Chapter 2: Managing Processes Flashcards
Four basic process decisions
- process structure
- customer involvement
- resource flexibility
- capital intensity
Best understood at process or subprocess level, not firm level
Process structure
Process type relative to the kinds of resources needed, how resources are partitioned between them, and their key characteristics
Customer involvement
Ways in which customers become part of the process and to what extent
Resource flexibility
Ease with which employees and equipment can handle a wide variety of products, output levels, duties, and functions
Capital intensity
The mix of equipment and human skills in the process (higher cost of equipment relative to labor = higher capital intensity)
Process divergence
The extent to which the process is highly customized with considerable latitude for how it’s tasks are performed
Flexible flow
The customers, materials, or information moves in diverse ways, with the path of one customer or job often crisscrossing the path the next one takes.
Line flow
The customer, materials, or information moves linearly from one operation to the next according to a fixed sequence (standardized)
Front office process
High customer contact
Service provider interacts directly with customer
More flexible work flows
Considerable process divergence
Back office process
Low customer contact
Little service customization
Line flows
Elements of a product-process matrix
Volume
Product customization
Process characteristics (divergence and flow)
Generally higher customization = lower volume
Six sigma process improvement model
Define (scope and boundaries of process being analyzed)
Measure (specific metrics to determine what priorities are being met or missed)
Analyze (determine where there are gaps between actual and desired performance)
Improve (based on cost benefit analysis. Sets objectives for redesigned process)
Control
Also DMAIC process
Time study method of work measurement
Using a trained analyst to perform four basic steps in setting a time standard for a job or process
- selecting the work elements (or nested processes) within the process to be studied
- timing the elements
- determining the sample size
- setting the final standard
Has an allowance expressed as a percent of total normal time
Elemental standard data method
A database of standards compiled by a firm’s analysts for basic elements they they can draw on later to estimate the time required for a particular job.
Used when products or services are highly customized, job processes prevail, and process divergence is high
May include equations where time required is dependant on other elements of the job
Predetermined data method
Database approach that divides each work element into a series of micromotions that make up the element. The analyst then consults a published database that contains the normal times for the full array of micromotions
Best for highly repetitive processes
Learning curve analysis
Uses a line displaying the relationship between processing time and the cumulative quantity of a product or service produced
Shows how processing improves as operations learned
Process chart
An organized way of documenting all the activities performed by a person or group of people, at a workstation, with a customer, or on materials
Uses a table with information about each step in the process along with time estimates
Work measurement techniques
- time study method
- elemental standard data method
- predetermined data method
- work sampling method
- learning curve analysis
Categories of activities in a typical process
- operation (changes, creates or adds)
- transportation
- inspection
- delay
- storage
Annual labor cost
= time to perform process in hours x variable costs per hour x number of times process is performed per year
Checklist
A form used to record the frequency of occurrence of certain process failures
Process failure
Any performance shortfall (delay, error, waste, rework, etc …)
Histogram
A summarization of data measured on a continuous scale showing the frequency distribution of some process failure (central tendency and dispersion of data)
Bar chart
Series of bars representing the frequency of occurrence of data characteristics measured on a yes/no basis
Pareto chart
A bar chart on which factors are plotted along the horizontal axis in decreasing order of frequency
Helps show which process problems need to be addressed first
80-20 rule
Vilfredo Pareto
80% of an activity (particular issue) is caused by 20% of factors (individual potential causes of the issue)
Concentrating on these 20% can remove 80% of process failures
Pareto chart helps identify the 20% that cause most issues
Uses for a Scatter diagram
Can be used to verify (or negate) the suspicion that two variables are related
Cause and effect diagram
Relates a key performance problem to it’s potential causes
Aka fishbone diagram
Main performance gap = backbone
Major categories of potential causes = ribs (often use 6 Ms)
Under each potential category list all possible individual causes
List can then be investigated
Six Ms
Major categories in operations
Management
Labor
Method
Measurement
Machine
Materials
Process simulation
The act of reproducing the behavior of a process, using a model that describes each step
Questions to ask about process steps
- what is being done?
- when is it being done?
- who is doing it?
- where is it being done?
- how is it being done?
- how well does it do on various metrics of importance?
Also
- why is the process being done?
- why is it being done where/how/when it is being done?
Benchmarking
Systematic procedure that measures a firm’s processes, services, and products against those of industry leaders
Competitive benchmarking
Comparisons against a direct industry competitior
Functional benchmarking
Comparing areas such as admin, customer service, sales with those of outstanding firms in ANY industry who is exemplary in that area
Internal benchmarking
Using an organizational unit with superior performance as a benchmark for other units
key operational measures for processes
Flow time
Flow Rate
Inventory
Little’s Law
Average inventory = average flow rate x average flow time
I = R * T
or in the book
L = lambda * W
manager may work on getting one measurement to a target by changing the other two
process flow questions
- how many flow units pass through the process per unit of time (flow rate)
- how much time does a typical flow unit spend within process boundaries, including wait times (flow time)
- how many flow units are within the process boundaries at any point in time (inventory)
Flow rate
Also throughput rate
or lead time
number of units that flow through a specific point of the process per unit of time
when long run average inflow rate matches average outflow rate process is stable
denoted by R
Flow time
average total time a flow unit takes to undergo processes within process boundaries PLUS total waiting time
Denoted by T
Inventory
Number of flow units present within process boundaries
denoted by I
inventory = inventory from previous period + inventory accumulation rate
may also be looked at as work-in-process
inventory accumulation rate
Input rate at time t - output rate at time t
Using little’s law to find bottlenecks
calculate individual flow times for each section of a process to see which takes the longest
using little’s law to evaluate financial statements
if process is turning a cost dollar into revenue
Inventory = inventory on balance sheet (dollar value of what is in process: estimated average)
Rate = Cost of goods sold (what was processed this year)
I/R = average flow time = average time cash was locked in inventory (multiply by 52 tog et weeks)
could also do
Rate (throughput) = net sales
Inventory = average accounts receivable
flow time *52 = average weeks from sale to collection
inventory turns
aka turnover ratio
ration of throughput to average inventory = R/I aka 1/T
how many times the average inventory passes through the system. Higher flow time = fewer turns
Theoretical flow time
the minimal amount of time required for processing a typical flow unit, without any waiting (always the longest flow path)
can be measured directly via process flow charts which aggregate the time taken by the individual activities representented
minimizing working capital
less working capital = lower costs
reducing inventory in the system reduces flow time and reduces working capital
considerations for defining the flow unit
- looking at product or entire mix? What is included and excluded?
- what are the process boundaries? When does the flow unit leave the process?
“Three Ms”
Method
Man (Labor)
Machine
Process flow charts
Illustrate the sequential or parallel activities that take a process from start to finish
- identify the different steps
- identify the time each step takes
- identify the average number of visits (tries to get each step right)
- work content = time x number of visits
can calculate flow time on each path to see if they’re in sync or if there is waiting time
triangle buffers in between steps indicate waiting time (non-value added activities)
Total flow time
Longest path on a process flow chart
aka critical path
may change once waiting times are taken into consideration
(includes processing time + time spent in buffers)
flow time efficiency
theoretical flow time / average flow time
levers to reduce theoretical flow time
- reduce the work content of critical activities (work smarter, faster, do it right the first time, change the product mix)
- move work off the critical path (options for prefabrication/ outsourcing)
- reduce wait time
