Module 1: Process analysis Flashcards
Four dimensions of performance
1) Cost: Efficiency
2) Quality: Product & process
3) Variety: Customer heterogeneity
4) Time: Responsiveness to Demand
Processes: Three basic measures
1) Flow rate / throughput
2) Flow time
3) Inventory
Flow rate / throughput
# of flow units going through the process per unit of time min(demand rate, process capacity)
Flow time
time it takes a flow unit to go from beginning to end of a process
Inventory
of flow units in process at a given moment in time
Cause of inventory
Supply/demand mismatch
Process flow diagram
Project management vs. Process management
Project: Completion of one single project
Process: Doing things repeatedly
Bottleneck
Process step with lowest capacity
Process capacity
Capacity of bottleneck
Utilization
flow rate / capacity
Capacity
1 / processing time
Cycle time
CT = 1 / flow rate
Time between the completion of subsequent units
Direct labor content
p1 + p2 + p3 + …
Direct idle time
If one worker per resource: (CT - p1) + (CT - p2) + …
Avg labor utilization
Labor content / (Labor content + Direct idle time)
Cost of direct labor
Total wages per unit of time / Flow rate per unit of time
Labor content is overstated or understated on financial statements?
Understated due to use of suppliers
Little’s law
In any process,
avg Inventory = avg Flow rate x avg Flow time
I = R * T
Inventory turns
COGS / Inventory
Per unit inventory costs
Annual inventory costs / Inventory turns
Meaning of “Buffer or Suffer”
Inventory helps improve flow rate
Pros of “Make to stock”
+ Scale economies in production
+ Rapid fulfillment
Pros of “Make to order”
+ Fresh preparation
+ Allows for more customization
+ Quantity produced = quantity demanded
Five reasons for inventory
1) Pipeline inventory
2) Seasonal inventory
3) Cycle inventory
4) Safety inventory
5) Decoupling inventory / buffers
Processing time
Time worker takes to complete a given task
Pipeline inventory
Direct result of Little’s law (I = R*T) since T>0
Seasonal inventory
Driven by seasonal variation in demand and constant capacity
Cycle inventory
Driven by economies of scale in production (eg. purchasing drinks)
Safety inventory
Buffer against demand (eg. McDonald’s hamburgers)
Decoupling inventory / buffers
Buffers between internal steps
