OPNS Process Analysis Module

Bottleneck Management and ImprovementTime and Throughput:Critical Path vs. Bottleneck AnalysisPizza Pazza CompanyLevers for ImprovementMulti-product Capacity Management and InvestmentJoint Marketing & Production DecisionsOptimal Capacity InvestmentBariatric Surgery

Slide #Time and Throughput Management & Improvement Van MieghemJ.A. Van Mieghem/Operations/Process Analysis & Apps1Operational Performance MeasuresHow to measure and decrease flow times?How to measure and increase throughput?

What is the best achievable performance?Slide #Time and Throughput Management & Improvement Van MieghemS. Chopra/Operations/Process Analysis & Apps2Flow TimeCritical Path(Theoretical) Capacity of a ResourceBottleneck Resource (Theoretical) Capacity of the Process

Concepts to Cover and AnalyzeSlide #Time and Throughput Management & Improvement Van MieghemJ.A. Van Mieghem/Operations/Process Analysis & Apps3Will use Pizza to illustrate. Pizza Goal =Concepts and calculationsShows how some decisions (finance, investment, pricing) should be interfunctional and process view is helpful.

Need to understand 2 points about BNs:What is their capacity?What is their cost?Simple point: you typically dont want an inexpensive resource to be your BN

Analyzing Process Performance:Mortgage ApplicationCredit rating

Kiki15minVerify/CheckEmployment etcMarcus20min Initial policyoptions/ratesMaxi15minAssemble,Present to client

Karolien15minApplication review,Data entryShannon5min Slide #Time and Throughput Management & Improvement Van MieghemJ.A. Van Mieghem/Operations/Strategy4To illustrate the concepts, consider a simple examplewhich could be that of requesting a home mortgage.

Q1: What is the minimal amount of time to process an input into an output?Find the critical activities = longest path = bottom path = 1 hour = theoretical flow time.

Q2: What is the maximal number of flow units we can process per hour?Find the slowest resource = bottleneck = R2 whose resource capacity is 1 every 20 min. The weakest link determines the chains strength, so process capacity can not go above 3/hr.

Note: BN need not be on the critical path. Both concepts address different questions: critical activities is about input-output flow/response timebottleneck resources are about throughput rate

Pizza Pazza: Flow Chartif job order = 2 identical pizzasstartTake OrderSauce PrepDough PrepSpreadActivity time:2312 = 2Resource:JeanJeanJean, PanendBillUnload & PackBakeLoad & Set timerActivity time:21 2 = 23151Resource:JaquelineJaqueline, PanPanOven, PanJaqueline, Oven, PancoolSlide #Time and Throughput Management & Improvement Van MieghemJ.A. Van Mieghem/Operations/Process Analysis & Apps5Levers for Reducing Flow TimeDecrease the work content of critical activitieswork smarterwork fasterdo it right the first timechange product mixMove work content from critical to non-critical activitiesto non-critical path or to ``outer loopRestructure sequential activities into parallel activitiesReduce waiting time.Slide #Time and Throughput Management & Improvement Van MieghemJ.A. Van Mieghem/Operations/Process Analysis & Apps6A Recipe for Capacity Measurements: Minimal resource capacity = bottleneck

*assuming system is processing at full capacityDefine a job = Slide #Time and Throughput Management & Improvement Van MieghemJ.A. Van Mieghem/Operations/Process Analysis & Apps7Slide #Time and Throughput Management & Improvement Van MieghemJ.A. Van Mieghem/Operations/Process Analysis & Apps8Product Mix Decisions:Pizza Pazza offers 2 pizza typesSale Price of thin crust:5 Cost of Direct Materials:1.40

Sale Price of deep dish:7.50 Cost of Direct Materials:2.10

Which of these two products should Jean push to customers that call in and are undecided?

Slide #Time and Throughput Management & Improvement Van MieghemJ.A. Van Mieghem/Operations/Process Analysis & Apps9Product Mix DecisionsUnit margin of thin crust pizza = 3.60 Unit margin of deep dish pizza = 5.40

Margin rate from thin crust = 3.60 * 7.5/hr = 27/hrMargin rate from deep dish = 5.40 * 4/hr = 21.60/hr

Slide #Time and Throughput Management & Improvement Van MieghemJ.A. Van Mieghem/Operations/Process Analysis & Apps10Think of a process as printing cash = speed (throughput) x unit margin.How increase capacity? Summary of Typical ActionsKey action = optimize only bottleneck management

Decrease the work content of bottleneck activitiesNever unnecessarily idle (starve) bottlenecks = eliminate bottleneck waits:Reduce variability if it leads to bottleneck waitingSynchronize flows to and from the bottleneck: sync when resources start an activitywork smarter:Reduce & externalize setups/changeover times, streamline + eliminate non-value added workdo it right the first time: eliminate rework/correctionswork faster

Move work content from bottlenecks to non-bottleneckscreate flexibility to offload tasks originally assigned to bottleneck to non-critical resource or to third partyCan we offload tasks to cross-trained staff members?

Increase Net Availability of Processwork longer: increase scheduled availabilityincrease scale of process: invest in more human and capital resourceseliminate unscheduled downtimes/breakdownsPreventive maintenance, backups, etc.Slide #Time and Throughput Management & Improvement Van MieghemJ.A. Van Mieghem/Operations/Process Analysis & Apps11Pizza Goal =Concepts and calculationsShows how some decisions (finance, investment, pricing) should be interfunctional and process view is helpful.

Need to understand 2 points about BNs:What is their capacity?What is their cost?Simple point: you typically dont want an inexpensive resource to be your BNis to increase the capacity of only the bottlenecksensure the bottlenecks time is not wastedincrease availability of bottleneck resourceseliminate non-value added work from bottlenecksreduce/eliminate setups and changeoverssynchronize flows to & from bottleneckreduce starvation & blockage the load of the bottlenecks (give it to non-bottlenecks)move work from bottlenecks to non-bottlenecksneed resource flexibility unit capacity and/or #of units.investTheory of Constraints in The Goal Increasing Process CapacitySlide #Time and Throughput Management & Improvement Van MieghemJ.A. Van Mieghem/Operations/Process Analysis & Apps12Bariatric Surgery Flow Chart5 x 1.2 = 6 min(20% callback)Patient Receptionist CashRequesttestsInitialconsul-tationInitialphonecallSetappointmt for test 1Test 1delaydecide30 minPatient Surgeon 10 minPatientSurgeon5 minPatientReceptionist 60 minPatientCare-nurseOutpatient room 2 daysPatient Setappointmt5 minPatientReceptionist 40% quitMore tests (50%)80% approvedYes (50%)Insurance90%MedicalNecessityLetterInsuranceApprovaldecide20 minPatientSurgeon 10% quitSetappointmt for test 25 minPatientReceptionistVisit 215 minPatientSurgeon Test 230 minPatientCare-nurseOutpatient room delay2 daysPatient InsuranceApproval2 wksPatient 20% denied & quitPre-surgeryVisit 320 minPatientSurgeonOutpatient room Schedulesurgery10 minPatientCare-nurse PatientsArrive &Check-inPre-surgerySeminar60 min6 PatientsSurgeonSeminar room OR Cleaning15 min2 s-nursesOR Patient Prep30 minPatientCare-nurse Drs. Prep15 minSurgeonanesthetist LaparoscopicSurgery75 min2 surgery nursesAnesthetist, surgeonpatient, OR Check-ups&Recovery2 daysPatient, Inpatient roomCare nurse 120min(10minx6x2)OpenSurgeryCheck-ups&Recovery4 daysPatient, Inpatient roomCare nurse 240min (10minx6x4)FollowUp30 minPatientCare-nurse 45 min2 surgery nursesAnesthetist, surgeonpatient, OR PatientLeavesx % 1- x % Slide #Process Analysis & Improvement Van MieghemJ.A. Van Mieghem/Operations/Process Analysis & Apps13To illustrate bottleneck and capacity concepts in more complex processes, consider Bariatric Surgery.The complications here are:Not everyone that enters goes through the entire process > drop-out or yield rates.Not everyone follows the same process > There are several types of flow units (product mix)

Dealing with 2 is not to difficult: we simply focus on a specific type of flow unit; e.g. patients that pay cash and select open surgery.Let us discuss how to deal with drop-out or yield rates for such specific flow unit.Bariatric Surgery Flow Chart for cash & open surgery5 x 1.2 = 6 min(20% callback)Patient Receptionist CashRequesttestsInitialconsul-tationInitialphonecallSetappointmt for test 1Test 1delaydecide30 minPatient Surgeon 10 minPatientSurgeon5 minPatientReceptionist 60 minPatientCare-nurseOutpatient room 2 daysPatient Setappointmt5 minPatientReceptionist 40% quitPre-surgeryVisit 320 minPatientSurgeonOutpatient room Schedulesurgery10 minPatientCare-nurse PatientsArrive &Check-inPre-surgerySeminar60 min6 PatientsSurgeonSeminar room OR Cleaning15 min2 s-nursesOR Patient Prep30 minPatientCare-nurse Drs. Prep15 minSurgeonanesthetist OpenSurgeryCheck-ups&Recovery4 daysPatient, Inpatient roomCare nurse 240min (10minx6x4)FollowUp30 minPatientCare-nurse 45 min2 surgery nursesAnesthetist, surgeonpatient, OR PatientLeavesSlide #Process Analysis & Improvement Van MieghemJ.A. Van Mieghem/Operations/Process Analysis & Apps14First, this simplifies the flow chart greatly.Second, note that outflow rate < inflow rate. We can express throughput & capacity either in inflow patients or served patients. Either way works b/c one can reconvert: #outflows = 60% #inflows.But this has a great impact on resource consumption. To illustrate, let us calculate the unit load of surgeons (in terms of inflow units):Surgeons unit load = 30 + 60%*(10 + 20 + 60/6 + 15 + 45) = 30 + 60%*(100 min) = 90 min.Thus, surgeons capacity = 1 inflow patient/90min = 2/3 /hr = .66/hr. Equivalently (multiplying by 60%) = .6 x 2/3 = .40 served patients/hr.Doing this now for each resource pool, we get the capacity table on next page.Bariatric Surgery Capacity Open Surgeries & Cash Payment* inpatient rooms used 5 days/wk

Expected unit workload per inflow patientSlide #Time and Throughput Management & Improvement Van MieghemJ.A. Van Mieghem/Operations/Process Analysis & Apps15Notice: the surgeon capacity is .4/hr, total pool capacity = 96/hr BN = inpatient-rooms: patients only check in on Sunday Thursday = 5 days/wk. Unit load = 4 days. Thus, 1.25 patients/room,wk.

Why would they have excess staff and doctors? Consider Laproscopic surgery: (next page)Now surgeons are BN. Bariatric Surgery Capacity Laparoscopic Surgeries & Cash Payment

Slide #Time and Throughput Management & Improvement Van MieghemJ.A. Van Mieghem/Operations/Process Analysis & Apps16Now surgeons are BN.

> insight: capacity depends on product mix.

Say we have 50% cash & open and 50% cash and Lapa, what is capacity?In general, it is not 50%*78.75 + 50%* 80.00 b/c the BN may shift.Rather, you should recalculate the average unit workload.Bariatric Surgery Capacity Open Surgeries & Insurance Payment

Slide #Time and Throughput Management & Improvement Van MieghemJ.A. Van Mieghem/Operations/Process Analysis & Apps17As a last exercise, let us calculate the unit load of surgeons for the open & insurance. (go back to full flowchart) First, compute drop-out rates: starting from 100 patients flowing in> 60> 30 (more test) > (30+24).9=48.6 served.

2. Surgeon expected workload on 1 inflow patient thus is:

30 + .6 (10+20) + .3 x 15 + .486 (20+60/6+15+45)= 52.5 + 43.74 = 96.25 min/inflow patient.

3. Equivalently, this is 96.24/.486 = 198.02 min/served patient. [Sunil gets same, but the spreadsheet above and TN have wrong number.] Bariatric Surgery Capacity Laparoscopic Surgeries & Insurance Payment

Slide #Time and Throughput Management & Improvement Van MieghemJ.A. Van Mieghem/Operations/Process Analysis & Apps18Product Mix Decisions:Open or Laparoscopic SurgeryRevenue per open surgery:$15,000Variable Cost of Materials:$1,000

Revenue per Laparoscopic surgery:$18,000Variable Cost of Materials: $2,000

Slide #Time and Throughput Management & Improvement Van MieghemS. Chopra/Operations/Process Analysis & Apps19Open and Laparoscopic have exactly the same process. The only difference is in surgery (laparoscopic takes 30 minutes extra) and in the rooms (laparoscopic uses rooms for 2 days whereas open uses rooms for 4 days.

Product Mix DecisionsSlide #Time and Throughput Management & Improvement Van MieghemS. Chopra/Operations/Process Analysis & Apps20Margin per Open surgery = $14,000Margin per Laparoscopic surgery = $16,000

Margin per week from Open surgery = 72.72*(15,000 - 1,000) = $1,018,055 / weekMargin per week from Laparoscopic surgery = 63.15*(18,000 - 2,000) = $1,010,400 / week

Product Mix DecisionsSlide #Time and Throughput Management & Improvement Van MieghemS. Chopra/Operations/Process Analysis & Apps21Manage better using the key operational measures and an inter-functional process view of the organization

Process measures and corresponding improvement levers: Flow time manage critical activitiesCapacity manage bottleneck resources

Many marketing and financial decisions are linked to processEffect of product mix decisions on process capacitymarginal contribution per unit of bottleneck capacity usedBottleneck may shift on adding capacity diminishing returns to capacity investment Learning Objectives: Time and Throughput ManagementSlide #Time and Throughput Management & Improvement Van MieghemS. Chopra/Operations/Process Analysis & Apps22ResourceUnit Load

Resource Capacity

ProcessResource

(time/job)Unit Capacity# of unitsTotalCapacityUtilization*