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Operations primer

Operations primer. The Three Questions. What is improvement? Linking operations to strategy Where to target improvement? Linking operational flows to financial flows How to improve? Lean operations. What is Improvement : A Strategic Framework for Operations. Business Strategy. Desired

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Operations primer

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  1. Operations primer S. Chopra

  2. The Three Questions • What is improvement? • Linking operations to strategy • Where to target improvement? • Linking operational flows to financial flows • How to improve? • Lean operations S. Chopra

  3. What is Improvement:A Strategic Framework for Operations Business Strategy Desired Capabilities Operations Structure Resources Processes S. Chopra

  4. Can a Process do Everything Well? • Operational focus and focused factories • Is all capacity the same? Should we eliminate the most expensive capacity? • Flexible versus efficient capacity S. Chopra

  5. Responsiveness World-class Emergency Room operations frontier One general facility World-class (non-emergency) Hospital Costefficiency Focus and the Efficient Frontier S. Chopra

  6. Where to Target Improvement?Linking Operational and Financial Flows • Flow time • Throughput • Inventory • Process Cost • Quality S. Chopra

  7. Relating operational measures (flow time T, throughput R & inventory I) with Little’s Law Flow rate/Throughput R [units/hr] • Inventory = Throughput x Flow Time I = R xT • Turnover = Throughput / Inventory = 1/ T Inventory I [units] ... ... ... ... ... Flow Time T[hrs] S. Chopra

  8. Process Flow Examples 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”. 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? S. Chopra

  9. Targeting ImprovementMBPF Inc.: Consolidated Statement S. Chopra

  10. MBPF Inc.: Balance Sheet S. Chopra

  11. MBPF Inc.: Inventory and Cost of Goods S. Chopra

  12. $60.2/yr $25.3/yr $110.3/yr $50.1/yr $6.5 $15.1 Raw Materials (roofs) Fabrication (roofs) $175.8/yr $175.8/yr $10.6 $9.8 $40.2/yr Assembly Finished Goods $8.6 $40.2/yr Purchased Parts (bases) MBPF Business Process Flows S. Chopra

  13. MBPF Inc.: Flow Times S. Chopra

  14. Flow rate R ($/week) 5.0 3.38 Accounts Receivable 2.12 Assembly Finished Goods Fabrication 0.96 Raw Materials 0.77 Purchased Parts 11.12 6.75 7.12 3.14 2.90 5.80 Flow Time T (weeks) Where to Target Improvement? S. Chopra

  15. How to Improve? Throughput • Bottleneck resource • Decrease work at bottleneck • Quality at source • Move work from bottleneck to non-bottleneck • Pooling of bottleneck resources • Add to bottleneck • Shifting bottleneck S. Chopra

  16. How to Improve? Time • Critical path • Decrease time on critical path • Quality at source • Can activities on critical path be performed in parallel? • Decrease waiting time • Decrease variability • Pool available resources S. Chopra

  17. How to Improve? Inventory • Cycle + Safety inventory • Decrease cycle inventory • Decrease batch size by increasing flexibility / aggregating transportation • Decrease safety inventory • Decrease uncertainty • Decrease lead time • Pool available inventory physically or through postponement S. Chopra

  18. How to Improve? Lean Operations • Synchronize flows by • Reduce batch size (decreases time and inventory) • Use flexibility to pool resources (increases throughput) • Decrease variability (decreases time and inventory) • Pull rather than push work (decreases time and inventory) • Quality at source (decreases time, increases throughput, improves quality) S. Chopra

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