Chapter 3

1. Chapter 3 Evaluating Process Capacity The maximum amount a process can produce in a given unit of time. Objective: to take a fairly technical and complex operation and simplify it to a level suitable for managerial analysis. Elements: preparing a process flow diagram, finding the capacity and bottleneck of the process, computing the utilization of various process steps, and computing a few other performance measures.

2. Managing Toward Perfection A Toyota view: “We get brilliant results from average people managing brilliant processes. We observe that our competitors often get average (or worse) results from brilliant people managing broken processes.” Source: James P. Womack, “In Search of the Perfect Process.” Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

3. 3.1 How to Create a Process Flow Diagram? A process flow diagram is a graphical way to describe the process and it will help us to structure the information we collect during the process improvement project. 3 5 1 7 8 2 4 6 • Activities • Carried out by resources • Add value and are required for completion of the flow unit • May or may not carry inventory • Have a capacity (maximum number of flow units that can flow through the activity within a unit of time) • Inventory / Buffers • Do NOT have a capacity; however, there might be a limited number of flow units that can be put in this inventory space at any moment of time • Multiple flow unit types possible • Arrows • Indicate the flow of the flow unit • Multiple flow unit types possible (see Section 3.5) Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

4. Calculating times on paths through the network • Determining the critical path through the network • Theoretical flow time • Reduce the work content of an activity on the critical path • Eliminate non-value-adding aspects of the activity (“work smarter”). • Increasing the speed at which the activity is done (“work faster”), • Acquire faster equipment • Increase incentives to work faster • Reduce the number of repeat activities (“do it right the first time”), and • Change the product mix to produce products with smaller work content with respect to the specified activity. • Move some of the work content off the critical path. • Move work from a critical path to a non-critical path, and • Move work from a critical path to the outer loop (pre- or post processing). Anupindi, et al, Managing Business Process Flows Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

5. Value Added vs. NVA Time “Just track any work items as it flows through the process and classify the time into one of three categories: (1) value-added work, (2) waste that is required for business reasons, and (3) delays/waste. Then draw a timeline and mark off the time segments for each of these categories. In the example shown, the value-added work (shaded above the centerline) shows the buyer in this purchasing organization is only working the order for 14 minutes of the 4 day cycle. The majority of the time, delineated by white space, is idle queueing time.” Lean Six Sigma by George, et al. Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

6. Productivity The Seven Sources of Waste Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

7. Overproduction 81.6 kg of food are trashed by the averageGerman 61% of the trashing happens by households Large package sizes is the main reason • To produce sooner or in greater quantities than what customers demand • Overproduced items need to be stored (inventory) and create further waste • Bad for inventory turns • Products become obsolete / get stolen / etc Examples Match Supply with Demand Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

8. Transportation • Unnecessary movement of parts or people between processes • Example: Building a dining room and kitchen at opposite ends of a house, then keeping it that way • Result of a poor system design and/or layout • Can create handling damage and cause production delays Crabs fished in the North Sea Shipped 2,500km South to Morocco Produced in Morocco Shipped back to Germany Examples Relocate processes, then introduce standard sequences for transportation Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

9. Rework Readmissions to the ICU in a hospital (also called “Bounce backs”) Readmissions to the hospital afterdischarge (major component of AffordableCare Act) • Repetition or correction of a process • Example: Returning a plate to the sink after it has been poorly washed • Rework is failure to meet the “do it right the first time” expectation • Can be caused by methods, materials, machines, or manpower • Requires additional resources so that normal production is not disrupted Examples Analyze and solve root causes of rework => More in quality module Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

10. Over-processing • Processing beyond what the customer requires • Example: Stirring a fully mixed cup of coffee • May result from internal standards that do not reflect true customer requirements • May be an undesirable effect of an operator’s pride in his work Keeping a patient in the hospital longer than what is medically required Examples Provide clear, customer-driven standards for every process Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

11. Motion Ergonomics Look at great athletes • Unnecessary movement of parts or people within a process • Example: Locating (and keeping) a refrigerator outside the kitchen • Result of a poor work station design/layout • Focus on ergonomics Examples Arrange people and parts around stations with work content that has been standardized to minimize motion Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

12. Inventory • Number of flow units in the system • “Product has to flow like water” • For physical products, categorized in: raw material, WIP, or finished products • Increases inventory costs (bad for inventory turns) • Increases wait time (see above) as well asthe customer flow time • Often times, requires substantial real estate=> the BIGGEST form of waste Loan applications at a bank Examples Improve production control system and commit to reduce unnecessary “comfort stocks” Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

13. Waiting Often, the time in the waiting room exceedsthe treatment time by more than 5x • Underutilizing people or parts while a process completes a work cycle • Example: Arriving an hour early for a meeting • Labor utilization Idle time • Note: • Waiting can happen at the resource (idle time) • But also at the customer level (long flow time) Examples Understand the drivers of waiting; more in Responsiveness module Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

14. Wasteful vs LeanThe IMVP Studies Source: Womack et al Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

15. Understand Sources of Wasted Capacity Poor use of capacity – Waste of the Resource’s time Overproduction Transportation Rework Over-processing Motion The seven sources of waste (Muda) Potential eighth source of waste: The waste of intellect Not “orthogonal to each other” Inventory Waiting Poor flow – Waste of Customer’s time • Taichi Ohno, Chief Engineer at Toyota • The first five sources are RESOURCE centric (and correspond to capacity): • Ask yourself: “What did I do the last 10 minutes? How much was value-add?” Look around at the work-place (360 degree) – what percentage of people are working? • The last two sources are FLOW UNIT centric (and correspond to Flow Time and Inventory) • Ask yourself: “Did I really have to be here that long?” Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

16. Source: Lean Learning Center, Value Stream Mapping Course Notes. Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

17. Source: Lean Learning Center, Value Stream Mapping Course Notes. Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

18. Process Analysis Introduction / The three measures Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

19. Processes: The Three Basic Measures • Flow rate / throughput: number of flow units going through the process per unit of time • Flow Time: time it takes a flow unit to go from the beginning to the end of the process • Inventory: the number of flow units in the process at a given moment in time • Flow Unit: Customer or Sandwich Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

20. Process Analysis: The Three Measures Immigration department Applications Approved or rejected cases Processing time Pending cases Champagne Bottle of champagne Bottles sold per year Time in the cellar Content of cellar MBA program Student Graduating class 2 years Total campus population Auto company Car Sales per year 60 days Inventory Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

21. Summary • When observing a process, always aim to understand the three process measures • Flow rate / throughput: number of flow units going through the process per unit of time • Flow Time: time it takes a flow unit to go from the beginning to the end of the process • Inventory: the number of flow units in the process at a given moment in time • In the next session, we will discuss what drives these measuresWe will then find out that the three measures are related to each other Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

22. Process Analysis Little’s Law Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

23. Processes: The Three Key Metrics Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

24. Little’s law: It’s more powerful than you think... • What it is: Inventory (I) = Flow Rate (R) * Flow Time (T) • How to remember it: - units • Implications: • Out of the three fundamental performance measures (I,R,T), two can be chosen by management, the other is GIVEN by nature • Hold throughput constant: Reducing inventory = reducing flow timeGiven two of the three measures, you can solve for the third: • Indirect measurement of flow time: how long does it take you on average to respond to an email? You write 60 email responses per day You have 240 emails in your inbox Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

25. Little’s law: Some remarks Not an empirical law Robust to variation, what happens inside the black box Deals with averages – variations around these averages will exist Holds for every time window Shown by Professor Little in 1961 Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

26. Process Analysis Finding the bottleneck Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

27. Flow Rate R: Demand vs. Capacity Constrained 3.2 Bottleneck, Process Capacity and Flow Rate (Throughput) Supply constrained Demand constrained Demand constrained Bottleneck Bottleneck Bottleneck Bottleneck (Capacity) (Capacity) (Capacity) (Capacity) Input Input Input Input Flow Rate Flow Rate Flow Rate Flow Rate Demand Demand Excess Excess Excess Excess capacity capacity capacity capacity Demand Demand Flow Rate=Min{Demand, Capacity} The overall process capacity is determined by the resource with the smallest capacity. We refer to that resource as the bottleneck. Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

28. Steps for basic process analysis with one type of flow unit • Find the capacity of every resource; if there are multiple resources performing the same activity, add their capacities together. • The resource with the lowest capacity is called the bottleneck. Its capacity determine the capacity of the entire process (process capacity). • The flow rate is found based on Flow Rate = Minimum {Available input, Demand, Process Capacity} We find the utilization of the process as Similarly, we find the utilization of each resource as Flow rate Process utilization = -------------------------------- Process capacity Flow rate Utilization of resource = -------------------------------- Capacity of resource Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

29. Drawing a Process Flow Diagram Station 1 Station 2 Station 3 Customers Symbols in a process flow diagram Difference between project management and process management Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

30. Basic Process Vocabulary • Processing times: how long does the worker spend on the task? • Capacity=1/processing time: how many units can the worker make per unit of time If there are m workers at the activity: Capacity=m/activity time • Bottleneck: process step with the lowest capacity • Process capacity: capacity of the bottleneck • Flow rate =Minimum{Demand rate, Process Capacity) • Utilization =Flow Rate / Capacity • Flow Time: The amount of time it takes a flow unit to go through the process • Inventory: The number of flow units in the system Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

31. Process Analysis Multiple flow units Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

32. Processes with Multiple Flow Units Foreign Dep. m=2 20 min/app Contact faculty/ other persons Foreign acc. 3 cases per hour 11 cases per hour 4 cases per hour File m=1 3 min/app Regular File EZ form Print invoice m=1 2 min/app Department 1 m=3 15 min/app Contact prior employers Confirmation letter Department 2 m=2 8 min/app Benchmark grades

33. Approach 1: Adding-up Demand Streams

34. Approach 2: A Generic Flow Unit (“Minute of Work”)

35. Steps for Basic Process Analysis with Multiple Types of Flow Units • For each resource, compute the number of minutes that the resource can produce • Create a process flow diagram, indicating how the flow units go through the process • Create a table indicating how much workload each flow unit is consuming at each resource • Add up the workload of each resource across all flow units. • Compute the implied utilization of each resource as The resource with the highest implied utilization is the bottleneck Note: you can also find the bottleneck based on calculating capacity for each step and then dividing the demand at this resource by the capacity Sources: MSWD 3e PPT, Terwiesch Coursera Notes and Others as Noted

36. Processes with Attrition Loss Where is the Bottleneck? 2/6 6/20 20/70 70/500 500 ideas per year New Series Shows Pitches Pilots Scripts Processing time 2 days 10 days 30 days 70 days 200 days Resources 5 judges 3 script writers 2 pilot teams 2 Series crews 1 Main crew (250 days per year)