Measures: Capacity, Time, and More

BUAD311 Operations Management Session 2

Objectives
Review: what are key concepts learned?
ARES:
Changing Ahead to Push Electric Cars Latest Starbucks Buzzword: Lean Japanese Techniques

How do we quantitatively evaluate a process?

Capacity Time Other?
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Business Process Measures

Internal Perspective: Employee satisfaction, Quality, Yield, Service Responsiveness, On-time delivery, Cost, Customer Perspective: Customer satisfaction, Customer retention, New customer introduction, Per customer profitability, Ultimately, business process defines the competitive advantage and impacts the operating income, ROI, etc.
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Analyzing Business Process

Inputs Transformation Process
Our purpose is to examine a transformation process from the perspective of flows. The unit being transformed is typically referred to as a job and can represent a customer, an order, material, money, information, etc.

Outputs

Flow Rate (Throughput Rate)

In general, the inflow rate and the outflow rate fluctuate over time. In a stable environment, the average inflow rate is equal to the average outflow rate The average flow rate or throughput rate
assessed as the number of jobs (customers, orders) per unit time.
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Measure: Capacity
Definition: The number of unit that can be processed per unit of time.
Examples:
A cashier can serve 20 customers per hour. The capacity of a web server is 30,000 hits per min. A doctor can perform 300 surgeries per year. A stove can cook 20 hamburgers per min or 0.33333 per second.
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It is a rate. (Note: Units are important!)

Process Capacity
Raw Material
Cook Assemble Deliver

Patties cook in 60 seconds; the stove holds 20 patties. Assembly of a hamburger takes 27 seconds per hamburger. 10 workers are available to assemble hamburgers. What is the capacity of the stove? What is the capacity of the workers? 7 What is the capacity of the (entire) process?

Analysis
Suppose an order for 60 hamburgers is placed. What will happen? 1:27 1:54 2:27 2:54 3:27 3:54 Assembly Cooking First 20 10 10 10 10 10 10

Second 20

Third 20

3:00 1:00 2:00 If order continues to come, how many more hamburgers do we produce every minute?

Bottleneck Analysis
The stove, operating 100% of the time, can push out: 20 hamburgers / 1 minute = 20 hamburgers per minute. The workers, operating 100% of the time, can push out: 10 hamburgers / 27 seconds = 22.2 hamburgers per minute. The stove is the bottleneck resource; it pushes out the slowest amount of hamburgers per time period. 9

Calculating Capacity
The capacity of a process is determined by the slowest (bottleneck) resource. To calculate the bottleneck resource, calculate the amount of stuff each resource can push out per unit time. The bottleneck resource is the resource that pushes out the least amount of stuff per unit time. Would hiring an additional worker increase the revenue? 10

Bottleneck
Will bottleneck always operate at 100% of the time?
What are the causes?

Utilization Rate
Flow rate (Capacity used) Utilizatio n rate Capacity
Utilization rate is a measure of (local) efficiency. The capacity of a cashier in Starbucks is 96 customers per shift. The cashiers flow rate is 72 customers per shift. What is the capacity utilization?
72/96 = 0.75
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Utilization Rate
How can we interpret the number 0.75?
The cashier is busy 75% of the time. 25% of the time the cashier is idle and not doing any productive work. What are the managerial implications?

Can utilization rate be greater than 1?

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Measure: Flow Time

How long it takes to turn patties into burgers? 1:27 1:54 2:27 2:54 3:27 3:54 Assembly Cooking First 20 10 10 10 10 10 10

Second 20 1:00

Third 20 2:00 3:00

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Flow Time (Throughput Time)

Different units may spend different amount time. What is flow time?
The average time a unit stays in the system

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Flow Time
Average time a customer spends in a bank
Waiting
Customer arrives

Processing
Service ends

Service begins

Average time a book stays at the Amazon.com warehouse

Book arrives Stored Order arrives Picked Packaged Shipped

Flow Time

Flow Time

How do we measure Flow Time?

Is it easy to measure Flow Time?
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Flow Time
Instead of measuring the average time a customer spends in a bank, the manager wants to know the average customer waiting time
Can we still apply the concept of Flow Time?

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Work in Process
Work in Process (WIP) Inventory: the number of units in the system at a point in time.
stored, waiting, or being processed.

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Example: Clinic
Imagine a clinic in which a patient can be treated in exactly 15 minutes. Two patients arrive 15 minutes past the hour (every hour), and one patient arrives 45 minutes past the hour What is the WIP for the waiting room and for the clinic?
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Clinic Time Chart

Service Waiting

15

30

45

60

75

Patient 1&2

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Work in Process
WIP is not a constant. It also depends on process scope.
0-15 Waiting room Service Clinic 0 0 0 15-30 1 1 2 30-45 0 1 1 45-60 0 1 1

We may interest in average WIP in practice.

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Work in Process
How do we measure Work in Process (WIP)? Hand counting WIP at period (t + 1) =
WIP at period (t); PLUS Arrivals at period (t) MINUS Departures at period (t)

Does WIP cost business money?

What Have We Learned?

Process Measures
Flow Rate Capacity Flow Time WIP Utilization Rate Bottleneck
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Next Time
Kristens Cookie Company
Read the case and be prepared for class discussion Submit a one-page group discussion/analysis the day before Answer discussion questions

Note that Kristens cookie case slides (and all case slides) will not be posted to Blackboard.

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