Bottleneck Management and Improvement

1. Bottleneck Management and Improvement • Time and Throughput: • Critical Path vs. Bottleneck Analysis • Pizza Pazza Company • Levers for Improvement • Multi-product Capacity Management and Investment • Joint Marketing & Production Decisions • Optimal Capacity Investment • Bariatric Surgery

2. Operational Performance Measures • How to measure and decrease flow times? • How to measure and increase throughput? • What is the best achievable performance?

3. Concepts to Cover and Analyze • Flow Time • Critical Path • (Theoretical) Capacity of a Resource • Bottleneck Resource • (Theoretical) Capacity of the Process

4. Analyzing Process Performance: Mortgage Application Verify/Check Employment etc Marcus 20min Assemble, Present to client Karolien 15min Application review, Data entry Shannon 5min Credit rating Kiki 15min Initial policy options/rates Maxi 15min

5. Pizza Pazza: Flow Chartif job order = 2 identical pizzas start Take Order Sauce Prep Dough Prep Spread Activity time: 2 3 12 = 2 Resource: Jean Jean Jean, Pan Unload & Load & Set end Bill Bake Pack cool timer Activity time: 2 1 2 = 2 3 15 1 Resource: Jaqueline Jaqueline, Pan Pan Oven, Pan Jaqueline, Oven, Pan

6. Levers for Reducing Flow Time • Decrease the work content of critical activities • work smarter • work faster • do it right the first time • change product mix • Move work content from critical to non-critical activities • to non-critical path or to ``outer loop’’ • Restructure sequential activities into parallel activities • Reduce waiting time.

7. A Recipe for Capacity Measurements: Minimal resource capacity = bottleneck Define a “job” = … *assuming system is processing at full capacity

9. Product Mix Decisions: Pizza Pazza offers 2 pizza types Sale Price of thin crust: €5 Cost of Direct Materials: €1.40 Sale Price of deep dish: €7.50 Cost of Direct Materials: €2.10 Which of these two products should Jean push to customers that call in and are undecided?

10. Product Mix Decisions Unit margin of thin crust pizza = €3.60 Unit margin of deep dish pizza = €5.40 Margin rate from thin crust = €3.60* 7.5/hr = € 27/hr Margin rate from deep dish = €5.40 * 4/hr = € 21.60/hr

11. How increase capacity? Summary of Typical Actions • Key action = optimize only bottleneck management • Decrease the work content of bottleneck activities • Never unnecessarily idle (“starve”) bottlenecks = eliminate bottleneck waits: • Reduce variability if it leads to bottleneck waiting • Synchronize flows to and from the bottleneck: sync when resources start an activity • work smarter: • Reduce & externalize setups/changeover times, streamline + eliminate non-value added work • do it right the first time: eliminate rework/corrections • work faster • Move work content from bottlenecks to non-bottlenecks • create flexibility to offload tasks originally assigned to bottleneck to non-critical resource or to third party • Can we offload tasks to cross-trained staff members? • Increase Net Availability of Process • work longer: increase scheduled availability • increase scale of process: invest in more human and capital resources • eliminate unscheduled downtimes/breakdowns • Preventive maintenance, backups, etc.

12. “Theory of Constraints” in The Goal Increasing Process Capacity “is to increase the capacity of only the bottlenecks” • “ensure the bottlenecks’ time is not wasted” • increase availability of bottleneck resources • eliminate non-value added work from bottlenecks • reduce/eliminate setups and changeovers • synchronize flows to & from bottleneck • reduce starvation & blockage • “ the load of the bottlenecks (give it to non-bottlenecks)” • move work from bottlenecks to non-bottlenecks • need resource flexibility • unit capacity and/or #of units. • invest

13. Bariatric Surgery Flow Chart 40% quit 10% quit Cash Initial phone call Initial consul- tation Request tests Set appointmt for test 1 Test 1 delay decide Medical Necessity Letter Set appointmt Insurance Approval decide Insurance Yes (50%) 90% More tests (50%) 5 x 1.2 = 6 min (20% callback) Patient Receptionist 30 min Patient Surgeon 10 min Patient Surgeon 5 min Patient Receptionist 60 min Patient Care-nurse Outpatient room 2 days Patient 20 min Patient Surgeon 5 min Patient Receptionist Set appointmt for test 2 5 min Patient Receptionist 15 min Patient Surgeon Visit 2 30 min Patient Care-nurse Outpatient room Test 2 80% approved Insurance Approval delay 2 wks Patient 2 days Patient 20% denied & quit 15 min 2 s-nurses OR OR Cleaning Check-ups & Recovery Laparoscopic Surgery x % 2 days Patient, Inpatient room Care nurse 120min (10minx6x2) 75 min 2 surgery nurses Anesthetist, surgeon patient, OR Follow Up Patient Leaves Drs. Prep Pre- surgery Seminar Patients Arrive & Check-in Schedule surgery Pre- surgery Visit 3 15 min Surgeon anesthetist 30 min Patient Care-nurse 60 min 6 Patients Surgeon Seminar room 10 min Patient Care-nurse 20 min Patient Surgeon Outpatient room 1- x % Patient Prep Check-ups & Recovery Open Surgery 30 min Patient Care-nurse 45 min 2 surgery nurses Anesthetist, surgeon patient, OR 4 days Patient, Inpatient room Care nurse 240min (10minx6x4)

14. Bariatric Surgery Flow Chart for “cash & open surgery” 40% quit Cash Initial phone call Initial consul- tation Request tests Set appointmt for test 1 Test 1 delay decide Set appointmt 5 x 1.2 = 6 min (20% callback) Patient Receptionist 30 min Patient Surgeon 10 min Patient Surgeon 5 min Patient Receptionist 60 min Patient Care-nurse Outpatient room 2 days Patient 5 min Patient Receptionist 15 min 2 s-nurses OR OR Cleaning Follow Up Patient Leaves Drs. Prep Pre- surgery Seminar Patients Arrive & Check-in Schedule surgery Pre- surgery Visit 3 15 min Surgeon anesthetist 30 min Patient Care-nurse 60 min 6 Patients Surgeon Seminar room 10 min Patient Care-nurse 20 min Patient Surgeon Outpatient room Patient Prep Check-ups & Recovery Open Surgery 30 min Patient Care-nurse 45 min 2 surgery nurses Anesthetist, surgeon patient, OR 4 days Patient, Inpatient room Care nurse 240min (10minx6x4)

15. Bariatric Surgery Capacity – Open Surgeries & Cash Payment Expected unit workload per inflow patient * inpatient rooms used 5 days/wk

16. Bariatric Surgery Capacity – Laparoscopic Surgeries & Cash Payment

17. Bariatric Surgery Capacity – Open Surgeries & Insurance Payment

18. Bariatric Surgery Capacity – Laparoscopic Surgeries & Insurance Payment

19. Product Mix Decisions: Open or Laparoscopic Surgery Revenue per open surgery: $15,000 Variable Cost of Materials: $1,000 Revenue per Laparoscopic surgery:$18,000 Variable Cost of Materials: $2,000

20. Product Mix Decisions Open and Laparoscopic have exactly the same process. The only difference is in surgery (laparoscopic takes 30 minutes extra) and in the rooms (laparoscopic uses rooms for 2 days whereas open uses rooms for 4 days.

21. Product Mix Decisions Margin per Open surgery = $14,000 Margin per Laparoscopic surgery = $16,000 Margin per week from Open surgery = 72.72*(15,000 - 1,000) = $1,018,055 / week Margin per week from Laparoscopic surgery = 63.15*(18,000 - 2,000) = $1,010,400 / week

22. Learning Objectives: Time and Throughput Management • Manage better usingthe key operational measures and an inter-functional process view of the organization • Process measures and corresponding improvement levers: • Flow time manage critical activities • Capacity  manage bottleneck resources • Many marketing and financial decisions are linked to process • Effect of product mix decisions on process capacity • marginal contribution per unit of bottleneck capacity used • Bottleneck may shift on adding capacity • diminishing returns to capacity investment