BUSS211
OM
Lecture 2
Process Flow Management
Professor Kihoon Kim
Process Flow Management
Slide 1
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
Process Flow Management
Slide 2
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)
Quality (1980s)
A car for every taste and purse.
Quality is free.
Time (late 1980s-1990s)
We love your product but where is it?
Dont sell what you produce. produce what sells.
Process Flow Management
Slide 3
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 nonvalue-added wastes.
-- Taiichi Ohno. Toyota Production System: Beyond Large-Scale
Production.
Lower flow time
lower Inventory, shorter response time to market changes.
Process Flow Management
Slide 4
Identify/Monitor Operational Performance Measures
(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
Process Flow Management
Slide 5
Link b/w Operational and Financial Measures
Improvement levers
Revenues
Profit
Economic
value added
(EVA)
Costs
Material
+
Labor
+
Energy
+
Overhead
Capital
invested
PP&E
+
Inventory
+
Other
Opportunity
cost
x
Weighted average
cost of capital
1.
2.
Increase price
Increase
throughput
3.
4.
Reduce costs
Improve quality
5.
Reduce capital
intensity
Reduce inventory
6.
Reduce time
Operational metrics
Financial metrics
Process Flow Management
Price
x
Quantity
Slide 6
Relating operational measures (flow time T,
throughput R & inventory I) with Littles Law
...
Inventory /
... ...
[units]
Flow rate (Throughput R)
[units/hr]
... ...
Flow Time T [hrs]
Inventory
Throughput x Flow Time
RxT
Inventory Turnover = Throughput / Inventory
= 1/ T
Process Flow Management
Slide 7
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?
Process Flow Management
Slide 8
Littles Law applied to different process flow examples
25% quit
4 patients/hr Patient
checks in
5 min
wait
2 patients
Initial
75%
doctor
consultation
15 min
5 min
Q: Will the service system be stable?
1.
2.
Total flow time
Quit:
Continue:
Average flow time:
Process Flow Management
Doctor
Requests
Tests for
patient
Slide 9
wait
1 patient
Nurse
takes
tests
30 min
MBPF Inc.: Applying Littles Law to Financial
Statements
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?
Process Flow Management
Slide 10
MBPF Inc.: Balance Sheet
CURRENT ASSETS
Cash
Short-term investments at cost (approximate mkt.)
Receivables, less allowances of $0.7 mil
Inventories
Other current assets
TOTAL CURRENT ASSETS
PROPERTY, PLANT AND EQUIPMENT (at cost)
Land
Buildings
Machinery and equipment
Construction in progress
Subtotal
Less accumulated depreciation
NET PROPERTY, PLANT AND EQUIPMENT
Investments
Prepaid expenses and other deferred charges
Other assets
TOTAL ASSETS
2.1
3.0
27.9
50.6
4.1
87.7
2.1
15.3
50.1
6.7
74.2
25.0
49.2
4.1
1.9
4.0
146.9
(Selected) CURRENT LIABILITIES
Payables
Process Flow Management
11.9
Slide 11
MBPF Inc.: Consolidated Statement
Net Sales
250.0
Costs and expenses
Cost of Goods Sold
Selling, general and administrative expenses
Interest expense
Depreciation
Other (income) expenses
TOTAL COSTS AND EXPENSES
175.8
47.2
4.0
5.6
2.1
234.7
INCOME BEFORE INCOME TAXES
PROVISION FOR INCOME TAXES
NET INCOME
15.3
7.0
8.3
RETAINED EARNINGS, BEGINNING OF YEAR
LESS CASH DIVIDENDS DECLARED
RETAINED EARNINGS AT END OF YEAR
31.0
2.1
37.2
NET INCOME PER COMMON SHARE
DIVIDEND PER COMMON SHARE
0.83
0.21
How long will it take to collect sales dollars from a customer?
Process Flow Management
Slide 12
MBPF Inc.: Inventory and Cost of Goods
INVENTORY
Raw materials (roof)
Fabrication WIP (roof)
Purchased parts (base)
Assembly WIP
Finished goods
TOTAL
6.5
15.1
8.6
10.6
9.8
50.6
COST OF GOODS SOLD
Raw materials
Fabrication (L&OH)
Purchased parts
Assembly(L&OH)
TOTAL
50.1
60.2
40.2
25.3
175.8
How long does it take for invested money for manufacturing to
leave the factory?
Process Flow Management
Slide 13
MBPF Inc.: Detailed Financial Flows
$60.2/yr
$50.1/yr
$6.5
Raw Materials
(roofs)
$40.2/yr
$25.3/yr
$110.3/yr
$15.1
Fabrication
(roofs)
$8.6
$175.8/yr
$10.6
$9.8
Assembly
$40.2/yr
Purchased Parts (bases)
Process Flow Management
Slide 14
$175.8/yr
Finished Goods
MBPF Inc.: Detailed Flow Times
Throughput R
$/Year
$/Week
Inventory I ($)
Flow Time T =
I/R (weeks)
Raw
Materials
Fabrication
Purchased
Parts
Assembly
Finished
Goods
50.1
0.96
6.5
6.75
110.3
2.12
15.1
7.12
40.2
0.77
8.6
11.12
175.8
3.38
10.6
3.14
175.8
3.38
9.8
2.90
6.75+7.12+11.12+3.14+2.90 >> 15 weeks (Why?)
Process Flow Management
Slide 15
Inventory = Rate x Flow Time
Flow rate R
($/week)
5.0
3.38
Accounts
2.12
Fabrication
0.96
0.77
Purchased Parts
11.12
Assembly
Receivable
Finished
Goods
Raw Materials
6.75
7.12
3.14
2.90
Flow Time T
(weeks)
Process Flow Management
Slide 16
5.80
How to Manage Flow Time and
Capacity
Supply Chain Management
Slide 17
Remind: Process is
Process
Management
Inputs
Network of
Activities and Buffers
Outputs
Goods
Services
Flow units/Entities
(customers, data,
material, cash, etc.)
Resources
Labor & Capital
Process Flow Management
Information
structure
Slide 18
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)
Process Flow Management
Slide 19
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
Process Flow Management
Slide 20
Process Flow Chart Example (Pizza Delivery)
start
Take Order
Activity time:
Resource:
end
Bill
Activity time:
2
Resource: Jaqueline
Process Flow Management
Sauce Prep
Dough Prep
Spread
2
Jean
3
Jean
1
Jean, Pan
Unload &
Pack
Bake
Load & Set
timer
15
Oven, Pan
1
Jaqueline, Oven, Pan
1
Jaqueline, Pan
cool
3
Pan
Slide 21
Process Flow Chart: Resources and Capacity
D
30 min/job
Stan
A
Activity time:
20 min/job
Resource:
Kyle
E
C
20 min/job
20 min/job
Kenny
Eric
20 min/job
Timmy
How long will it take?
How much work can we do? / What is the capacity of the process?
Process Flow Management
Slide 22
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
D
30 min/job
A
Process Flow Management
Stan
20 min/job
Activity
time:
20min/job
20min/job
20 min/job
Kyle
Kenny
Eric
Slide 23
Timmy
How much work: Theoretical capacity
Resource
Kyle
Unit Load
(time/job)
Resource Capacity
Unit Capacity
Process
Capacity
Resource
Utilization*
# of units
Total
3
jobs/hr
66.67%
20min/job 3 jobs/hr
Kenny
20
3 jobs/hr
3
jobs/hr
66.67%
Eric
20
3 jobs/hr
3
jobs/hr
66.67%
2
jobs/hr
Timmy
20
3 jobs/hr
3
jobs/hr
66.67%
Stan
30
2 jobs/hr
2
jobs/hr
100%
D
30 min/job
A
Stan
20 min/job
Activity
time:
20min/job
20min/job
20 min/job
Kyle
Kenny
Eric
* assuming system is processing at full capacity
Process Flow Management
Slide 24
Timmy
Process Changes: Impact on capacity and flow time
Process Change
TFT
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
Process Flow Management
Slide 25
Capacity
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
Work faster 75 min
min.
2 jobs/hr
Kenny and Eric work in parallel
Reduce the average time for activity
D(Stan) by 10 min.
Move 10min.s work from Stan to Timmy
Work
smarter
70 min
2 jobs/hr
Work faster 80 min
3 jobs/hr
Work
smarter
90 min
2 jobs/hr
???
80 min
1.5 jobs/hr
Kenny is fired and Kyle takes over
Process Flow Management
Slide 26
Levers for Increasing
Process Capacity
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
to non-critical path or to outer
loop
Process Flow Management
Slide 27
create flexibility to handle tasks
originally assigned to bottleneck
to non-critical resource or to third
party
Increase Net Availability
Reduce waiting time
work smarter
work faster
do it right the first time
change product mix
Move work content from
bottlenecks to non-bottlenecks
Move work content from critical to
non-critical activities
Decrease the work content of
bottleneck resources
work longer: increase scheduled
availability
increase scale (invest)
increase size of load
batches/reduce or eliminate setups
& changeovers
eliminate availability waste
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
Process Flow Management
Slide 28
Critical Path based on Theoretical Flow Time
Theoretical flow time = minimum time to transform inputs into output:
Consider the following ABC example:
Part A
production
C = Final
Assembly
1min/part A
Part B
production
3min/FA unit
2min/part B
What is the theoretical flow time of each path?
TAC =
TBC =
Critical path
Critical Activities =
Process Flow Management
Slide 29
Critical Path based on Flow Time
Average Flow Time = average time of transformation, including waiting time.
Part A
production
10
Part B
production
R = 1 FA unit/3min
C = Final
Assembly
1min/part A
3min/FA unit
2min/part B
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 B =
Critical path becomes:
Tpath A =
T =
Flow Time efficiency = Tth / T =
Process Flow Management
Slide 30
Sequencing Multiple Jobs
Supply Chain Management
Slide 31
Single-machine Sequencing
START
000
DONE
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
Process Flow Management
Slide 32
Theoretical results
(If the processing times are deterministic)
SPT (Shortest Processing Time) minimizes:
mean flow time
mean waiting time
mean lateness
EDD (Earliest Due Date) minimizes maximum lateness
Process Flow Management
Slide 33
Two-Machine Flow Shop
START
000
000
Ai =
processing time of job i on machine A
Bi =
processing time of job i on machine B
DONE
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.
Process Flow Management
Slide 34
Gantt Chart (permutation schedule):
MACHINE A
MACHINE B
JOB 1
JOB 2
JOB 1
JOB 2
TIME
Process Flow Management
Slide 35
To Minimize the Makespan
Johnson's Algorithm
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.
Process Flow Management
Slide 36
Example of Johnsons Algorithm
job i
1
2
3
Ai
5
9
10
Bi
2
7
4
1. 2 in B so job 1 goes last:
1
2. Cross out row 1
3. 4 in B so job 3 goes 2nd-to-last:
3
4. Cross out row 3
__1
5. Done: optimal sequence is
231
Process Flow Management
Slide 37
31
Gantt Chart of Solution:
MACHINE A
MACHINE B
9
16 19
Makespan =
Process Flow Management
Slide 38
23 24 26
TIME
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
Process Flow Management
Slide 39
