Koç University Graduate School of Business

EMBA Program Today’s Agenda

ƒ Wrap-up: How to manage processes effectively
to improve flow rate?
ƒ Quiz 1
OPSM 901: Operations Management ƒ How does variability impact processes flow rate
andd flflow titime?
?
– Multi-stage processes: process time variability
Session 4:
– Single stage process arrival and process time
-The role of Variability variability
-Lean Principles - Lean Principles
- Turkish Airlines Case
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Wrap-Up:
Multi-Product Process Analysis & Apps Bottleneck
ƒ Manage better with the three key operational measures and an inter- ƒ Bottleneck:The factor which limits production
functional macro process view of the organization
ƒ Process measures:
ƒ (Internal)Theoretical bottleneck is the resource
– Flow time → manage critical activities with minimum theoretical capacity
– Capacity → manage bottleneck resources
ƒ Levers for improving
– Flow time → manage critical activities Effect of product mix on the bottleneck:
– Capacity & Throughput Part A
R1:Cutting R2:Finishing
ƒ Process capacity depends on a zillion things
– Effect of product mix decisions on process capacity 3 min/part 2 min/part
• marginal contribution per unit of bottleneck capacity used
Part B Unit Load calculations can
– Bottleneck may shift on adding capacity
Account for the product mix–
Î diminishing returns to capacity investment
50% A-50% B product mix, unit loads: i.e. How much a resource is
R1: 1.5 min/part (3x0.5) needed affects the Bottleneck
R2: 2 min/part bottleneck!

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Bottlenecks: Buffers and Inspection Theory of Constraints: from “The Goal”

Five steps for effective process management:

Station #1 Station #2 Station #4 Station #5

3.5 /hr 3.5 /hr 1 /hr 3.5 /hr 3.5 /hr

ƒ Step 1: Identify the constraint
ƒ Step 2: Exploit the system’s
system s constraints
ƒ How would you release Raw Material into
station #1?
ƒ Step 3: Subordinate everything else
ƒ Where should you place buffer inventory? ƒ Step 4: Elevate the constraint
Why? ƒ Step 5: if new constraint go to Step 1-2
ƒ Where would you place inspection
equipment?

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 Things that influence flow time

ƒ Process control
– What we illustrated with Gantt charts
Protecting the bottleneck: – Schedule resources to synchronize flows with the
bottleneck
effective scheduling and effective lot-sizing
ƒ Lotsize
– Before I move from one product run to another,
how much will I produce
• Physical constraints
• Customer order size
• Managerial decisions
ƒ Set-up time/production time
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High-Inventory Manufacturing Low-Inventory Manufacturing

Batch Batch
size=1000 3.64 months (24 hrs a day, 7 days a week) Order : size=200 1.91 months Order :
1000 units Move batches of 200 1000 units
Release materials according
A : 1/2 hr/unit 1 2 3 4 5 A : 1/2 hr/unit
inventory to the bottleneck

B : 1/10 hr/unit 1 2 3 4 5 B : 1/10 hr/unit

avg. C : 1 hr/unit C : 1 hr/unit

inventory
inventory
B : 1/10 hr/unit 1 2 3 4 5 avg. B : 1/10 hr/unit
inventory
D : 3/4 hr/unit 1 2 3 4 5 D : 3/4 hr/unit
750 850 1000 1850 2000 2450 9
Time (hours) 1000 1290 2000 Time (hours) 10
Wait for the bottleneck
OPSM901 Operations Management OPSM901 Operations Management

Comparison: Large batches or Small batches?

Lotsize decision

A ƒ When do you detect

Small batches
(low-ınventory)
ƒ Three products: P1, P2, P3
Large batches (high-inventory) quality problems?
ƒ Produce 100 units of each
B ƒHow do you
incorporate
ƒ Alternatives
engineering changes? – 100 P1 100 P2 100P3
C ƒDue-date – 1P1 1P2 1P3 1P1 1P2 1P3
performance? • 100 times set-up
B ƒMargins? (lead time) ƒ Set-up time
ƒForecast accuracy? – Cutting tools, cleaning, calibration, loading programs,
D
etc.

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 How increase capacity?Summary of Typical Actions
Set-up times ¾ Key action = optimize only bottleneck management
ƒ Decrease the work content of bottleneck activities
– Never unnecessarily idle (“starve”) bottlenecks = eliminate bottleneck waits:
ƒ Set-up time does not depend on lotsize and is • Reduce variability if it leads to bottleneck waiting
• Synchronize flows to and from the bottleneck: sync when resources start an
the same for all lotsizes. activity
– work smarter:
• Reduce & externalize setups/changeover times, streamline + eliminate non-
ƒ Production time depends on lotsize value added work
– do it right the first time: eliminate rework/corrections
– Not always
y ((baking,
g heat treat)) – work faster

ƒ Long set-up times large lotsizes ƒ Move work content from bottlenecks to non-bottlenecks
– create flexibility to offload tasks originally assigned to bottleneck to non-critical
ƒ Reduce set-up time to produce in small lotsizes resource or to third party
• Can we offload tasks to cross-trained staff members?

ƒ Increase Net Availability of Process

– work longer: increase scheduled availability
– increase scale of process: invest in more human and capital resources
– eliminate unscheduled downtimes/breakdowns
• Preventive maintenance, backups, etc.

ƒ Note that the bottleneck may shift after improvement

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Variability = Actual - Expected

Average value

Range of observed values

Fluctuations in values
THE ROLE OF VARIABILITY
Variance (or Standard deviation) of
the values

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Key Points:
Variability in task times
The role of variability
Note there is no buffer between stages:
ƒ if task times are similar will have a balanced line
Capacity/hr: Capacity/hr:

6units/hr 6units/hr 6/hr

6units/hr 6units/hr 6/hr
ƒ in the absence of variability (deterministic task
4 or 8/hr 4 or 8/hr 5/hr
times) complete synchronization is possible,
idleness is minimized
2 or 10 2 or 10 4/hr

ƒ In the presence of variability full 0 or 12 0 or 12 3/hr

synchronization cannot be achieved
As variability increases, throughput (rate) decreases
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 Compounding effect of variability and unbalanced
Resource interaction effects
task times
In a serial process downstream resources depend on upstream
resources: can have temporary starvation (idleness)

6/hr 6/hr 6/hr 6/hr 6/hr 6/hr 4/hr 4/hr

6/hr 4 or 8/hr 4 or 8/hr 4 or 8/hr 4.5/hr 4 or 8/hr 2 or 6/hr 3 5/h

3.5/hr

6/hr 2 or 10 2 or 10 2 or 10 3/hr 2 or 10 0 or 8 2.5/hr

6/hr 0 or 12 0 or 12 0 or 12 1.5/hr

As variability increases, the impact of resource interaction increases

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Want to reduce resource interference in your

processes: how?

–Dependent Events: Products require more

than one step ƒ smaller lotsizes (smaller batches)
–Statistical Fluctuations: Machine and human ƒ better balanced line
variations; errors; raw material quality ƒ by speeding-up bottleneck (adding staff, changing
problems; procedure, different incentives, change
technology)
Dependent Events + Statistical Fluctuations
ƒ through cross-training
Reduced Production ƒ eliminate steps
ƒ buffers
Whenever we have dependent events, their ƒ integrate work (pooling)
fluctuations don’t average out; they accumulate

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Want to eliminate as much variability as

possible from your processes: how? Process management
ƒ Strategic positioning-establish product capabilities
ƒ specialization in tasks can reduce task time variability ƒ Determine appropriate process capabilities: time, quality,
ƒ standardization of offer can reduce job type variability cost, flexibility
ƒ Process design, appropriate selection of resources
ƒ automation of certain tasks
ƒ Process documentation: flowchart
ƒ IT support: templates, prompts, etc.
ƒ Analyze at macro level
ƒ Incentives – Where is the bottleneck?
ƒ Scheduled arrivals to reduce demand variability – Is capacity enough?
ƒ Initiatives to smoothen arrivals – How is time performance?
– Where do quality problems occur?
ƒ Analyze at micro level
– Scheduling: focus on the bottleneck
– Set-up times, lotsize
– Reduce variability
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 Framework for Process Flow Management

Flow Chart Process

Identify Bottlenecks Identify Critical Path

Maximal Flow Rate Minimal Flow Time VARIABILITY DRIVES WAITING:

mean Macro Average No Process
Competitive?

Demand
Performance Re-Design EVEN IN SINGLE STAGE
Pattern
Micro Variability
Yes
No Demand &
PROCESSES
Competitive?
Performance Supply Mgt
variability
Yes Continuous
Improvement
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Consider service processes Why do queues form? Why is there waiting?

Call #
10
ƒ This could be a call center or a restaurant or a shared 9

service center
ƒ High utilization: 8
7
6
– throughput/capacity 5
ƒ Customers or customer jobs arrive to the process; their 4
3
arrival times are not known in advance – High inflow rate 2
1
ƒ Customers are processed.
processed Processing rates have some – Low processing rate 0
0 20 40 60 80 100

ƒ variability:
TIME
variability.
ƒ The combined variability results in queues and waiting. Inventory (# of calls in system)
– arrival times 5

ƒ We need to build some safety capacity in order to – service times 4

reduce waiting due to variability – processor availability

3

2
Stability condition:
1
average system capacity > average demand=throughput
0
0 20 40 60 80 100
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Why is there waiting? A measure of variability

ƒ the perpetual queue: insufficient capacity ƒ Needs to be unitless

ƒ the predictable queue: peaks and rush-hours ƒ Only variance is not enough
ƒ the stochastic queue: whenever customers come faster
than they are served
ƒ Use the coefficient of variation
ƒ CV= σ/µ (standard deviation/mean)
In presence of variability we need to build
safety capacity in system to have a stable system:
(i.e. average system capacity > average demand=throughput)

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 Example: CV=1
Histogram of exponential distribution:
Interpreting the variability measures interarrival times at an outpatient clinic

CVi = coefficient of variation of inter-arrival times

i) constant or deterministic arrivals CVi = 0

ii) completely random or independent arrivals CVi =1

iii) scheduled or negatively correlated arrivals CVi < 1

iv) bursty or positively correlated arrivals CVi > 1

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Generalized Throughput-Delay Curve In words:

Average ƒ In high utilization case: small decrease in

Flow
Time T utilization yields large improvement in response
Variability
Increases time
ƒ This marginal
g improvement
p decreases as the
slack in the system increases
ƒ Reducing the utilization of bottleneck stage
results in the highest response time reduction
Tp

Utilization (ρ)= arrival rate/service rate 100% ρ

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Performance Improvement Levers

Check a simulation:
ƒ Capacity Utilization / Safety Capacity
ƒ Waiting Line Simulation – Demand Management (arrival rate)
• Peak load pricing
– Increase Capacity (processing rate)
ƒ http://archive.ite.journal.informs.org/Vol7No1/DobsonShumsky/security_simulation.php
• Number of Servers (scale)
• Processing Rate (speed)
ƒ You can check the effect of CV and utilization (arrival rate/service rate) on
waiting ƒ Variability Reduction
– Arrival times
• Scheduling, Reservations, Appointments
– Processing times
• Standardization, Specialization, Training
ƒ Synchronization
– Matching capacity with demand

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 Effect of Pooling (Resources)
The impact of task integration (pooling)
Ri/2 ƒ balances utilization...
Server 1
Ri Queue 1 ƒ reduces resource interference...
ƒ ...therefore reduces the impact of temporary
Ri/2 bottlenecks
Server 2
Queue 2 ƒ there is more benefit from pooling in a high utilization
and high variability process
ƒ pooling is beneficial as long as
Server 1 • it does not introduce excessive variability in a low variability
Ri system
Queue • the benefits exceed the task time reductions due to
Server 2 specialization

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Summary of fundamental process principles

ƒ identify and eliminate bottlenecks

ƒ reduce as much variability as possible
ƒ eliminate handoffs, improve communication to
minimize resource interference MANAGING VARIABILITY IN
ƒ for high utilization processes build-in more slack
OUTPUT PERFORMANCE:
QUALITY MANAGEMENT &
LEAN PRINCIPLES

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Elements of Lean Thinking (TPS)

The Ideal: Synchronization and Efficiency : Just the right part in the right Process Control Chart
quantity at the right time in the right place, at minimum cost

ƒ All processes in control and capable

ƒ Level production (Heijunka)
– Smooth production runs
Prrocess Measure

– Connect the production system to the customers-produce as

they want (“pull”)
– Minimize changeover times
ƒ Eliminate Waste (Muda)
Every task/activity/function must add value
Time
– Defect, inventory,waiting, movement are non-value adding
ƒ Expose sources of waste (Jidoka)
ƒ Information: Monitor process variability over time
Problems are natural and are opportunities to learn
ƒ Control Limits: Average + z Normal Variability
– Problem visibility, fast feedback, correction
– Management by sight ƒ Decision Rule: Ignore variability within limits as “normal”
ƒ Continuous improvement (Kaizen) Investigate variation outside as “abnormal”
ƒ Errors: Type I - False alarm (unnecessary investigation)
– Buffer reduction and employee involvement Type II - Missed signal (to identify and correct)
– Management by stress 41 42
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 Process Capability:
Process Control and Improvement Ability to Meet Customer Requirements
Process output
Customer Requirements(Specs): (LS,US)=(75,85)

ƒ Proportion of Output Within

Specs: Given a Process in control
Out of Control In Control Improved with µ = 82.5 psi and σ = 4.2 psi
P(Meet Specs) = 0.699
LS µ US
UCL
ƒ Shifting µ to 80 yields P(Meet
Specs) = 0.766
µ
ƒ Reducing σ to 2.5 yields P(Meet
Specs) = 0.9544
LCL

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LS µ US

Synchronize to reduce waste: Synchronize to reduce waste:

customer demand pulls product Quality at the Source

PUSH: Inputs availability triggers execution ƒ Quality at source also improves time and
throughput performance
Supplier Process Customer ƒ Fool-proof/Fail-safe design (Poka-Yoke)
inputs outputs
ƒ Inspection
– Self
– Automated (Jidoka)

PULL: Outputs need triggers execution ƒ Line-stopping empowerment (Andon)

ƒ Human infrastructure
Supplier Process Customer
inputs outputs

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Synchronize to reduce waste: Reducing waste: Increase Problem Visibility

Just-In-Time operations The River Analogy:Lower the Water to Expose the Rocks

JIT = have exactly what is needed, in the quantity

it is needed, when it is needed, where it is
needed.
ƒ Reduce transfer batches
ƒ Level load production
ƒ Pull rather than push work Defects
Inventory

ƒ Quality at source Defective Materials Machine Breakdowns Long Set ups

ƒ Set up cells Long Lead times Unsuitable Equipment Uneven Schedules

Unreliable Suppliers Inefficient Layouts Absenteeism

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Rigid Work Rules
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 Ongoing objectives Process Improvement
ƒ Improve process flows
– Efficient plant layout
ƒ Measurement
– Fast and accurate flow of material and information
– External and Internal
ƒ Increase process flexibility
ƒ Analysis
– Reduce changeover times
– Analyze Variation P D
– Cross
Cross-training
training
ƒ Control C A
ƒ Decrease process variability Improve
– Adjust Process
– Flow rates
– Processing times
ƒ Improvement Innovate

– Quality – Reduce Variation P D

ƒ Minimize processing costs ƒ Innovation C A

Improve
– Eliminate transportation, inspection, rework – Redesign Product/Process Control

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Services: customers introduce variability Customer assessment of service quality

external
ƒ Arrival variability Dimensions of
service quality
word of mouth personal needs past experience communication

ƒ Request variability
ƒ Capability variability • tangibles
• reliability
ƒ Effort variability • responsiveness
• competence
ƒ Subjective preference variability • courtesy
• credibility expected service
• security Perceived
• access service
• communication quality
• understanding
the customer perceived service

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Identifying quality shortfalls

Next Time
Reference:A. Parasuraman, VA Zeitham and LL Berry, Journal of Marketing, 1985

word-of-mouth personal needs past experience ƒ Quiz 2: Chapters 4,5 and today’s lecture notes
expected service
ƒ Study questions: Exercises from the book
Gap 5 ƒ Individual Assignment
perceived service ƒ Please read the beer game handout and be
Customer
Provider
prepared to play the game
service
delivery ƒ Barilla Case-a quick read will be enough
Gap 3:
Gap 1: quality of conformance quality
design Gap 4 external
service quality communications
Gap 2: specifications to customer
quality function
deployment
management
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perceptions
OPSM901 Operations Management OPSM901 Operations Management