Emp Processflow
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Transcript of Emp Processflow
S. Chopra/Process Flows 1
Operations Management:
Process Analysis and Applications Module
• Changing Sources of Competitive Advantage• Operational Measures: Time T, Inventory I, Throughput rate R
• Link through Little’s Law
• Link to Financial Measures
• Levers for Improvement
• CRU Computer Rentals
S. Chopra/Process Flows 2
How can operations help a company compete?The changing sources of competitive advantage
• Low Cost & Scale Economies (< 1960s)
– You can have any color you want as long as it is black
• Focused Factories (mid 1960s)
• Flexible Factories and Product variety (1970s)
– A car for every taste and purse.
• Quality (1980s)
– Quality is free.
• Time (late 1980s-1990s)
– We love your product but where is it?
– Don’t sell what you produce. Produce what sells.
S. Chopra/Process Flows 3
Operational Performance Measures
• Flow time• Throughput• Inventory• Process Cost• Quality
S. Chopra/Process Flows 4
Price
Quantity
Material
Labor
Energy
Overhead
PP&E
Inventory
Other
Revenues
Costs
Capital invested
Weighted average cost of capital
x
+
+
+
+
+x
Profit
Opportunity cost
-
Economic value added (EVA)
Financial metrics Operational metrics
1. Increase price2. Increase
throughput
Improvement levers
The business imperative: creating economic value
3. Reduce costs4. Improve quality
5. Reduce capital intensity6. Reduce inventory
Reduce time
-
S. Chopra/Process Flows 5
Relating operational measures (flow time T, throughput R & inventory I) with Little’s Law
• Inventory = Throughput x Flow Time
I = R x T
• Turnover = Throughput / Inventory
= 1/ T
Inventory I[units]
Flow rate/Throughput R
[units/hr]... ...... ......
Flow Time T [hrs]
S. Chopra/Process Flows 6
Process Flow ExamplesCustomer Flow: Taco Bell processes on average 1,500 customers per day
(15 hours). On average there are 75 customers in the restaurant (waiting to place the order, waiting for the order to arrive, eating etc.). How long does an average customer spend at Taco Bell and what is the average customer turnover?
Job Flow: The Travelers Insurance Company processes 10,000 claims per year. The average processing time is 3 weeks. Assuming 50 weeks in a year, what is the average number of claims “in process”.
Material Flow: Wendy’s processes an average of 5,000 lb. of hamburgers per week. The typical inventory of raw meat is 2,500 lb. What is the average hamburger’s cycle time and Wendy’s turnover?
S. Chopra/Process Flows 7
Process Flow Examples
Cash Flow: Motorola sells $300 million worth of cellular equipment per year. The average accounts receivable in the cellular group is $45 million. What is the average billing to collection process cycle time?
Question: A general manager at Baxter states that her inventory turns three times a year. She also states that everything that Baxter buys gets processed and leaves the docks within six weeks. Are these statements consistent?
S. Chopra/Process Flows 8
MBPF Inc.: Consolidated StatementNet Sales 250.0
Costs and expensesCost of Goods Sold 175.8Selling, general and administrative expenses 47.2Interest expense 4.0Depreciation 5.6Other (income) expenses 2.1TOTAL COSTS AND EXPENSES 234.7
INCOME BEFORE INCOME TAXES 15.3PROVISION FOR INCOME TAXES 7.0NET INCOME 8.3
RETAINED EARNINGS, BEGINNING OF YEAR 31.0LESS CASH DIVIDENDS DECLARED 2.1RETAINED EARNINGS AT END OF YEAR 37.2
NET INCOME PER COMMON SHARE 0.83DIVIDEND PER COMMON SHARE 0.21
S. Chopra/Process Flows 9
MBPF Inc.: Balance SheetCURRENT ASSETS
Cash 2.1Short-term investments at cost (approximate mkt.) 3.0Receivables, less allowances of $0.7 mil 27.9Inventories 50.6Other current assets 4.1TOTAL CURRENT ASSETS 87.7
PROPERTY, PLANT AND EQUIPMENT (at cost)Land 2.1Buildings 15.3Machinery and equipment 50.1Construction in progress 6.7
Subtotal 74.2Less accumulated depreciation 25.0
NET PROPERTY, PLANT AND EQUIPMENT 49.2
Investments 4.1Prepaid expenses and other deferred charges 1.9Other assets 4.0TOTALASSETS
146.9
S. Chopra/Process Flows 10
MBPF Inc.: Inventory and Cost of Goods
INVENTORYRaw materials (roof) 6.5Fabrication WIP (roof) 15.1Purchased parts (base) 8.6Assembly WIP 10.6Finished goods 9.8TOTAL 50.6
COST OF GOODS SOLDRaw materials 50.1Fabrication (L&OH) 60.2Purchased parts 40.2Assembly(L&OH) 25.3TOTAL 175.8
S. Chopra/Process Flows 11
Raw Materials(roofs)
Fabrication (roofs)
$60.2/yr
Assembly
$25.3/yr
Purchased Parts (bases)
Finished Goods
$6.5$50.1/yr
$40.2/yr$8.6
$15.1
$10.6
$110.3/yr
$40.2/yr
$175.8/yr$9.8
$175.8/yr
MBPF Business Process Flows
S. Chopra/Process Flows 12
MBPF Inc.: Flow Times
RawMaterials
Fabrication PurchasedParts
Assembly FinishedGoods
Throughput R $/Year 50.1 110.3 40.2 175.8 175.8 $/Week 0.96 2.12 0.77 3.38 3.38Inventory I ($) 6.5 15.1 8.6 10.6 9.8Flow Time T =I/R (weeks)
6.75 7.12 11.12 3.14 2.90
S. Chopra/Process Flows 13
Flow rate R($/week)
0.96
Flow Time T (weeks)
Accounts
Receivable
Finished
GoodsAss
embl
y
Fabrication
Raw MaterialsPurchased Parts
11.12 6.75 7.12 3.14 2.90 5.80
0.77
2.12
3.38
5.0
S. Chopra/Process Flows 14
Why the Difference in Performance?
Inventory Over Last 8 Quarters (Ending Q3 2001)
0
1000
2000
3000
4000
5000
6000
0 1 2 3 4 5 6 7 8 9
Quarter
Inve
ntor
y Nokia
Ericsson
Motorola
S. Chopra/Process Flows 15
CRU Computer Rentals
S. Chopra/Process Flows 16
Case: CRU Computer RentalsFlow Chart
Customer
Receiving Repairs
Pre-Config
Partsplacesorder
Receivesfrom
Supplier
Repairs
Status 40
Status 24
Status 41
Status 42Status 20
Config
30%
70%
15%
ShipStatus 32
Ship
S. Chopra/Process Flows 17
CRU Situation in Previous Year:Customer term = 8 wks, Demand = 1000 units/wk
Customer Receiving Status 24
Status 40
Parts Suppliers Status 41 Status 42 Status 20
Throughput (units/week)
1,000 1,000 700 300 + 105 = 405
405 405 405 405 1,000
Inventory (units)
8,000 500 1,500 1,000 500 405 500+405= 905
500 2,000
Flow Time (weeks)
8.0 0.5 2.14 2.47 1.23 1 2.23 1.23 2
S. Chopra/Process Flows 18
CRU Situation in Previous Year:Financial Performance
• Number of units on rent = 8,000
• Total number of units = 14,405
• Utilization = 0.56 (56%)
• Revenue rate = 8,000 x 30 = $240,000/wk
• Variable Cost rate = 25 x 1,000 (R) + 25 x 1,000 (S) + 4x700x.85 + 150 x 405 = $113,130/wk
• Contribution Margin = $126,870/wk
• Depreciation = 14,405 x ($1000/156wks) = $92,340/wk– bottomline = $126,870-$92,340 = $34,530
S. Chopra/Process Flows 19
CRU Situation in Current Year: flow times unchanged, Demand = 1400 units/wk
Customer Receiving Status24
Status40
Parts Suppliers Status 41 Status 42 Status 20
Throughput(units/week)
1,400 1,400 980 567 567 567 567 567 1,400
Inventory(units)
8,000 700 2,100 1,400 700 567 1,267 700 2,800
Flow Time(weeks)
5.7 0.5 2.14 2.47 1.23 1 2.23 1.23 2
S. Chopra/Process Flows 20
CRU Situation in Current Year: flow times unchanged, Demand = 1400 units/wk
• Number of units on rent = 8,000
• Total number of units = 16,967
• Utilization = 0.47 (47%)
• Revenue = 4,800 x 30 + 3,200 x 35 = $256,000/wk
• Cost = 25 x 1,400 (R) + 25 x 1,400 (S) + 4 x 980x .85 + 150 x 567 = $158,382/wk
• Contribution Margin = $97,618/wk
• Depreciation = 16,967 x (1000/156) = $108,763/wk– bottomline = $97,618 - $108,763 = -$11,145
S. Chopra/Process Flows 21
CRU Potential situation in Current Year:without sales drive, Demand = 600 units/wk
Customer Receiving Status24
Status40
Parts Suppliers Status 41 Status 42 Status 20
Throughput(units/week)
600 600 420 243 243 243 243 243 600
Inventory(units)
4,800 300 900 600 300 243 543 300 1,200
Flow Time(weeks)
8 0.5 2.14 2.47 1.23 1 2.23 1.23 2
S. Chopra/Process Flows 22
CRU Potential situation in Current Year:without sales drive, Demand = 600 units/wk
• Number of units on rent = 4,800
• Total number of units = 8,643
• Utilization = 0.56 (56%)
• Revenue = 4,800 x 30 = $144,000/wk
• Cost = 25 x 600 (R) + 25 x 600 (S) + 4x420x .85 + 150 x 243 = $67,878/wk
• Contribution Margin = $76,122/wk
• Depreciation = 8,643 x (1000/156) = $55,404/wk– bottomline = $76,122 - $55,404 = $20,718
S. Chopra/Process Flows 23
Learning ObjectivesBasic Process Analysis
• Process Measures: time, inventory, and throughput
• What is an improvement?– Link financial measures to operational ones
– Good operational measures are leading indicators of financial performance
• Using Little’s law for process flow analysis
• Targeting areas and performance measures for improvement; link financial and operational flows