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1 3. Process Flow Measures Process Flow Analysis-Basics 1 Ardavan Asef-Vaziri June/2011 Process Flow Analysis The Littles Law The main source for preparing.

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Presentation on theme: "1 3. Process Flow Measures Process Flow Analysis-Basics 1 Ardavan Asef-Vaziri June/2011 Process Flow Analysis The Littles Law The main source for preparing."— Presentation transcript:

1 1 3. Process Flow Measures Process Flow Analysis-Basics 1 Ardavan Asef-Vaziri June/2011 Process Flow Analysis The Littles Law The main source for preparing these slides is Managing Business Process Flow Anupindi, Chopra, Deshmoukh, Van Mieghem, and Zemel

2 2 3. Process Flow Measures Process Flow Analysis-Basics 2 Ardavan Asef-Vaziri June/2011 Five Elements of the Process View Inputs Outputs Goods Services Labor & Capital Information structure Network of Activities and Buffers Flow units (customers, data, material, cash, etc.) Resources Process Management

3 3 3. Process Flow Measures Process Flow Analysis-Basics 3 Ardavan Asef-Vaziri June/2011 How target improvement? Identify and Monitor Operational Performance Measures Time Quality Cost Flexibility Inventory Flow Rate

4 4 3. Process Flow Measures Process Flow Analysis-Basics 4 Ardavan Asef-Vaziri June/2011 Flow Time, Flow Rate, and Inventory 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.

5 5 3. Process Flow Measures Process Flow Analysis-Basics 5 Ardavan Asef-Vaziri June/2011 The Essence of Process Flow Process competencies Customer Value Proposition Customer satisfaction Customer expectations Financial performance Essence of process flow Quality Time Cost Flexibility Inventory Flow time Flow rate

6 6 3. Process Flow Measures Process Flow Analysis-Basics 6 Ardavan Asef-Vaziri June/2011 A Stable Process 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. Average inflow rate is 600 passengers/hr, or 10 passengers/min Scanner can handle 12 passengers per minute It can handle inflow Is the Security Checkpoint a stable Process? 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.

7 7 3. Process Flow Measures Process Flow Analysis-Basics 7 Ardavan Asef-Vaziri June/2011 The Littles Law Throughput x Flow Time = Inventory RT=I Inventory I [units] Flow rate/Throughput R [units/hr]... Flow Time T [hrs] There is a relationship between R, T, and I. Process Flow Analysis-Basics 6 Ardavan Asef-Vaziri June/2011

8 8 3. Process Flow Measures Process Flow Analysis-Basics 8 Ardavan Asef-Vaziri June/2011 7 Littles Law: Examples 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).

9 9 3. Process Flow Measures Process Flow Analysis-Basics 9 Ardavan Asef-Vaziri June/2011 Littles Law: Examples I=2000 garage doors, with no inventory buildup (i.e. stable process; always on average we have 2000) R=1000 garage doors/week. Each garage door 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. 8

10 10 3. Process Flow Measures Process Flow Analysis-Basics 10 Ardavan Asef-Vaziri June/2011 Littles Law applied to different process flow examples Monetary Flow. For the new euro introduction in 2002, Wim Duisenberg had to decide how many new Euro coins to stamp by 2002. Eurolands 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? 9

11 11 3. Process Flow Measures Process Flow Analysis-Basics 11 Ardavan Asef-Vaziri June/2011 Littles Law applied to different process flow examples 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. Wendys 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 hamburgers cycle time and Wendys 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? 10

12 12 3. Process Flow Measures Process Flow Analysis-Basics 12 Ardavan Asef-Vaziri June/2011 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 Littles Law: Cash Flow 11

13 13 3. Process Flow Measures Process Flow Analysis-Basics 13 Ardavan Asef-Vaziri June/2011 Littles Law: inventory Turns 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 Littles 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. 12


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