BUSS211

OM

Lecture 2
Process Flow Management
Professor Kihoon Kim

Process Flow Management

Slide 1

Outline
Changing Sources of Competitive Advantage

Process Analysis
Operational Measures: Time T, Inventory I, Throughput rate R
Link through Littles Law
Link to Financial Measures

Which process should be improved first?

Management of Flow Time and Capacity

Critical Activities

Flow Time Efficiency

Sequencing Multiple Jobs

Single Machine Dispatch Rules

Two-Machine Flow Shop Sequencing

Process Flow Management

Slide 2

How can operations help a company compete?

The changing sources of competitive advantage

Low Cost & Scale Economies (< 1960s)

You can have any color you want as long as it is black

Focused Factories (mid 1960s)

Flexible Factories and Product variety (1970s)

Quality (1980s)

A car for every taste and purse.

Quality is free.

Time (late 1980s-1990s)

We love your product but where is it?

Dont sell what you produce. produce what sells.

Process Flow Management

Slide 3

We have already learned The Importance of Time

What is Toyota doing now?
All we are doing is looking at the time line from the moment the
customer gives us an order to the point when we collect the
cash. And we are reducing that time line by removing the nonvalue-added wastes.
-- Taiichi Ohno. Toyota Production System: Beyond Large-Scale
Production.

Lower flow time

lower Inventory, shorter response time to market changes.

Process Flow Management

Slide 4

Identify/Monitor Operational Performance Measures

(Average) Flow time T
The time a typical flow unit spends within the process boundaries

(Average) Throughput rate R

# of units processed per unit of time
e.g., dollars per year, customers per week

(Average) Inventory I
# of units within the process boundaries at any point

(Average) Process Cost

Cost incurred in moving a flow unit through the process
Process Flow Management

Slide 5

Link b/w Operational and Financial Measures

Improvement levers
Revenues

Profit

Economic
value added
(EVA)

Costs

Material
+
Labor
+
Energy
+
Overhead

Capital
invested

PP&E
+
Inventory
+
Other

Opportunity
cost

x
Weighted average
cost of capital

1.
2.

Increase price
Increase
throughput

3.
4.

Reduce costs
Improve quality

5.

Reduce capital
intensity
Reduce inventory

6.

Reduce time
Operational metrics

Financial metrics

Process Flow Management

Price
x
Quantity

Slide 6

Relating operational measures (flow time T,

throughput R & inventory I) with Littles Law

...

Inventory /

... ...

[units]

Flow rate (Throughput R)

[units/hr]

... ...

Flow Time T [hrs]

Inventory

Throughput x Flow Time

RxT

Inventory Turnover = Throughput / Inventory

= 1/ T
Process Flow Management

Slide 7

Littles Law applied to different process flow examples

Cash Flow: Motorola 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 cycle time?
Customer Flow: Taco Bell 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 Taco Bell and what is the average customer turnover?
Job Flow: The Travelers 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.
Question: A general manager at Baxter states that her inventory turns three times a year.
She also states that everything that Baxter buys gets processed and leaves the docks
within six weeks. Are these statements consistent?

Process Flow Management

Slide 8

Littles Law applied to different process flow examples

25% quit

4 patients/hr Patient
checks in

5 min

wait

2 patients

Initial
75%
doctor
consultation
15 min

5 min

Q: Will the service system be stable?

1.

2.

Total flow time

Quit:

Continue:

Average flow time:

Process Flow Management

Doctor
Requests
Tests for
patient

Slide 9

wait
1 patient

Nurse
takes
tests
30 min

MBPF Inc.: Applying Littles Law to Financial

Statements

Q: What is the total flow time from the

moment we put a dollar in the factory until we
get the offsetting revenues from A/R?

Process Flow Management

Slide 10

MBPF Inc.: Balance Sheet

CURRENT ASSETS
Cash
Short-term investments at cost (approximate mkt.)
Receivables, less allowances of $0.7 mil
Inventories
Other current assets
TOTAL CURRENT ASSETS
PROPERTY, PLANT AND EQUIPMENT (at cost)
Land
Buildings
Machinery and equipment
Construction in progress
Subtotal
Less accumulated depreciation
NET PROPERTY, PLANT AND EQUIPMENT
Investments
Prepaid expenses and other deferred charges
Other assets
TOTAL ASSETS

2.1
3.0
27.9
50.6
4.1
87.7
2.1
15.3
50.1
6.7
74.2
25.0
49.2
4.1
1.9
4.0
146.9

(Selected) CURRENT LIABILITIES

Payables

Process Flow Management

11.9

Slide 11

MBPF Inc.: Consolidated Statement

Net Sales

250.0

Costs and expenses

Cost of Goods Sold
Selling, general and administrative expenses
Interest expense
Depreciation
Other (income) expenses
TOTAL COSTS AND EXPENSES

175.8
47.2
4.0
5.6
2.1
234.7

INCOME BEFORE INCOME TAXES

PROVISION FOR INCOME TAXES
NET INCOME

15.3
7.0
8.3

RETAINED EARNINGS, BEGINNING OF YEAR

LESS CASH DIVIDENDS DECLARED
RETAINED EARNINGS AT END OF YEAR

31.0
2.1
37.2

NET INCOME PER COMMON SHARE

DIVIDEND PER COMMON SHARE

0.83
0.21

How long will it take to collect sales dollars from a customer?

Process Flow Management

Slide 12

MBPF Inc.: Inventory and Cost of Goods

INVENTORY
Raw materials (roof)
Fabrication WIP (roof)
Purchased parts (base)
Assembly WIP
Finished goods
TOTAL

6.5
15.1
8.6
10.6
9.8
50.6

COST OF GOODS SOLD

Raw materials
Fabrication (L&OH)
Purchased parts
Assembly(L&OH)
TOTAL

50.1
60.2
40.2
25.3
175.8

How long does it take for invested money for manufacturing to

leave the factory?

Process Flow Management

Slide 13

MBPF Inc.: Detailed Financial Flows

$60.2/yr

$50.1/yr

$6.5
Raw Materials
(roofs)

$40.2/yr

$25.3/yr

$110.3/yr

$15.1
Fabrication
(roofs)

$8.6

$175.8/yr
$10.6
$9.8
Assembly

$40.2/yr

Purchased Parts (bases)

Process Flow Management

Slide 14

$175.8/yr

Finished Goods

MBPF Inc.: Detailed Flow Times

Throughput R
$/Year
$/Week
Inventory I ($)
Flow Time T =
I/R (weeks)

Raw
Materials

Fabrication

Purchased
Parts

Assembly

Finished
Goods

50.1
0.96
6.5
6.75

110.3
2.12
15.1
7.12

40.2
0.77
8.6
11.12

175.8
3.38
10.6
3.14

175.8
3.38
9.8
2.90

6.75+7.12+11.12+3.14+2.90 >> 15 weeks (Why?)

Process Flow Management

Slide 15

Inventory = Rate x Flow Time

Flow rate R
($/week)
5.0

3.38

Accounts

2.12
Fabrication

0.96
0.77

Purchased Parts
11.12

Assembly

Receivable
Finished
Goods

Raw Materials

6.75

7.12

3.14

2.90

Flow Time T
(weeks)
Process Flow Management

Slide 16

5.80

How to Manage Flow Time and

Capacity

Supply Chain Management

Slide 17

Remind: Process is
Process
Management

Inputs

Network of
Activities and Buffers

Outputs
Goods
Services

Flow units/Entities
(customers, data,
material, cash, etc.)

Resources
Labor & Capital
Process Flow Management

Information
structure

Slide 18

Process is
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

Buffers with waiting flow times
routes: precedence relationships (solid lines) with throughputs

4. Resources & Allocation

- who does what?

5. Information Structure & flow (dashed lines)

Process Flow Management

Slide 19

How to Draw a Process Flow Chart

Decisions are represented by Diamonds.
The remaining activities are represented by

Rectangles.
Solid Arrow: Precedence Relationship between two
activities
Buffer: Triangle
Information flow: dashed arrow

Process Flow Management

Slide 20

Process Flow Chart Example (Pizza Delivery)

start

Take Order

Activity time:
Resource:

end

Bill

Activity time:
2
Resource: Jaqueline

Process Flow Management

Sauce Prep

Dough Prep

Spread

2
Jean

3
Jean

1
Jean, Pan

Unload &
Pack

Bake

Load & Set

timer

15
Oven, Pan

1
Jaqueline, Oven, Pan

1
Jaqueline, Pan

cool
3
Pan

Slide 21

Process Flow Chart: Resources and Capacity

D
30 min/job
Stan

A
Activity time:
20 min/job
Resource:
Kyle

E
C

20 min/job

20 min/job

Kenny

Eric

20 min/job
Timmy

How long will it take?

How much work can we do? / What is the capacity of the process?

Process Flow Management

Slide 22

How long: Theoretical flow time (TFT)

TFT: Time to complete the process assuming:
1. All activities are done at their average speed.
2. All resources are immediately available when needed. (no waiting time)

Look at paths through the process:

Here: A-B-C-E & A-D-E

Longest path (critical path) determines the theoretical flow time.

A-B-C-E = 20 + 20 + 20 + 20 = 80 min
A-D-E = 20 + 30 + 20 = 70 min
D
30 min/job
A

Process Flow Management

Stan

20 min/job

Activity
time:
20min/job

20min/job

20 min/job

Kyle

Kenny

Eric

Slide 23

Timmy

How much work: Theoretical capacity

Resource
Kyle

Unit Load
(time/job)

Resource Capacity
Unit Capacity

Process
Capacity

Resource
Utilization*

# of units

Total

3
jobs/hr

66.67%

20min/job 3 jobs/hr

Kenny

20

3 jobs/hr

3
jobs/hr

66.67%

Eric

20

3 jobs/hr

3
jobs/hr

66.67%
2
jobs/hr

Timmy

20

3 jobs/hr

3
jobs/hr

66.67%

Stan

30

2 jobs/hr

2
jobs/hr

100%

D
30 min/job
A

Stan

20 min/job

Activity
time:
20min/job

20min/job

20 min/job

Kyle

Kenny

Eric

* assuming system is processing at full capacity

Process Flow Management

Slide 24

Timmy

Process Changes: Impact on capacity and flow time

Process Change

TFT

None
Reduce the average time for activity B by 5
mins
Kenny and Eric work in parallel
Reduce the average time for activity
D(Stan) by 10 mins
Move 10 mins work from Stan to Timmy
Kenny is fired and Kyle takes over

Process Flow Management

Slide 25

Capacity

Process Changes: Impact on capacity and flow

time
Process Change

Concept

TFT

Capacity

None

Baseline

80 min

2 jobs/hr

Reduce the average time for activity B by 5

Work faster 75 min
min.

2 jobs/hr

Kenny and Eric work in parallel

Reduce the average time for activity
D(Stan) by 10 min.
Move 10min.s work from Stan to Timmy

Work
smarter

70 min

2 jobs/hr

Work faster 80 min

3 jobs/hr

Work
smarter

90 min

2 jobs/hr

???

80 min

1.5 jobs/hr

Kenny is fired and Kyle takes over

Process Flow Management

Slide 26

Levers for Increasing

Process Capacity

Levers for Reducing

Flow Time

Decrease the work content of

critical activities

work faster
work smarter
do it right the first time
change product mix

to non-critical path or to outer

loop

Process Flow Management

Slide 27

create flexibility to handle tasks

originally assigned to bottleneck
to non-critical resource or to third
party

Increase Net Availability

Reduce waiting time

work smarter
work faster
do it right the first time
change product mix

Move work content from

bottlenecks to non-bottlenecks

Move work content from critical to

non-critical activities

Decrease the work content of

bottleneck resources

work longer: increase scheduled

availability
increase scale (invest)
increase size of load
batches/reduce or eliminate setups
& changeovers
eliminate availability waste

Most time inefficiency comes from waiting:

Industry

Process

Average Flow
Time

Theoretical
Flow Time

Flow Time
Efficiency

Life Insurance

New Policy
Application

72 hrs.

7 min.

0.16%

Consumer
Packaging

New Graphic
Design

18 days

2 hrs.

0.14%

Commercial
Bank

Consumer Loan

24 hrs.

34 min.

2.36%

Hospital

Patient Billing

10 days

3 hrs.

3.75%

Automobile
Manufacture

Financial
Closing

11 days

5 hrs

5.60%

Theoretical Flow Time: the minimum amount of time required for

processing a unit without any waiting
Flow Time: Theoretical Flow Time + Waiting Time
Process Flow Management

Slide 28

Critical Path based on Theoretical Flow Time

Theoretical flow time = minimum time to transform inputs into output:

Consider the following ABC example:

Part A
production
C = Final
Assembly

1min/part A

Part B
production

3min/FA unit

2min/part B

What is the theoretical flow time of each path?

TAC =
TBC =

Critical path

Critical Activities =

Process Flow Management

Slide 29

Critical Path based on Flow Time

Average Flow Time = average time of transformation, including waiting time.

Part A
production

10

Part B
production

R = 1 FA unit/3min

C = Final
Assembly

1min/part A

3min/FA unit

2min/part B

ABC Example continued, but now assume that the ABC process is processing at the rate of R =
1 units/3min = 0.33 units/min and that there are two buffers with on average 10 units and 5
units, as shown in the picture. Given this setting:

average waiting time in the buffers is: Tbuffer part A =

Tbuffer part B =

And average flow time becomes:

Tpath B =

Critical path becomes:

Tpath A =
T =

Flow Time efficiency = Tth / T =

Process Flow Management

Slide 30

Sequencing Multiple Jobs

Supply Chain Management

Slide 31

Single-machine Sequencing
START

000

DONE

Each job can have a different processing time and a different

due date
"local" dispatching rules:
FCFS:
First-come, first-served
SPT:
Shortest processing time (first)
EDD:
Earliest due date (first)
CR: Critical Ratio =
(Remaining Proc. Time)
(Remaining time to Due Date)
The job with the largest CR goes first
Process Flow Management

Slide 32

Theoretical results
(If the processing times are deterministic)

SPT (Shortest Processing Time) minimizes:

mean flow time
mean waiting time
mean lateness

EDD (Earliest Due Date) minimizes maximum lateness

Process Flow Management

Slide 33

Two-Machine Flow Shop

START

000

000

Ai =

processing time of job i on machine A

Bi =

processing time of job i on machine B

DONE

To minimize makespan, optimal schedule is always a

permutation schedule (no passing)
Makespan: the total elapsed time from the start of the first job on
the first machine until the completion of the last job on the
last machine.
Process Flow Management

Slide 34

Gantt Chart (permutation schedule):

MACHINE A
MACHINE B

JOB 1

JOB 2
JOB 1

JOB 2
TIME

Process Flow Management

Slide 35

To Minimize the Makespan

Johnson's Algorithm

1. List Ai , Bi in two columns

2. Find smallest remaining value;
If in A, schedule i next (1st, 2nd, ...,)
If in B, schedule i last (last, 2nd-to-last, ...)

3. Cross off scheduled job, go to step 2.

Process Flow Management

Slide 36

Example of Johnsons Algorithm

job i
1
2
3

Ai
5
9
10

Bi
2
7
4

1. 2 in B so job 1 goes last:

1
2. Cross out row 1
3. 4 in B so job 3 goes 2nd-to-last:
3
4. Cross out row 3

__1

5. Done: optimal sequence is

231

Process Flow Management

Slide 37

31

Gantt Chart of Solution:

MACHINE A
MACHINE B
9

16 19

Makespan =

Process Flow Management

Slide 38

23 24 26

TIME

Summary: Sequencing Multiple Jobs

To improve mean flow time for a single machine
Do shortest-processing-time jobs first
10 or less items for a grocery store (Not 10 or more
items)

To minimize the makespan for flow shop

Do a job early if the job needs short processing time for
upstream operations
Do a job late if the job needs short processing time for
downstream operations

Process Flow Management

Slide 39