3. Process Flow Measures
Outline
1
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
3. Process Flow Measures
Five Elements of the Process View
2
Information
structure
Inputs
Process
Management
Network of
Activities and Buffers
Flow units
(customers, data,
material, cash, etc.)
Labor & Capital
Resources
Outputs
Goods
Services
3. Process Flow Measures
How target improvement?
Identify and Monitor Operational Performance Measures
3
3. Process Flow Measures
Flow Time, Flow Rate, and Inventory
4
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
3. Process Flow Measures
The Essence of Process Flow
5

Customer Value Proposition
Customer

expectations
Customer satisfaction


Process competencies
Financial performance

Inventory
 Essence of process flow 
3. Process Flow Measures
A Stable Process
6
In a Stable Process
 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.
Is the Security Checkpoint a stable Process?
Average inflow rate
is 600 passengers/hr,
or 10 passengers/min
Scanner can handle 12
passengers per minute
It can handle inflow
Can we have 9 instead of 12?
If we have 20 instead of 12, could we still have people waiting in the line?
 Average outflow capacity (process capacity) must be greater than average
inflow rate, while average inventory is not zero.
3. Process Flow Measures
The Little’s Law
7
Inventory I
...
...
...
[units]
Flow rate/Throughput R
[units/hr]
...
...
Flow Time T [hrs]
There is a relationship between R, T, and I.
Throughput x Flow Time = Inventory
RT=I
3. Process Flow Measures
Little’s Law: Examples
8
In Vancouver Airport:
Average waiting line length = I = 17.5 passengers
Throughput or R = 600/60 = 10 passengers/minute
Compute the flow time at
Flow time T  RT=I  T= I/R
T= 17.5 /10 = 1.75 minutes / passenger (on average).
3. Process Flow Measures
Little’s Law: Examples
9
I=2000 garages, with no inventory buildup (i.e. stable process;
always on average we have 2000)
R=1000 garages/week. Each garage costs $3,300 to produce.
What is the Average Flow Time for $1?
We can translate volumes 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.
3. Process Flow Measures
Little’s Law applied to different process flow examples
10
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?
3. Process Flow Measures
Little’s Law applied to different process flow examples
11
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?
3. Process Flow Measures
Little’s Law: Cash Flow
12
Steel Company: Processes $400M of iron ore per year. The cost of
processing the ore is $200M per year. The average inventory is
$100M. How long does a dollar spend in the process?
 The flow unit is a cost dollar.
 The process is the steel manufacturing operations
 The value of the inventory includes both ore and processing cost. I =
$100M/year
 A Total of $400M + $200M = $600M flows through the process each year.
Throughput R = $600M/year
Average flow time T = I/R = 100/600 = 1/6 year = 2 months
3. Process Flow Measures
Two Implications of Little’s Law
13
Question: A general manager at Baxter states that her inventory
turns three times a year (Cost of Goods Sold is three times of
average inventory). She also states that everything that Baxter
buys gets processed and leaves the docks within six weeks. Are
these statements consistent?
Of the 3 operational measures of performance, inventory,
throughput and average flow time – a process manager only
needs to focus on 2 measures, as they directly determine the
third measure via Little’s Law. Measuring which one is
cheaper?
For a given level of throughput in any process, the only way to
reduce flow time is to reduce inventory and vice versa.
3. Process Flow Measures
Little’s Law: Auto-Moto Financial Services
14
Auto-Moto receives 1,000 applications per month (30 working
days). In the old process, each application is handled individually,
with 20% of applications being approved. 500 were in the process
at any time. Average flow time T = ?
1000/month Process
Ip=500
200/month
800/month
Average flow time T = I/R = 500/1,000 months = 0.5 month or 15
days.
The firm recently implemented a new loan application process. In
the new process, applicants go through an initial review and are
divided into three categories
3. Process Flow Measures
Admission Flow
15
Marshall provides higher education to executives and receives
about 1000 applications per month.
The evaluation starts with a preliminary classification with basic
information:
 Group A: Applicants with desired recommendations,
working experience, etc. (50% of the applicants)
 Group B: Other applicants. (50% of the applicants)
Applicants in group A will be further considered through an
advanced review.
Applicants in group B will be rejected.
3. Process Flow Measures
Work In Process (WIP)
16
On average there were:
 200 applications in the preliminary review stage
 100 applications in the advanced review stage
How long does group A spend in the application process?
How long does group B spend in the application process?
How long is the average process time?
3. Process Flow Measures
Admission Flow Chart
17
100
Accept
50%
1000
200
50%
Reject
How long do the applicants spend in the preliminary stage?
RT=I  T = I/R=200/1000 = 0.2 month
Applicants spend 0.2(30) = 6 days in the first stage
Applicants from group B receive an answer in 6 days on
average
3. Process Flow Measures
Admission Flow
18
How long do the applicants
from group A spend in the
advanced review stage?
I =100 , R = 1000(0.5) = 500
TR= I  T=I/R  T= 100/500 = 0.2
Applicants from group A spend 0.2(30) = 6 days on
average in the advanced review stage.
Applicants from group A receive answer in 12 days (6 +
6) on average.
3. Process Flow Measures
Admission Flow
19
What is the average processing time?
 0.5(6)+0.5(12) = 9 days
Is there an alternative way to calculate the average
waiting time? Do it------
Little’s Law holds for complicated systems.
3. Process Flow Measures
Assignment (Due next week)
20
1. Bank XYZ receives 20 loan requests per hour on average. Each
loan request goes through an initial processing stage, after which
an “accept or reject” decision is made. Approximately 80% of the
loans are accepted, and these require additional processing.
Rejected loans require no additional processing. Suppose that on
average 5 loans are in the initial processing stage, and 25
(accepted) loans are in the additional processing stage.
a) What is the average processing time required for a loan request?
b) What is the average processing time required for a rejected
loan?
c) What is the average processing time required for an accepted
loan (including the initial processing stage)?
3. Process Flow Measures
Assignment (Due next week)
21
2. A call center employs 1000 agents. Every month 50 employees leave
the company and 50 new employees are hired.
a)
How long on average does an agent work for this call center?
Suppose the cost of hiring and training a new agent is $1000. The
manager of this call center believes that increasing agents’ salary
would keep them working longer term in the company. The manager
wants to increase the average time that an agent works for the call
center to 24 months, or 2 years.
b)
If an agent works for the call center for 24 months on average, how
much can the company save on hiring and training costs over a
year? Hint: first determine the current annual cost for hiring and
training, then determine the new annual cost for hiring and training.
c) How much the monthly salary of each agent can be increased?
3. Process Flow Measures
Practice 1: Auto-Moto New Process
22
Subprocess A
Review
IA = 25
25%
1000/month Initial
Review
IIR=200
25%
50%
70%
Accepted
200/month
30%
10%
Subprocess B
Review
IB = 150
90%
Rejected
800/month
Compute average Flow time of an application.
Compute Average Flow Time for Activities IR, A, and B.
Compute average Flow time of a rejected application, an accepted
application, and use them to Compute average Flow time of an
application.
3. Process Flow Measures
Problem 3.4, MBPF
23
A hospital emergency room (ER) is currently organized so that
all patients register through an initial check-in process. At his
or her turn, each patient is seen by a doctor and then exits the
process, either with a prescription or with admission to the
hospital. Currently 55 people per hour arrive at the ER, 10% of
who are admitted to the hospital. On average, 7 people are
waiting to be registered and 34 are registered and waiting to
see a doctor. The registration process takes, on average, 2
minutes per patient. Among patients who receive
prescriptions, average time spent with a doctor is 5 minutes.
Among those admitted to the hospital, average time is 30
minutes. On average, how long does a patient spend in the
ER? Assume the process to be stable; that is, average inflow
rate equals average outflow rate.
3. Process Flow Measures
Directions
24
o) Draw the flow process chart
b) On average how long a patient spend in ER?
c) On average how many patients are in ER?
Hints:
Compute flow time in buffer 1
Compute average activity time of Doctor
Compute the average flow time in this process
Compute average flow time for a simple prescription patient
Compute average flow time for a potential admission patient
Compute number of patients in Doctor activity
Compute the average number of patients in the process.
3. Process Flow Measures
Problem 3.5, MBPF
25
A triage system has been proposed for the ER described in Exercise 3.4. As
mentioned earlier, 55 patients per hour arrive at the ER. Under the proposed
triage plan, entering patients will classify them as Simple Prescriptions or
Potential Admits. While Simple Prescriptions will move on to an area staffed for
regular care, Potential Admits will be taken to the emergency area. Planners
anticipate that the initial examination will take 3 minutes. They expect that, on
average, 20 patients will be waiting to register and 5 will be waiting to be seen
by the triage nurse. Recall that registration takes an average of 2 minutes per
patient. Planners expect eh Simple Prescriptions area to have, on average, 15
patients waiting to be seen. As before, once a patient’s turn come, each will
take 5 minutes of a doctor’s time. The hospital anticipates that, on average, the
emergency area will have only 1 patient waiting to be seen . As before, once
that patient’s turn comes, he or she will take 30 minutes of a doctor’s time.
Assume that, as before, 90% of all patients are Simple Prescriptions, assume,
too, that the triage nurse is 100% accurate in making classifications. Under the
proposed plan, how long on average, will a patient spend in the ER? On
average, how long will a Potential Admit spend in the ER? On average, how
many patients will be in the ER? Assume the process to be stable; that is,
average inflow rate equals average outflow rate.
3. Process Flow Measures
Directions
26
o) Draw the flow process chart
a) On average how many patients are in ER?
b) On average, how long a patient spend in ER?
Hints:
Average flow rate is still 55 per hour (50 is typo)
Planners estimate that initial examination takes 3 minutes. It is the flow
time in triage activity. It is 3 it is not 1. One, as we will see in the
future chapters is an estimate for the theoretical flow time.
Compute average flow rate in buffer 3 and buffer 4.
Compute average flow time in all buffers.
Compute average number of patients in all activities.
3. Process Flow Measures
Problem 3.6, MBPF
27
Refer again to Exercise 3.5. Once the triage system is put in
place, it performs quite close to expectations. All data conform
to planners’ expectations except for one set-the classifications
made by the nurse practitioner. Assume that the triage nurse
has been sending 91% of all patients to the Simple
Prescription area when in fact only 90% should have been so
classified. The remaining 1% is discovered when transferred to
the emergency area by a doctor. Assume all other information
from Exercise 3.5 to be valid. On average, how long does a
patient spend in the ER? On average, how long does a
Potential Admit spend in the ER? On average, how many
patients are in the ER? Assume the process to be stable; that
is, average inflow rate equals average outflow rate.
3. Process Flow Measures
Directions
28
o) Draw the flow process chart
b) On average how many patients are in this process?
c) On average, how long a patient spend in this process?
Hints:
Compute flow rates at Buffer 3
Compute flow rates at Buffer 4