Chapter 3

Question 1

Return on assets:

Answer 1

The efficiency of the business, operations, how much profit you can generate based on your assets.

Question 2

What is a process:

Answer 2

A system of structured activities that use resources to turn inputs into valuable outputs.
Process thinking—views activities in an organization as a collection of processes.

Question 3

Juran’s Law:

Answer 3

This is the heart of process thinking. Juran observed that 15% of operational problems are the result of human errors, the other 85% are due to systemic process errors. To improve operations, we should focus our attention on processes first.

Question 4

Anatomy of a process:

Answer 4

Activities, inputs outputs flows, process structures management policies.

Question 5

Processes that aren’t _____ lead to mistakes.

Answer 5

Followed

Question 6

Activity of a process:

Answer 6

Operations change inputs, transportation moves an input from place to place, inspection verifies the results of an activity, delay unintentionally stops the flow of an input, stage is the formal inventorying of an input.

Question 7

Inputs outputs and outflows:

Answer 7

Inputs—items that are acted upon or consumed by the process.
Outputs—both intended and unintended products of the process.
Inputs and outputs are created through a series of flows and information flows (data, physical products, people).

Question 8

Process capabilities:

Answer 8

The specific types of outputs and levels of performance that a process can generate.

Question 9

Management Policies:

Answer 9

Management and development of resources, Important to design metrics, rewards, and controls consistent with the overall mission.

Question 10

Economies of scale:

Answer 10

As production volumes increase with additions of capacity, the unit cost to produce a product decreases to an optimal level. (per unit cost decreases as you produce more)

Question 11

Reasons for economies of scale:

Answer 11

Allocation of fixed costs can be spread over more units as output grows, reducing the cost per unit.
Equipment and construction costs do not increase proportionally with size.
Lower costs for purchases because of higher volumes.
As volume increases, learning occurs, a phenomenon called the learning curve.
Learning is slower in automated processes, and the rate of learning diminishes as employees gain experience making the product.

Question 12

Process capacity:

Answer 12

Capacity is amount of output a process can produce given the amounts of inputs and resources made available to the process.

Question 13

Process capacity definitions:

Answer 13

Maximum capacity—highest achievable level under ideal conditions, for a limited time.
Effective capacity—achievable level under normal conditions for an extended time.
Utilization—how much available capacity is actually used.
Yield rate—the percentage of units produced as a percentage of inputs.

Question 14

Theory of constraints (TOC):

Answer 14

1. Every process has constraints.
2. Every process has variance that consumes capacity.
3. Every process must be managed as a system.
4. Process measures are crucial to the process’s success.
5. Every process must continually improve.

Question 15

TOC-1 Every process has a constraint:

Answer 15

Bottleneck—a constraint or scarce resource for which demand is greater than capacity, that limits the ability of a resource to generate output, defines the maximum capacity of a system.
Serial/sequential structure—processes occur one after another.
Parallel structure—two or more processes occur simultaneously.

Question 16

TOC-1 Every process has a constraint:

Answer 16

Flow time—time for one unit to get through a process (delay + cycle time).
Cycle time— ideal time it takes to complete a process without any delays.
Littles law—there is a relationship between flow time (F), inventory level (I), and throughput rate (TH). F= I / TH

Question 17

TOC-2 Variance consumes capacity:

Answer 17

Variability in Outputs—product variety and variable schedules.
Processes—quality variance, resource availability, and processing speed.
Inputs—variance in quality and delivery. Less variance the better.

Question 18

TOC-3 manage processes as systems:

Answer 18

Changing one element of a process may impact other elements, sometimes in unexpected ways.
Process elements are interdependent—activities, inputs/outputs/outflows, process structures, management policies.

Question 19

TOC-4 Measure processes for success:

Answer 19

Metrics should address aspects of performance that are important to both customers and the organization.
Effective metrics–verifiable and quantifiable, are aligned with standards and rewards, should support strategy and priorities, provide the basis for monitoring, controlling and improving processes.

Question 20

TOC-5 Continuous improvement of processes:

Answer 20

Refer to tables in notes.