Koç University
OPSM 301 Operations Management
Class 5:
Business process flows:
Analysis
Zeynep Aksin
zaksin@ku.edu.tr
Office Hours
 My office hours, slight modification
– Mon. 13-15
 TA’s office hours
– TA: Canan Uckun, IEOM Graduate Student
– Tuesday-Thursday 15:30-17:00 ENG 218
 My office hours modified
– Monday 13:00-15:00
Announcements
 First set of study questions
 Benihana to be discussed on 13/10
Thursday
– Read the case, be prepared to discuss
– Mini-quiz as part of class participation grade
 Kristen’s due 18/10 Tuesday
 First quiz on 18/10
Example: Focusing Improvement Efforts
 MBPF operations called for the purchase of both
sheet metal (raw materials) and prefabricated
bases (purchased parts). Garages were made in
the fabrication area from sheet metal and then
assembled with prefabricated bases in the
assembly area. Completed garages were stored
in the finished goods warehouse until they were
shipped to customers
 Analyze the firm’s income statement, balance
sheet, and cost of goods sold to determine in
which department process improvements have the
greatest impact on working capital
Definition: working capital
 Working capital requirements include the
value of inventories in the process and the
value of any accounts receivable. Any
reduction in working capital reduces the
firm’s interest expense and makes extra
cash available for other investments.
Consolidated Statements of Income and Retained
Earnings










NET SALES
COSTS AND EXPENSES
– Cost of goods sold
– Selling, general and administrative expenses
– Interest expense
– Depreciation
– Other (income) expenses
– TOTAL COSTS AND EXPENSES
INCOME BEFORE INCOME TAXES
PROVISION FOR INCOME TAXES
NET INCOME
RETAINED EARNINGS, BEG. OF YEAR
LESS CASH DIVVIDENDS DECLARED
RETAINED EARNINGS AT THE END OF YEAR
NET INCOME PER COMMON SHARE
DIVIDENDS PER COMMON SHARE
250.0
175.8
47.2
4.0
5.6
2.1
234.7
15.3
7.0
8.3
31.0
2.1
37.2
0.83
0.21
Consolidated Balance Sheet of Dec. 31, x
Current Assets
Cash
Short-term investments at cost
Receivables, less allowances of $0.7 mil
Inventories
Other current assets
TOTAL CURRENT ASSETS
Property, Plant, and Equipment (at cost)
Land
Buildings
Machinery and equipment
Construction in progress
Subtotal
Less accumulated depreciation
NET PROPERTY, PLANT, AND EQUIPMENT
Investments
Prepaid expenses and other deferred charges
1.9
Other assets
TOTAL ASSETS
2.1
3.0
27.9
50.6
4.1
87.7
2.1
15.3
50.1
6.7
74.2
25.0
49.2
4.1
4.0
146.9
Inventories and Cost of Goods Details
Cost of Goods Sold
– Raw Materials
– Fabrications (Labor and Overhead)
60.2
– Purchased Parts (Labor and Overhead)
– Assembly (Labor and Overhead)
– TOTAL
50.1
40.2
25.3
175.8
Inventory
–
–
–
–
–
–
Raw Materials (roof)
Fabrications WIP (roof)
Purchased Parts (base)
Assembly WIP
Finished goods
TOTAL
6.5
15.1
8.6
10.6
9.8
50.6
Process Flows
$60.2/yr
$50.1/yr
$40.2/yr
Raw materials
$6.5
Purchased Parts
$8.6
Fabrication
$15.1
$25.3/yr
$110.3/yr
Assembly
$10.6
$40.2/yr
Finished goods
$9.8
$175.8/yr
Detailed look at Inventories and Flow times
$60.2/yr
$25.3/yr
$50.1/yr
110.3/yr
$6.5
Raw materials
6.75 week
$15.1
Fabrication
7.12 week
$175.8/yr
$10.6
$9.8
$40.2/yr
$8.6
Purchased parts
11.12 weeks
Assembly
3.14 weeks
Finished goods
2.90 weeks
Inventory Value Representation
TH (mil/week)
Fabrication
0.96
0.77
Purchased Parts
Raw
materials
11.12
6.75
7.12
Finished goods
2.12
Assembly
3.38
3.14 2.90
Accounts Receivable
5.0
5.80
CT (week)
Operational Measure: Flow Time
Driver: Activity Times, Critical Activity
 (Theoretical) Flow Time
 Critical Activity
 Flow Time efficiency =
Theoretical Flow Time
Average Flow Time
Most time inefficiency comes from waiting:
E.g.: Flow Times in White Collar Processes
Industry
Process
Average
Flow Time
Theoretical
Flow Time
Flow Time
Efficiency
Life Insurance
New Policy
Application
72 hrs.
7 min.
0.16%
Consumer
Packaging
New Graphic
Design
18 days
2 hrs.
0.14%
Commercial Bank
Consumer
Loan
24 hrs.
34 min.
2.36%
Hospital
Patient Billing
10 days
3 hrs.
3.75%
Automobile
Manufacture
Financial
Closing
11 days
5 hrs
5.60%
Critical Path & Critical Activities
 Critical Path: A path with the longest total
cycle time.
A
B
D
C
 Critical Activity: An activity on the critical
path.
X-Ray Service Process
 1. Patient walks to x-ray lab
 2. X-ray request travels to lab by messenger
 3. X-ray technician fills out standard form based on info.
From physician
 4. Receptionist receives insurance information, prepares
and signs form, sends to insurer
 5. Patient undresses in preperation of x-ray
 6. Lab technician takes x-ray
 7. Darkroom technician develops x-ray
 8. Lab technician checks for clarity-rework if necessary
 9. Patient puts on clothes, gets ready to leave lab
 10. Patient walks back to pysicians office
 11. X-rays transferred to physician by messenger
Example 4.5
1
6
7
start
2
3
20
6
4
5
5
3
6
2
12
3
7
9
10
75%
7
8
25%
end
11
20
transport
support
Value added
decision
Measured actual flow time: 154 minutes
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’’
Operational Measure: Capacity
Drivers: Resource Loads
 (Theoretical) Capacity of a Resource
 Bottleneck Resource
 (Theoretical) Capacity of the Process
X-Ray revisited
Resource
Pool
Res. Unit
Load
Load
Batch
Theoretical No of units Theoretical
Capacity of in pool
capacity of
Res. unit
pool
Messenger
40
1
min/patient
1.5
patients/hr
6
9 Patient/hr
Receptionist
5
1
12
1
12
X-ray
technician
16
1
3.75
4
15
X-ray lab
7.5
1
8
2
16
Darkroom
technician
15
1
4
3
12
Darkroom
15
1
4
2
8
Changing
room
6
1
10
2
20
Utilizations given an observed throughput of
5.5 patients/hr
Resource pool
Theoretical capacity
Patients/hr
Capacity utilization
Messenger
9
61.11
Receptionist
12
45.83
X-ray technician
15
36.67
X-ray lab
16
34.38
Darkroom technician
12
45.83
Darkroom
8
68.75
Changing room
20
27.50
Levers for Increasing Process Capacity
 Decrease the work content of bottleneck activities
– work smarter
– work faster
– do it right the first time
– change product mix
 Move work content from bottlenecks to non-bottlenecks
– to non-critical resource or to third party
 Increase Net Availability
– work longer
– increase scale (invest)
– increase size of load batches
– eliminate availability waste
Increasing Process Capacity in the Smiley
Factory
 Focus on the bottleneck
– “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
The role of variability
6/hr
6/hr
4 or 8/hr
4 or 8/hr
2 or 10
2 or 10
0 or 12
0 or 12
As variability increases, throughput (rate) decreases
Compounding effect of variability and unbalanced
task times
6/hr
4/hr
4/hr
4 or 8/hr
2 or 6/hr
3.5/hr
2 or 10
0 or 8
2.5/hr
Summary of fundamental process principles
 identify and eliminate bottlenecks
 reduce as much variability as possible
 eliminate handoffs, improve
communication to minimize resource
interference