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OMG 402 - Operations ManagementSpring 1997

CLASS 2: PROCESS ANALYSIS

Harry Groenevelt

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Agenda

• Recap

• Capacity

• Bottlenecks and Congestion

• The Multi-Product Case

• Types of Processes and Process Strategy

• Conclusion

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• Process mapping

• Little’s Law:

(average throughput) = (average WIP)/(average lead time)

• Observing throughput is not the same as observing lead time (one is flow, the other is time).

addvalue

Data information flow

hold

Recap

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entranceline

‘plaza’

3 booths

exitline

throughput:# cars across

entrance line / min.

lead time:time to cross plaza +time in booth (min.)

stock:# cars in plaza +

# in booth

Recap: The Toll Booth Process

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plaza = ‘workstation 1’toll booths =‘workstation 2’

Traverseplaza

Toll booth

Arrivals

Recap

• Possible process flow diagram:

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Recap

• Will Little’s Law ‘work’ if toll booth service time is variable?

• Will Little’s Law work if arrivals are ‘lumpy’?

• How can we predict the maximum possible throughput?

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Capacity: Definition

capacity: the upper limit on the throughput of a process (or of a workstation within the process)

For even the simplest systems, capacity estimates can vary with the– time horizon– type of demand (if there are multiple products)– mix of demand (if changeovers take time)

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Capacity Example: Toll Booth

• 0.2 min. to process toll (raw process time), for each of 3 toll booths.

• 0.5 min. to cross plaza (raw process time).

0.5 min.

0.2 min.

0.2 min.

0.2 min.

Arrivals

Booths

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Capacity Example: Toll Booth

If items are handled one at a time, then:capacity = 1/(raw process time).

(This is just Little’s Law, applied to a server who is assumed to be always busy)

• Capacity of one toll booth = ______

• Capacity of three toll booths = _______

• Is the capacity of the plaza 1/(0.5 min.)?Why or why not?

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Bottlenecks and Congestion: Definitions

bottleneck: any workstation with capacity less than or equal to the demands placed on it

- or -the bottleneck is the limiting constraint on the entire process as demand increases.

By definition, the capacity of the bottleneck determines the capacity of the entire process.

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capacity

Throughput:

Utilization:

numberin system

Bottlenecks and Congestion: Definitions

Utilization of a workstation = throughput / capacity

• For random systems, congestion builds at the bottleneck as throughput approaches capacity (utilization approaches 1)….

0 0.2 0.4 0.6 0.8 1.0

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Production of precision aluminum panels

• Milling is continuous with capacity 12 ft2/hour• Shot-peening is done in batches in a chamber:

a batch of 24 ft2 takes 2 hours• Loading of batches is essentially instantaneous• Assume both processes are deterministic (not random)

Bottlenecks and Congestion: A Deterministic (Non-Random) Example

millingshot-peening

(S-P)

bufferrawmaterials

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• What is the capacity of the S-P chamber?

• What is the capacity of the line?

• Where is the bottleneck?

• What do we see in the milling/SP buffer…?

millingshot-peening

(S-P)

bufferrawmaterials

Capacity: A Deterministic Example

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hours

inventoryin buffer

(ft2)

1 2 3 4

Capacity: A Deterministic Example

• Find the average inventory in the buffer:

• Find the avg. time spent waiting in the buffer:

• What happens if batches are cut in half?

• Would it help to expand milling capacity (say, to 24 ft2/hour)?

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Capacity and Bottleneck Insights

Insight 1: Bottlenecks determine the overall capacity of a process.

Insight 2: In a system with randomness, stock and lead time explode as utilization at the bottleneck approaches 1.

Insight 3: Even in a deterministic system, large batches increase stock and extend lead times.

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The Multi-Product Case

Things are more complicated when multiple products each have different processing times on the same machine.

For such a system, we’ll consider:

• What is capacity?

• What is a bottleneck?

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Bottlenecks in the Multi-Product Case

• Consider a retail bank offering two products:

Home equity line Activities Resources ‘consumed’credit check research staffrate assignment research staffline approval underwriter

Home MortgageActivities Resources ‘consumed’credit check mortgage sales staffappraisal mortgage sales staffpackage design mortgage sales staffmortgage approval underwriter

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credit line: arrival rate =10/day

mortgages: arrival rate = 10/day

Multiple Products: Lines and Mortgages

Credit researchcapacity = 30/day

UnderwritersFor credit line:

capacity = 30/dayFor mortgage:

capacity = 20/dayMortgage researchcapacity = 15/day

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processing rate (jobs/day)thruput (i) resource credit mortgage under-

product (jobs/day) research staff staff writersCredit Line 10 30 50Mortgage 10 15 20

utilization 0.33 0.67 0.70

Multiple Products: Calculating Utilization

utilization of resource i

example: utilization of the underwriters= _______________________

)i resourceon j of rate processing

jproduct ofthruput (

j products all

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arrival rate of credit linesUW capacity for credit lines

arrival rate of mortg.UW capacity for mortg.

1

Mo

rtg

age

Th

rupu

t ( m

)(j

obs/

da

y)

Credit Line Thruput (c)(jobs/day)

0

5

10

15

20

0 20 40 60

Multiple Products: A Capacity ConstraintUtilization of underwriters (UW) must be less than 1:

Underwriters constraint:c/50 + M/20 < 1

when throughput mix is closeto the ‘capacity constraint’, the underwriters are a bottleneck.

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Multiple Products: Capacity Constraints

0

5

10

15

20

0 10 20 30 40 50

Credit Line Thruput (jobs/day)

Mo

rtg

age

Th

rupu

t (jo

bs/

day

)

feasible production regioncredit research

underwritersmortgage sales

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processing rate (jobs/day)thruput (i) resource credit mortgage under-

product (jobs/day) research staff staff writersCredit Line 10 30 50Mortgage 15 15 20

utilization 0.33 1.00 0.95

Multiple Products: Capacity Constraints

• Increase mortgage throughput from 10 to 15. Where is the bottleneck (the ‘binding capacity constraint’)?

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Multiple Products: Capacity Constraints

0

5

10

15

20

0 10 20 30 40 50

Credit Line Thruput (jobs/day)

Mo

rtg

age

Th

rupu

t (jo

bs/

day

)

feasible production regioncredit research

underwritersmortgage sales

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Multiple Products and The Value of Capacity

Suppose we keep this arrival rate:throughput of credit lines = 10 jobs/daythroughput of mortgages = 15 jobs/day

Consider new products:product X uses mortgage sales staffproduct Y uses credit research staff

Accounting measures indicate: X and Y have equal unit cost and profit contribution

Are the products equally costly?

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Multi-Product Bottleneck Insights

Insight 1: bottlenecks are binding capacity constraints, resources with utilization close to 1

Insight 2: the identity of the bottleneck is determined by product mix as well as resource capacity

Insight 3: Time on a bottleneck is an opportunity cost. Time spent on the bottleneck is more expensive than time on an under-utilized resource, regardless of the ‘actual’ cost

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Types of Processes and Process Strategy

• Calculation of capacity and control of bottlenecks becomes increasingly difficult as:– product variety increases

– routings through resources become more complex

– arrival and process variability increase

• one end of spectrum: large volume mass production

• other end:small volume customized production.

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Line Flow (large volume mass production)

product A

product B

Batch Process (more customized, small volume)product A

product C

product BB

CA

A AC

B

Types of Processes

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Types of Processes

continuous process: chemicals, oil, paper

line flows (‘mass production’): fast food assembly, automobiles, single-use cameras,

batch process: auto parts, machine tools, tour guides, bookbinders

job shop: auto repair, health clinic, machine shop

projects: product development, consulting

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low volume,high variety

one of a kind

high volume,low variety

standardized

project,job shop

batchflow

assemblyline

continuousflow

processfocus

productfocus

none

none

where is The Goal’s factory on this graph?

Types of Processes

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Types of Processes and Process Strategy

• Process-Focused facilities typically follow a Make-to-order strategy:– produce to satisfy specific, in-hand orders.

Examples:

• Product-Focused facilities typically follow a Make-to-stock strategy:– produce to replenish inventories.

Examples:

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Types of Processes and Process Strategy

Intermediate strategies:

• Assemble-to-order or Finish-to-order:– use make-to-stock strategy for subassemblies– final assembly (or finishing) of these

subassemblies initiatedby customer orders.

Examples:

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Types of Processes and Process Strategy

Raw

Material

Major

Subas-

semblies

Finished

Products

Product A:Make to stock

Product C:Make to order

Product B:Assemble-to-order

Production

FG

SA

RM

Width indicates the variety of items at that point in the

production process

Major stocking

point

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Conclusions

• The realities of ‘process physics’:– there will always be a bottleneck to limit production.

– in most systems, congestion builds in front of a fully loaded bottleneck.

– bottlenecks are binding capacity constraints.

• Complexity of constraints varies with the type of process.

• Process strategy is shaped by product complexity and strategic priorities.