Process Analysis

Question 1

What is Supply Chain Management?

Answer 1

It encompases the planning and management of all activities:

• sourcing & procurement
• conversion
• logistics

And also

• coordination & collaboration w/ all channel partners: suppliers, intermediaries, service providers, customers

In essence, SCM integrates SUPPLY & DEMAND management within and across companies.

Question 2

What are the types and directions of flow along a Supply Chain?

Answer 2

• Physical flow (raw materials, WIP, finished goods..) down the chain
• Information & Cash Flow (orders, contracts, payments) up the chain

Question 3

What is a process?

Answer 3

the collection of tasks connected by a flow of goods and information that transforms inputs to outputs

Inputs: Labor, capital, raw materials, customers

Transformation

Outputs: Finished goods, served customers

Question 4

The 3 steps of process analysis

Answer 4

1. Process Flow Diagram
   
   1. determine inputs & outputs
   2. tasks and their sequence
   3. resources for each task
   4. inventories in the process
2. Bottleneck Analysis
   
   1. Capacity at each stage/resource
   2. Determine bottleneck stage/resource
   3. Determine capacitiy of the process
3. Improvement Decisions / Recommendations

Question 5

Parts of a Process Flow Diagram

Answer 5

• dashed line: information flow
• solid line: material flow
• square: activity/task
• triangle: activity buffer
• raute: decision point

–

• single station
• parallel stations, seperate queues
• parallel stations, single queue

Question 6

Bottleneck Analysis: Process Definitions

Answer 6

• Cycle time: time between completion of successive units (time/activity) e.g. 5mins/order
• Capacity: Number of units produced per time (activity/time), e.g. 0.2orders/min
  
  • capacity = inverse of cycle time
• Flow time: length of time a unit spends in the system
• Idle time: time spent per cycle not doing useful work
• Bottleneck: Stage with the lowest capacity

DETERMINE THE CYCLE TIME FOR EACH STAGE AND CONVERT THEM TO CAPACITIES!

Question 7

Bottleneck Improvement

Answer 7

• Add capacity only at the bottleneck
• Always keep the bottleneck running
• “An hour lost at the bottleneck is an hour lost for the entire plant”

Question 8

Relationships between process measures

Answer 8

• Adding parallel resources does not reduce flow time
• system cycle time = flow time,
  
  • but usually, cycle time refers only to a step in a process, while flow time means the whole system
  • individual cycle times are different from flow times when there are parallel resources, e.g. loan application -> approving takes 15mins/app, but with 2 loan officers, the cycle time is 7.5mins/app
• Capacity of the bottleneck = capacity of the process
• system capacity = inverse of system cycle time

Question 9

Taxonomy of process types

Answer 9

• Job Shop: high uniqueness, variety of different products, low volume, high variable costs
  
  • Project
  • Job Shop
  • Batch
• Flow Shop: High volume, same product, high fixed costs
  
  • Batch
  • Assembly line
  • continuous flow

Match process type to production requirements, avoid lost sales or low utilization

Question 10

Relationships between demand rate, capacity and troughput rate

Answer 10

• Demand rate ≤ Capacity (without initial inventory)
  
  • no inventory buildup
  • Throughput rate = demand rate
• Demand rate > capacity
  
  • inventory buildup
  • Troughput rate = capacity
• Demand rate ≤ capacity (with initial inventory)
  
  • inventory depletes
  • throughput rate = capacity
• Inventory buildup or depletion rate = demand rate - capacity rate

Question 11

Little’s Law

Answer 11

• Goal: estimate average number of “customers waiting at the bathroom” => Inventory
• Always holds on average
• Can be applied to any part of the process and identifies why inventory is build up, the levers to pull etc.

INVENTORY = THROUGHPUT RATE * FLOW TIME

I = R * T

Question 12

Impact of variability in a process

Answer 12

• Costs
  
  • Increase WIP (holding costs)
  • overtime or increased labor costs
  • cost of information technology
• Quality
  
  • rework/scrap
  • returns
• Flexibility
  
  • changeover costs
  • equipment costs
  • over- or understock
• Time
  
  • opportunity costs due to time increase
  • unreliable lead time & lost sales/market share

Question 13

The P-K-Formula

Answer 13

Quantifies the impact of variability:

• utilization p = arrival rate lambda / service rate µ
• CV = Coefficient of Variance = SD / mean x
• I_total = I_q + p, which is the utilization ≈ probability of having a unit in service

Question 14

Impacts of variability:

Implications from the P-K-Formula

Answer 14

• If your capacity far exceeds demand (p close to 0), you can satisfy demand with little delay (short queue, low I_q)
• If you don’t have much excess capacity (p close to 1), you will experience significant delay (long queue, high I_q)
• If you can smooth demand (reduce C_a) or reduce service variability (reduce C_s), you can meet demand with less delay

Question 15

How to manage variability

Answer 15

• External policies (finished goods inventories, smooth order, reduced variety)
• Internal policies (reduce batch sizes, smooth flows using buffers, sequencing, routing)
• Technology (flexible, automation, reliability)

Question 16

Three cornerstones of meeting demand

Answer 16

• Inventory = I_q
• Capacity = p (utilization)
• Information = C_a and C_s