OM&PM/Class 2b 1

1 Operations Strategy– Class 1a: Introduction to OM

– Class 1b: Strategic Operational Audits

2 Process Analysis

– Class 2a + 2b: Process Flow Analysis» CRU Computer Rentals presentation

» Detailed Capacity Analysis: Kristen’s Cookies

» Key levers for improving process capacity and flow time

3 Lean Operations

4 Supply Chain Management

5 Capacity Management in Services

6 Total Quality Management

7 Business Process Reengineering

Operations Management & Performance Modeling

OM&PM/Class 2b 2

CRU Computer Rentals:Revenue and Cost Drivers

CustomerIc

Receiving Repairs

Pre-Config

Partsplacesorder

Receivesfrom

Supplier

Repairs

Status 40

Status 24

Status 41

Status 42Status 20

Config

30%

70%

15%

ShipStatus 32

Ship

R

R1R2

OM&PM/Class 2b 3

Kristen’s Cookies: Flow Chart

Take Order

Wash & Mix Spoon

Load & Set Timer Bake

UnloadCoolPackPayOrderReady

You

6min / 1-3doz

You

2min / doz

Roommate, Oven

1 min / doz

Oven

9 min/doz

Roommate---

5 min

Roommate

2 min /doz

Roommate

1 min / order

OM&PM/Class 2b 4

Process Architecture is defined and represented by a process flow chart: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

– routes: precedence relationships (solid lines)

4. Resources & Allocation

5. Information Structure & flow (dashed lines)

OM&PM/Class 2b 5

Operational Measure: Flow TimeDriver: Activity Times

(Theoretical) Flow Time

Critical Activity

Flow Time efficiency

OM&PM/Class 2b 6

Levers for Reducing Flow Time

Decrease the work content of critical activities

– work smarter

– work faster

– do it right the first time

– change product mix

Move work content from critical to non-critical activities

– to non-critical path or to ``outer loop’’

Reduce waiting time.

OM&PM/Class 2b 7

Industry Process AverageFlow Time

TheoreticalFlow Time

Flow TimeEfficiency

Life Insurance New PolicyApplication

72 hrs. 7 min. 0.16%

ConsumerPackaging

New GraphicDesign

18 days 2 hrs. 0.14%

Commercial Bank ConsumerLoan

24 hrs. 34 min. 2.36%

Hospital Patient Billing 10 days 3 hrs. 3.75%

AutomobileManufacture

FinancialClosing

11 days 5 hrs 5.60%

Most time inefficiency comes from waiting: E.g.: Flow Times in White Collar Processes

OM&PM/Class 2b 8

Operational Measure: CapacityDrivers: Resource Loads

(Theoretical) Capacity of a Resource

Bottleneck Resource

(Theoretical) Capacity of the Process

Capacity Utilization of a Resource/Process = throughput [units/hr]

capacity [units/hr]

OM&PM/Class 2b 9

A Recipe for Capacity Measurements

Resource Unit Load Resource Capacity Process Resource

(time/job) Unit Capacity # of units Total Capacity Utilization*

* assuming system is processing at full capacity

OM&PM/Class 2b 10

Cost Capacity Profile

Capacity[units/time]

Marginal Investment Cost[$/unit/time]

Resource x NCX-10 Furnaces

Demand

Process Capacity

OM&PM/Class 2b 11

Levers for Increasing Process Capacity

Decrease the work content of bottleneck activities– work smarter– work faster– do it right the first time– change product mix

Move work content from bottlenecks to non-bottlenecks– to non-critical resource or to third party

Increase Net Availability– work longer– increase scale (invest)– increase size of load batches– eliminate availability waste

OM&PM/Class 2b 12

Increasing Process Capacity in The Goal

“is to increase the capacity of only the bottlenecks”– “ensure the bottlenecks’ time is not wasted”

» increase availability of bottleneck resources

» eliminate non-value added work from bottlenecks reduce/eliminate setups and changeovers

» synchronize flows to & from bottleneck reduce starvation & blockage

– “ the load of the bottlenecks (give it to non-bottlenecks)”» move work from bottlenecks to non-bottlenecks

» need resource flexibility

– unit capacity and/or #of units.» invest

OM&PM/Class 2b 13

Pricing and Capacity Investment:Trays + Rent another oven at $10/hr?

Resource cost =

Material cost =

Minimum sale price =

Contribution margin if sale price is $5 / dozen =

OM&PM/Class 2b 14

Other factors affecting Process Capacity

Batch (Order) Sizes

Product Mix

other managerial policies ...

OM&PM/Class 2b 15

Chocolate Chip and Peanut Butter Data

Flavor CleanBowl andMix

Spoon onTray

Load andSet Oven

Bake Cool PackInto Box

ReceivePayment

ChocolateChip

6 min 2 min /doz

1 min 9 min 5 min 2 min /doz

1 min

PeanutButter

9 min 2 min /doz

1 min 7 min 3 min 2 min /doz

1 min

OM&PM/Class 2b 16

Class 2b Learning Objectives CRU: manage better with the three key operational

measures and an inter-functional macro process view of the organization

Process measures: – Flow time manage critical activities– Capacity manage bottleneck resources

Levers for improving– Flow time manage critical activities– Capacity & Throughput

Process capacity depends on a zillion things