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Slide 1 Process Flow Management
Lecture 2
Process Flow Management
Professor Kihoon Kim
BUSS211 OM
Slide 2 Process Flow Management
Outline
Changing Sources of Competitive Advantage
Process Analysis
Operational Measures: Time T, Inventory I, Throughput rate R
Link through Littles Law
Link to Financial Measures
Which process should be improved first?
Management of Flow Time and Capacity
Critical Activities
Flow Time Efficiency
Sequencing Multiple Jobs
Single Machine Dispatch Rules
Two-Machine Flow Shop Sequencing
Slide 3 Process Flow Management
How can operations help a company compete? The changing sources of competitive advantage
Low Cost & Scale Economies (< 1960s)
You can have any color you want as long as it is black
Focused Factories (mid 1960s)
Flexible Factories and Product variety (1970s)
A car for every taste and purse.
Quality (1980s)
Quality is free.
Time (late 1980s-1990s)
We love your product but where is it?
Dont sell what you produce. produce what sells.
Slide 4 Process Flow Management
We have already learned The Importance of Time
What is Toyota doing now?
All we are doing is looking at the time line from the moment the customer gives us an order to the point when we collect the cash. And we are reducing that time line by removing the non-value-added wastes.
-- Taiichi Ohno. Toyota Production System: Beyond Large-Scale Production.
Lower flow time
lower Inventory, shorter response time to market changes.
Slide 5 Process Flow Management
(Average) Flow time T The time a typical flow unit spends within the process boundaries
(Average) Throughput rate R # of units processed per unit of time
e.g., dollars per year, customers per week
(Average) Inventory I # of units within the process boundaries at any point
(Average) Process Cost Cost incurred in moving a flow unit through the process
Identify/Monitor Operational Performance Measures
Slide 6 Process Flow Management
Price
Quantity
Material
Labor
Energy
Overhead
PP&E
Inventory
Other
Revenues
Costs
Capital invested
Weighted average cost of capital
x
+
+
+
+
+ x
Profit
Opportunity cost
-
Economic value added (EVA)
Financial metrics Operational metrics
1. Increase price 2. Increase
throughput
Improvement levers
3. Reduce costs 4. Improve quality
5. Reduce capital intensity
6. Reduce inventory
Reduce time
-
Link b/w Operational and Financial Measures
Slide 7 Process Flow Management
Relating operational measures (flow time T, throughput R & inventory I) with Littles Law
Inventory Turnover = Throughput / Inventory
= 1/ T
Inventory / [units]
Flow rate (Throughput R) [units/hr] ... ... ... ... ...
Flow Time T [hrs]
Inventory = Throughput x Flow Time I = R x T
Slide 8 Process Flow Management
Littles Law applied to different process flow examples
Cash Flow: Motorola 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 cycle time?
Customer Flow: Taco Bell 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 Taco Bell and what is the average customer turnover?
Job Flow: The Travelers 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.
Question: A general manager at Baxter states that her inventory turns three times a year. She also states that everything that Baxter buys gets processed and leaves the docks within six weeks. Are these statements consistent?
Slide 9 Process Flow Management
Littles Law applied to different process flow examples
Patient
checks in
Initial
doctor
consultation
Doctor
Requests
Tests for
patient
Nurse
takes
tests wait wait
4 patients/hr
5 min 2 patients
15 min 30 min 5 min 1 patient
25% quit
75%
Q: Will the service system be stable? 1. Total flow time
Quit:
Continue:
2. Average flow time:
Slide 10 Process Flow Management
Q: What is the total flow time from the moment we put a dollar in the factory until we get the offsetting revenues from A/R?
MBPF Inc.: Applying Littles Law to Financial
Statements
Slide 11 Process Flow Management
MBPF Inc.: Balance Sheet
CURRENT ASSETS
Cash 2.1
Short-term investments at cost (approximate mkt.) 3.0
Receivables, less allowances of $0.7 mil 27.9
Inventories 50.6
Other current assets 4.1
TOTAL CURRENT ASSETS 87.7
PROPERTY, PLANT AND EQUIPMENT (at cost)
Land 2.1
Buildings 15.3
Machinery and equipment 50.1
Construction in progress 6.7
Subtotal 74.2
Less accumulated depreciation 25.0
NET PROPERTY, PLANT AND EQUIPMENT 49.2
Investments 4.1
Prepaid expenses and other deferred charges 1.9
Other assets 4.0
TOTAL ASSETS 146.9
(Selected) CURRENT LIABILITIES
Payables 11.9
Slide 12 Process Flow Management
MBPF Inc.: Consolidated Statement
Net Sales 250.0
Costs and expenses
Cost of Goods Sold 175.8
Selling, general and administrative expenses 47.2
Interest expense 4.0
Depreciation 5.6
Other (income) expenses 2.1
TOTAL COSTS AND EXPENSES 234.7
INCOME BEFORE INCOME TAXES 15.3
PROVISION FOR INCOME TAXES 7.0
NET INCOME 8.3
RETAINED EARNINGS, BEGINNING OF YEAR 31.0
LESS CASH DIVIDENDS DECLARED 2.1
RETAINED EARNINGS AT END OF YEAR 37.2
NET INCOME PER COMMON SHARE 0.83
DIVIDEND PER COMMON SHARE 0.21
How long will it take to collect sales dollars from a customer?
Slide 13 Process Flow Management
MBPF Inc.: Inventory and Cost of Goods
INVENTORYRaw materials (roof) 6.5
Fabrication WIP (roof) 15.1
Purchased parts (base) 8.6
Assembly WIP 10.6Finished goods 9.8
TOTAL 50.6
COST OF GOODS SOLD
Raw materials 50.1
Fabrication (L&OH) 60.2
Purchased parts 40.2Assembly(L&OH) 25.3
TOTAL 175.8
How long does it take for invested money for manufacturing to leave the factory?
Slide 14 Process Flow Management
Raw Materials (roofs)
Fabrication (roofs)
$60.2/yr
Assembly
$25.3/yr
Purchased Parts (bases)
Finished Goods
$6.5 $50.1/yr
$40.2/yr $8.6
$15.1
$10.6
$110.3/yr
$40.2/yr
$175.8/yr $9.8
$175.8/yr
MBPF Inc.: Detailed Financial Flows
Slide 15 Process Flow Management
MBPF Inc.: Detailed Flow Times
Raw
Materials
Fabrication Purchased
Parts
Assembly Finished
Goods
Throughput R
$/Year 50.1 110.3 40.2 175.8 175.8
$/Week 0.96 2.12 0.77 3.38 3.38
Inventory I ($) 6.5 15.1 8.6 10.6 9.8
Flow Time T =
I/R (weeks)
6.75 7.12 11.12 3.14 2.90
6.75+7.12+11.12+3.14+2.90 >> 15 weeks (Why?)
Slide 16 Process Flow Management
Inventory = Rate x Flow Time
Flow rate R ($/week)
0.96
Flow Time T (weeks)
Accounts
Receivable
Finished
Goods
Assem
bly
Fabrication
Raw Materials Purchased Parts
11.12 6.75 7.12 3.14 2.90 5.80
0.77
2.12
3.38
5.0
Slide 17 Supply Chain Management
How to Manage Flow Time and Capacity
Slide 18 Process Flow Management
Information structure
Remind: Process is
Outputs
Goods Services
Inputs
Flow units/Entities (customers, data,
material, cash, etc.)
Labor & Capital
Resources
Process Management
Network of Activities and Buffers
Slide 19 Process Flow Management
Process is
Process = network of activities performed by resources
1. Process Boundaries:
input
output
2. Flow unit: the unit of analysis
3. Network of Activities & Storage/Buffers
activities with activity times
Buffers with waiting flow times
routes: precedence relationships (solid lines) with throughputs
4. Resources & Allocation
- who does what?
5. Information Structure & flow (dashed lines)
Slide 20 Process Flow Management
How to Draw a Process Flow Chart
Decisions are represented by Diamonds.
The remaining activities are represented by
Rectangles.
Solid Arrow: Precedence Relationship between two
activities
Buffer: Triangle
Information flow: dashed arrow
Slide 21 Process Flow Management
Process Flow Chart Example (Pizza Delivery)
start Take Order Sauce Prep Dough Prep Spread
Activity time: 2 3 1
Resource: Jean Jean Jean, Pan
end Bill Unload &
Pack Bake
Load & Set
timer
Activity time: 2 1 3 15 1
Resource: Jaqueline Jaqueline, Pan Pan Oven, Pan Jaqueline, Oven, Pan
cool
Slide 22 Process Flow Management
Process Flow Chart: Resources and Capacity
How long will it take?
How much work can we do? / What is the capacity of the process?
A
Activity time: 20 min/job
Resource: Kyle
D
30 min/job
Stan
B
20 min/job
Kenny
C
E
20 min/job
Eric
20 min/job
Timmy
Slide 23 Process Flow Management
How long: Theoretical flow time (TFT)
TFT: Time to complete the process assuming: 1. All activities are done at their average speed. 2. All resources are immediately available when needed. (no waiting time)
Look at paths through the process:
Here: A-B-C-E & A-D-E
Longest path (critical path) determines the theoretical flow time.
A-B-C-E = 20 + 20 + 20 + 20 = 80 min A-D-E = 20 + 30 + 20 = 70 min
A
Activity time:
20min/job
Kyle
D
30 min/job
Stan
B
20min/job
Kenny
C
E
20 min/job
Eric
20 min/job
Timmy
Slide 24 Process Flow Management
How much work: Theoretical capacity
Resource Unit Load Resource Capacity Process Resource
(time/job) Unit Capacity # of units Total Capacity Utilization*
Kyle 20min/job 3 jobs/hr 1 3 jobs/hr
66.67%
Kenny 20 3 jobs/hr 1 3 jobs/hr
66.67%
Eric 20 3 jobs/hr 1 3 jobs/hr
66.67%
Timmy 20 3 jobs/hr 1 3 jobs/hr
66.67%
Stan 30 2 jobs/hr 1 2 jobs/hr
100%
* assuming system is processing at full capacity
A
Activity time:
20min/job
Kyle
D
30 min/job
Stan
B
20min/job
Kenny
C
E
20 min/job
Eric
20 min/job
Timmy
2 jobs/hr
Slide 25 Process Flow Management
Process Changes: Impact on capacity and flow time
Process Change TFT Capacity
None
Reduce the average time for activity B by 5 mins
Kenny and Eric work in parallel
Reduce the average time for activity D(Stan) by 10 mins
Move 10 mins work from Stan to Timmy
Kenny is fired and Kyle takes over
Slide 26 Process Flow Management
Process Changes: Impact on capacity and flow time
Process Change Concept TFT Capacity
None Baseline 80 min 2 jobs/hr
Reduce the average time for activity B by 5 min.
Work faster 75 min 2 jobs/hr
Kenny and Eric work in parallel Work
smarter 70 min 2 jobs/hr
Reduce the average time for activity D(Stan) by 10 min.
Work faster 80 min 3 jobs/hr
Move 10min.s work from Stan to Timmy Work
smarter 90 min 2 jobs/hr
Kenny is fired and Kyle takes over ??? 80 min 1.5 jobs/hr
Slide 27 Process Flow Management
Levers for Reducing
Flow Time
Decrease the work content of
critical activities
work faster
work smarter
do it right the first time
change product mix
Move work content from critical to
non-critical activities
to non-critical path or to outer
loop
Reduce waiting time
Levers for Increasing Process Capacity
Decrease the work content of bottleneck resources
work smarter
work faster
do it right the first time
change product mix
Move work content from bottlenecks to non-bottlenecks
create flexibility to handle tasks originally assigned to bottleneck
to non-critical resource or to third party
Increase Net Availability
work longer: increase scheduled availability
increase scale (invest)
increase size of load batches/reduce or eliminate setups & changeovers
eliminate availability waste
Slide 28 Process Flow Management
Most time inefficiency comes from waiting:
Industry Process Average Flow Time
Theoretical Flow Time
Flow Time Efficiency
Life Insurance New Policy Application
72 hrs. 7 min. 0.16%
Consumer Packaging
New Graphic Design
18 days 2 hrs. 0.14%
Commercial Bank
Consumer Loan 24 hrs. 34 min. 2.36%
Hospital Patient Billing 10 days 3 hrs. 3.75%
Automobile Manufacture
Financial Closing
11 days 5 hrs 5.60%
Theoretical Flow Time: the minimum amount of time required for processing a unit without any waiting Flow Time: Theoretical Flow Time + Waiting Time
Slide 29 Process Flow Management
Critical Path based on Theoretical Flow Time
Theoretical flow time = minimum time to transform inputs into output:
Consider the following ABC example:
What is the theoretical flow time of each path?
TAC =
TBC =
Critical path
Critical Activities =
Part A production
Part B production
C = Final Assembly
1min/part A
2min/part B
3min/FA unit
Slide 30 Process Flow Management
Critical Path based on Flow Time
Average Flow Time = average time of transformation, including waiting time.
Part A production
Part B production
C = Final Assembly
1min/part A
2min/part B
3min/FA unit
R = 1 FA unit/3min 10
5
ABC Example continued, but now assume that the ABC process is processing at the rate of R = 1 units/3min = 0.33 units/min and that there are two buffers with on average 10 units and 5 units, as shown in the picture. Given this setting:
average waiting time in the buffers is: Tbuffer part A = Tbuffer part B =
And average flow time becomes: Tpath A = Tpath B =
Critical path becomes: T =
Flow Time efficiency = Tth / T =
Slide 31 Supply Chain Management
Sequencing Multiple Jobs
Slide 32 Process Flow Management
Single-machine Sequencing
Each job can have a different processing time and a different
due date
"local" dispatching rules:
FCFS: First-come, first-served
SPT: Shortest processing time (first)
EDD: Earliest due date (first)
CR: Critical Ratio = (Remaining Proc. Time)
(Remaining time to Due Date)
The job with the largest CR goes first
START 000 A DONE
Slide 33 Process Flow Management
Theoretical results
SPT (Shortest Processing Time) minimizes:
mean flow time
mean waiting time
mean lateness
EDD (Earliest Due Date) minimizes maximum lateness
(If the processing times are deterministic)
Slide 34 Process Flow Management
Two-Machine Flow Shop
START 000 A B000 DONE
Ai = processing time of job i on machine A
Bi = processing time of job i on machine B
To minimize makespan, optimal schedule is always a
permutation schedule (no passing)
Makespan: the total elapsed time from the start of the first job on
the first machine until the completion of the last job on the
last machine.
Slide 35 Process Flow Management
Gantt Chart (permutation schedule):
JOB 2
JOB 1MACHINE A
MACHINE B
TIME
JOB 2
JOB 1
Slide 36 Process Flow Management
To Minimize the Makespan
1. List Ai , Bi in two columns
2. Find smallest remaining value;
If in A, schedule i next (1st, 2nd, ...,)
If in B, schedule i last (last, 2nd-to-last, ...)
3. Cross off scheduled job, go to step 2.
Johnson's Algorithm
Slide 37 Process Flow Management
Example of Johnsons Algorithm
job i Ai Bi
1 5 2
2 9 7
3 10 4
1. 2 in B1 so job 1 goes last: _ _ 1
2. Cross out row 1
3. 4 in B3
so job 3 goes 2nd-to-last: 3 1
4. Cross out row 3
5. Done: optimal sequence is 2 3 1
Slide 38 Process Flow Management
Gantt Chart of Solution:
Makespan =
MACHINE A
MACHINE B
TIME 9 16 19 23 24 26
Slide 39 Process Flow Management
Summary: Sequencing Multiple Jobs
To improve mean flow time for a single machine
Do shortest-processing-time jobs first
10 or less items for a grocery store (Not 10 or more
items)
To minimize the makespan for flow shop
Do a job early if the job needs short processing time for
upstream operations
Do a job late if the job needs short processing time for
downstream operations