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COMM 399 Logistics and Operations Management

Topic 4 Process Analysis (Continued)

Process Analysis: Review

Process mapping basics
Key steps in process analysis Get feedback and validate maps

Process analysis basics (3 keywords)

Flow time (or Throughput Time): Length of time a unit spends in the system Capacity rate: Max rate at which units can flow through a process Bottleneck: Resource with the slowest capacity rate in a process Determines the capacity rate of a process

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Learning Objectives
Discuss the Kristens Cookie Case More on Process Analysis
Utilization and detailed Utilization Profiles Inventory Build-Up Diagram Littles Law

Kristens Cookie Linear Flow Chart

Hold Mix Spoon Load Bake Unload Cool Pack Pay

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Kristens Cookie Swim-Lane (Deployment) Flow Chart

Resources You Roommate Oven Oven Activities
Mix Spoon

Load

Bake Cool

Roommate

Pack

Pay
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Kristens Cookie Discussions

How long will it take to fill a rush order? How many orders can you fill in a night (4 hours)? How much of your own and your roommates time will it take to fill each order? Any discount for two-dozen orders? Will it take you any longer to fill a two-dozen order than a one-dozen order? How many food processors? Baking trays? Any change to the production plans? Bottleneck? Another oven?
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More on Process Analysis

Utilization and detailed Utilization Profiles

Inventory Build-Up Diagram Littles Law

Capacity Rate vs. Throughput Rate

Both the capacity rate and the throughput rate measure the output rate of a process
Capacity rate: Maximum possible output rate Throughput rate or Flow rate: Actual output rate

The throughput rate depends on both:

Capacity rate Input rate (also called the arrival rate) Rate at which flow units arrive at the process
e.g. Arrival of customers (demand rate), or Raw material arrival into a factory (planned or scheduled arrivals)
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Basic Process Characteristics

Capacity rate
[units/hr]

Input rate
... [units/hr] ... ...

Inventory [units]

Throughput rate
[units/hr] ... ...

Flow Time [hrs]

Throughput Rate: What if Demand rate < Capacity rate? Throughput Rate: What if Demand rate > Capacity rate?

Throughput rate is the lower of two rates (input rate and capacity rate)

Flow time = average time for a unit to move through the system Cycle time = average time between completion of units

Process Flows
Identify flow units Flow rates (input rate and output rate) Flow times (time spent in the process) Stocks (inventory build-up)

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and Process Characteristics

Flow Process Identify Flow Units Flow rates (Input rates and output rates) Flow times (time spent in process) Stocks (inventory build-up) Process Characteristics What is my product? What is the demand on my system? What is my capacity? How long does it take me to produce one unit? How much inventory (of flow units) do I need to hold? E.g., queue of patients at a hospital, cars at a dealership, or a-warehouse-full of materials.
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Basic Process Measures In Production and Service

Production Process Flow Unit Input Rate Output Rate Flow Time Inventory Capacity Materials Raw material releasing rate Finished goods output rate Time required to turn materials into a product Amount of work-in-process Maximum output rate Service Process Customers Customer arrival rate Customers departure rate (service completion rate) Time that a customer is being served Number of customers being served Maximum service completion rate

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Utilization
Utilization Throughput Rate Actual output rate 100% Capacity Rate maximum output rate
Utilization gives us information about excess capacity The utilization of each resource in a process can be presented with a utilization profile
Resource 1 2 3 4 5 Capacity Rate (units/hour) 6 7 8 6 5 Input Rate (units/hour) 4 4 4 4 4 Utilization 66.67% 57.14% 50.00% 66.67% 80.00%
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What is the optimal utilization of a resource?

Operational Challenge Mismatch between demand and supply

In any process, the input and output rates will vary over time A key operational challenge is matching supply and demand
i.e., matching the input and output rates

For a variety of reasons, a perfect match is not possible

What are some of these reasons?

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An example: Security screening at YVR

Time 6:15 6:30 6:45 7:00 7:15 7:30 7:45 8:00 8:15 8:30 8:45 9:00 9:15 9:30 9:45 10:00 Input rate (passengers/15 min slot) 7 10 8 12 9 16 14 19 22 17 13 11 12 8 10 7 Capacity rate (passengers/15 min slot) 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 Excess Demand 0 0 0 0 0 1 0 4 7 2 0 0 0 0 0 0 Excess Capacity 8 5 7 3 6 0 1 0 0 0 2 4 3 7 5 8

Do we have enough capacity?

but not at all times

TOTAL

195

240

Enough capacity for the shift

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Data for a 4-hour shift in 15-min time slows: 7 arrive between 6:00 and 6:30 etc.

Short-run vs. Long-run Averages

Since the input and output rates may vary over time, both the short-run average and the longrun average rates provide useful information.
Long-run average input rate must be less than the long-run average capacity rate Short-run average input rate can be greater than the short-run average capacity rate

Why?

But what would this lead to?

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Implied Utilization
To capture the idea that there may be excess demand in the short-run, another measure of utilization is often useful
Throughput Rate Input Rate Implied Utilization Utilization Capacity Rate Capacity Rate

Implied utilization also allows us to capture the idea of overtime

Organizations often budget for a fixed amount of capacity, and work overtime to meet excess demand
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Security Screening Example Revisited

What is the capacity rate?
Note: In this example, the capacity rate is given. In practice, it may not be obvious. Finding the capacity rate will involve drawing a process flow map, identifying activities, times, resources, etc, and finding the bottleneck

What is the (average) size of the line? How long do passengers wait (flow time)?

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Inventory Build-Up Diagram

Time 6:15 6:30 6:45 7:00 7:15 7:30 7:45 8:00 8:15 8:30 8:45 9:00 9:15 9:30 9:45 10:00 Input rate (passengers/15 min slot) 7 10 8 12 9 16 14 19 22 17 13 11 12 8 10 7 Capacity rate (passengers/15 min slot) 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 Excess Demand 0 0 0 0 0 1 0 4 7 2 0 0 0 0 0 0 Excess Capacity 8 5 7 3 6 0 1 0 0 0 2 4 3 7 5 8 INVENTORY BUILD-UP 0 0 0 0 0 1 0 4 11 13 11 7 4 0 0 0

TOTAL

195

240
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Inventory Build-Up Diagram

Inventory Build-Up
14 12 10 8 6 4 2 0 6:15 6:30 6:45 7:00 7:15 7:30 7:45 8:00 8:15 8:30 8:45 9:00 9:15 9:30 9:45 10:00

What is the average inventory in the buffer?

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Calculating Average Inventory

Time 6:15 6:30 6:45 7:00 7:15 7:30 7:45 8:00 8:15 8:30 8:45 9:00 9:15 9:30 9:45 10:00 Input rate (passengers/15 min slot) 7 10 8 12 9 16 14 19 22 17 13 11 12 8 10 7 Capacity rate (passengers / 15 min slot) 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 Excess Demand 0 0 0 0 0 1 0 4 7 2 0 0 0 0 0 0 Excess Capacity 8 5 7 3 6 0 1 0 0 0 2 4 3 7 5 8 INVENTORY BUILD-UP 0 0 0 0 0 1 0 4 11 13 11 7 4 0 0 0 3.1875

Empty Buffer (No Queue)

Buffer NOT empty

195

240

Average Inventory = 3.1875

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Consider another example: 30 min time intervals

Time
6:30 7:00 7:30 8:00 8:30 9:00 9:30 10:00

Input rate (passengers/15 min slot)

17 20 25 33 39 24 20 17

Capacity rate (passengers / 15 min slot)

30 30 30 30 30 30 30 30

Excess Demand
0 0 0 3 9 0 0 0

Excess Capacity
13 10 5 0 0 6 10 13

INVENTORY BUILD-UP
0

Inventory Build-Up
14 12

0 0 3 12 6

10 8 6 4 2

0 Average Inventory 0

0 7:00 8:00 9:00 10:00 8:30 9:00 9:30 10:00

195

240

2.625
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and another: 60 min time slots

Time
7:00 8:00 9:00 10:00

Input rate (passengers/15 min slot)

37 58 63 37

Capacity rate (passengers / 15 min slot)

60 60 60 60

Excess Demand
0 0 3 0

Excess Capacity
23 2 0 23

INVENTORY BUILD-UP
0 0 3 0

Inventory Build-Up
3.5 3 2.5 2 1.5 1 0.5 0 7:00 8:00 9:00 10:00

195

240

0.75

Average Inventory

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and another: 2 hour slots

Time
8:00 10:00

Input rate (passengers/15 min slot)

95 100

Capacity rate (passengers / 15 min slot)

120 120

Excess Demand
0 0

Excess Capacity
25 0

INVENTORY BUILD-UP
0 0

Inventory Build-Up
1 0.8 0.6 0.4 0.2 0
7:00 8:00

195

240

0
0 Average Inventory

Caution: Aggregation reduces/hides variability in the data: demand (input) and inventory
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Estimating Process Measures

Process measures changes over time
Depending on the mismatch between input rate and the capacity rate the inevitably occurs over time

We are interested in averages of these quantities Average values of process can be misleading It is often convenient to assume continuous input and output processes
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Definitions
Instantaneous Flow Rates
Ri(t) Ro(t) R(t) = Ri(t) Ro(t) The input rate to the process at time t The output rate of the process at time t Instantaneous inventory accumulation at time t

Inventory Level
I(t) The number of units within the process boundaries at time t

Flow Time
T(t) The time that a unit which enters (leaves) the process at time t spends (has spent) within the process
This can be defined in many ways
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Inventory and Flow Dynamics

Let (t1,t2) denote an interval of time starting at t1 and ending at t2 Suppose R(t) is constant over (t1,t2) and equals R. Then,
I(t) I(t2) R *(t2-t1) I(t1)

I (t2 ) I (t1 ) R (t2 t1 )

Ending Inventory Starting Inventory Change in Inventory

t1

t2

Average Inventory

Starting Inventory Ending Inventory 2

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Inventory Build-Up Diagram

Input Rate/hr
200 50 10AM Inventory (or Backlog) 200 100 2PM 12PM 2PM 6PM Assumes inventory level changes in discrete amounts Assumes inventory level changes in continuous amounts 12PM 6PM
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Capacity rate = 100/hr

10AM

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Another Inventory Build-Up Example

Week 0 1 2 900 900 800 1200 Input Rate Throughput Rate Inventory 400 500 200

900

1000

100

I(t) Inventory in week t

400

200 Week
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Average Inventory
Average inventory depends on whether inventory is assumed to change in discrete steps, or continuously
I(t) 400

Under the discrete assumption: The average inventory over weeks 0 to 3 is 300

Under the continuous assumption: The average inventory? Area under the curve ??????
0 1 2 3 Week
30

200

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Littles Law
Establishes a relationship between average inventory, average throughput rate, and average flow time
Average Inventory I
[units] ... ... ...

Average throughput rate R

[units/hr] ... ...

Average Flow Time T [hrs]

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Littles Law
Throughput rate: 1 car/min 900 cars in the system Flow time?

I=R*T 900 cars = 1 car/min * 900 min

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Example 1
Patients waiting for an organ transplant are placed on a list until a suitable organ is available. We can think of this as a process. Why?
INPUT Patients in need of a transplant OUTPUTS

Patients matched to donated organs

Patients leaving the list hopefully with a successful transplant

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Example 1 contd
Question (a) On average, there are 300 people waiting for an organ transplant On average, patients wait on the list for 3 years How many transplants are performed per year?
300 patients
?? / year

3 years in system (T)

I=R*T
Inventory I = 300 patients Flow Time T = 3 years Throughput Rate per year R = I/T = 100 patients / year
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Example 1
300 patients
100/year

??? years in system

I=R*T
Inventory I = 300 patients Throughput R= 100 patients/year Flow Time T = I/R = 3 years

Question (b) On average, there are 300 people waiting for an organ transplant On average, 100 transplants are performed per year Assume that no patients die during the wait

How long do patients stay on the list?

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Example 2
You are managing the construction of a new container terminal at the Port of Vancouver. You expect to process 1000 containers/day, and you have promised customers that containers will spend no more than 1 day waiting to be shipped.
INPUT Containers to be shipped OUTPUT Containers Loaded to a ship

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Example 2
Question (b) Suppose the yard is expanded to hold 2000 containers Since container traffic is growing rapidly soon, you will soon process 2000 containers/day You are asked to make improvement to the terminal to handle 2000 containers/day But there is no more room to expand the yard What changes can you make in order to process 2000 containers/day?

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Insights from Littles Law

Throughput rate, flow time, and inventory are related Depending on the situation, a manager can influence any one of these measures by controlling the other two
You cannot independently choose flow time, throughput and inventory levels! Once two are chosen, the third is determined For example, if the flow time is fixed, the only way to reduce inventory is to increase throughput
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Insights from Littles Law

How would you reduce wait time for patients on the transplant waiting list?
Increase throughput rate (per year) Decrease number of people on the list (inventory)

How would you increase throughput rate of containers at the port? R= I/T
Decrease flow time (T) Increase inventory (I)
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Inventory Turnover
Inventory Turnover (or turns)
= = = = [Cost of goods sold] / [Average inventory investment] [$ value of cost of output] / [$ value of average inventory] R/I 1/T

Why are higher inventory turns good? How to increase inventory turns, i.e., how to turn stock into flow? The flow time (i.e., T) when expressed in days is also referred to days in inventory
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Days of Inventory & Inventory Turnover

Inventory [$]

Cost of goods sold [$/year] (Throughput)

Days of Inventory [days] (Flow time)

Days of Inventory

365 Ave. Inventory

Cost of goods sold (Throughput) Cost of goods sold (Throughput) Inventory

Inventory Turnover (per year)

This measures the velocity of moving inventory.

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The Importance of Inventory Turnover and Increasing Inventory Turns

Inventory Turnover Dell Toyota 5-8 times more than competitors Spare parts inventory 10 times faster than competitors Year 2002: 7.5 Turns (Kmart was slightly less than 5) Claims processed in hours instead of days Increasing Inventory Turns (Velocity) Dells business model Just-in-time

Wal-Mart

Cross docking

Progressive Insurance

Immediate response claims handling

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Capacity rate versus throughput rate (Utilization) Input and output rates vary over time resulting in
Excess capacity Inventory build-ups

Lessons

Inventory build-up diagrams are useful tools, but

Average can be misleading (hides variability); need to study carefully

Littles Law helps make the connection between average flow measures : Throughput time (T) = I (ave. Inventory) / R (Throughput rate per period)
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