Operations management

Session 3: Measures:
Capacity, Time, and More
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Previous Week
What are the key concepts learned in the last
week?
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Class Objectives
Review of the last week
How do we quantitatively evaluate a process?
Capacity
Time
Other?
Littles Law
A general rule that links various performance measures
Examples
Summary
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Analyzing Business Process

Inputs Outputs


Our purpose is to examine a transformation process from
the perspective of flows.
The unit being transformed is typically referred to as a job
and can represent a customer, an order, material, money,
information, etc.
Transformation Process
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Throughput Rate
In general, the inflow rate and the outflow rate fluctuate
over time. Define the average in (out) flow rates as the
long-run average number of jobs that flow into (out of) the
system.
In a stable environment, the average inflow rate is equal to
the average outflow rate
The average flow rate through the system is referred to as
the throughput rate assessed as the number of jobs per
unit time.
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Measure: Capacity
Definition: The number of units, per unit of time,
that can be processed.
Examples:
A casher can serve 20 customers per hour
The capacity of a server is 30000 hits per min
A worker can assemble 2.22 hamburgers per min
A stove can cook 20 hamburgers per min
or 0.33333 per second (Note: Units are important!)
It is a rate: Units/Time
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Process Capacity
Raw
Material
Cook Assemble Deliver
Patties cook in 60 seconds; the stove holds 20 patties.
Assembly of a hamburger takes 27 seconds per hamburger.
10 workers are available to assemble hamburgers.
What is the capacity of the cooking stage? What is the
capacity of the assembling stage?
What is the capacity of the process?
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Analysis
Cooking
First 20 Second 20 Third 20
1:00 2:00
3:00
10 20
1:27 1:54
Assembly
Suppose an order for 60 hamburgers is placed.
What will happen?
30 40
2:27 2:54
50 60
3:27 3:54
If order continues to come, how many more hamburgers
do we produce for every minute?
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Bottleneck Analysis
The stove, operating 100% of the time, can push out: 20
hamburgers / 1 minute = 20 hamburgers per minute.
The workers, operating 100% of the time, can push out:
10 hamburgers / 27 seconds = 22.2 hamburgers per
minute.
The stove is the bottleneck resource; it pushes out the
slowest amount of hamburgers per time period.
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Calculating Capacity
The capacity of a process is determined by the slowest
(bottleneck) resource.
To calculate the bottleneck resource, calculate the amount
of stuff each resource can push out per unit time. The
bottleneck resource is the resource that pushes out the
least amount of stuff per unit time.

Would hiring an additional worker increase the revenue?
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Utilization Rate
Capacity
used) (Capacity rate Throughput
rate n Utilizatio
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Utilization Rate
Utilization rate is a measure of efficiency.
It measures the percentage of products/services
that the process is producing what it is designed
(suppose) to do.
An example:
The capacity of a cashier in Starbucks is 96 customers per
shift.
The cashiers throughput rate is only 72 customers per
shift.
What is the capacity utilization? 72/96 = 0.75
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Utilization Rate
What is the meaning of the number 0.75?
The cashier is busy only 75% of the time.
25% of the time the cashier is idle and not doing
any productive work.
What are the managerial implications?
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Utilization Rate
Can utilization rate be greater than 1?
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Measure: Time
How long it takes to turn patties into burgers?
Cooking
First 20 Second 20 Third 20
1:00 2:00
3:00
10 20
1:27 1:54
Assembly
30 40
2:27 2:54
50 60
3:27 3:54
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Throughput Time
Different units may spend different amount time.

What is throughput time?
The average time a unit stays in the system
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Throughput Time
Average time a customer spends in a bank



Average time a book stays at the Amazon.coms warehouse



How do we measure throughput time?
Customer arrives Service begins Service ends
Throughput Time
Waiting Processing
Book arrives Stored Order arrives Picked Packaged Shipped
Throughput Time
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Flow Measures: Work in
Process
Work in Process (WIP) Inventory: the number of
units at a point of time.
Example 1: The WIP in Disneyland is the number of
customers waiting, eating, resting, or playing in
Disneyland.
Example 2: The WIP in Space Mountain is the number
of customers waiting for or riding in Space Mountain.
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Flow Measures: Throughput rate
What is the relationship between throughput rate
throughput time and WIP?
Time
WIP
Throughput rate is two
unit per unit of time
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Throughput Time = (Average) WIP / Throughput Rate

Example: Bank Teller
Average WIP: 6 customers
Throughput rate: 12 customers per hour
Throughput time: 6/12 = 0.5
A customer spends (on average) 0.5 hours in the
bank
Littles Law
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Littles Law
In the bank example on the previous overhead
Does this mean each customer spends 0.5 hours in
the bank?
How many customers arrive on average in an hour?
How many customers leave on average in an hour?
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Implications of Littles Law
Given average WIP and throughput rate, we can
calculate throughput time
Relatively easy to measure WIP and throughput rate
Keeping WIP fixed, reducing throughput time results in
a higher throughput rate.

Throughput Rate = Average WIP / Throughput Time
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Implications of Littles Law
Average number of customers in a restaurant: 50
Average number of customers arriving (and leaving)
per hour: 30
The throughput time is 50/30 = 1.66
A customer spends (on average) 1hr and 40 mins.

The restaurant is losing money. How can an OM person help?
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Admission Flow
Marshall provides higher education to executives and
receives about 1000 applications per month.
The evaluation starts with a preliminary classification with
basic information:
Group A: Applicants with desired recommendations, working experience,
etc. (50% of the applicants)
Group B: Other applicants. (50% of the applicants)
Applicants in group A will be further considered through an
advanced review.
Applicants in group B will be rejected.
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Admission Flow
On average there were:
200 applications in the preliminary review stage
100 applications in the advanced review stage

How long does group A spend in the application process?
How long does group B spend in the application process?
How long is the average process time?
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Admission Flow
The admission process

1000
50%
50%
200
100
Reject Process
Accept Process
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Admission Flow
Let us do a detailed analysis
How long do the applicants spend in the
preliminary review stage?
TT = WIP/TR=200/1000 = 0.2 * 30 days = 6 days
Applicants spend 6 days in the first stage
Applicants from group B receive an answer in 6
days on average
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Admission Flow
How long do the applicants from group A spend in
the advanced review stage?
TT = WIP/TR=100/(1000*50%) = 0.2
Applicants from group A spend 6 days on average in the
advanced review stage.
Applicants from group A receive answer in 12 days
(6 + 6) on average.

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Admission Flow
What is the average processing time?
6*0.5+12*0.5 = 9 days
Is there an alternative way to calculate the
average waiting time?

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Alternative Solution
What is the average processing time?
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Admission Flow
Littles Law holds for complicated systems.
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Emergency Room: Example
Let us calculate the average waiting time in an emergency
room.

Imagine a system in which a patient can be treated in
exactly 15 minutes.
Two patients arrive at minute 15, and one patient arrives at
minute 45.

What is the average waiting time?
Is there enough capacity?
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Emergency Room: Example
Imagine the following sequence of event
1,2
15 30 45 60
1 3
75
3
2
Waiting
Service
2
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Emergency Room: Example
Do we have enough capacity?

What is the utilization rate?

Why patients wait?

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Emergency Room: Example
In the waiting room,
Average WIP = (0 + 1 + 0 + 0) / 4 = 0.25
Average waiting time =

Calculate average waiting time directly
= (15 + 0 + 0)/3 = 5 minutes
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Emergency Room: Example
For the total time spent (waiting + service),
Average WIP = (0 + 2 + 1 + 1) / 4 = 1
Average waiting time =

Calculate average time spent directly
= (15 + 30 + 15)/3 = 20 minutes
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Emergency Room
Randomness/Variability forces resource
idleness and longer waiting time.

Littles Law still holds.
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What Have We Learned
Process Measures
Throughput Rate
Capacity
Throughput Time
WIP

Littles Law
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Next Time
Kristens Cookie Company
Everybody: read the case and be prepared for class
discussion
Presenting teams: prepare a write-up and
presentation for 10 minutes (exactly)

Note that Kristens cookies case slides (and all
case slides) will not be posted to Blackboard.