minutes
Process Flow Rate = 1 8 = 0.125 units per minute
Flow Time = 18 minutes

(2 OF 2)

INVENTORY BASED ON I = T * R

Before doubling resource at A:


Process Flow Rate = 0.1 units per minute
Flow Time = 18 minutes
I = T * R = 1.8 units

(1 OF 2)

INVENTORY BASED ON I = T * R

After doubling resource at A:


Process Flow Rate = 0.125 units per minute
Flow Time = 18 minutes
I = T * R = 2.25 units

(2 OF 2)

SO WHAT?
Increasing capacity led to more
inventory.
Total free time increased.
It would have been good to balance
the activity times.

REFERENCE
Image Credits
Valley, T. (2010). Think [Online image]. Retrieved October 7, 2015 from
https://www.flickr.com/photos/taymazvalley/5209251530/

OPERATIONS MANAGEMENT
with Gopesh Anand

MODULE 2
Process Analysis

Lesson 2-2
Process Capacity

Video 2-2.3
Capacity Utilization

UTILIZATION
Ratio of how much a resource is or
would be used compared to how
much it is or would be available
Consider what is included and
excluded in
Resource is or would be used
Processing time, setup time

Resource is or would be available


Setup time, maintenance, breakdowns

ACTUAL UTILIZATION

Actual Production Rate


Available Production Capacity

OR

IMPLIED UTILIZATION

Demand Rate
Available Production Capacity

OR
Time Needed to Fulfill Demand
Time Available

BOTTLENECK
Activity in the process that has the
lowest capacity (same as lowest
flow rate)
Alternatively, any resource whose
capacity is less than the demand
placed upon it
(Goldratt et al., 2004)

Either demand from customers or


the activity in the process with the
lowest capacity, whichever is less

CAPACITY UTILIZATION OF EACH ACTIVITY


BASED ON BOTTLENECK (1 OF 2)

CT

R/hr

Utilization = Actual / Available

9 min.

=1/9*60

6.67

8 min.

=1/8*60

7.50

6 min.

=1/6*60

10.00

CAPACITY UTILIZATION OF EACH ACTIVITY


BASED ON BOTTLENECK (2 OF 2)

CT

R/hr

Utilization = Actual / Available

9 min.

=1/9*60

6.67

=6.67/6.67

100.00%

8 min.

=1/8*60

7.50

=6.67/7.5

88.93%

6 min.

=1/6*60

10.00

=6.67/10

66.70%

CAPACITY UTILIZATION OF EACH ACTIVITY


BASED ON DEMAND (1 OF 2)
Additional information: Demand = 48 per day
Day = 8 hours or 480 minutes
CT

Time Required

Divided by 480 (Time


Available)

9 min.
8 min.
6 min.

Or same can be calculated as


Demand = Actual Production = 6 per hour
CT
9 min.
8 min.
6 min.

Utilization = Actual Rate / Available Capacity

CT

CAPACITY UTILIZATION OF EACH ACTIVITY


BASED ON DEMAND (2 OF 2)
Additional information: Demand = 48 per day,
and day = 8 hours or 480 minutes
CT

Divided by 480 (Time


Available)

Time Required

9 min.

=9min.*48

432

0.9

8 min.

=8min.*48

384

0.8

6 min.

=6min.*48

288

0.6

Or same can be calculated as


Demand = Actual Production = 6 per hour
CT

Utilization = Actual Rate / Available Capacity

9 min.

=6/6.67

0.9

8 min.

=6/7.5

0.8

6 min.

=6/10

0.6

CAPACITY UTILIZATION OF OVERALL PROCESS


BASED ON DEMAND

Demand = 48 per day


Total Time Required =48 units * ___ min.

=______ minutes

Total Time Available = _______________

=______ minutes

Time Required / Time Available

=______ %

PROCESS CAPACITY UTILIZATION BASED ON


DEMAND

Demand = 48 per day


Time Required

=48 units * 23 min.

1104 minutes

Time Available

= 3 * 480

1440 minutes

Time Required / Time Available

77%

OBSERVATION
Flow rates, flow times, and
inventories are treated as averages
in process flow analysis.
In reality, these values occur in a
range.

IN-VIDEO QUESTION 5
How does variability affect capacity
availability?

IN-VIDEO QUESTION 5
How does variability affect capacity
availability?

(flickr.com/taymazvalley, 2010)

IN-VIDEO INSIGHTS 5
Processing times will fluctuate
around averages.
Higher processing times, i.e., lower
capacities, can cause delays.
Delays affect other following
activities as they have to wait.
Speeding up tasks may not benefit
other activities as they may not be
able to catch up.

THEORY OF CONSTRAINTS
PERSPECTIVE
Identify the bottleneck activity
incorporating variability
Ensure maximum flow through the
bottleneck
Release work according to the
bottleneck
Focus continuous improvement on
the bottleneck
(Goldratt et al., 2004)

REFERENCE
Academic Citations
Goldratt, E. M., Cox, J., & Whitford, D. (2004). The goal: A process of ongoing improvement (Vol. 3). Barrington, MA:
North River Press.

Image Credits
Valley, T. (2010). Think [Online image]. Retrieved October 7, 2015 from
https://www.flickr.com/photos/taymazvalley/5209251530/

OPERATIONS MANAGEMENT
with Gopesh Anand

MODULE 2
Process Analysis

Lesson 2-2
Process Capacity

Video 2-2.4
Impact of Variability

IN-VIDEO QUESTION 6
What would you consider a good
capacity utilization number?

IN-VIDEO QUESTION 6
What would you consider a good
capacity utilization number?

(flickr.com/taymazvalley, 2010)

IN-VIDEO INSIGHTS 6
IDEAL LEVEL OF UTILIZATION OF AN ACTIVITY
Depends on how utilization is measured
What is included in defining resource being used?
E.g., processing time, setup time

And resource being available?


E.g., setup time, maintenance, breakdowns

Depends on capacity of bottleneck in process


Depends on variability
In demand and how process is performed

VARIABILITY IN
PROCESSING TIMES
Input-material inconsistencies
Product variety
Different setup times
Varying need for changeovers
Operator differences
Machine errors

VARIABILITY IN
CUSTOMER DEMAND

Variability in processing times


Fluctuations in mix of demand
Different transfer batch sizes
Different production batch sizes

EFFECT OF HIGH VARIABILITY


GENERALLY KNOWN RESULT

High
Low

Average flow time

Increasing utilization in a system with variability degrades the performance


(average waiting time, average number waiting) in a highly nonlinear fashion.

Almost no
waiting

25%

Increasing
variability in
demand and
process

Utilization

100%

IMPLICATIONS OF
VARIABILITY (1 OF 2)
Higher levels of utilization (i.e., no
buffer capacity) will result in waiting
With more variability, system is more
sensitive to increase in capacity
utilization

IMPLICATIONS OF
VARIABILITY (2 OF 2)
So what?
With variability increases, wait times will
start worsening at lower and lower
degrees of utilization.

Lesson:
To get more out of a process, reduce
variability.

PROCESS QUALITY METRICS


GETTING AT VARIABILITY
First time yield (FTY) of an activity
Percentage of units that are completed
from an activity in the first attempt without
any defects

Rolled throughput yield (RTY) of a


process
Percentage of units that are completed
from a process in the first pass without
any defects
Computed as product of first time yield
for each activity

OVERALL EQUIPMENT EFFECTIVENESS (OEE) AS


AN INDICATION OF VARIABILITY
Computed as Availability * Performance * Yield
Availability = Actual operating time Total planned time

Performance = Actual output Total potential output

Yield = Defect free output Total output

Note the mutual interactions between the three components.

TAKT TIME AS A TARGET


FOR BALANCING CYCLE
TIMES
Computed as
Production Time Available to Meet That Demand
Customer Demand During a Time Period

And compared to cycle time for each


activity

IMPACTS OF REDUCING
VARIABILITY
Allows operating with lower
inventory levels (I)
Helps shorten flow times (T)
Frees up capacity and increases
effective flow rate (R)

SIGNIFICANCE OF
VARIABILITY
Quoting Deming, one of the
founders of the Total Quality
Management (TQM) movement
"The central problem of
management ... is to understand
better the meaning of variation, and
to extract the information contained
in variation
Deming (1986, p. 20)

REFERENCE
Academic Citations
MIT Center for Advanced Engineering. (1986). Out of crisis. Cambridge, MA: Deming, W. Edwards.

Image Credits
Valley, T. (2010). Think [Online image]. Retrieved October 7, 2015 from
https://www.flickr.com/photos/taymazvalley/5209251530/

OPERATIONS MANAGEMENT
with Gopesh Anand

MODULE 2
Process Analysis

Lesson 2-2
Process Capacity

Video 2-2.5
What Weve Learned in Lesson 2-2

LESSON 2-2 RECAP


In this lesson you learned about:
Calculating capacity utilization
The implications of assumptions
The importance of considering variability