POM Tutorial 1

Alessia Bilancia
PhD Student
INSEAD Sustainable Business Initiative

Jan 11, 2025

About me

• B.S. in Management Engineering → University of Udine (Italy)

• Management Consultancy → Udine (Italy)

• M.S. in Management Engineering → Politecnico di Milano (Italy)

• Ph.D. in Management Engineering → Politecnico di Milano (Italy)

• Visiting Ph.D. in Technology and Operations Management → INSEAD (France)

• My research deals with the Sustainability of Operational Excellence techniques in

Luxury Fashion industry
Structure of the tutorials

• Timeline:
Self-study

Review sheets are Slides and answers

Tutorial session
uploaded are uploaded

• Structure of the tutorials

• 15 minutes → Review of the key theory and concepts
• Remaining time → Solving the questions (as many as we can)

• Questions
• On chat box or at the end of each sub-question
• By email or appointment: alessia.bilancia@insead.edu
Structure of the tutorials

• Schedule:
• Tutorial 1 (Sat, Jan 11) → Process analysis and improvement
• Tutorial 2 (Sat, Jan 18) → Queueing
• Tutorial 3 (Sat, Jan 25) → Newsvendor

• What to expect from the Tutorials vs. Lectures:

• Complementary
• Hands on problem solving
• Will go little behind the classes

• Feel free to reach out and give me feedback!

Process Analysis
Cachon, G., & Terwiesch, C. (2008). Matching supply
with demand. McGraw-Hill Publishing.
Program for today

Process analysis:
• Definition of process elements
• Key metrics/concepts: Capacity, flow rate, bottleneck, utilization

To know more:
Cachon, G., & Terwiesch, C. (2008). Matching supply with demand. McGraw-Hill Publishing.
Process elements

Resource 1

Activity 1
Input Output

A process operates on flow units, which are the entities flowing through the process (e.g., patients in a
hospital, cars in an automotive plant)

Activity
• Carried out by resources, i.e., worker
• May or may not carry inventory

Inventory/
buffers
• There might be a limited number of flow units that
can be put in this inventory space at any moment of
time

• Direction of flow
Key metrics: Capacity

Input
Flow Rate Demand
rate

Activity 1 Activity 2 Activity 3 Activity 4

• Capacity of each resource:

• # of units of flow that a given resource can process per unit of time
• Resource capacity λ = 1/(time spent per item by the resource)
• e.g., If it takes 6 min to process an item, capacity is 1/6 units per min, or 10 units per hour. (Units
are important!)
• Process (system) capacity:
• # of units of flow that the whole process (system) can process per unit of time
• Process capacity = Minimum {Capacity of Resource I , . . . , Capacity of Resource n}
• # of units of output per unit time when the bottleneck is fully utilized (100%)
Key metrics: Flow rate

Input
Flow Rate Demand
rate

Activity 1 Activity 2 Activity 3 Activity 4

• Flow rate
• How much the process actually does produce
• Depends not only on process capacity, but also on the demand for its output as well as the
availability of its input
• Flow rate = Minimum{Input rate, demand rate, Process Capacity}
Key metrics: Flow rate

Case A

Flow rate = Minimum{input

Case B rate, demand rate, process
capacity}

Case C
Some examples
In a clinic, 4 patients arrives per hour and doctor takes 20 mins to see a patient.
• Resource capacity=3/h; Process capacity= 3/h; Flow rate=3/h
• What is demand here? Demand is not so relevant here, can be considered as very large

Input
Flow Rate Demand
rate

In an assembly line, raw materials arrives at a rate of 5 and it takes two stations (Station 1 rate: 6; Station
2 rate: 7) to be processed into final products. Customers’ orders arrive at a rate of 4
• Resource capacity: Station 1 = 6; Station 2 = 7
• Process capacity = min of resource capacities = 6
• Flow rate = min{Input rate, Demand rate, Process Capacity} = min {5, 4, 6} = 4

Input
Flow Rate Demand
rate

Station 1 Station 2
Key metrics: Utilization - how busy is the
resource?

• Resource utilization (𝝆𝒊 )

𝐼𝑛𝑝𝑢𝑡 𝑟𝑎𝑡𝑒 𝑡𝑜 𝑟𝑒𝑠𝑜𝑢𝑟𝑐𝑒 𝑖
𝜌𝑖 =
𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑜𝑓 𝑟𝑒𝑠𝑜𝑢𝑟𝑐𝑒 𝑖
Always between 0
and 1 (included)
• Process utilization (𝝆)
𝐹𝑙𝑜𝑤 𝑟𝑎𝑡𝑒
𝜌=
𝑃𝑟𝑜𝑐𝑒𝑠𝑠 𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦
Key concept: Bottleneck – who is the busiest?

Input
Flow Rate Demand
rate

Activity 1 Activity 2 Activity 3 Activity 4

• Bottleneck = resource with the highest utilization Where’s the

bottleneck?
• Sets the pace of the whole process

• Remark:
• IF there is no yield loss (i.e. input flow is same for all)
• Bottleneck = process capacity = min{𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑜𝑓 𝑟𝑒𝑠𝑜𝑢𝑟𝑐𝑒 1,…,𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑜𝑓 𝑟𝑒𝑠𝑜𝑢𝑟𝑐𝑒 𝑛}
• IF there is a yield loss → calculate utilization!
Little’s Law applied to manufacturing

Little’s law
Average inventory = average flow rate x average flow time

Input Rate
= Flow rate WIP Inventory Demand

Flow time

Activity 1 Activity 2 Activity 3 Activity 4

Questions?
Review Sheet 1: Process Analysis and Improvement
Instant Dolls Co.
a) What is the bottleneck of the process?

The step with the longest processing time or lowest capacity is the bottleneck → W2

b) How much time will it take to produce 250 units? (assume that the process starts with
an empty production line)

CASE A (NOT EMPTY production line)

The bottleneck is defined already (W2)→ order time= 22 min→
Production time= 250 u * 22 min= 5500 min

CASE B (EMPTY production line)

First order time= 8+22+10= 40 min
Other order time= 22 min
Production time= 40 + 249 * 22 min= 5518 min
c) What is the utilization of worker 3?

Input rate is not given. Thus, we assume plants should be operated with the bottleneck
utilized 100%.
𝑖𝑛𝑝𝑢𝑡 𝑟𝑎𝑡𝑒 1𝑢 60 𝑢
ρ2 =100%=𝑟𝑒𝑠.𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦 → 𝑖𝑛𝑝𝑢𝑡 𝑟𝑎𝑡𝑒 = 100% ∗ 𝑟𝑒𝑠. 𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦2=1 ∗ 22𝑚𝑖𝑛 = 22ℎ
=2,73 u/h
2

ρ3 = 2,73/(60/10)=46%
d) What is the average labor utilization of the workers? Assume the process operates at
its capacity and there are no empty system effects.
Alternative 1
→flow rate= 1/22=2,73 u/h
ρ1 =(1/22) / (1/8)= 36%
ρ2 =(1/22) / (1/22)=100%
ρ3 =(1/22) / (1/10)=45%
Avg ρ =(0,36+0,45+1)/3=60%
Alternative 2

𝑙𝑎𝑏𝑜𝑟 𝑐𝑜𝑛𝑡𝑒𝑛𝑡
𝐴𝑣𝑔 𝜌 =
𝑙𝑎𝑏𝑜𝑟 𝑐𝑜𝑛𝑡𝑒𝑛𝑡 + Σ𝑖𝑑𝑙𝑒 𝑡𝑖𝑚𝑒𝑠 𝑎𝑐𝑟𝑜𝑠𝑠 𝑤𝑜𝑟𝑘𝑒𝑟𝑠

𝐼𝑑𝑙𝑒 𝑡𝑖𝑚𝑒𝑖 = 𝑐𝑦𝑐𝑙𝑒 𝑡𝑖𝑚𝑒 – 𝑎𝑐𝑡𝑖𝑣𝑖𝑡𝑦 𝑡𝑖𝑚𝑒𝑖

Labor content= 8+22+10=40min
Idle time1=22-8=14 min
Idle time2=22-22=0
Idle time3=22-10=12 min
Σidle times across workers= 14+0+12=26 min

Avg ρ = 40/(40+26)=60%
e) What are the direct labor costs for one doll? Assume a wage rate of $15 per hour.

𝑡𝑜𝑡𝑎𝑙 𝑤𝑎𝑔𝑒 𝑝𝑒𝑟 ℎ 3 ∗ 15 $/ℎ

𝑑𝑖𝑟𝑒𝑐𝑡 𝑙𝑎𝑏𝑜𝑟 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 = = = 16,5 $/𝑢
𝑓𝑙𝑜𝑤 𝑟𝑎𝑡𝑒 𝑝𝑒𝑟 ℎ 60
22 𝑢/ℎ
f) Suppose that Alternative I is chosen. Where would you assign the new employee?

A new employee is hired and will help the station with higher utilization
Process time2=22min/2=11min
Flow rate=1/11 u/min
g) What would be the direct labor of one doll under the solution depicted above?
Assume there is sufficient demand (system operates at its capacity) and there are no
empty system effects.
𝑡𝑜𝑡𝑎𝑙 𝑤𝑎𝑔𝑒 𝑝𝑒𝑟 ℎ 4 ∗ 15 $/ℎ
𝑑𝑖𝑟𝑒𝑐𝑡 𝑙𝑎𝑏𝑜𝑟 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 = = = 11 $/𝑢
𝑓𝑙𝑜𝑤 𝑟𝑎𝑡𝑒 𝑝𝑒𝑟 ℎ 60
11 𝑢/ℎ
h) What would be the direct labor costs for Alternative II?

Process time1=8+10=18 min→bottleneck

Process time2=12 min
Process time3=10min
Flow rate= 1/Process time1= 1/18 u/min= 60/18 u/h

𝑡𝑜𝑡𝑎𝑙 𝑤𝑎𝑔𝑒 𝑝𝑒𝑟 ℎ 3 ∗ 15 $/ℎ

𝑑𝑖𝑟𝑒𝑐𝑡 𝑙𝑎𝑏𝑜𝑟 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 = = = 13,5 $/𝑢
𝑓𝑙𝑜𝑤 𝑟𝑎𝑡𝑒 𝑝𝑒𝑟 ℎ 60
18 𝑢/ℎ
Sport Obermeyer
Sport Obermeyer

We adapt Little’s Law to solve the problem.

The capacities in the two factories are the same. Therefore the throughput is the
same, assuming the factories are working at full capacity.
Inventory is the work in progress. There are 40 parkas on the assembly line in Mexico
at any given point (we are assuming no idle workers). There are just 20 parkas on the
assembly line in China at any given point.

𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 = 𝑡ℎ𝑟𝑜𝑢𝑔ℎ𝑝𝑢𝑡 𝑟𝑎𝑡𝑒 ∗ 𝑓𝑙𝑜𝑤 𝑡𝑖𝑚𝑒

Then it must be that the flow time in China is lower than the one in Mexico.
The idea is that more unskilled workers (more steps in the manufacturing) lead to
more inventory lying around. More work in progress in one factory, but same capacity
translates into longer flow time in that factory.

Answer: c
Questions?
alessia.bilancia@insead.edu