Operations Mgmt Exam 2

increase buffer capacity

increase "waiting room" capacity, reduce blocking, let more customers in, BUT increase arrival rate, increase utilization, increase number of customers waiting, increase amount of time they're waiting

work faster

increase the speed of operation; i.e. acquire faster equipment, increase allocated resources, offer incentives for faster work

flow time efficiency

theoretical flow time/total flow time (answer in percentage; interpretation: percentage of overall time that is spent in activities, other percentage is time spent waiting)

value-adding activities

those activities that increase the economic value of a flow unit from the perspective of the customer (that is the customer values such activities, and is willing to pay for them); ex: performing surgery, flying an airplane

theoretical flow time includes:

value-adding and non-value-adding components

example of inventory holding cost

warehouse costs, spoilage, theft, rework

blocking

when arrivals are prevented from entering the process; so many customers waiting, they get busy signal

abandonment

when customers join the queue but then leave before getting served; get sick of waiting in line

safety capacity

wiggle room to respond to variablility in demand

transformation

work-in-process (semi-finished products)

decrease variability

(1) decrease interarrival time: scheduling (2) decrease processing time: standardization

reducing work content of noncritical activities does not decrease theoretical flow time, BUT could still be helpful:

-decrease total processing costs -increase process capacity -decrease the potential for errors and defects

with exponential distribution, variability in the queue length =

1; disregard second part of queue length formula (variability)

if you're not getting enough customers (i.e., your throughput is less than your effective capacity)

In other words, you'd be able to handle more sales, but you just don't have enough customers coming. This is the "external bottleneck"...the problem isn't with your process. It's with demand...you need to figure out how to get more customers to visit your business (maybe through marketing promotions, etc.).

forward path, take the...

MAX of the numbers

backward path, take the...

MIN of the numbers

if effective capacity significantly less than theoretical capacity

you have A LOT of waste

resource pool (k)

a collection of interchangeable resources that can perform an identical set of activities

theoretical flow time

activity part of flow time; no waiting

input

raw materials (materials received)

Q,k

setup batch, number of units processed consecutively after a setup

synchronize capacity with demand

(1) change demand to meet capacity: discounts/promos (2) change capacity to meet demand: call for back-up

levers for reducing capacity utilization (3)

(1) decrease average inflow rate (R,i) - decrease rev. (2) decrease average processing time (T,p) - decrease rev. (3) increase the number of servers (c) - increase costs

good to reduce blocking, but there's also consequences...

(1) increase arrival time (R,i) (2) increase utilization (u) (3) increase number of people waiting (I,i) (4) increase waiting times (T,i)

What are the two costs that must be balanced when determining optimal inventory order quantity?

(1) inventory holding cost (2) fixed ordering cost

stability condition (3 requirements)

(1) processing rate > arrival rate (2) utilization < 1 (3) safety capacity > 0

With utilization, there are three ways we can make the workers less busy:

(1) reduce arrivals (e.g., the mini parade redirecting people away from busy rides) (2) reduce processing time (e.g., payment info on wristbands to make the checkout process faster), and (3) increase resource units (e.g., adding more boats at a ride or opening more cash registers). Doing any of those three things will make your employees less busy, which will reduce the time people have to wait.

increasing the physical capacity of the process: reducing resource capacity waste

-eliminate non-value-adding activities -avoid defects, rework, and repetitions -reduce time availability loss -reduce setup loss -move some of the work to non-bottleneck resources -reduce interference waste

Why is managing process flow time important?

-flow time affects response time -short flow times reduce inventory and assoc. costs -shorter flow times minimize inven. req. -short flow is is indicator of overall oper. excellence -can respond to the mkt -healthy sign for a business

increasing the physical capacity of the process: increasing resource levels

-increase the number of units -increase size of resource units (pizza over for 5 instead of 2) -increase time of operation (open an extra hour) -subcontract or outsource (third parties) -speed up rate at which activities are performed

why hold inventory?

-to prevent "starving" by decoupling process (put buffers into process to decrease dependency...when someone has no WIP to work on) -to deal with uncertainty in supply and/or demand (safety stock) -to achieve economies of scale, fixed costs and quantity discounts (cycle stock) -to smooth capacity requirements for seasonal variation (pre-build stock) -to hedge against possible price increases in the near future (speculative stock)

levers for managing theoretical flow time (5)

-work in parallel -work smarter -do it right the first time -do the quickest things first -work faster

T/F: To maximize profitability, it is always better to give priority to produce products with the highest unit contribution margins.

FALSE; have to think about capacity...how much can you produce in a given amount of time?

With variability, you want to try to create a situation where interarrival and processing times are closer to the average (meaning there's less of a difference from customer to customer).

Scheduling customers through fastpass is one way to make arrivals more constant. And when things are more constant and less varied, there's less waiting. (Think about the example of a customer in line at the grocery store behind a slow customer while another register is empty and not being utilized.)

if you have plenty of customers, but you don't have enough capacity to handle them -- then you need to look inward to figure out how to fix the problem.

This is an "internal bottleneck"...the problem now is with the process and not demand. There are then two scenarios that are possible: process has a lot of waste, process does not have a lot of waste

non-value-adding activities

activities that do not directly increase the value of a flow unit; 2 types: (1) work that is necessary to support the current process, (2) work that does not; ex: sorting process b/w defective and good parts (1), attendance sheet (2)

critical activities

activities that lie on the critical path; non-critical activities have a positive slack

flow time

activity time and waiting time

example of fixed ordering cost

admin. costs associated with placing an order, i.e. filling out purchase orders, determining quantity

unit load of a resource unit (T, k)

average amt. of time required by the resource unit (c, k) to process one flow unit

throughput < capacity

bottleneck is external; problem lies in demand for outputs or supply of inputs

effective capacity < theoretical capacity

bottleneck is internal; problem with internal process

queue length formula shows how the average queue length depends on...

capacity utilization, number of servers, and variability in the interarrival and processing times (CAN'T USE IF U = 1)

resource unit (c, k)

each unit in a resource pool

work smarter

eliminate non-value-adding activities; activities should support overall process

slack time

extent to which an activity can be delayed without affecting the process flow time

output

finished goods (products waiting to be shipped)

for activities that must be reworked...total flow time =

flow time x number of visits ex: if 50% of units must be reworked and activity takes 30 min. 30 x 1.50 = 45 (new activity time), see if it effects critical path

between organizations - inventory classification

goods-in-transit (delivery trucks)

sequence effect

has to do with customers remembering the end of a service experience more than the beginning...examples, customers feel like their wait was longer if the line moves more slowly at the end than at the beginning; again, nostalgic items near the registers at Old Navy place a fun experience near the end of the shopping process so that customers will leave with a more positive memory of the experience

rationalization effect

has to do with customers wanting the process to make sense and to be fair...examples, at Home Depot, employees stand in front of lines to direct customers to the shortest line; customers feel less stressed when there are electronic signs directing them to the next available cashier

duration effect

has to do with customers' perception of the time they spend waiting...examples, Disney characters entertaining customers in line; Old Navy placing nostalgic items near the register to distract people while they wait

utilization

has to do with how busy workers are

variability

has to do with how different the various customers' interarrival and processing times are

pooling resources

has to do with reducing variability in interarrival times when customers have the same processing needs

effective capacity = theoretical capacity

have a process with little waste; resources very efficiently utilized

sequence effects

how you sequence things; people remember things most recent to them; make ending more pleasurable (move line faster at end)

your process does not have waste...it's already highly efficient and productive. In other words, your effective capacity is close to the theoretical capacity already. In this case, finding and eliminating waste in the process won't get you much. Instead, the only way you'll be able to increase capacity is to

increase your "c" (or your resource units...employees, machines, etc.).

capacity utilization

indicates the extent to which resources-which represent invested capital-are utilized to generate outputs (flow units and ultimately profits); defined by bottleneck resource pool

increasing the buffer capacity

is another way of saying that you're letting additional customers in who may have previously been blocked from entering the line (e.g., when a customer gets a busy signal because all of the call center's lines are full). On the one hand, it is preferable to reduce blocking and increase your buffer capacity because you can then get more potential customer sales (who might have otherwise been turned away). However, the downside to this is that, as you let more customers in, you increase your arrival rate (Ri), which also increases utilization (u). (And by the utilization effect, by increasing utilization, we increase Ii and Ti.)

stability condition is necessary for...

limiting delays and queues; if not satisfied, delays and queues with grow indefinitely

critical path

longest path in the process flowchart; consists of activities that have zero slack

capacity

max. amount of work we can get done in a period of time; maximum sustainable flow rate; "max R"

theoretical capacity

max. capacity if we got rid of all waste, highly idealized and seldom attainable

theoretical unit load

minimal amount of time req. to process a flow unit, if all waste were eliminated

do the quickest things first

modify the product mix; all about prioritization...give priority to flow units that can be processed faster (this reduces waiting)

work in parallel

move work content off the critical path; redesign the process so that critical activities are performed in parallel rather than sequentially; move work outside process boundaries (e.g. fill out medical info online before you go to doctor's office)

rationalization effects

people want things to make sense; person telling people to go into certain lines or register lights when register is open

duration effects

people who are engaged in a task while in line don't notice how long it takes; people will overestimate how long the line is (longer you wait, more inaccurate wait time becomes); segment rooms in a pleasurable manner (i.e. despicable me ride, walking through rooms), it reduces duration

fixed ordering cost

per order cost (DO NOT depend on order size); variable shipping costs not included

inventory holding cost

per unit cost

homogeneous (similar) customers should be...

pooled into a single line; it's better to place them in a single line and have the person at the front of the line go to the next available server. By doing this, you won't have some lines where there are no customers and some where there are several customers. Instead, each server will constantly be taking whoever is next. (And by the variability effect, by reducing variability, we can reduce I,i and T,i.)

effective capacity

realistic capacity; max. sustainable flow rate through resource unit

decrease capacity utilization

reduce arrival rate, reduce processing time, increase resources

do it right the first time

reduce the amount of rework; rework has an impact on flow time; have robust quality management system

effects of a single line with similar customers

reduce variability in interarrival times (C,i) which (b/c of variability effect) reduces I,i and T,i

effects of multiple lines with different customers

reduce variability in processing times (C,p) which (b/c of variability effect) reduces I,i and T,i

heterogeneous (different) customers should be...

separated into multiple lines; when customers have very different processing needs (i.e., their processing time, T,p, is very different), it makes sense to separate them into separate lines, which reduces the variability in processing times for each line. (And by the variability effect, by reducing variability, we can reduce Ii and Ti.)

S,k

setup time

"bottleneck"

slowest resource pool of the process, constrains overall process

effective capacity of a resource pool

sum of the effective capacities of all the resource units in that pool; effective capacity of the "bottleneck" - slowest resource pool of the process

effective capacity of a resource unit (1/T, k)

the maximum sustainable flow rate through the resource unit (inverse of the unit load)

our process has a lot of waste (i.e., non-value added activities, waiting, etc.) which limits your ability to process more customers in a day. In other words, your effective (real-world) capacity is much less than your theoretical (perfect-world) capacity. To fix this issue,

you need to identify where the waste is and get rid of it...this will, in turn, allow you to increase your capacity.