Operations Management

1. Operations Management • Little’s Law - Lecture 3 • (Chapters 3 and 4) • Dr. Ursula G. Kraus

2. Review • Shouldice Hospital (“Focused Factory”) • Process View of Operations • Product/Process Attributes

3. Agenda • Process Characterization • By Architecture • By Positioning Strategy • By Customer Interface • Operational Measures: Time, Inventory and Throughput • Little’s Law • Flow Time Analysis

4. Classification of Processes by: I. Process Architecture Process Types Examples . • Project Construction, Consulting • Job Shop Machine Shop, Beauty Shop • Batch Bakery, Classroom • Line Flow Assembly Line, Cafeteria Line • Continuous Flow Paper mill, Central heating Job Shop FlowShop

5. low medium high Characteristics of Processes:Job Shop vs. Flow Shop Source: Managing Business Process Flows (1999)

6. Process Flexibility High JOB SHOP Jumbled Flow. Process segments loosely linked. (Commercial Printer, Architecture firm) BATCH Disconnected Line Flow/Jumbled Flow but a dominant flow (Heavy Equipment, Auto Repair) Opportunity exists. Costs LINE FLOWS Connected Line Flow (assembly line) (Auto Assembly, Car lubrication shop) Continuous, automated, CONTINUOUS rigid line flow. Out-of-pocket Process segments tightly FLOW Costs linked. Low (Oil Refinery) Product Variety Low High Low Standardization High Standardization Commodity Products Few Major Products One of a kind Low Volume Many Products High volume Product-Process Matrix

7. Classification of Processes by: II. Positioning Strategy • Functional Focus:… grouping by resource type • Job shop • General purpose resources • Product Focus:… grouping by product • Flow shop • Specialized resources Product1 A B Product2 C D Product1 A D B Product2 C B A = resource pool (e.g., X-ray dept, billing) Source: Managing Business Process Flows (1999)

8. Classification of Processes by: III. Customer Interface • Make to Stock • Make to Order For Mr. Foley Source: Managing Business Process Flows (1999)

9. Comparison of Goods and Services Services Goods 100% 75% 50% 25% 0% 25% 50% 75% 100% Self-service groceries Automobile Installed carpeting Fast-food restaurant Gourmet restaurant Auto maintenance Haircut Consulting services

10. Characteristics of Services • Typically labor intensive - difficult to automate • Frequently individually processed - low scale economies • Often an intellectual task performed by professionals - expensive resources and variable output • Often difficult to evaluate for quality

11. Agenda • Process Characterization • Operational Measures: Time, Inventory and Throughput • Little’s Law • Flow Time Analysis

12. Process Management Information Network of Activities and Buffers Outputs Inputs Resources Business Process Flows Movement of flow units through a network of activities where resources transform inputs into outputs.

13. Definition: Process Flow Measures • Flow Time (T): The average time a job spends in the process • Inventory (I): The average number of jobs accumulated in the process • Throughput, or Flow Rate (R): The average rate at which jobs flow through a process (units/time) • Turnover: The ratio of throughput to average inventory (inventory turn) • Capacity: The largest sustainable flow rate possible Source: Managing Business Process Flows (1999)

14. Agenda • Process Characterization • Operational Measures: Time, Inventory and Throughput • Little’s Law • Flow Time Analysis

15. Little’s Law…relating process flow measures Flow rate or Throughput R [units/hr] • Inventory = Throughput x Flow Time I = R x T • Turnover = Throughput / Inventory = R/I = 1/ T Inventory I [units] ... ... ... ... ... Flow i[hrs] Source: Managing Business Process Flows (1999)

16. Material Flow: Bakery We are a bakery that specializes in making bread.  We bake our bread in batches of 100 loaves at a time.  The typical inventory of bread in our bakery is 9 batches and we produce an average of 100 loaves per hour. What is the average flow time of a batch of bread?

17. Process Flow Examples (1) Material Flow: A fast-food restaurant processes an average of 5,000 lb. of hamburgers per week. The typical inventory of raw meat is 2,500 lb. What is the average hamburger’s flow time and the restaurant’s turnover? (2) Customer Flow: The above fast-food restaurant processes on average 1,500 customers per day (15 hours). On average there are 75 customers in the restaurant (waiting to place the order, waiting for the order to arrive, eating etc.). How long does an average customer spend at the restaurant and what is the average customer turnover?

18. Process Flow Examples (3) Job Flow: A branch office of an insurance company processes 10,000 claims per year. The average processing time is 3 weeks. Assuming 50 weeks in a year, what is the average number of claims “in process”. (4) Cash Flow: A major manufacturer sells $300 million worth of cellular equipment per year. The average accounts receivable in the cellular group is $45 million. What is the average billing to collection process flow time?

19. Process Flow Examples (5) Material Flow: A general manager at at a pharmaceutical company states that her inventory turns three times a year. She also states that everything that the company buys gets processed and leaves the docks within six weeks. Are these statements consistent? (6) Shouldice Hospital: Shouldice performs 137 surgeries per week, and the average patient stays 4 days. There are 125 regular hospital beds, and 12 pressure sensitive beds for patients susceptible to bed sores. What is the average number of beds occupied at Shouldice?

20. Process Flow Examples (7) AIMD: The AIMD (Aircraft Intermediate Maintenance Division) onboard USS Roosevelt has an average of 13 hydraulic actuators awaiting repair at any given time. Last year, they repaired 156 actuators. • What is the flow time for hydraulic actuators at AIMD? • If the AIMD could cut flow time by 10%, by how much would the average inventory go down?

21. Process Flow Examples (8) NADEP: The F-18 Repair shop at NADEP JAX (Naval Aviation Depot, Jacksonville) repairs engines in an average 86 days. They receive (and ship) an average of 30 engines per month. • What is the average number of engines at the NADEP? • At $3 million per copy, what is the value of the inventory? • By how much would the value of inventory decrease if NADEP could cut T by 1 day? 2 days? 30 days?

22. Little’s Law -- Caveats • Applies to the long run average of a stable system • In any given time period (sample) the average may be different (especially for small samples) • In an unstable, or dynamic system, the average may not be very useful • In systems with variance, we often need to know about more than the average • Fast Food Example (2) (what does Little’s Law tell us? Is that enough?) • More in chapter 8 Source: Ken Doerr, NPS 2002

23. Agenda • Process Characterization • Operational Measures: Time, Inventory and Throughput • Little’s Law • Flow Time Analysis

24. Process Flow Measures • Flow Time (T): The average time a job spends in the process • Inventory (I): The average number of jobs accumulated in the process • Throughput, or Flow Rate (R): The average rate at which jobs flow through a process Little’s Law I = R x T Source: Managing Business Process Flows (1999)

25. Why Flow Time (T) Matters • Reduced manufacturing flow time means • short delivery response time • reduced inventory (Little's Law) which in turn lowers cost • production closer to time of sale which increases (demand) predictability • fast feedback on quality problems • Reduced development flow time means • quicker time to market (resulting in larger market share)

26. „… possibly the most innovative and devastating retailer in the world“ (Daniel Piette, Louis Vuitton - Fashion Director) Example: ZARA (Inditex) • Two weeks to develop a new product and get it to stores (9-month industry average) • 10,000 new designs each year • Only limited production in low-cost countries • Zero advertising • World's fastest growing retailer (3,100 stores, 70 countries) • 32,000 employees and 200 fashion designers Source: Business Week, 4 April, 2006

27. Importance of Short Development Times Mean Development Time Company 27 Toyota From concept approval to production Honda 36 Ford 37 GM 46 0 10 20 30 40 50 Months Source: Operations Management, NPS 2003

28. Average Flow Time consists of … Theoretical Flow Time (Processing Time) + Waiting time

29. Process Flow Chart … … is the visual representation of a business process showing major activities and their inter-relationships. Process Management Information Network of Activities and Buffers Outputs Inputs Resources

30. Operational Measures – Flow Time • Activity Time, or Cycle time: Is the time required by a typical flow unit to complete an activity once • (Theoretical) Flow Time: Min. time required for processing a typical flow unit through the whole process – without any waiting • Critical Path: A sequence of activities that takes the longest total (flow) time for completion • Critical Activities: All activities on a critical path • Flow Time Efficiency = Source: Managing Business Process Flows (1999)

31. Agenda • Process Characterization • Operational Measures: Time, Inventory and Throughput • Little’s Law • Flow Time Analysis • Critical Path Identification

32. Critical Path Example: Pusan Port (Korea)

33. Critical Path - Definitions • Critical path consists of all activities that have a slack time of zero • Slack Time = LST - EST = LFT - EFT EST: Earliest Start Time EFT: Earliest Finish Time LST: Latest Start Time LFT: Latest Finish Time

34. Critical Path - Algorithm A. Visit all activities from “start to finish” • EST(first activity) = 0 • EFT = EST + activity time • EST(max EFT of all predecessors) B. Now visit all activities from “finish to start” • LFT(final activity) = EFT (final activity) • LST = LFT – activity time • LFT = (min LST of all successors) C. Calculate Slack Times = LST - EST = LFT - EFT

35. Critical Path Example: Project Scheduling

36. Complex Example …