Module-2_Operations-and-Supply-Chain-Decisions-and-Metrics_Transcript.pdf

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Module 2: Process Configurations and Metrics

Table of Contents

Module 2: Process Configurations and Metrics ……………………………………………………………… 1

Lesson 2-1: Process Types ………………………………………………………………………………………………….. 2

Lesson 2-1.1: Process Arrangements – Linear and Jumbled ………………………………………………………………………. 2

Lesson 2-1.2: Implications of Linear vs. Jumbled …………………………………………………………………………………….. 5

Lesson 2-1.3: Generic Process Configurations ………………………………………………………………………………………… 7

Lesson 2-1.4: In-Video-Question: Selecting Process Configuration ………………………………………………………….. 14

Lesson 2-1.5: Implications of Process Configurations …………………………………………………………………………….. 17

Lesson 2-1.6: Process-Product Matching ……………………………………………………………………………………………… 20

Lesson 2-1.7: Selecting a Process Configuration ……………………………………………………………………………………. 25

Lesson 2-2: Process Mapping ……………………………………………………………………………………………. 26

Lesson 2-2.1: Process Mapping …………………………………………………………………………………………………………… 26

Lesson 2-3: Metrics to Assess Performance ………………………………………………………………………… 40

Lesson 2-3.1: Metrics to Assess Performance ………………………………………………………………………………………. 40

Lesson 2-4: Little's Law ……………………………………………………………………………………………………. 54

Lesson 2-4.1: Little's Law …………………………………………………………………………………………………………………… 54

Lesson 2-5: Activities Within Processes ……………………………………………………………………………… 72

Lesson 2-5.1: Activities Within Processes …………………………………………………………………………………………….. 72

Lesson 2-6: Capacity Utilization ………………………………………………………………………………………… 83

Lesson 2-6.1: Capacity Utilization ……………………………………………………………………………………………………….. 83

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Lesson 2-1: Process Types

Lesson 2-1.1: Process Arrangements – Linear and Jumbled

One of the most fundamental decisions for implementing an operation strategy is how you

arrange the different activities in the process. It's what we call process choice. It's determining

what kind of configuration the different activities are going to be in. Whether they're going to be

working exclusively on a product, whether they're going to be shared activities. And we call this

element of operation strategy, the process choice element. You should recognize that this is a

long term decision very rarely are you going to be able to change the configuration of the

activities very often? It's going to be expensive for you to change how you have situated your

different machines, whether it's in a manufacturing plant or whether it's in a fast food restaurant,

it is going to be time consuming. And it's going to require a lot of investment to be able to set it

up in certain ways. So let's start off with taking a look at two very basic types of process

arrangements. One of them is a linear arrangement, and one of them is what we're going to call

a jumble. So we're not going to get into the definitions of the formal process types that we see in

operation strategy, but we're simply going to call them linear and jumbled at this point.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

So let's take a look at these basic types of process types, right? So, let's take an example here.

I want you to think of a health clinic in which you have kids that go through the health clinic, they

get treatment as well as you have adults. So here is an example of a linear arrangement for that

health clinic. So you have Children that go through the whole process. They go through the

activities like checking. They have to wait, they get seen by a nurse. They get seen by a doctor.

They may have to go get labs, get an X ray, get some treats before they leave and then they

exit out. So that's going to be the arrangement for children. And for adults, it's going to be a

similar arrangement except it's going to be maybe a different sequence, maybe a different set of

activities. So what you have here, the basic difference between this and the next arrangement

we're going to see is that you have a dedicated set of activities. The play area that we have

here is dedicated for kids. The weight room for adults has a television in it which you don't have

for the kids. So that's the main difference between this and the next arrangement that we're

going to look at is that. Each of these activities is dedicated to that particular type of customer

that is going to go through it and in this case it's patients being kids and adults.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Now let's take a look at the other kind of arrangement to make a contrast between a linear and

jumbled arrangement. So in a jumble arrangement you're not going to have these activities

being exclusively used for a certain type of customer. So what you have here is a set of

activities that are placed in sort of departments. There is a wait department where people can

wait whether it's customers who are kids, whether it's customers who are adults. And you can

even add customers patients who are going for geriatrics so the older patients. It's a common

weight area in this case It's a common area of being seen by nurses and doctors. So these are

all common areas. And what I have depicted over here, what you see over here is that the

process flows for kids are depicted by the solid line while the process flow for the adults is

depicted by the dotted line. So the kids go to the wait, to the nurse, to the doctors, while the

adults have to go to the wait. And from there they have to go first, get their laps done before

they go through the rest of the activities in the process. So two things here, one, the activities

are being shared across two different types of customers in this case could be shared among

many different types of customers. Otherwise the other thing is that the flow is going to be

jumbled. It's not in a linear fashion. Not every customer, not every patient is going to go through

in the same sequence through each of these activities. So that's going to be the difference

between these two types of activities, these two types of processes rather.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Lesson 2-1.2: Implications of Linear vs. Jumbled

So what are the implications of a decision of process choice? Whether you've picked, let's say a

jumbled process or whether you've picked a linear kind of a process. Let's take each one of

these and talk through the implications of them. So cost. Obviously when you have a dedicated

set of activities for different types of customers, the up front cost is going to be very high, right?

You have to invest separately for a process for the kids as as patients as well as for the adults

as patients. So they're going to be two parallel processes. You have two wait areas, you have

two radiology departments, two pharmacies and so on and so forth. So the up front cost is going

to be high. Now what you have to think about is over a long period of time, if you have enough

volume of each of these different types of customers. Your cost per customer, your cost per

patient in this case might be lowered. So if you're going for that kind of an advantage based on

volume. And there is enough volume of each type of patient of each type of customer. Then it

may make sense for you to make that upfront investment into two different types of processes.

Two different arrangements that are dedicated for each of those two customers, right? So that

would be the cost benefit analysis that you would have to do. When you were looking at should

we go in for a linear arrangement or should we go in for a jumbled arrangement. Because if you

were to do a jumbled arrangement, you could share the activities. However, it might get

expensive from the point of view of the customer. They have to adjust to not having a dedicated

playroom as the wait area. Or a dedicated TV room as the wait area for adults. And that's the

cost of the customers sort of have to face. And so you have to think of the implications of that.

Well, let's take the second element of speed. So, if you recognize what we're going through

here are things that customers care about things that organizations care about. We care about

the cost of producing something. The cost of providing something to a customer. We also care

about the speed at which we are able to deliver something to a customer. And the customer

also cares about that obviously. So in terms of speed, if you have a linear arrangement. If it's in

a straight line, the obvious implication is that it's going to go much quicker than it would if it was

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

a jumbled kind of flow. So speed is going to be higher if it is in a linear arrangement. And

jumbled, it's going to be more messy. What's also going to happen is that there will be some

scheduling issues getting into the picture here. Because you'll have some adults that take

longer for certain tasks and kids might take longer for some other tasks. And that's going to

mess up the way that you have each of the patients going through. And if they're in mixed

sequence, you're going to have issues of there being more waiting. So the speed is going to get

affected. Now, let's take a look at the next one, flexibility. In a linear arrangement, you have less

flexibility of being able to cater to different types of customers. Cater to different types of

patients in this case. And that's by design, right? We've arranged the process for more

efficiency. We've arranged the process for more speed. When it's a linear arrangement, you're

sacrificing flexibility in that case. Whereas in a jumble flow, there's going to be more flexibility. If

there are different needs of customers, they can be tackled in a different sequence through the

jumble flow. And that's going to work fine. Quality. The next aspect that customers care about,

that organizations care about. Now quality from a very broad perspective, if you were to take a

look at it. The linear one is going to be focusing on speed. But might be sacrificing quality in one

way. If everybody is being treated like a going through an assembly line. On the other hand, if

you're thinking about there being specialists that are dealing with each type of patients. So you

have people who are doctors and nurses who are trained not only to to deal with the ailments of

kids. But also deal with the way the different kids react. How they are different from adults.

That's going to give better quality, a better experience to the to the patients. But if you think

about it from a different perspective, now quality may be affected. In the sense that if there is a

problem that needs a broader outlook. So, if there's a teenager who's going through and has

gone through the kids process, they are trained to deal with kids. And they might not have some

of the broader knowledge that might exist if you are going through a jumble flow. And there are

people trained in that jumble flow to deal with different types of ailments. So, having a process

flow of one type. What you hopefully you're seeing is that it has implications on the other

operations strategy elements. Of how they are going to have people trained for each different

each of the different types of processes. Whether it's a jumble flow or a linear flow. Finally,

customizability. Again, the linear one, the linear flow is not meant to be customizable. It's meant

to be for a certain type of patient. And so customization is going to be difficult if you are going to

ask for any kind of changes within a linear flow. Worse is when it's a jumble flow. They are

trained to be more flexible. The people are trained to be more flexible, process is designed to be

more flexible. The kind of training that people have got is more broader. So customization, they

might be used to that. It might be possible for them easily. So you can see that a simple

decision. Or what seems like a simple decision. Should be a jumbled or a linear flow of activities

is going to have implications on what you're trying to achieve from a process. From an operation

and and the customer experience, what they are able to get from an operation, from a process.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Lesson 2-1.3: Generic Process Configurations

Now let's take these two types of process types, we said jumbled and linear,

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

and place them in this big arrangement of process types that we normally talk about in

operations. We think about process types on a spectrum that goes all the way from continuous

to project. What you have here is a graph, on the x-axis you have product variety going from low

to high, on the y-axis you have process flexibility going from low to high. The diagonal

represents the spectrum of process choices that you can pick from for your particular operation,

for your particular process. So if you think about the linear and jumbled that we just talked

about, the linear is going to be the one that is second from the left, it's a line kind of process,

and the jumbled is going to be the second last one, which is a job shop. If you're going left to

right, the job shop is the second last one, and that's the more jumbled flows. On the extremes,

you have continuous and project. Continuous is where things are going to be even more

extreme than linear, in the sense that they are going to flow on a continuous basis, and then you

have the line which is a linear. The small batch and the large batch which is next, they represent

the intermediate between the line and the job shop, so they are neither linear nor jumbled. The

job shop is where you have different types of departments that are okay with dealing with

different types of customers, it's not dedicated, then finally, you have a project which is dealing

with just one customer. There, the sample size or the number of customers for which the

product is being built or being catered to is one, so it's a very unique product that you're giving

to a customer. Let's go through a few examples of each of these different types to get a better

sense of what these different process types actually mean, what they are.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

For the first one here, you have the example of a project. This is what we talked about in the

previous slide as being one unit being built for a customer at a time. Here, you see an example

of an airplane that is being developed. This is in its R&D phases and it's being developed

one at a time. This is where there are different people who are experts in different areas who

are coming together to where the airplane is located, and they're working on it to try out different

things. It's a unit of one, the experts: the people who are working on this particular product are

actually going to the site to where the product is being built. You can take this and think of other

examples of where you would be using a project type of configuration. For example, if you are

arranging a vetting, now that's a project. You have a unique product that is being done for a

particular set of people, and it's all the experts that are coming together. Making a movie is a

project, every movie is unique, it's a project, it needs process type of a project type because

there are going to be different experts coming together in order to get that project done. That's

one extreme of this spectrum of process types.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Next one, this is what we learned earlier as being the jumbled flow. You're looking at, here, six

different departments, four different products, and the four different products, the yellow, the

blue, the green, and the red have a different sequence in which they go through these six

different departments in order to get into a finished product. The circles here represent raw

materials, these represent the start of the job, and the squares represent the finished product,

the finished service, or the finished goods that are being delivered to customers. Here you see

it's jumbled flows, this, again, it could be a product that's being built, the product that's being

assembled, that's being manufactured, or it could be, as we saw in that earlier example,

patients going through different departments in different types of patients requiring different

sequences, and some of them may even skip some departments if that is what is needed for

their particular treatment. This could be a service or a manufactured good.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Next is the intermediate one, the batch one. The best way to describe this would be, well, it's

neither a job shop and nor is it an assembly line. It's neither completely jumbled, nor is it

completely linear, it's somewhere in the middle. It's a job shop that makes a single type of

product at any point in time. Here you have an example of a cheese making factory. If you think

of cheese making, they make it in batches. They make a certain type of cheese. They may

make it from a job shop kind of environment and while they're making that they don't work on

anything else. They get that done, and then they move on to the other type of product. Now, you

can take a job shop and convert that into a batch kind of environment or you can think of a

linear arrangement and convert that into a batch type of environment. What do we mean by

that? You can have an assembly line that's making different types of products but let's say you

don't have enough volume to say that we're going to dedicate this assembly line to this

particular product, then you might say, well, we'll run this assembly line for a particular kind of

product for a few days and then there's going to be a long changeover and then we're going to

run something else. If you think of, let's say, different types of pharmaceuticals that are being

made on an assembly line, they might be being made in batches. You don't have enough

volume of a particular kind, you run a certain type of a pharmaceutical, a certain type of

medication on it, and then you pause, you clean, there's going to be a thorough clean up, a

thorough scrubbing off the assembly line before you can move on to the next kind of drug or

medication that you're making on the assembly line. That's going to be a batch kind of a process

for you. It's in the middle of a linear versus a job shop.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Next, we come to what we may be most familiar with and that is this division of cars moving

down in assembly line. Or when you're talking about computers being assembled, people sitting

next to each other and passing it on after doing whatever little task that they're doing. It's people

who are doing a little part off the whole task and then it's being moved to the next task. This

could be just looking at those two examples. In the case of a car, it's a machine paced assembly

line. In the case of an assembly of a computer, it might be a human paced assembly line. I do

my job in terms of whatever little task I'm supposed to do, whatever little part I'm supposed to

put in for the assembly of this computer and pass it on to the next person. I physically pass it on

and they pass it on to the next person and so on and so forth. That might be the way in which

these things get accomplished through a manually paced assembly line or a machine paced

assembly line. In the case of cards, it's a machine paced assembly line. Now, as you're thinking

about these different types of configurations, you can think about the car being made from a

different type of a process configuration as well. It could be made from a job shop kind of

configuration. It's not that you are always going to make a certain product from a certain type of

process configuration, there might be contexts in which you would use one or the other. That's

what we're going to talk about in this lesson. What are the advantages and disadvantages?

What are the implications of choosing one process type over another?

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Finally, let's look at this extreme of the spectrum of process configurations. Here we're looking

at a process that is generally called process industries. We call it process industries, because

it's a continuous process. The products that get made in these kinds of industries are petroleum,

for example. You have fertilizers that get made in plants. What is a characteristic of this type of

process? It's very highly automated. You start the petroleum plant and it's a refinery that's

making product from crude. You rarely stop it. You stop it maybe once in a year to do some

maintenance and it's a huge deal to have to stop it and then to restart it again. That's what we

call the continuous flow. A lot of p times it's called process industries when you're talking about

these types of process types. Process industries have a continuous flow type of process.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Lesson 2-1.4: In-Video-Question: Selecting Process Configuration

Right, now what I'd like you to do is take these concepts and apply them on your own. So, take

the idea of a fast food restaurant that you might be familiar with. And a sit-down restaurant that

you're familiar with. Now, you may have seen this context being used when you're talking about

order winners and qualifiers. And you're talking about, what do customers care about. But now

we're talking about what kind of process arrangement might be needed for these two types of

restaurants. One is a fast food restaurant and one is a luxurious sit-down restaurant. So take a

minute and think about the different process types that might be needed. And then think of the

implications that it has for the kind of people that you would hire for. Whether you would be able

to get some of the production being done outside of that restaurant. So take a minute and think

about that.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

All right, so the obvious thing that you might have thought about for a fast food restaurant is

going to be some kind of assembly line, right? You're going to assemble the burgers in an

assembly line, or you are going to take something that has been sent to you ready from the

main supplier, and then you're just going to do the finishing touches for it. So, the original

product was produced in an assembly line, it was sent to to the store, to the restaurant, and it

was just zapped in the microwave or heated up in some way and and being delivered to the

customer. On the other hand, when you're thinking of a luxurious sit-down restaurant, you're

thinking of the chef, the sushi chef and different types of departments within that big kitchen for

that luxurious sit-down restaurant that's taking care of different aspects of the production of the

food for you. So here you see the contrast between these two types of process arrangements.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Now, let's place these on this diagonal that we looked at earlier. And if you think about it, you're

talking about the fast food restaurant having a line process. You're talking about the individual

means coming from a job shop. And just for completion sake, if you were thinking about the

other types of processes, desserts in a restaurant might be made in small batches, they might

be ready. You're making them and stocking them, you're not waiting for the customer's order for

them. On one extreme, you have wedding cakes that are being made by an artist. So they are a

unique product that's being put together by a cake artist. And finally on the bottom extreme,

you're looking at a sugar refineries. It's making a food product that's coming out of a continuous

process. So hopefully what you've seen here is the spectrum that you can have a different

process types for the same industry. So here we're talking about the food industry and different

types of process types based on what the customers desire.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Lesson 2-1.5: Implications of Process Configurations

We've looked at these different types of processes. So going from project to continuous flow,

let's take a look at the implications of each one of these in terms of what we care about from an

operations strategy perspective. On the left most column, you have the features of each of

these different process types. The first one is flow. Now in a project type, so if you're thinking

about making a airplane that is being made at one spot instead of on an assembly line, there's

pretty much no flow. Now if you think of a wedding that's being planned, there's no flow of

activities. It's basically being done at one spot. You could be thinking of the construction of a

bridge, a building. You could be thinking of an installation of a software for a particular company.

Let's say you're installing ERP software for a particular company. You have to go to the site of

the customer and install it. It's a project that's being done at the customer site. There's pretty

much no flow. Moving through the different process types. Job shop, there's going to be jumbled

flow. We saw that in some of the previous slides. On the other extreme you're going to have the

assembly line and the continuous flow. The assembly line is going to have some connected

flow. There may be some passing of things that is happening between different tasks, between

different activities. Whereas in a continuous flow, it's going to be hard for you to even identify a

discrete unit of that particular product. It's petroleum that's flowing through the pipes. It's

fertilizer that's flowing through the pipes and going to the next step and getting done. In the end

coming out in terms of bags or tankers that are being filled up. Second aspect, flexibility. We

talked about this a little bit earlier. In terms of projects, you're going to have very high flexibility.

You're going to be able to arrange that wedding for that particular customer based on different

idiosyncrasies that they might have about how they want certain things to be done. That's going

to be easier for you in a project. On an assembly line, the way it's going to be designed is it's not

going to be designed to be very flexible. I'm jumping from the project all the way to the other end

of the spectrum, the assembly line to make the contrast between these two. In an assembly line,

you are going to set it up for making, for example, a certain type of car. In order to make a

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

changeover from that one type of car to another, it's going to be difficult. It's a different matter

that there are companies that are working on that, on trying to get the advantages of the

assembly line and have flexibility at the same time. That's kind of pushing the boundaries. But in

general, if you were to think of an assembly line, it's going to have low flexibility. Product types.

Going with flexibility in case of a project, it's going to be a unique product. If you're installing

ERP for a customer, you are taking care of their unique needs when you're installing that

particular software for that customer. It's going to be very unique for that customer. On the other

hand, on the other end of the spectrum, if you look at the assembly line, there are going to be

few product types that are going to be made from that particular assembly line. The reason you

have it in the assembly line is because these are products that require very similar activities

being done in exactly the same sequence and in very similar ways. In a continuous flow kind of

process, the product type is going to be one product that's going to be made from one process

that has been set up for that particular product. Next, expansion. If you're talking about the

project type of process configuration. Again, think of a wedding that is being planned or an ERP

installation or taking care or developing a prototype for an airplane. The expansion of the activity

is going to be gradual in the sense that you can add more resources little by little. You can add

one more person. If there's more work that needs to be done for that wedding or that software

implementation. You can bring in an extra expert when you need for developing that aircraft that

you're trying to develop. On the other hand, when you think of the assembly line, the other

extreme of this, expansion for an assembly line usually happens in chunks. If an assembly line

is setup to make 10,000 parts a day. Going from 10,000 parts a day to 11,000 parts a day is

going to be tough. You're not going to be able to add a little bit of capacity. The way that

assembly line is going to be built, you might be able to go from 10,000 to maybe 15,000 or

20,000. It's going to be in chunks. Similarly, if you think about a continuous flow process, an oil

refinery, or a company that's making fertilizer. The expansion has to be done in chunks. It's not

going to be the addition of that little two percent extra that you want to get out of it. Let's take a

look at the human skills that are needed for each of these different process types. In a project,

you might have people who know different aspects of the project. You might need people with

broad human skills, with broad skills that are dealing with what the project is doing. Or you might

have very specialized skills and you might just bring them in for that particular activity and for

their particular expertise that is going to have an impact on that activity. If you're talking about a

prototype for a plane, you bring in an expert on the equipment that is being used for navigation.

Then they do their job based on their expertise and they don't really pay attention to any of the

other aspects of building the aircraft or the prototype for the aircraft. That would be a very

specialized kind of skill. Or you might need some broad project management skills for the

project manager who is managing the project, who has some sense of all the activities that are

needed. Once you move on beyond that, again, it becomes a set of competencies going from

broad to specialized. In a job shop, you'll need people who have broader skills. That's the

advantage of a job shop that people are able to go through different departments and get things

done. They are able to fill in when there are different needs for the different departments in a

process, different activities in a process. On the other hand, if you're talking about an assembly

line, you might think of a person who is specialized in doing that little task. If you are familiar

with, for example, the movie Modern Times in which there was Charlie Chaplin. You're talking

about Charlie Chaplin working on a very specific part of that assembly line. He's an expert in

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

doing only that part and doesn't even know anything about what the next task is or the previous

task is doing. That would be the extreme of specialization in terms of an assembly line

configuration. You have very specialized skills. They may be very skills that do not need too

much training when you're talking, when assembly line. For a continuous flow, you might have

specialized skills that we specialize in a different sense. You might need experts who know how

to assess if there's something that's going wrong with that petroleum refinery. You need

specialized skills, but specialized from the point of view of being very educated in a particular

area. It's less physical, more kind of intellectual skills that are being needed for a continuous

flow kind of environment. Finally, volume, this should be an easy one to look at implications

because the project is built. A project type of process configuration is put in place for making

one unit at a time versus when you're talking about a assembly line or a continuous flow. These

are meant to be high volume. These are meant to be making many, many products a minute,

many, many products an hour, so many, many units of a product an hour. I should say not many

products. In fact, they're quite the other extreme, they're making one type of product in very high

volumes. An assembly line or a continuous flow is making one type of product in very high

volumes.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Lesson 2-1.6: Process-Product Matching

Now let's turn our attention to what all this means in terms of what types of customers are being

served. So if you look at a job shop, it's catering to customers that care about high variety and

are not looking for too much volume. And on the other extreme, if you're looking at a line, you're

looking at customers that do not care too much about variety but one high volume. So here we

can build a diagnal that says if you are on this diagnal it's a good fit between what the product

market is looking for and what the process arrangement is. And typically we think of a position

of the diagonal as a a bad fit. Now what you should think about is that the conventional way of

thinking that going off the diagnosed as a bad fit. You can take a different perspective of of this

idea of going off the diagonal and say that what if we could use a line environment and at the

same time produce high variety at a high volume and be able to give the customer what they

want. So we're moving away from the diagonal in the sense of well, it should have been a job

shop from the point of view of high variety. But what if we could get both of those advantages.

Take that compromise away, take that trade off a way based on process configurations. So I

want I want you to think about is is although this is a conventional way of thinking, you might

want to be thinking about pushing the envelope and trying to go to that other side of making that

compromise and saying why should we have that compromise? We might be able to get some

kind of a cumulative capability in which we can we are able to offer the customer both these

aspects, they can get high variety at the same time they can get the advantages of high volume

through lower costs.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

So just to give you some practical examples, some examples of processes out there where they

had these different kinds of combinations. So the first example that you're seeing over here is of

a specialized hospital. So this hospital is following the conventional diagonal that you saw

earlier which is it saying that we're going to focus on high volume of a particular kind of

procedure. So this is shouldice hospital that deals with a hernia repairs. So it deals with one

kind of ailment and it focuses on a certain type of hernia repairs. So it's even more specialized

than looking at different types of hernia repairs as focuses on one. The idea being that it gets

the same types of patients. It has the same types of of procedures that are needed, generally

speaking for all its patients and it's able to do it very efficiently. Customers are happy, they're in

and out very quickly, patients are happy they're in and out quickly and they are able to to

achieve all of this at a low cost. So that's an example of having a process that is built exactly for

what the requirements of the customers are.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

You can think of businesses that require different process arrangements under the same roof.

So the best example for you to think about in my opinion would be a bakery. A bakery that

makes breads but also makes pastries and also gives sandwiches to customers. So when you

think of that kind of a bakery, and you think of the process arrangements that they might have if

they are making their own bread and it's it's bread that is produced that is demanded at high

volumes. They might be making it on an assembly line, on a line process. May not be an

assembly line but a line process where it's dope getting in from one end of the process at the

start of the process and getting converted into bread. And getting packed into polyethylene bags

that are going to customers. So it's almost like a continuous process that we're talking about for

making breads. And then you're talking about pastries that might be more of a job shop process

or a batch process or a combination of those two. You might make the base for the same types

of pastries from a more of a batch process. And then maybe if there are pastries that each one

of them is being worked on, that might be more of a job shop process. Similarly with cakes,

those are going to be from a job shop process, because you have to customize them based on

the message that a customer might want on on the cake that their purchasing from you.

Sandwiches would also be similarly a job shop process. So what you have is under the same

roof multiple process arrangements.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Now, you can also have this this idea of offering high volume to a customer and at the same

time customization by having a split process. So Ralph Lauren shirts, they make their shirts,

they stitch their shirts to a basic shirt from a line process from a high volume line process. And

then they customize it based on monograms and the type of polo monogram that you want on it.

And and if you want your initials on it, those parts get customized right at the end. So it's a

combination of a line and a job shop process.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Another example of a company that uses two different types of processes for the same product.

So this is Harley Davidson motorcycles. What Harley Davidson does is they make motorcycles

that are sold to you in the store where you can go and pick up a motorcycle, but they also make

customized motorcycles. The customized motorcycles are made using a job shop kind of an

arrangement. So it's one person who is dedicated to making a particular motorcycle and takes

that particular motorcycle through the different departments to get the motorcycle completed

and then puts his or her signature on it as being assembled by that particular individual. So

that's your customized motorcycle from Harley Davidson and under the same roof they have the

standard motorcycles that are made that are being assembled on an assembly line. So that's

where you have the standard motorcycles that you see in the showroom. So what you see here

is examples of using different types of processes based on what kind of competency the

company is trying to achieve, which is based on what they are trying to offer to customers in

terms of what the customers might desire in terms of how can you win their orders based on

what they need.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Lesson 2-1.7: Selecting a Process Configuration

So in closing, you can think of process arrangements from three main perspectives. One is if

you're thinking about a job shop kind of environment, it's focusing more on the processes. It's

focusing more on the activities within the process that are being arranged. So it's by

arrangement of the activities, by arrangement of the processes. If you're thinking about a a line

kind of arrangement or a continuous kind of arrangement that is focusing more on the product.

You're saying each product is going to be made on a different process arrangement and so

that's more of a product focus. Second, you could be thinking from the perspective of do we

make products that are customized for customers or so they are made to order? The made to

order products are typically going to come from more of a job shop kind of environment. Or

maybe a small batch kind of environment, because you need to customize product for whatever

customer needs are. On the other hand, if it's a standard product and you can make it to stock,

then you're going to use more of a linear kind of a process. So you're going to go more towards

that end of the spectrum. It's going to be more linear. If you think about stages in the life cycle of

products, you might start off with a new product not having enough volume to be able to justify a

dedicated line for producing that product, right? So, initially you might start off with with a job

shop kind of environment, move towards a line when you get into high volume. And then once

the product matures in its life cycle, and it's demand starts to decline in that particular version,

you might relegate it back to a job or a batch kind of environment. So that's how you can think

about different process types. Other than thinking about it from what does the customer want,

you can think about it in these kinds of dichotomies as well.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Lesson 2-2: Process Mapping

Lesson 2-2.1: Process Mapping

What is process thinking? Process thinking is viewing and planning organizations in the way

that work is done. The way workflows horizontally from one activity to another, from one

department or function to another. In this way, process thinking is different from focusing on the

vertical departments and functions like marketing, analytics, purchasing, finance, HR

management, operations, accounting, etc. The horizontal processes cut across the verticals in

an organization.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Now, take a few examples of processes here at Gies. Admitting students requires steps or

activities from providing information about admission requirements, accepting applications,

assessing the applications, and then sending out the decision letters. Scheduling classrooms

requires steps of collecting information about room capacities, getting requirements from

different departments, allocating the rooms and the times. Applying to the business accelerator

program iVenture requires similar to Gies admissions, inviting applications, getting expert

entrepreneurs to assess the applications, and then providing decisions.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

In any business for that matter, any organization, there are processes for doing work. Hiring

employees requires creating job descriptions involving HR, and the department which is looking

to hire that person. It requires screening, interviews, offers, negotiations, contracts, onboarding.

Manufacturers that make products such as cars or medical equipment may need to recall

products due to defects and have a process that involves regulators such as the National

Highway Traffic Safety Administration or the FDA, Food and Drug Administration, and internal

departments including Legal and R&D. Similarly, preparing financial reports such as

quarterly statements, calls for steps or activities for collecting the information, verifying, finalizing

the reports that can be used either for reporting or for analysis. Overall, any work requires a set

of activities, a process, and processes are all around us.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

A process map is a schematic, it's a visual, it's a drawing, a graphic, a diagram, or a chart. It

depicts the activities in a process or the steps in a process. Once you see how you can do it, it

can serve as a starting point of discussion. Does someone else see differently? Should the

process be run differently? Are there improvements that we can make to the process? There

are many templates for process maps. Organizations adopt these templates so that there is a

common language. Some popular examples of such templates are swim lane diagrams, value

stream maps. Now such templates may have different focuses. The swim lane focuses, for

example, on showing hand-offs, and the value stream focuses on flow of the product and on

value added at each step. Another type of process map that is popular are flowcharts that are

used for programming purposes.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Although there are many templates for process maps, some symbols are common. Activities are

usually depicted in rectangular boxes, stocks of inventory, or people waiting in line are depicted

as triangles. Sometimes the triangle is upright, sometimes it's reversed, and arrows typically

depict the direction of flow of the product or customers if you're talking about a service process.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Here is an example, a made-up process for manufacturing goods, where you can see the

triangles are showing stocks or inventories at three stages. Now, these inventories could be raw

materials, work in process, and finished goods. There are four activities at different stages of

this process, and it's also showing you the product flow. Now here we see that there are two

parallel sets of activities. One has only activity A, and one path has activity B, and activity C.

This shows that B and C are being done in parallel while A is being done, and then activity D

combines what comes from the two paths.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Here is an example of a service process. This shows the steps and also it separates the

customer facing steps and the backroom steps in a coffee shop.

Let's try our hand at mapping a process that we can all relate to, a drive through window at a

fast food restaurant. Now, visualize the activities from the perspective of the restaurant. We'll

start from when a customer drives up to the window to when the customer leaves with the order.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

First, the customer enters the line, the queue, then reaches the kiosk, which has the menu and

the microphone and speaker. The employee greets the customer, employee receives the order,

confirms the order, and the amount, asks that you drive up to the pickup window. The food and

drinks are being prepared in the background while another employee takes your payment. Next,

you wait a minute or two, and then the employee gives you your food and drinks, and then the

customer leaves. Now, in a service process, the line of visibility depicts the customer facing and

the backroom parts of the process.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Drawing this process map has hopefully given you an idea of how to draw such a map. It must

have also raised some questions in your mind, no doubt. How detailed should this be? Can I

add data about times? How do I handle it when there are different types of customers who want

different things? What happens when there are errors in the process, when somebody has

given me the wrong order and I have to go back? These are all good questions that a process

map is meant to bring out, it's meant to evoke those questions. A process map is a good

starting point for analyzing a process.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Some things to think about before you map a process. First, decide where does the process

start and end? Be specific in terms of whether it is starting when the customer enters the store,

or gets in line, or when the customer reaches a register. Now you can decide based on your

purpose of that mapping exercise. For a product, it could be from when a customer placed an

order, or it could be starting from when the production process started.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Second, identify and sequence the activities, depicting the parallel ones in a separate

sequence. Third, decide how detailed you want the map to be. You can combine or breakdown

activities based on how granular you want your process analysis to be.

Fourth, plan for the process metrics you want to measure.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Fifth, draw the process map or the chart based on what you have decided for the level of details

and the level of the metrics.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Now here are some examples of processes that also include what is the flow unit? The flow unit

is the thing that we are tracking through a process. It's the unit that is flowing from start to end,

and the starting and the ending points. First, orders being received and product delivered.

Second example, customer complaint received and issue resolved hopefully to the satisfaction

of the customer. Third, is a new product development process, starting from the product need

being recognized by the customer to a prototype being created by the company. Fourth, it could

be cash, that is from expenses to receipt. You spend the money and then you receive the

money, you spend the money to make the product and then you received it from the customer.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Now these are examples with different flow units and specific start and endpoints. In closing,

processes are everywhere around us and every process can be improved.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Lesson 2-3: Metrics to Assess Performance

Lesson 2-3.1: Metrics to Assess Performance

Let's see how we can analyze a process, and here we will treat the process as a closed box.

We will analyze the entire process as a whole, and analyzing a process requires using a set of

process measurements.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Throughput time is a metric that can best be described as starting your stopwatch when a unit

starts in the process and stopping your stopwatch, the unit exits the process. Throughput time

does includes when something is happening to the unit. For example, a cookie that is being

manufactured or a customer that is placing an order, and it also includes when cookies or

customers are waiting between activities. When there are parallel paths like when the top and

bottom cookie for a sandwich cookie are being baked while in parallel, the vanilla cream that will

be sandwiched as being made. The longer of the two will impact the throughput time.

Throughput time is measured in seconds and minutes for short or high-speed processes, and it

could be measured in days and even months for longer processes.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Here are two examples of throughput time, and you can use these to visualize its measurement.

Now, let's say you're standing outside the Jarling's Frozen Custard Shop on Kirby Avenue, not

far from the Gies College of Business. You can visualize using a stopwatch to measure the start

and end time of a car entering the drive-through and the car leaving the drive-through. In this

example, that is 4.5 minutes. Similarly, starting the assembly of a Subaru SUV, timing the

assembly line from task 1 to when the finished SUV rolled off the assembly line is 17.5 hours.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Metric of cycle time can be visualized as standing at the end of the process and using a

stopwatch to measure the time between Unit 1 and Unit 2 or Customer 1 and Customer 2

exiting from the process. Now, this is a time interval, so unit of measurement is still days, hours,

minutes, or seconds. The definition says average cycle time here because this time is

calculated based on one or more units getting through the process together. For example, two

cars from two lines at the drive-through or five assembly lines outputting five cars at a time. The

metric of cycle time accounts for such multiple units and takes the average time. In fact, most

commonly, process metrics are calculated based on averaging. First to allow for multiple units

together, and second, to allow for variation. Cycle time of one minute and three minutes will

average to two minutes.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

To help clarify the meaning of cycle time, imagine that you assess the time between two cars

leaving the drive-through of the ice cream shop to be 2 minutes, and the time between two

finished SUVs exiting the Subaru plant to be 1.5 minutes, 90 seconds. Now, here it can help to

note that a Subaru SUV coming off of the line every 90 seconds is not indicating how long it

takes for the SUV to get assembled. It takes much longer to assemble that SUV. There will be

many SUVs at various steps, various activities in the process at any given point in time, and it

just so happens that in SUV is coming off the line every 90 seconds.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Flow rate. Flow rate is the rate at which units emerge. It is a rate measured as units of product

or customers per unit of time.

You must be thinking flow rate is related to the metric of cycle time, and you would be right, they

are both the reciprocal or the inverse of each other. Cycle time is time between units of products

or between customers, and flow rate is units of product or customer per unit of time. Inverse of

cycle time is flow rate. Inverse of flow rate is cycle time.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

In this example, the cycle time for customers at Jarling's Frozen Custard is 2 minutes. The flow

rate is 1 divided by 2, which is 0.5 customers per minute. Now, you multiply by 60 to convert to

customers per hour, and it gives you 60 per hour. The flow rate at Jarling's is 30 customers per

hour.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

In this example, the cycle time for SUVs is 1.5 minutes or 90 seconds, and the question is, what

is the flow rate? How many SUVs every shift, with the shift being eight hours. 1 divided by 90

seconds multiplying by 60 times 60 because we want to convert to hourly and then by 8

because we want to convert to per shift. You get 320 SUVs per eight-hour shift, and that is the

flow rate. We can say that the Subaru assembly line produces 320 SUVs per shift.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

The metric of flow rate is something that we all use commonly, perhaps without calling it flow

rate. You can think of flow rate as how much is being produced per unit time, or in terms of how

much can be produced per unit time. Think of it as observed capacity or potential capacity of a

process. Flow rate is analogous to capacity.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Putting the three metrics together for the process, treating the process as a box, putting them

together, throughput time is total time elapsed from start to end. Flow rate is units per unit time.

Cycle time is time between units. It's the inverse of flow rate. Most commonly, all these metrics

are used in terms of their averages.

To give another example of a car wash, we are treating the different steps in the car wash. The

pre-wash, the soap application, the water runs, the drying of the car, all the steps. We're treating

them as one overall process. It's a box process.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

You can visualize the process in this way.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Turning to the process metrics for this car wash process, the throughput time, time from coming

into going out is 5 minutes. Now, here it is important to observe that we can have multiple cars

in the car wash. They can be at different activities, one can be at the pre-wash stage, another

car maybe add the rinsing stage, and a third car may be at the drying stage. Regardless, the

entire process for a single car takes five minutes. That's the throughput time. Next, the time

between two cars exiting this car wash. Now, here that's the difference between any two

consecutive cars, and to drive-out times that you want to take from this table. The difference is 3

minutes. This is the cycle time, time between two units. Now, note that in this car wash, this time

is constant. That is, all the times between cars are 3 minutes. It does not always have to be the

case, and that is why we say average cycle time, which would be averaging of all the times

between exiting cars in a sample of observations. Again, here a car is exiting every three

minutes. The flow rate is going to be the reciprocal of the cycle time. That is 1 divided by the

cycle time, 1 divided by 3 minutes gives us 1/3 car per minute. Multiplying 1/3 by 60 gives us 20

cars per hour. The flow rate is 20 cars per hour.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Now, the question you might be asking is, why are these process measurements important?

How are these metrics even relevant? Throughput time is relevant because it tells us how much

time from start to finish. Also commonly thought of from a customer perspective as lead time.

You can tell a customer that they should expect to take that much time to go through the

process or that their order for a product, will take that much time once they place an order.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Flow rate is commonly the capacity. It identifies how much the process can output, which will

dictate how much you can make and sell, how much revenue your business can make every

hour or day, or month.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Lesson 2-4: Little's Law

Lesson 2-4.1: Little's Law

Let's start with defining the metric of inventory as it relates to a process.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Inventory is the total number of units through the process at any stage before or in the first

activity of the process, in the second, or third activity, or as a finished product at the end of the

process. It includes raw materials that are considered to be within the process boundary, works

in progress that are anywhere in the middle of the process and finished products waiting to

leave the process. It is measured in whatever the flow unit is. For example, it could be number

of cookies. It could be kilograms of breakfast cereal. It could be number of patients in a health

clinic, or even the number of emails in your mailbox.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Little's Law relates the throughput time, time that passes from start to end for a unit, and the

flow rate, the rate at which units are being processed to the inventory, the number of units in

that process. Little's Law is represented by this short formula, inventory in the process, also

referred to commonly as inventory in the system, is throughput times times flow rate. Formally

stated, average inventory in a process is the product of average time a unit spends in the

process and the average rate of flow for that process.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

In order to illustrate Little's Law, we can check the relationships among I, T, and R from this

simulation of customers going through a process.

You will need a stopwatch for the simulation that can measure time in seconds, and you will

need to observe very carefully and count as I advance the simulation. The first thing you will do

is count the seconds that it takes the first customer to go through the process. The second thing

is counting how many customers are leaving the process every second.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

The process is this gray box.

The position of the start and end points of this box are important as you're going to be timing

people going through the process and counting people that are leaving the process, so focus on

the start and the end of this gray box. Your first task is going to be counting the number of

seconds that it will take for the first customer to go through. You will start the stopwatch when

the customer enters the gray box, and stop the stopwatch when the customer leaves that gray

box.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Here come the customers who are going to enter the process box. Get ready with your

stopwatch. Start the stopwatch when the first customer enters this gray box, stop it when the

customer leaves. Now, you should have the throughput time. The time that it took the customer

to go through.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

In the next click, when the simulation advances, you can see how many customers are leaving

the process in one second. Keep an eye on your stopwatch, and at the same time, count the

customers that are leaving.

Now, you should have the flow rate.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Next, you can observe how many customers appear to be in this box. Count the half at each

entry point and the half at the exit point as being one. What is the total number in this process?

That will give you the inventory. Now, you have the throughput time, the flow rate and the

inventory in this process. You can verify any of these metrics as the simulation advances on the

next click.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Now that you have the measurements, here they are, throughput time, three seconds, flow rate,

two customers per second, and in-process customers in that gray box is six.

This matches with the relationship that would be predicted by Little's Law. Six customers is

equal to 3 seconds multiplied by 2 customers per second.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Here's an example to observe the relationships predicted in Little's Law. There is a one lane

tunnel. First piece of information is cars enter and leave at one car every five seconds. The

second piece of information is it takes 20 minutes for a car to go through the tunnel. The

question is, how many cars are in the tunnel at any time? That is, if you were to take a snapshot

of that tunnel, pausing the tunnel video so to speak, how many cars would you expect to find in

the tunnel?

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Here's that scenario depicted in a diagram. Now, the intuitive computation that you might have,

even without knowing Little's Law, is how many five seconds are there in 20 minutes? Because

a car enters every five seconds, takes five minutes to go through. This calculation works out to

240. Now, based on Little's Law, throughput time, or T is 20 minutes, flow rate, or R is 1/5 of a

car every second or 12 cars per minute. Note that we have to have the metrics in matching

units. Throughput time was in minutes, and that required that we convert flow rate into cars per

minute. Now, using Little's law, inventory, I, is equal to T times R, which also gives 240 cars.

Here you can observe the units for each of the metrics, and note that minutes multiplied by cars

per minute gives a result that is in cars.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

We can apply Little's law to a question of customer retention. Here, the data provided is for

three cell phone companies. These are made up names, but they may be similar to some

names that you know for cell phone companies. The first company is K-portable, the second

one is Remarkable, and the third one is Horizon. We have the size of the market in average

number of subscribers, and we have the churn rate. This is a marketing term which is used to

calculate the percentage of subscribers joining and leaving that cell phone company each

month. The question is, how long does a customer stay with each cell phone company?

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Here's a visual of the question. Translating this information in terms of inventory, the number of

customers, and flow rate, churn rate, which we need to adjust to number of customers per

month, so we take three percent of 11.42, that gives us 0.342 million per month, and so on for

the other two. We can get the average time and average customer stays with each of the three

cellphone providers. We take the formula I equals T times R and calculate for T. T is equal to I

divided by R. You can see here that Horizon customers are retained for the longest period of

time on average.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

We can use Little's law to decide the rate at which customers are checking out from the

supermarket. Here, the average customers in the store is 100. Inventory or I is 100 customers.

Average time spent by a customer in the grocery store, in the supermarket, is 30 minutes.

Throughput time or T is 30 minutes. The rate of checkout is going to be R, which is I divided by

T. 100 divided by 30 gives us 3.33 customers per minute, and that is 200 customers per hour.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Little's Law can be used to determine the seating space needed in a restaurant that is based on

the number of customers that are in the restaurant if you know the rate at which customers visit

the restaurant and the average time a customer spends in the restaurant eating their meals.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Here, the flow rate is given to us as 150 customers per hour and customers spend on average

20 minutes in that space. How many customers on average in the restaurant? I equals R times

T. We convert the 20 minutes to hours by dividing it by 60. This is done to match the units for

the flow rate, which is customers per hour. The answer shows us that you need to plan for 50

customers to be seated in the restaurant. If you're planning for how many tables and chairs,

you're planning for 50 customers to be seated in the restaurant.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Here are several examples of using Little's law to calculate one of the three components from

knowing the other two. You can see the applicability of this calculation in a variety of scenarios

with a range of speeds of processing from a fast-moving process in a factory where the flow

units are semiconductors to the question of a slower moving rate for sales of houses in a real

estate example. The formula for Little's law enables us to calculate the third component from

knowing two components.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Now, Little's law applies under certain conditions. First, that units arrive and leave at the same

rate. The flow rate is input rate as well as the output rate. Second, there's no loss of units in the

process. All units that enter the process or the system also leave it. Third, the inventory in the

system or in the process is constant. There's little variation in the amount of inventory in the

process. Fourth, the age of the inventory, the number of days the units stay in the system, or the

number of minutes the units stay in the system or the process does not vary much. Now you

might say these assumptions seem restrictive and somewhat unrealistic, but you can take a

positive perspective of these assumptions. They provide ideals to aspire to. That is, you want to

get as close as possible to making these assumptions hold. Let's take them one at a time. The

first one translates to having a smooth flow rate. The second one translates to reducing the

waste or the scrap in the system or the process so that you reduce the need to reject and throw

away units being produced. That would be a good thing. Third, also has to do with a steady

work rate. The fourth assumption, you use first-in, first-out. You prioritize based on time of entry

in the process or system. Customer who walks in First is being catered to first, second, second,

so on and so forth. In other words, the assumptions for Little's law also provide good target

conditions for making process improvements.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Lesson 2-5: Activities Within Processes

Lesson 2-5.1: Activities Within Processes

Let's see how we can analyze the process. And here we will focus on not just the entire

process, but on the individual activities that are part of the process. The steps that are in the

process.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

We will use measurements of individual activities and steps, and we will study their relationships

with each other. And their impact on the performance of the entire process.

Introducing the first metric for an individual activity, processing time. Processing time is the time

it takes to get that activity done. So, it could be for example that I bake cookies in 12 minutes.

That's the processing time. Note that it takes 12 minutes to bake a batch of cookies. However,

processing time is just that 12 minutes. Whether we bake one cookie, or we bake a batch of any

number of cookies that's possible, it's still 12 minutes. It is measured as time, so in minutes,

seconds etcetera.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Capacity of an activity is measured as a rate number of units of product, that can be processed

per unit of time. Now, this will be affected by the number of units that can be processed

simultaneously. So a batch of eight cookies that takes 12 minutes to get done in one oven,

gives us a capacity of that baking task to be eight divided by 12. So two third or 0.67 cookie per

minute. We multiply by 60, it is 2/3 of 60, so 40 cookies per hour. Now, if we have two ovens

that can bake cookies simultaneously, eight in each oven. Then the capacity doubles, it is now

80 cookies per hour.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Note here that the processing time for baking remains 12 minutes. The baking time does not

reduce whether we bake one cookie, or we bake 16 cookies and two of its

using an example of taking birthday cookies. This process consists of three activities three

steps. First, roll out and shape a cookie, second, you bake and this is making eight out of time.

Third, we wrap each cookie in an individual rap.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

As a side note, this process uses a wrap made of biodegradable paper, that protects the cookie

and has minimal impact on the environment. Now let's put processing time for each of the three

activities on this process map.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

So 3 minutes, 12 minutes and 1 minute. Use these activity processing times to calculate the

capacity for each activity. Number of cookies produced simultaneously divided by the

processing time. So 1 divided by 3, gives us 1/3 per minute or 20 per hour. 8 divided by 12

gives us 40 per hour, or you can say 5 batches of eight per hour. Wrapping the cookie has a

capacity of one per minute, so 60 per hour.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

What's the bottleneck? A bottleneck is an activity among activities in the process that has the

smallest capacity. The bottleneck or bottlenecks, if there are more than one with that same

smallest capacity, determines the flow rate of the entire process. The bottleneck activity in the

process, is like two lanes on the street being reduced to one lane, the capacity of that street.

How many cars can pass through per hour is going to be based on the one lane portion of that

street. It is worth noting here that the bottleneck is based on the lowest capacity activity, and not

based on the largest processing time often activity.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Using an example of making cookies to demonstrate the idea of a bottleneck, you see here

three activities with their processing times given. And their capacity is calculated, we can

identify the bottleneck activity based on the lowest capacity. So with the capacity of 20 per hour,

the first activity of rolling out in shaping cookies, is the bottleneck activity. The flow rate of the

entire process is based on the capacity rate of the bottleneck activity. The process can produce

cookies at the rate of 20 per hour. It's worth noting here that comparing processing times, you

can see that baking has the largest processing time, and here it is not the bottleneck.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

How many people or machines or people machine combinations or teams we have at each

activity. That is what we can define as the number of resources at each activity. For a cookie

baking process, we can observe the different employees baker rapper, anyone else. The

equipment, the oven, the rolling pins and these types of things as resources.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Let's see the impact of changing the number of resources. Here we're adding a resource at the

bottom like activity which is the first activity in this process. So let's say we install another station

and hire an employee and provide a rolling pin and cookie cutters etcetera. The other activities

still have one resource each. To generalize the calculation as a formula, the capacity of each

activity is the number of resources. Multiplied by the number of units being worked on

simultaneously by a single resource. And then we divide that product by the processing time. So

here for activity one that is 40 per hour, for activities two and three using the same formula, we

get 40 per hour and 60 per hour.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

What is the flow rate of this three activity or three step process? We need to identify the

bottleneck that is based on the lowest capacity, here we have activities one and to both of them,

with activities of 40 per hour. So the flow rate for this process is going to be 40 cookies per hour.

The process flow rate calculated based on the capacity of the bottleneck activity, basically gives

us the process capacity. Absent of any other information, we can say that process can produce

at this rate per unit time, so cookies per hour or cookies per day etc.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Lesson 2-6: Capacity Utilization

Lesson 2-6.1: Capacity Utilization

The metric of demand rate is based on the demand which comes from outside the

process, demand comes from the customer of the process. Now the customer of the

process can be an external customer, the final customer for your product or it can be an

internal customer. The next process in the production of the goods or services.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

When we have information on the demand rate, we can say that the process will flow at

the rate that is the lower of the two, the capacity of the bottleneck activity and the

demand rate. Basically what we're saying is that in cases where the demand is lower

than what the product process can produce, the process is not going to produce at a

faster rate than the demand rate.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

The metric of capacity utilization can be understood based on the intuition that utilization

is the ratio of what a process is doing to what a process can do. So in short doing

divided by can do. More formally the capacity utilization is the flow rate of the process

divided by the capacity of the process.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

In order to calculate the capacity utilization of this three activity process, we first identify

the bottleneck activity. The flow rate for the process based on this activity is 20 per

hour. Now we can calculate the capacity utilization for each of the activities. Again, the

flow rate of the process is 20 per hour, because we are basing this calculation of the

capacity utilization on the bottleneck. We are basing it on the fact that the bottleneck is

a 100% utilized. Activity two, 50% utilized and activity three, 33% utilized.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Now here is the three activity process with processing times and resources. The

additional information here is that the demand rate is 18 units per hour, customers are

demanding this product at 18 units per hour. What is the capacity utilization for each

activity? Because the demand rate is lower than the flow rate of the bottleneck, the

demand rate becomes the flow rate for the process. Here, the utilization is going to be

the flow rate of the process divided by the capacity of the activity. So activity one, 90%

and activities two and three, 45% and 30%. The activity with the lowest flow rate has the

highest utilization. The bottleneck has the highest utilization.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Some general observations about utilization of activities in the process. The bottleneck,

the activity with the lowest flow rate has the highest utilization. Increasing the flow rate

for the entire process requires to increase the flow rate also known as capacity of that

bottleneck activity or the demand rate, whichever of the two is lower. Because the

bottleneck constraints the process, it is important to get production to the extent of its

potential. As long as an activity is a non bottleneck activity, losing some capacity at that

activity will not affect the process capacity unless and until that activity capacity falls to

the level at or below the bottleneck capacity. Capacity changes may cause the

bottleneck to shift, may cause it to change.

Operations and Supply Chain Decisions and Metrics Professor Gopesh Anand

Capacity utilization can get impacted by any reduction in the realization of the capacity

because of stoppages or errors. Now, stoppages can be for changing over from making

one product to another, or they can be for things like machine breakdowns. Capacity

utilization is also impacted by the errors, by creation of product that has to be scrapped

by time taken by the errors that had to be corrected. Capacity utilization is also

impacted by variation in the performance of machines and the performance of

employees that are working on the activities.