operations exam 1

Time through an empty machine-based process =

# of stations x cycle time

Two types of costs

- Costs for inputs -Costs for resources For a given level of costs, the higher the revenue the higher the profits.

Market segment

- a set of customers who have similar utility functions -Customers willing to pay for same day shipping are in a different segment from those willing to save money by waiting two days for their order to arrive

Consumption utility

-a measure of how much you like a product or service, ignoring the effects of price and of the inconvenience of obtaining the product or service '-comes from various attributes of a product/service (ex: saltiness of food, funniness of movie, weight of bike, etc) 2 sets of attributes: 1.performance 2.Fit

Flow unit

-the basic unit that moves through a process. -it is generally associated with the outputs of a process -Ex: patients in a hospital, scooters in a kick-scooter plant, and calls in a call center

flow time = inventory x cycle time

-the time a flow unit spends in a process, from start to finish. -Typical units for this measure are minutes, hours, days, weeks, months, or years -Ex: patient in waiting room

3 components of utility

1. Consumption Utility 2. Price 3. Inconvenience

Two key questions the manager of a process should ask:

1. Is the process performing well? 2.How can we make the process better?

4 dimensions of performance

1. cost -effiency 2. quality -product quality -price -process quality (as good as promised? -defect rate 3. variety -customer herogeneity -number of options -flexibility/set-ups -make-to-order 4. time -responsiveness to demand -customer lead time -flow time

3 forces of ineffiencies/3 system inhibitors

1.waste 2.variability 3.inflexibility

Ex: you come to a walk-in clinic and there are 10 patients (including you) in the clinic to see the doctor. You notice that the doctor works on a 15-minute cycle (i.e, calls in and sends out one patient every 15 minutes). How long will you be in the clinic? (lead time)

10 patients x 15 minute/patient = 150 minutes

Ex: Over the course of an eight hour day, a dentist's office treats 24 patients. What is the flow rate of patients in this dentist's office per hour?

24/8 = 3

Process Flow Diagram

A graphical way to describe the process. boxes = resources arrows= flows, triangles= inventory

machine based

A process in which all steps are connected through a conveyor belt and all of the steps must work at the same rate even if some of them have more capacity than others. Ex: sushi bars, assembly operations (such as automotive vehicles)

worker-paced

A process line in which each resource is free to work at its own pace: if the first resource finishes before the next one is ready to accept the sandwich (the customer), then the first resource puts the completed flow unit in the inventory between the two resources. Inventory can accumulate between workers

Ex: From 5 a.m. to 6 a.m., four callers contact a help desk. The callers spend 2, 5, 3, and 10 mins on their calls. What is the average flow time of a caller at this help desk during this hour?

Average (2,5,3,10) = 5 mins per caller

Ex: Now, imagine demand goes up to100 customers per hour. If we continue to rely on our one-employee process with a process capacity of 30 customers per hour, we would be 70 customers per hour short. So, instead of working with one employee, assume we would now work with three

Capacity = m/processing time= 3/ 120 seconds/customer = .90 customers per hour With more demand and more capacity, our flow rate would increase to: Flow Rate = minimum (demand, process capacity) =minimum(100,90) =90 customers/hour Utilization= flow rate/capacity= 90/90 = 1 Cycle Time= 1/Flow rate = .0111 hour/customer = 40 seconds/customer

variability

Changes in either demand or supply over time

Important rules with respect to defining the flow uni

Choose a flow unit that corresponds to what you want to track and measure with respect to the process Stick with the flow unit you defined Choose a flow unit that can be used to measure and describe all of the activities within the process (ex: currency in business)

waste

Consumption of inputs and resources that do not add value to the customer -costly to the business -customer is not willing to pay for waste Ex: expired food, unsold dishes, wasted time of employees, poor menu design

fixed costs

Costs we have to pay anyway, pretty much independent of how much we produce and sell Ex: rent for restaurant, making marketing campaigns, insurance, utility bills

capacity constrained

Demand exceeds supply and the flow rate is equal to process capacity

Takt time = 1/demand rate = available time/ required quantity

Entirely driven by demand It is our goal to design a process flow that meets exactly this demand rate (goal is to have a cycle time that is as close to the takt time as possible) More demand means a shorter takt time, and a shorter takt time requires more employees to handle the same amount of labor content If cycle time is greater than takt time, then the process is capacity constrained If takt time is 30 seconds and cycle time is 40 seconds then all demand is not satisfied

Flow rate = minimum(Demand,Process Capacity)

Ex: 40 customers want a sandwich each hour, but we only have capacity to make 30 =Minimum (40 customers/ hour, 30 customers/hour) = 30 customers/hour Example of capacity-constrained

true or false: A firm reduces inefficiencies by making trade-offs

False- A firm reduces inefficiencies so that it does not have to sacrifice one performance dimension versus another.

Inflexibility

Flexibility: operations ability to react to variability in supply

Processing time

How long the resource takes to complete its work on the flow unit (customer) Ex: greet customer, take order, make food, wrap bag, ring order; etc

labor utilization=

How much work required to serve a customer/ how much work used to serve a customer Every 20 mins, 10 mins of work → 50% of time busy working → labor utilization = 50%

Process Analysis

Identifies and analyzes all the activities involved in serving one unit of demand or, put differently, in providing one unit of supply

off-loading the bottleneck

Improvement strategy of moving work away from the bottleneck 1.Reassign activities to other resources with more capacity (line balancing) 2.Automating some of the activities consuming time at the bottleneck by using technology 3.Outsourcing some of the activities consuming time at the bottleneck. 4.Increase process capacity by adding more employees 5.Boost bottleneck capacity by either having the bottleneck resource work longer hours (overtime) or assigning a more skilled employee to the bottleneck resource, assuming that this employee would have a shorter processing time

line balancing for a fixed sequence

In this case, we have to carry out the activities in a given order, one activity is the first, one the second, and so on. This corresponds to what we did as we moved from the three-employee line to the seven-employee line. We first compute takt time and then keep on adding activities to a resource just so long as the resulting processing time of that resource stays under the takt time. We then proceed to the next resource, until all activities are assigned.

Suppose the flow rate for a process is 200 units per hour and a process improvement reduces variable cost by $1. What will happen to profits?

Increase by $200 per hour

Variable costs

Increase with the number of units we sell Ex: material costs for sourcing the food, packaging the food

Line balancing for activities with no fixed sequence

It is hard to wrap a sandwich before it is made. But could you put hot peppers on a sandwich before dealing with the pickles? Probably you could. In some cases, you can reshuffle the activities in your process. This gives you an extra bit of flexibility, which makes assigning activities to resources in a balanced way easier, and thus should lead to a higher average labor utilization and lower costs of direct labor.

If inventory goes up but flow time stays constant, what will happen to cycle time?

It will go down

Process Capacity = 1/Processing time

Maximum number of flow units that can be processed by the resource per unit of time If there are m workers (or machines) at the resource: -Capacity = m/processing time The process capacity is found by looking for the smallest/ lowest capacity in the process. The flow rate is less than the demand rate

Average labor utilization = labor content/ cycle time x number of employees

Measure of efficiency- we have to pay our employees whether they are working or not. Thus, an unutilized worker creates an unnecessary expense and so an efficient process is one in which the average labor utilization is as high as possible The average utilization across resources.

Cycle time= 1/Flow Rate

Measures the time between ringing up two consecutive customers

advantages of integrate work strategy- Lower-skilled labor

More specialized labor tends to require a shorter training period and oftentimes receives lower wage rate

Over the course of a day, fans pour into a NASCAR venue at the rate of 8,000 people per hour. The average rate at which fans leave the venue

Must be exactly 8,000 people per hour because it is essential that flow rate into a process=flow rate out of a process

strategic positioning

Need some sort of advantage in a dimension so another business in market cant beat

demand constrained

Process capacity exceeds demand and thus the flow rate is equal to the demand rate flow rate is less than capacity

utilization = flow rate/ capacity

Ratio between the flow rate (how fast the process is currently operating) and the process capacity (capturing how fast the process could be operating if there was sufficient demand) can not be greater than 100%

If a process is demand constrained, what should you focus on to improve profits?

Reduce fixed and variable costs

target manpower = labor content/ takt time

Required staffing level level the demand: set an expected demand rate for a given period of time (say 1 hr at subway). Then, we turn that leveled demand into a takt time and then translate the takt time into a staffing level The longer the processing time at a resource, the greater the target manpower for a desired capacity.

advantages of integrate work strategy-Reduction in processing times due to learning

Simply put, practice makes perfect and this perfection also manifests itself in shorter processing times.

How companies can "match supply with demand"

Strategic trade-offs -Seek to utilize inputs and resources to their fullest potential and move the firm to the efficient frontier (reduce inefficiencies so that the business does not have to sacrifice one performance dimension vs another) -Innovate and improve the operations (ex: make same food with less workers)

Line Balancing

The act of allocating the activities that need to be carried out in the process across the process resources as evenly as possible so that all resources have a comparable utilization level.

labor content = sum of the processing times involving labor

The amount of work that goes into serving one customer as the input into the process and turning that customer into a served customer as the output Processing time = 3 min → 3 mins of working required

Costs of direct labor = total wages per unit of time/flow rate

The labor cost associated with serving one customer,

Little's Law

The law that describes the relationship between three key process metrics: inventory, flow rate, and flow time. Inventory= Flow rate x Flow time I=R xT

Demand rate

The number of flow units that customers want per unit of time Demand= 40 units/hours

flow time

The time a flow unit spends in a process, from start to finish (hour,day,week)

Idle time = cycle time x number of employees - labor content

The time a resource is not actually working (but may still be paid) The more a resource is idle, the lower its utilization idle total idle time is the amount of idle time per flow unit added up across all resources

Lead time = Inventory x Cycle time

The time between a customer placing his or her order and that order being filled Lead time is thus what we previously defined as flow time, the time a flow unit (a customer order) takes to get through a process If cycle time stays constant but inventory goes down, lead time will go down

bottleneck

The weakest link, the resource with the lowest capacity The capacity of the bottleneck is equal to the capacity of the process. To increase the capacity of a process one must increase the capacity of the resource that is the bottleneck A resource will have idle time when it comes after the bottleneck in the process.

supply variability

Time to serve a customer Disruptions- worker sickness, bad weather, poor motivation Defects- order wrong food, food overcooked, bill messed up

Ex: Assume demand would be 20 units/hour. In this case, the flow rate (the minimum between demand and capacity) would be 20 units/hour and the process is now demand-constrained. Also, the utilization of the process goes down to

Utilization = flow rate/ capacity = 20/20 = .6667 Cycle Time= 1/Flow Rate = .05 hour/customer = 180 seconds/customer (Cycle time has increased, indicating that the flow moves more slowly)

Slack capacity

Utilization levels that are strictly less than 100% In general, a resource might have a utilization of less than 100% for one of two reasons: 1. A bottleneck resource has, by definition, some extra capacity relative to the bottleneck 2.In the case of a demand-constrained process, even the bottleneck would not be working at 100%

integrate work strategy

broaden the scope of tasks each worker does, even as far as to assign each worker to do all tasks. Capacity of integrate work = number of workers/ labor content maximizes the capacity of a process given a set of workers and processing times

Companies seeking external help with managing and improving their operations often hire _____

consulting companies

Demand Variability

customer arrivals customer requests customer behavior

Time to make Q units =

cycle time x Q

If the cycle time for a process goes down then the time to finish X units starting with empty inventory buffers will

decrease

If the flow time for a process goes down then the time to finish X units starting with empty inventory buffers will

decrease

advantages of integrate work strategy- Equipment replication

dont need as much equipment to operate the process

Process

et of activities that takes a collection of inputs, performs some work or activities with those inputs, and then yields a set of outputs

A computer server experiences large fluctuations in the amount of data requests it receives throughout the day. Because of this variation, Little's Law does not apply.

false

Consumption utility- Performance

features of the product/service that most (if not all) people agree are more desirable

Profits =

flow rate x (average price-variable cost) - fixed costs

buffer inventory

flow units waiting in the process without being worked on -Ex: customers waiting in line

If a plant manager can reduce the time it takes to manufacture a part (i.e. the Flow Time) and the Flow Rate stays the same, what does Little's Law predict will happen to Inventory?

go down

If a supply chain manager can reduce Inventory while keeping the Flow Rate constant, what does Little's Law predict will happen to Flow Time?

go down

resources

group of people and/or equipment that transforms inputs into outputs Ex: cooking equipment, doctors

Consumption utility- Fit

heterogeneous preferences- not all customers have the same utility function

processing times

how long that a specific resource takes to complete one flow unit How long does the worker spend on (completing) the task?

Operations management is about...

improving the way we and/or others do their work How to structure the processes and manage resources to develop the appropriate capabilities to convert inputs into outputs

3 key process metrics

inventory, flow rate, flow time

Inefficiency

others can provide better (equal) customer utility at equal (lower) costs

advantages of integrate work strategy- reduction in processing times

reduction in processing times due to elimination of set ups Ex: an employee who is doing all activities might have to take his gloves off when he switches between touching the sandwich and operating the cash register, which will increase processing times. A person who does nothing but operate the cash register would not face such an inconvenience.

lean operations

response to system inhibitors to improve a firm's process productivity

process scope

set of activities included in the process

Specialization leads to..

shorter processing times

Process Metric

something we can measure that informs us about the performance and capability of a process

Time through empty worker-paced process =

sum of all processing times

trade offs

the need to sacrifice one capability in order to increase another one, companies cannot be good at everything

inventory = flow time x flow rate

the number of flow units within a process (customer numbers, patient numbers, pairs of shoes)) -important because inventory generally takes up space and may cost money -When doing process analysis inventory refers to whatever flow unit you are interested in tracking (not only physical things)

Flow rate = flow units/time

the rate at which flow units travel through a process. As a rate, it is measured in "flow units per unit of time" (ex: "dollars per week", "people per month"). If the "per unit of time" is missing, then it is just inventory more units flowing through a process is generally desirable because the point of the process is to produce output

Process scope

the set of activities and included in the process

Time through the empty system

the time it takes the first flow unit to flow through an empty process; that is, a process that has no inventory after the firs unit, it will be the full pipeline system (for the remaining Q-1 units)

inputs

things that a business purchases Ex: soda, meat, medications

Time to finish X units starting with an empty system

time through an empty process + ( (X-1) x Cycle Time )

machine paced line

time through an empty system = # of stations x cycle time

worker-paced line

time through an empty system = sum of all processing times

Price

total cost of owning the product or receiving the service (shipping,discounts)

inconvenience

transaction costs (i want product here and now) - location and timing

Consumption utility question

who are the customers? What are their heterogeneous needs?