Operations Management

Littles Law - Lecture 3

(Chapters 3 and 4)
Dr. Ursula G. Kraus

1/39

Review

Shouldice Hospital (Focused Factory)

Process View of Operations
Product/Process Attributes

2/39

Agenda

Process Characterization
By Architecture
By Positioning Strategy
By Customer Interface
Operational Measures:
Time, Inventory and Throughput
Littles Law
Flow Time Analysis

4/39

Classification of Processes by:

I. Process Architecture

Process Types

Examples

Project

Construction, Consulting

Job Shop

Machine Shop, Beauty Shop

Batch

Bakery, Classroom

Line Flow

Assembly Line, Cafeteria Line

Continuous Flow

Paper mill, Central heating

Jo

Sh
o

Fl
ow

Sh
op
5/39

low
medium
high

Characteristics of Processes:
Job Shop vs. Flow Shop
Type of
Process

Product
Volume

Specialized
Equipment

Product
Variety

Setup
Frequency

Labor
Skills

Variable
Cost

Job Shop
Flow Shop

Source: Managing Business Process Flows (1999)

6/39

Product-Process Matrix
Process
Flexibility

High

Disconnected Line
Flow/Jumbled Flow
but a dominant flow
exists.

JOB SHOP
(Commercial Printer,
Architecture firm)

O
pp
o
Co rtu
sts nity

Jumbled Flow.
Process segments
loosely linked.

BATCH
(Heavy Equipment,
Auto Repair)

Continuous, automated,
rigid line flow.
Process segments tightly
linked.

Low

(Auto Assembly,
Car lubrication shop)

CONTINUOUS
FLOW

O
ut
-o
Co f-po
sts ck
et

LINE FLOWS
Connected Line
Flow (assembly line)

(Oil Refinery)

Low
High Standardization
Commodity Products
High volume

High
Few Major Products

Many Products

Low Standardization
One of a kind
Low Volume

Product
Variety
7/39

Classification of Processes by:

II. Positioning Strategy

Functional Focus:
Product 1
grouping by resource type
Job shop
General purpose resources
Product 2

Product Focus:
grouping by product
Flow shop
Specialized resources

Product 1
Product 2

= resource pool (e.g., X-ray dept, billing)

Source: Managing Business Process Flows (1999)

8/39

Classification of Processes by:

III. Customer Interface

Make to Stock

Make to Order
For
Mr. Foley

Source: Managing Business Process Flows (1999)

9/39

Comparison of Goods and Services

Services

Goods
100%

75%

50%

25%

0%

25%

50%

75%

100%

Self-service groceries
Automobile
Installed carpeting
Fast-food restaurant
Gourmet restaurant
Auto maintenance
Haircut
Consulting services

10/39

Characteristics of Services

Typically labor intensive

- difficult to automate

Frequently individually processed

- low scale economies

Often an intellectual task performed by professionals

- expensive resources and variable output

Often difficult to evaluate for quality

12/39

Agenda

Process Characterization
Operational Measures:
Time, Inventory and Throughput
Littles Law
Flow Time Analysis

13/39

Business Process Flows

Movement of flow units through a network of activities
where resources transform inputs into outputs.
Information

Process
Management
Network of
Activities and Buffers
Outputs

Inputs

Resources
14/39

Definition: Process Flow Measures

Flow Time (T): The average time a job spends in

the process
Inventory (I): The average number of jobs
accumulated in the process
Throughput, or Flow Rate (R): The average rate at
which jobs flow through a process (units/time)
Turnover: The ratio of throughput to average
inventory (inventory turn)
Capacity: The largest sustainable flow rate possible

Source: Managing Business Process Flows (1999)

15/39

Agenda

Process Characterization
Operational Measures:
Time, Inventory and Throughput
Littles Law
Flow Time Analysis

16/39

Littles Law
relating process flow measures

...

Inventory I

... ...

[units]

Flow rate or
Throughput R

...[units/hr]
...

Flow i[hrs]

Inventory

= Throughput x Flow Time

I = RxT

Turnover

= Throughput / Inventory = R/I

= 1/ T

Source: Managing Business Process Flows (1999)

17/39

Material Flow: Bakery

We are a bakery that specializes in making bread. We bake our bread
in batches of 100 loaves at a time. The typical inventory of bread in
our bakery is 9 batches and we produce an average of 100 loaves per
hour.
What is the average flow time
of a batch of bread?

18/39

Process Flow Examples

(1) Material Flow: A fast-food restaurant processes an average of 5,000 lb. of
hamburgers per week. The typical inventory of raw meat is 2,500 lb. What
is the average hamburgers flow time and the restaurants turnover?

(2) Customer Flow: The above fast-food restaurant processes on average

1,500 customers per day (15 hours). On average there are 75 customers in
the restaurant (waiting to place the order, waiting for the order to arrive,
eating etc.). How long does an average customer spend at the restaurant
and what is the average customer turnover?

20/39

Process Flow Examples

(3) Job Flow: A branch office of an insurance company processes 10,000
claims per year. The average processing time is 3 weeks. Assuming 50
weeks in a year, what is the average number of claims in process.

(4) Cash Flow: A major manufacturer sells $300 million worth of cellular
equipment per year. The average accounts receivable in the cellular group
is $45 million. What is the average billing to collection process flow time?

21/39

Process Flow Examples

(5) Material Flow: A general manager at at a pharmaceutical company states
that her inventory turns three times a year. She also states that everything
that the company buys gets processed and leaves the docks within six
weeks. Are these statements consistent?

(6) Shouldice Hospital: Shouldice performs 137 surgeries per week, and the
average patient stays 4 days. There are 125 regular hospital beds, and 12
pressure sensitive beds for patients susceptible to bed sores. What is the
average number of beds occupied at Shouldice?

22/39

Process Flow Examples

(7) AIMD: The AIMD (Aircraft Intermediate Maintenance Division) onboard
USS Roosevelt has an average of 13 hydraulic actuators awaiting repair at
any given time. Last year, they repaired 156 actuators.
a) What is the flow time for hydraulic actuators at AIMD?

b) If the AIMD could cut flow time by 10%, by how much would the
average inventory go down?

23/39

Process Flow Examples

(8) NADEP: The F-18 Repair shop at NADEP JAX (Naval Aviation Depot,
Jacksonville) repairs engines in an average 86 days. They receive (and
ship) an average of 30 engines per month.
a) What is the average number of engines at the NADEP?

b) At $3 million per copy, what is the value of the inventory?

c)

By how much would the value of inventory decrease if NADEP could

cut T by 1 day? 2 days? 30 days?

24/39

Littles Law -- Caveats

Applies to the long run average of a stable system

In any given time period (sample) the average may be different
(especially for small samples)
In an unstable, or dynamic system, the average may not be very useful

In systems with variance, we often need to know about more

than the average
Fast Food Example (2) (what does Littles Law tell us? Is that enough?)
More in chapter 8

Source: Ken Doerr, NPS 2002

25/39

Agenda

Process Characterization
Operational Measures:
Time, Inventory and Throughput
Littles Law
Flow Time Analysis

26/39

Process Flow Measures

Flow Time (T): The average time a job spends in the process
Inventory (I): The average number of jobs accumulated in
the process
Throughput, or Flow Rate (R): The average rate at which
jobs flow through a process

Littles Law
I = RxT

Source: Managing Business Process Flows (1999)

27/39

Why Flow Time (T) Matters

Reduced manufacturing flow time means

short delivery response time
reduced inventory (Little's Law) which in turn lowers cost
production closer to time of sale which increases (demand)
predictability
fast feedback on quality problems

Reduced development flow time means

quicker time to market (resulting in larger market share)

28/39

Example: ZARA (Inditex)

possibly the most innovative and devastating retailer
in the world
(Daniel Piette, Louis Vuitton - Fashion Director)

Two weeks to develop a new product and get it to stores

(9-month industry average)
10,000 new designs each year
Only limited production in low-cost countries
Zero advertising
World's fastest growing retailer (3,100 stores, 70 countries)
32,000 employees and 200 fashion designers
Source: Business Week, 4 April, 2006

29/39

Importance of Short Development Times

Mean Development Time
Company

Toyota

27

Honda

36

Ford

From
concept
approval to
production

37

GM

46

10

Source: Operations Management, NPS 2003

20
Months

30

40

50
30/39

Average Flow Time consists of

Theoretical Flow Time
(Processing Time)

+
Waiting time

31/39

Process Flow Chart

is the visual representation of a business process
showing major activities and their inter-relationships.
Information

Process
Management
Network of
Activities and Buffers
Outputs

Inputs

Resources
32/39

Operational Measures Flow Time

Activity Time, or Cycle time: Is the time required by a

typical flow unit to complete an activity once
(Theoretical) Flow Time: Min. time required for
processing a typical flow unit through the whole process
without any waiting
Critical Path: A sequence of activities that takes the
longest total (flow) time for completion
Critical Activities: All activities on a critical path
Theoretica l Flow Time
Flow Time Efficiency =
Average Flow Time
Source: Managing Business Process Flows (1999)

33/39

Agenda

Process Characterization
Operational Measures:
Time, Inventory and Throughput
Littles Law
Flow Time Analysis
- Critical Path Identification

34/39

Critical Path Example:

Pusan Port (Korea)

35/39

Critical Path - Definitions

Critical path consists of all activities that have a

slack time of zero
Slack Time = LST - EST = LFT - EFT
EST: Earliest Start Time
EFT: Earliest Finish Time
LST: Latest Start Time
LFT: Latest Finish Time

36/39

Critical Path - Algorithm

A. Visit all activities from start to finish
1.
EST(first activity) = 0
2.
EFT = EST + activity time
3.
EST(max EFT of all predecessors)
B. Now visit all activities from finish to start

LFT(final activity) = EFT (final activity)

LST = LFT activity time

LFT = (min LST of all successors)

C. Calculate Slack Times = LST - EST = LFT - EFT
37/39

Critical Path Example:

Project Scheduling

38/39

Complex Example

39/39