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III. Operational Measures

III. Operational Measures. Flow Time Capacity and Flow Rate. Inputs. Outputs. Operational Measures and Direct Cost. Inventory ( in production setting, referred to as Working in Process WIP ): the number of units contained within the process. Working capital shown in your balance sheet

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III. Operational Measures

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  1. III. Operational Measures • Flow Time • Capacity and Flow Rate

  2. Inputs Outputs Operational Measures and Direct Cost • Inventory (in production setting, referred to as Working in Process WIP): the number of units contained within the process. • Working capital shown in your balance sheet • Flow Time (throughput time): the time it takes a unit to get through the process. • Shorter flow times reduce the time delay between occurrence of demand and its fulfillment in the form of supply • Flow Rate (throughput rate, output rate): the rate at which the process is delivering output. • Higher flow rate generates more revenues shown in your income statement when capacity is tight. • The maximum rate with which the process can generate supply is called the capacity of the process. • Direct Cost: incurred when transforming a unit from input to output

  3. Meas. & Mix Spoon 1 min. Take Orders Spread Toppings Load & Set Timer 5 min. Bake Box Payment 8 min. 1 min. 1 min. 1 min. 2 min. 1 min. Clean & Hash Pick Fillings 3 min. 2 min. VA NVA Non-Active Active Flow Time • Flow Time = • Theoretical vs. Actual Flow Time • Actual = Value-Added and Non-Value-Added Activities • Active and Non-Active Times • Flow Time efficiency

  4. Flow Time Efficiency

  5. Performance in Auto Industry Business Week, March 25, 2002 Business Week, April 21, 2003

  6. Levers for Reducing Flow Time • See page 73-76: 4.5 – 4.6 • Flow time: • Levers:

  7. oven Process time Tp c ovens Process time Tp Capacity (units/unit time) • Capacity: maximal units a process can process per unit of time • Capacity of a Single Resource • Capacity of the oven = • Capacity of c Identical Resources • capacity of bake operation = • Capacity of a network of resources (system capacity)

  8. Input rate Output rate R Flow Rate (units/unit time) • Flow rate: the units that a process actually does process per unit of time • Flow rate R = • Cycle time = • Process utilization = • Pipeline Principle: In the long run, on average, input rate = output rate R

  9. c R Process time Tp Flow Rate (cont.) • Time to produce X units = • Time to complete X units starting with an empty system • Utilization of a resource in the process r =

  10. 10 min. 8 min. 20 min. 5 min. Bottlenecks c = 2 c = 1 c = 3 c = 1 Tp

  11. 2 1 3 1 Cookies 10 min. 8 min. 20 min. 5 min. Pizzas 15 min. 12 min. 40 min. 7 min. Bottlenecks: Multiple types of flow units

  12. 8 min. 20 min. Bake cookies 1 min. Spoon Mix Pay Bake bread 10 min. 15 min. Bottlenecks: Multiple flows

  13. Levers for Increasing Throughput • See page 99: 5.7. Levers for Managing Flow Rate • Throughput: • Levers:

  14. Case Discussion: Manzana Insurance1991 Second Quarter Performance

  15. Underwriting Team #1 Distribution Clerks (4) Underwriting Team #2 Policy Writers (5) Raters (8) 41 min./request 54.8 min./request 70.4 min./request Underwriting Team #3 Weighted average 28.4 min./request Manzana Insurance (cont.)

  16. Today’s Takeaways Operational Measures: • Flow Time • Critical path • Theoretical vs. actual, value added vs. non value added • Levers for improving flow time • Flow Rate (cycle time) • Capacity, bottleneck, levers for improving throughput • Utilization, server or machine idle time • Pipeline principal • Inventory (next lecture)

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