Process Flow Measures

Question 1

Three Key Performance Measures:

Answer 1

• Flow Time: total time spent by a flow unit within process boundaries
  
  • It may include the time the flow unit undergoes an activity or/and waiting in a buffer
  • It varies from one flow unit to another
• Flow Rate: the number of flow units that flow through a specific point in the process per unit of time
  
  • It may change over time
  • The instantaneous flow rates at time t is denoted by R(t) (R_i(t) for input flow and R_o (t) for output flow rate)
• Inventory: the total number of flow units present within process boundaries.
  
  • It is denoted by I**(t)

Question 2

Inventory Dynamics:

Answer 2

Question 4

Little’s Law:

Answer 4

In a stable process, we have the following relation between the average flow time T, the average inventory I, and the throughput R

I = RT

Average Inventory = Throughout × Average Flow Time

Question 5

Stable Process:

Answer 5

• Stable Process is process in which the capacity of the process is l_arger than or equal_ to its average inflow rate in the long-run.
  
  • Above implies that in a stable process the average outflow rate is the same as the average inflow rate in the long-run.
• Throughput: In a stable process, we refer to the average inflow or outflow rate as the average flow rate or throughput, and denote it by R.
  
  • Throughput is in fact the average number of flow units that flow through the process per unit of time.

Question 7

Little’s Law Managerial Insight:

Answer 7

• Of three operational measures of performance, a process manager need only focus on two measures.
• For any given level of throughput, the only way to reduce flow time is to reduce inventory and vice versa
  
  • One can analyse financial statements by considering the flow of a dollar through corporation and using the Little’s law.

Question 8

Cash Cycle:

Answer 8

• Cost to Cash Cycle: (average) time between cost dollars being invested and cash dollars collected.
• Cash to Cash Cycle: similar, but nets out lag time in AP

Question 9

Inventory turns =

Answer 9

Inventory turns (or turnover ratio): shows how many times the inventory is sold and replaced during a specific period.

• In accounting it is defined as:

Inventory Turns = (Cost of Goods Sold) / (Average Inventory)

• In fact, it is

Inventory Turns = R/I

• but by Little’s Law

Inventory Turns = R / (T×R) = 1/T