Production and operations Management

Lecture 5Production and operations ManagementLecture 5: Module 1 Process Analysis

Labor productivity measures

Labor productivityLabor content: P1+P2+P3: Sum of processing/activity times with worker/labor. Cycle time: 1/Flow rate: How fast is the process creating output.Idle time: how much unproductive time a worker has for every unit of output produced.Average labor utilization: ratio between the labor content and the labor content plus all the direct idle time

a1Processing Timea2a3a4123Bottleneck=Idle Time Capacityi =

Process Capacity=Min{Capacityi}

Flow Rate = Min{Demand, Capacity}

Utilizationi=

Review of Capacity Calculations

Labor Productivity Measures=Processing time

Cycle time CT= 1/ Flow Rate Labor Content=p1+p2+p3 If one worker per resource: Idle Time=(CT-p1) +(CT-p2) +(CT-p3) If m workers at resource 1: Idle time= (CTxm)-p1 +(CT-p2) +(CT-p3) Average labor utilization

Cost of direct laborLabor Productivity Measures5Practice problem

Read handout 3

Littles law

Processes: The Three Key Metrics

Shown by Professor Little in 1961

What it is: Inventory (I) = Flow Rate (R) * Flow Time (T)

How to remember it: - units

Implications: Out of the three fundamental performance measures (I,R,T), two can be chosen by management, the other is GIVEN by nature Hold throughput constant: Reducing inventory = reducing flow time

Given two of the three measures, you can solve for the third: Indirect measurement of flow time: how long does it take you on average to respond to an email? You write 60 email responses per dayYou have 240 emails in your inbox

Littles law: Its more powerful than you think...Examples for Littles Law ApplicationsIn a large Philadelphia hospital, there are 10 cases per day.80% of the cases are easy and require patients to stay for 2 days20% of the cases are more complicated and require a 5 day stay

What is the average occupancy of the department?Source: Graves and LittlePractice Problem

Inventory turns/inventory costsInventory turnsWorking with physical units is not necessarily the best method for obtaining an aggregate measure of inventory.Therefore inventory is often measured in some monetary unit, for example, $5 mill ion worth of inventory.Inventory turns: How often a company is able to turn over its inventory.

Cost of Goods sold: 25,263 mill $/yearInventory: 2,003 mill $Cost of Goods sold: 20,000 mill $/yearInventory: 391 mill $Inventory TurnsInventory TurnsComputed as:

Based on Littles lawCareful to use COGS, not revenues

Inventory turns=Inventory Cost Calculation

Compute per unit inventory costs as: Per unit Inventory costs=

Example:

Annual inventory costs=30% Inventory turns=6 Per unit Inventory costs=

Source: Gaur, Fisher, RamanInventory Turns in Retailing and Its Link to Inventory Costs

Practice problem

Read handout 4