Overview

Processes and Flows Important Concepts

Throughput WIP Cycle Time Littles Formula

Cycle Time Analysis Managing Cycle Time and Capacity

Cycle time reduction Increasing Process Capacity

Theory of Constraints

Processes and Flows Concepts

A process = A set of activities that transforms inputs to outputs Two main methods for processing jobs
1. Discrete Identifiable products or services
Examples: Cars, cell phones, clothes etc.

2. Continuous Products and services not in identifiable distinct units

Examples: Gasoline, electricity, paper etc.

Three main types of flow structures

1. Divergent Several outputs derived from one input Example: Dairy and oil products 2. Convergent Several inputs put together to one output Example: Car manufacturing, general assembly lines 3. Linear One input gives one output Example: Hospital treatment
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Process Throughput
Inflow and Outflow rates typically vary over time
IN(t) = Arrival/Inflow rate of jobs at time t OUT(t) = Departure/Outflow rate of finished jobs at time t IN = Average inflow rate over time OUT = Average outflow rate over time = the process flow rate = process throughput

A stable system must have IN=OUT=

Process Inflow and Outflow vary over time

12 10 8

Jobs

6 4 2 0 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29

IN(t) OUT(t)

Work-In-Process
All jobs that have entered the process but not yet left it A long lasting trend in manufacturing has been to lower WIP by reducing batch sizes
The JIT philosophy Forces reduction in set up times and set up costs

WIP = Average work in process over time WIP(t) = Work in process at time t
WIP(t) increases when IN(t)>OUT(t) WIP(t) decreases when IN(t)<OUT(t)

The WIP Level Varies With Process Inflow and Outflow

OUT(t) = IN(t)

WIP(t)

OUT(t) > IN(t)

WIP

IN(t) > OUT(t)

t1

t2

t3
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Process Cycle Time

The difference between a jobs departure time and its arrival time = cycle time
One of the most important attributes of a process Also referred to as throughput time

The cycle time includes both value adding and non-value adding activity times
Processing time Inspection time Transportation time Storage time Waiting time

Cycle time is a powerful tool for identifying process improvement potential

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Littles Formula
(Due to J.D.C. Little (1961)) States a fundamental and very general relationship between the average: WIP, Throughput (= ) and Cycle time (CT)
The cycle time refers to the time the job spends in the system or process

Littles Formula: WIP = CT

Implications, everything else equal

Shorter cycle time lower WIP If increases to keep WIP at current levels CT must be reduced

A related measure is (inventory) turnover ratio

Indicates how often the WIP is entirely replaced by a new set of jobs

Turnover ratio = 1/CT

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Littles Law

= rate at which units arrive quantity/time-unit or #/time-unit;

Littles Law
L = inventory/quantity/number in the system (eg. WIP: Work-In-Process, customers);

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Littles Law
W = time a unit spends in the system = throughput time (eg. hours)

WIP=CT
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Littles Law
The average waiting time and the average number of items waiting for..a service in a service system are important measurements for a manager. Little's Law Relates these two metrics via the average rate of arrivals to the system. This fundamental law has found numerous uses in operations management and managerial decision making

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Example

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Example inventory management

Inventory Management L = average inventory; W = average time in inventory; = average throughput rate. The quantity 1/CT = /WIP is often referred to as the turnover ratio.
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Inventory Management
A fast food restaurant processes on the average 5000 lbs. of hamburger per week. The observed inventory level of raw meat, over a long period of time, averages 2500 lbs. L = 2500 lbs., = 5000 lbs./week; W = L/ = 2500/5000 = 1/2 week is the average time spent by a pound of meat in inventory; 1/W = 2 times per week is the inventory turnover ratio.
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Example Services Management

L = average number of customers; W = average customers delay; = average customers throughput rate.
A restaurant processes on average 1500 customers per day (=15 hours). On average, there are 50 customers waiting to place an order, waiting for an order to arrive or eating.
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Example Services Management

= 1500 customers/day = 100 customers/hour; L = 50 customers; W = L/ = 50/100 = 1/2 hours, average time in the restaurant.

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Example Services Management

Out of the 50 customers, 40 customers on the average are eating. Then = 100, L = 50 40 = 10 customers at the service counter; W = L/ = 10/100 hours = 6 minutes average wait at the counter.
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Examples
Insurance: An insurance company processes 10,000 claims per year. The average processing time of a claim is 3 weeks. Assuming 50 weeks per year, we have = 10,000 claims/year = 200 claims/week; W = 3 weeks; L = W = 3 200 = 600 claims backlog on the average
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Examples
A company sells 300M$ worth of nished goods per year. The average amount of accounts receivable is 45M$. = 300M$/year; L = 45M$; W = L/ = 45/300 = 0.15 years = 1.8 months. So it takes, on average, 1.8 months from the time a customer is billed until the time payment is received 21

Example in IT

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Example in IT

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Example1-solution

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Example 2

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Solution Example2

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Note
Let pi be the ith packet into the queue Let Ni = # of pkts already in the queue when pi arrives Let Ti = time spent by pi in the system: includes
time sitting in queue time it takes processor to process pi

If K = (unlimited queue size) then lim E[Ni] = lim E[Ti]

i i

Holds for any distribution of , distribution of Ti as well)!!

(which means for any

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Note

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Examples
People arrive at a bank at an avg. rate of 5/min. They spend an average of 20 min in the bank. What is the average # of people in the bank at any time? =5, T=20, E[N] = E[T] = 5(20) = 100 To keep the average # of people under 50, how much time should be spent by customers on average in the bank? =5, E[N] < 50, E[T] = E[N] / < 50 / 5 = 10
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Examples

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Example- 3 scenarios
At the supermarket a checkout operator has on average 4 customers and customers arrive every 2 minutes. Therefore customers on average will be in line for 8 minutes. A restaurant holds about 60 people, and the average person will be in there about 2 hours, so they're entering at the rate of about 30 people an hour. The queue for the restaurant has 30 people in it, so that means I'll wait about an hour for a table. A financial services organisation receives on average 160 enquiries per day about its products and services. If it takes around 30 minutes to process each enquiry and management want to ensure each enquiry is responded to on the same day its received, how many people are needed to process the enquiries?
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Example- 3 scenarios
Problem
1 2 3

Throughput Time
? minutes/customer 2 hours/customer hour/enquiry

Work in Process
4 customers 60 customers ? people @ 1 per enquiry

Throughput Rate
customer/minute ? customers/hour 20 enquiries/hour

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Example- 3 scenarios
The trick to using Littles Law is to ensure you are working with the same time interval for the throughput time and throughput rate i.e. minutes, hours, days, weeks, etc. Otherwise your answers will be incorrect. (This is where most people get Littles law wrong).
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Example- 3 scenarios
In the first problem, we want to find the Throughput Time at the checkout, which is 4 customers x customer / minute = 8 minutes. Note that I converted all figures to minutes. In the second problem, we want to find the Throughput Rate, which is 60 customers / 2 hours per customer = 30 customers / hour. If the queue has 30 people in it then, based on this throughput rate, well have to wait for an hour before getting a seat in the restaurant. In the third problem, we need to find the Work in Process, which will equate to the required number of people if we consider that each enquiry will require one person to handle it. We firstly convert the figures to an hourly basis.34 We then calculate the Work in Process which is 20

Exercise-1
A fast food hamburger restaurant uses 3,500 kilograms of hamburger mince each week. The manager of the restaurant wants to ensure that the meat is always fresh i.e. the meat should be no more than two days old on average when used. How much hamburger mince should be kept in the refrigerator as inventory?
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Exercise1 -Solutions
Law:
Throughput = 3,500 kilograms per week (= 500 kilograms per day) Average flow time = 2 days Average inventory = Throughput x Average flow time = 500 x 2 = 1,000 kilograms (Note that the variables are all in the same time frame i.e. days)

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Excercise2
The Acme Australia insurance company processes 12,000 insurance claims per year. At any point in time, there are 480 insurance claims in head office in various phases of processing. Assuming that the office works 50 weeks per year, find out the average processing time of an insurance claim in days.
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Exercise 2-solution
Throughput time Work in Process Throughput Rate claims per week Throughput Time = Work In Process / Throughput Rate
= 480 claims = 12,000 claims per year = 12,000/50 = 240 claims per week = 480 / 240 = 2 weeks

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Summary

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Cycle Time Analysis

The task of calculating the average cycle time for an entire process or process segment
Assumes that the average activity times for all involved activities are available

In the simplest case a process consists of a sequence of activities on a single path

The average cycle time is just the sum of the average activity times involved

but in general we must be able to account for

Rework Multiple paths Parallel activities
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Rework
Many processes include control or inspection points where if the job does not conform it will be sent back for rework
The rework will directly affect the average cycle time!

Definitions
T = sum of activity times in the rework loop r = percentage of jobs requiring rework (rejection rate)

Assuming a job is never reworked more than once

CT = (1+r)T

Assuming a reworked job is no different than a regular job i.e rework more than once CT = T/(1-r)
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Example Rework effects on the average cycle time

Consider a process consisting of
Three activities, A, B & C taking on average 10 min. each One inspection activity (I) taking 4 minutes to complete. X% of the jobs are rejected at inspection and sent for rework
A (10) B (10) C (10) I (4)

0.75

0.25

What is the average cycle time?

a) If no jobs are rejected and sent for rework. b) If 25% of the jobs need rework but never more than once. c) If 25% of the jobs need rework but reworked jobs are no different in quality than ordinary jobs.

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Example Rework effects on the average cycle time

If no rejection CT= 10+10+10+4= 34 minutes If rejection is 25% for once rework CT=10+(1+.25)X(10+10+4)=40 minutes If rejection is 25% and is more than once CT=10+(10+10+4)/ (1-0.25)= 42 minutes
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Multiple Paths
It is common that there are alternative routes through the process
For example: jobs can be split in fast trackand normal jobs

Assume that m different paths originate from a decision point

pi = The probability that a job is routed to path i Ti = The time to go down path i

CT = p1T1+p2T2++pmTm= pi Ti
i 1

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Example Processes with Multiple Paths

Consider a process segment consisting of 3 activities A, B & C with activity times 10,15 & 20 minutes respectively On average 20% of the jobs are routed via B and 80% go straight to activity C.
A (10)

0.8

C (20)

0.2
B (15)

What is the average cycle time? =10+0.2X15+0.8X20 =10+3+16=29 minutes

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Example Processes with Multiple Paths

0.30 yes B (30)

A (5)

Easy return

D (6)

0.70 No

C (60)
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Example Processes with Multiple Paths

Solution CT= 5+0.30X30+0.70X60+6= 62 minutes

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Processes with Parallel Activities

If two activities related to the same job are done in parallel the contribution to the cycle time for the job is the maximum of the two activity times. Assuming
M process segments in parallel Ti = Average process time for process segment i to be completed

CTparallel = Max{T1, T2,, TM}

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Example Cycle Time Analysis of Parallel Activities

Consider a process segment with 5 activities A, B, C, D & E with average activity times: 12, 14, 20, 18 & 15 minutes
B (14)

A (12)

C (20)

E (15)

D (18)

What is the average cycle time for the process segment? CT= 12+max(14,20,18)+15= 47 49

Cycle Time Efficiency

Measured as the percentage of the total cycle time spent on value adding activities.
Theoretical Cycle Time Cycle Time Efficiency = CT

Theoretical Cycle Time = the cycle time which we would have if only value adding activities were performed
That is if the activity times, which include waiting times, are replaced by the processing times

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Example cycle time analysis

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For cycle time efficiency

CT is calculated Theoretical Cycle time or process time is to be calculated For process time activity time waiting time.

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Cycle time Reduction

Cycle time and capacity analysis provide valuable information about process performance
Helps identify problems Increases process understanding Useful for assessing the effect of design changes

Ways of reducing cycle times through process redesign

1. 2. 3. 4. 5. 6. Eliminate activities Reduce waiting and processing time Eliminate rework Perform activities in parallel Move processing time to activities not on the critical path Reduce setup times and enable batch size reduction
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Increasing Process Capacity

Two fundamental ways of increasing process capacity
1. Add resource capacity at the bottleneck Additional equipment, labor or overtime Automation 2. Reduce bottleneck workload Process redesign Shifting activities from the bottleneck to other resources Reducing activity time for bottleneck jobs

When the goal is to reduce cycle time and increase capacity careful attention must be given to
The resource availability The assignment of activities to resources
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