Process Analysis
Introduction of Process
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Agenda
Process Analysis
What is a process
Three basic performance measures
Finding the bottleneck
Little’s rule
Labor productivity measures
The product-process matrix
Inventory turns/Inventory costs
Buffer or suffer
Multiple flow units
What is a process?
 Process: Is any part of an organization
that takes inputs and transforms them
into outputs (products or services) by
using various of resources
Transformation Process
System
Primary Resources
Inputs
Primary
Transformatio
n Function(s)
Nurses, medical
Health care
supplies,
equipment
Restaura Hungry Food, chef, wait st Well-prepared, w
aff, environment
ell-served food
nt
customer
s
Hospital
Automo
bile fact
ory
Patients
Sheet ste
el, engin
e parts
Tools, equipment,
workers
Fabrication and a
ssembly of cars (
physical)
Typical
Desired Output
Healthy
individuals
Satisfied custome
rs
High-quality cars
Process Analysis
The Product-Process Matrix
 A Process Flow Structure refers to how a factory
organizes material flow using one or more of the
process technologies.
 Job shop Production of small batches of a large
number of different products, most of which
require a different set or sequence of processing
steps. (e.g., Commercial printing firms, airplane
manufacturers, machine tool shops, and plants that
make custom-designed printed circuit boards) (lowvolume/high-variety)
 A typical example would be a machine shop who makes
specialized components for the aerospace industry.
Such parts are made in relatively small quantities
compared to components such as standard bolts or
rivets.

 Job Shop Scheduling (JSS): dealing with the assignment
of jobs on machines subject to precedence constraints,
NP-hard (nondeterministic polynomial time) problem
 Batch shop. Essentially, a somewhat standardized job
shop. Such a structure is generally employed when a
business has a relatively stable line of products, each of
which is produced in periodic batches, either to customer
order or for inventory. Most of these items follow the same
flow pattern through the plant. (ex. Copy center making
10,000 copies of an ad piece for a business)
 Assembly Line. Production of discrete parts moving
from workstation to workstation at a controlled rate,
following the sequence needed to build the product.
(ex. Automobile manufacturer)
 When other processes are employed in a line fashion
along with assembly, it is commonly referred to as a
production line.
 Assembly Line
 Continuous Flow. As on assembly lines, production
follows a predetermined sequence of steps, but the
flow is continuous rather than discrete. Such
structures are usually highly automated and, in effect,
constitute one integrated “machine” that must be
operated 24 hours a day to avoid expensive shutdowns
and start-ups. (ex. Petroleum manufacturer, chemicals,
beer, iron and steel enterprise)
The material flow for an integrated iron and steel enterprise

From: Tang and Wang, Decision support system for the batching
problems of steelmaking and continuous-casting production,
Omega, 2008, 36(6):976-991
Product-Process Matrix
Few
High
Low
Multiple Major Volume,
Volume, Products, Products, High
One of a
Low
Higher StandardKind
Volume Volume ization
I.
Job
Shop
II.
Batch
III.
Assembly
Line
IV.
Continuous
Flow
Flexibility (High)
Unit Cost (High)
Commercial
Printer
French Restaurant
These are
the major
stages of
product
and
process
life cycles
Heavy
Equipment
Automobile
Assembly
Burger King
Sugar
Refinery
Flexibility (Low)
Unit Cost (Low)
Process Analysis
Three Performance Measures
KFC– Sitting in Front of the Store
Sitting in Front of the Store
Source: Cachon, Gerard, Christian Terwiesch, Matching Supply with Demand: An
Introduction to Operations Management, 2nd edition, Irwin - McGraw Hill, 2009
Processes: The Three Basic Measures
• Flow Unit: Customer or Sandwich
•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
Process Analysis: The Three Measures
Immigration department
Champagne
Auto company
Applications
Bottle of champagne
Car
Approved or
rejected cases
Bottles sold per year
Sales per year
Time in the cellar
60 days
Content of cellar
Inventory
Processing time
Pending cases
Those three are the most important performance
measures in any operations
In the US economy alone, in a typical year, we
have about 1 trillion dollors inventory, this is
just the manufacturing section, because this is
the accounting inventory
Inventory happens whenever the miss match
happens between supply and demands
Understanding the inventory, flow rate, flow
time, are indeed the most important issues, not
just in our operations, but in management in
general
Process Analysis
Finding the bottleneck
Process Analysis
In this session, we will take you INSIDE the black box
Specifically, you will learn how to:
1. Create a process flow chart (diagram)
2. Find the bottleneck of the process and determine the
maximum flow rate
3. Conduct a basic process analysis
Inside the Store
Flowchart
Process Flow Diagram
Purpose and Examples
Tasks or operations
Decision Points
Storage areas or
queues
Flows of materials
or customers
Examples: Giving an admission
ticket to a customer, installing a
engine in a car, etc.
Examples: How much change
should be given to a customer,
which wrench should be used, etc.
Examples: Sheds, lines of people
waiting for a service, etc.
Examples: Customers moving to a
seat, mechanic getting a tool, etc.
Drawing a Process Flow Diagram
Customers
Station 1
Station 2
Station 3
Difference between project management
and process management
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/processing time
• Bottleneck: process step with the lowest capacity
• Process capacity: capacity of the bottleneck
Basic Process Vocabulary (Cont’d)
 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
 Illustration of the calculation in EXCEL
Process Analysis
Labor productivity measures
Labor Productivity Measures
Processing Time
Bottleneck
a4
a2
a1
Review of Capacity Calculations
Number of Resources i
• Capacityi =
Processing Time i
a3
• Process Capacity=Min{Capacityi}
• Flow Rate = Min{Demand, Capacity}
1
2
=Idle Time
3
4
=Processing time
• Utilizationi=
Flow Rate
Capacity i
Labor Productivity Measures
• Cycle time(takt time) CT= 1/ Flow Rate
Direct Labor Content=p1+p2+p3+p4
If one worker per resource:
Direct Idle Time=(CT-p1) +(CT-p2) +(CT-p3)
• Average labor utilization
labor content

labor content  direct idle time
• Cost of direct labor
Total wages per unit of time

Flow Rate per unit of time
Example: Assembly Line with Six Stations
3 min/unit
5 min/unit
2 min/unit
3 min/unit
6 min/unit
2 min/unit
Insert Excel analysis of KFC line here
The Role of Labor Costs in Manufacturing:
The Auto Industry
100%
Other
Overhead
Warranty
Quality
90%
80%
70%
Assembly and other
Labor costs
60%
50%
Purchased
parts and
assemblies
40%
Parts and
material
costs
Logistics costs
30%
20%
Material costs
10%
0%
Final
Assembler’s
cost
Including
Tier 1
Costs
Including
Tier 2
Costs
Rolled-up
Costs over
~ 5 Tiers
• While labor costs appear small at first, they are important
- look relative to value added
- role up costs throughout the value chain
• Implications
- also hunt for pennies (e.g. line balancing)
- spread operational excellence through the value chain
Process Analysis
Little’s Law
Processes: The Three Key Metrics
Little’s law: It’s more powerful than you think...
What it is: Ave. Inventory (I) = Ave. Flow Rate (R) * Ave.
Flow Time (T)
Throughput time = work-in-process
Throughput rate
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 time
•Given 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
Examples for Little’s Law Applications
In a large Philadelphia hospital, there are 10 births
per day.
•80% of the deliveries are easy and require mother
and baby to stay for 2 days
•20% of the cases are more complicated and require
a 5 day stay
What is the average occupancy of the department?
Source: Graves and Little
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

Process Analysis
Inventory Turns / Inventory costs
Inventory Turns
Cost of Goods sold:
20,000 mill $/year
Inventory: 391 mill $
Inventory Turns
Computed as: Inventory turns=
Cost of Goods sold:
25,263 mill $/year
Inventory: 2,003 mill $
COGS
Inventory
Based on Little’s law
Careful to use COGS, not revenues
Inventory Turns At Dell
100
90
80
70
60
50
40
30
20
10
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Inventory Cost Calculation
Compute per unit inventory
costs as:
Per unit Inventory costs=
Annual inventory costs
Inventory turns
Example:
• Annual inventory costs=30%
• Inventory turns=6
Per unit Inventory costs=
30% per year
 5%
6 turns per year
Process Analysis
Buffer or Suffer
Simple Process Flow – A Food Truck
Food Truck
Every five minutes:
- You get 0, 1, or 2 orders with equal probability
- You have a capacity of 0, 1, or 2 with equal probability
- It is not possible to make a sandwich before the order
- Customers are not willing to wait
 How many sandwiches will you sell per five minute slot?
Variability Will Be a Key Factor in Waiting Time
Why variability does not always average itself out
Buffer-or-suffer strategy
Buffering is easier in production settings than in services (make to order vs
make to stock)
Two different models: Queue and Newsvendor
Difference Between Make-to-Order and Make-to-Stock
McDonald’s
1. Make a batch of sandwiches
2. Sandwiches wait for customer orders
3. Customer orders can filled immediately
 Sandwich waits for customer
Subway
1. Customer orders
2. Customer waits for making of sandwich
3. Customer orders can filled with delay
Customer waits for sandwich
Which approach is better?
Make-to-Stock advantages include:
+ Scale economies in production
+ Rapid fulfillment (short flow time for customer order)
Make-to-Order advantages include:
+ Fresh preparation (flow time for the sandwich)
+ Allows for more customization (you can’t hold all versions
of a sandwich in stock)
+ Produce exactly in the quantity demanded
Examples of Demand Waiting for Supply
Service Examples
 ER Wait Times: 58-year-old Michael Herrara of Dallas died of a heart attack
after an estimated 19 hours in the local Hospital ER
Some ER’s now post expected wait times online / via Apps
 It takes typically 45 days do get approval on a mortgage; Strong link
between wait times and conversion
 Waiting times for drive-through at McDonald’s: 159 seconds; Long queues
deter customers to join
Production Examples
• Buying an Apple computer
• Buying a Dell computer
Make-to-order vs Make-to-Stock
http://www.minyanville.com/businessmarkets/articles/drive-thrus-emissions-fast-food-mcdonalds/5/12/2010/id/28261
Five Reasons for Inventory
Pipeline inventory: you will need some minimum inventory
because of the flow time >0 (Little’s Law)
Seasonal inventory: driven by seasonal variation in demand
and constant capacity (dismatching between supply and
demand)
Cycle inventory: economies of scale in production
(purchasing drinks) (created due to a cost motivation)
Safety inventory: buffer against demand (Mc Donald’s
hamburgers), especially for the stochastic demand.
Decoupling inventory/ buffers: buffers between several
Source: De Groote
internal steps
Process Analysis
Multiple flow units
The two most common complications of multiple
flow units are:
(1)The flow of the unit moving through the process
breaks up into multiple flows.
(2)There are multiple types of flow units,
representing different customer types or product
mix.
Implied utilization
=Capacity requested by
demand(workload)/Available capacity
Processes with Multiple Flow Units
Foreign Dep.
m=2
20 min/app
Contact
faculty/
other persons
Foreign acc.
3 cases per hour
Regular
11 cases per hour
4 cases per hour EZ form
File
m=1
File
3 min/app
Department
Contact
prior
m=3
employers
1
15 min/app
Department
Benchmark
gradesm=2
8 min/app
2
Print invoice
m=1
Confirmation
2
min/app
letter
Approach 1: Adding-up Demand Streams
 Unlike utilization, implied utilization can exceed
100 percent
 The fact that a resource has an implied
utilization above 100 percent does not make it
the bottleneck. The bottleneck is the resource
where the implied utilization is the highest.
 It is important to keep in mind that in the case of
a capacity expansion of the process, it might be
worthwhile to add capacity to these other
resources as well, not just to the bottleneck.
Approach 2: A Generic Flow Unit (“Minute of Work”)
Demand can be expressed in terms of number of
“Minute of Work” it requests from the resource.
Steps for Basic Process Analysis with Multiple
Types of Flow Units
For each resource, compute the number of minutes that
the resource can produce
2. Create a process flow diagram, indicating how the flow
units go through the process
3. Create a table indicating how much workload each flow
unit is consuming at each resource
4. Add up the workload of each resource across all flow
units.
5. Compute the implied utilization of each resource as
Implied utilization = Result of step 4/(result of step 1)
1.
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