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Outline. The Essence of Process Flow Process Measures Flow Time Flow Rate Inventory Little’s Law: Average Inventory = Average Flow Time × Throughput Throughput: The average flow rate in a stable process Process view of financial statements

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  1. Outline • The Essence of Process Flow • Process Measures • Flow Time • Flow Rate • Inventory • Little’s Law: Average Inventory = Average Flow Time × Throughput • Throughput: The average flow rate in a stable process • Process view of financial statements • Using Little’s Law to improve financial measures

  2. Five Elements of the Process View Process Management Information structure Network of Activities and Buffers Inputs Outputs Goods Services Flow units (customers, data, material, cash, etc.) Labor & Capital Resources

  3. Inventory Flow Rate Cost Flexibility Quality How target improvement? Identify and Monitor Operational Performance Measures Time

  4. Flow Time, Flow Rate, and Inventory • Flow Time • The time required by a flow unit to move through all the processes from entry to exit. • It is not the same for all flow units • different types of flow units • variability in the flow time of a flow unit. • Average flow time of a process is the average flow time of all flow units. • Flow Rate • The number of flow units passing a specific point (entry, exit or any intermediate point) in the process per unit of time. • It changes over time • variability in the flow rate • seasonality (e.g. tax season for a CPA) • Average flow rate in a stable process  Throughput • Inventory • The number of flow units within the boundaries of the process at any time

  5. Cost Time Inventory Flexibility Quality Flow time Flow rate The Essence of Process Flow Customer expectations   Customer satisfaction Customer Value Proposition   Process competencies Financial performance   Essence of process flow 

  6. Is the Security Checkpoint a stable Process? A Stable Process • In a Stable Process • Average outflow capacity (process capacity) must be greater than average inflow rate, while average inventory is not zero. • Average inflow rate is the same as average outflow rate. • Throughput (R) is the average flow rate • Ideally, R should be equal to the customer demand. Scanner can handle 12 passengers per minute It can easily handle inflow Average inflow rate is 600 passengers/hr, or 10 passengers/min

  7. Inventory = Throughput x Flow Time I = RT Flow rate/ThroughputR [units/hr] Inventory I [units] ... ... ... ... ... Flow Time T[hrs] The Little’s Law Average flow time (T): how much time does a typical flow unit spend within the process within boundaries.

  8. Little’s Law: Examples Compute the flow time at Vancouver Airport. Average queue size =I = 17.5 passengers Throughput or R = 600/60 = 10 passengers/minute Flow time T  RT=I  T= I/R T= 17.5 /10 = 1.75 minutes per average passenger.

  9. Little’s Law: Examples What is the Average Flow Time for $1 in MBPF Co? We have • I=2000 garages, with no inventory buildup (i.e. stable process) • R=1000 garages/week. Each garage costs $3,300 to produce. We can translate this info into $ I = 2,000(3,300) = $6,600,000 tied up in inventory (average). R = 1,000(3,300) = $3,300,000/week. • I=RT  T=I/R • T = 6,600,000/3,300,000 = 2 weeks.

  10. Little’s Law applied to different process flow examples • Monetary Flow.For the new euro introduction in 2002, Wim Duisenberg had to decide how many new Euro coins to stamp by 2002. Euroland’s central banks’ cash-in-coins handling was estimated at €300 billion per year. The average cash-in-coins holding time by consumers and businesses was estimated at 2 months. How many Euro coins were to be made? • Customer Flow. Taco Bell processes on average 1,500 customers per day (15 hours). On average there are 75 customers in the restaurant (waiting to place the order, waiting for the order to arrive, eating etc.). How long does an average customer spend at Taco Bell and what is the average customer turnover?

  11. Little’s Law applied to different 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”. • Material Flow. Wendy’s processes an average of 5,000 lb. of hamburgers per week. The typical inventory of raw meat is 2,500 lb. What is the average hamburger’s cycle time and Wendy’s turnover? • 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?

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