# Operations management

## Presentation on theme: "Operations management"— Presentation transcript:

Operations management
Session 3: Measures: Capacity, Time, and More

Operations Management
Previous Week What are the key concepts learned in the last week? Session 3 Operations Management

Operations Management
Class Objectives Review of the last week How do we quantitatively evaluate a process? Capacity Time Other? Little’s Law A general rule that links various performance measures Examples Summary Session 3 Operations Management

Inputs Outputs Our purpose is to examine a transformation process from the perspective of flows. The unit being transformed is typically referred to as a job and can represent a customer, an order, material, money, information, etc. Transformation Process Session 3 Operations Management

Operations Management
Throughput Rate In general, the inflow rate and the outflow rate fluctuate over time. Define the average in (out) flow rates as the long-run average number of jobs that flow into (out of) the system. In a stable environment, the average inflow rate is equal to the average outflow rate The average flow rate through the system is referred to as the throughput rate assessed as the number of jobs per unit time. Session 3 Operations Management

Operations Management
Measure: Capacity Definition: The number of units, per unit of time, that can be processed. Examples: A casher can serve 20 customers per hour The capacity of a server is hits per min A worker can assemble 2.22 hamburgers per min A stove can cook 20 hamburgers per min or per second (Note: Units are important!) It is a rate: Units/Time Session 3 Operations Management

Operations Management
Process Capacity Raw Material Cook Assemble Deliver Patties cook in 60 seconds; the stove holds 20 patties. Assembly of a hamburger takes 27 seconds per hamburger. 10 workers are available to assemble hamburgers. What is the capacity of the cooking stage? What is the capacity of the assembling stage? What is the capacity of the process? Session 3 Operations Management

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Analysis Suppose an order for 60 hamburgers is placed. What will happen? 1:27 1:54 2:27 2:54 3:27 3:54 10 20 30 40 50 60 Assembly First 20 Second 20 Third 20 Cooking 1:00 2:00 3:00 If order continues to come, how many more hamburgers do we produce for every minute? Session 3 Operations Management

Operations Management
Bottleneck Analysis The stove, operating 100% of the time, can push out: 20 hamburgers / 1 minute = 20 hamburgers per minute. The workers, operating 100% of the time, can push out: 10 hamburgers / 27 seconds = 22.2 hamburgers per minute. The stove is the bottleneck resource; it pushes out the slowest amount of hamburgers per time period. Session 3 Operations Management

Operations Management
Calculating Capacity The capacity of a process is determined by the slowest (bottleneck) resource. To calculate the bottleneck resource, calculate the amount of “stuff” each resource can push out per unit time. The bottleneck resource is the resource that pushes out the least amount of “stuff” per unit time. Would hiring an additional worker increase the revenue? Session 3 Operations Management

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Utilization Rate Session 3 Operations Management

Operations Management
Utilization Rate Utilization rate is a measure of efficiency. It measures the percentage of products/services that the process is producing what it is designed (suppose) to do. An example: The capacity of a cashier in Starbucks is 96 customers per shift. The cashier’s throughput rate is only 72 customers per shift. What is the capacity utilization? 72/96 = 0.75 Session 3 Operations Management

Operations Management
Utilization Rate What is the meaning of the number 0.75? The cashier is busy only 75% of the time. 25% of the time the cashier is idle and not doing any productive work. What are the managerial implications? Session 3 Operations Management

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Utilization Rate Can utilization rate be greater than 1? Session 3 Operations Management

Operations Management
Measure: Time How long it takes to turn patties into burgers? 1:27 1:54 2:27 2:54 3:27 3:54 10 20 30 40 50 60 Assembly First 20 Second 20 Third 20 Cooking 1:00 2:00 3:00 Session 3 Operations Management

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Throughput Time Different units may spend different amount time. What is throughput time? The average time a unit stays in the system Session 3 Operations Management

Operations Management
Throughput Time Average time a customer spends in a bank Average time a book stays at the Amazon.com’s warehouse How do we measure throughput time? Waiting Processing Customer arrives Service begins Service ends Throughput Time Book arrives Stored Order arrives Picked Packaged Shipped Throughput Time Session 3 Operations Management

Flow Measures: Work in Process
Work in Process (WIP) Inventory: the number of units at a point of time. Example 1: The WIP in Disneyland is the number of customers waiting, eating, resting, or playing in Disneyland. Example 2: The WIP in Space Mountain is the number of customers waiting for or riding in Space Mountain. Session 3 Operations Management

Flow Measures: Throughput rate
What is the relationship between throughput rate throughput time and WIP? WIP Throughput rate is two unit per unit of time Time Session 3 Operations Management

Operations Management
Little’s Law Throughput Time = (Average) WIP / Throughput Rate Example: Bank Teller Average WIP: 6 customers Throughput rate: 12 customers per hour Throughput time: 6/12 = 0.5 A customer spends (on average) 0.5 hours in the bank Session 3 Operations Management

Operations Management
Little’s Law In the bank example on the previous overhead … Does this mean each customer spends 0.5 hours in the bank? How many customers arrive on average in an hour? How many customers leave on average in an hour? Session 3 Operations Management

Implications of Little’s Law
Given average WIP and throughput rate, we can calculate throughput time Relatively easy to measure WIP and throughput rate Keeping WIP fixed, reducing throughput time results in a higher throughput rate. Throughput Rate = Average WIP / Throughput Time Session 3 Operations Management

Implications of Little’s Law
Average number of customers in a restaurant: 50 Average number of customers arriving (and leaving) per hour: 30 The throughput time is 50/30 = 1.66 A customer spends (on average) 1hr and 40 mins. The restaurant is losing money. How can an OM person help? Session 3 Operations Management

Operations Management
Admission Flow 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. Session 3 Operations Management

Operations Management
Admission Flow 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? Session 3 Operations Management

Operations Management
Admission Flow The admission process 100 50% Accept Process 1000 200 50% Reject Process Session 3 Operations Management

Operations Management
Admission Flow Let us do a detailed analysis How long do the applicants spend in the preliminary review stage? TT = WIP/TR=200/1000 = 0.2 * 30 days = 6 days Applicants spend 6 days in the first stage Applicants from group B receive an answer in 6 days on average Session 3 Operations Management

Operations Management
Admission Flow How long do the applicants from group A spend in the advanced review stage? TT = WIP/TR=100/(1000*50%) = 0.2 Applicants from group A spend 6 days on average in the advanced review stage. Applicants from group A receive answer in 12 days (6 + 6) on average. Session 3 Operations Management

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Admission Flow What is the average processing time? 6*0.5+12*0.5 = 9 days Is there an alternative way to calculate the average waiting time? Session 3 Operations Management

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Alternative Solution What is the average processing time? Session 3 Operations Management

Operations Management
Admission Flow Little’s Law holds for complicated systems. Session 3 Operations Management

Emergency Room: Example
Let us calculate the average waiting time in an emergency room. Imagine a system in which a patient can be treated in exactly 15 minutes. Two patients arrive at minute 15, and one patient arrives at minute 45. What is the average waiting time? Is there enough capacity? Session 3 Operations Management

Emergency Room: Example
Imagine the following sequence of event Service 1 2 3 Waiting 2 15 30 45 60 75 1,2 3 Session 3 Operations Management

Emergency Room: Example
Do we have enough capacity? What is the utilization rate? Why patients wait? Session 3 Operations Management

Emergency Room: Example
In the waiting room, Average WIP = ( ) / 4 = 0.25 Average waiting time = Calculate average waiting time directly = ( )/3 = 5 minutes Session 3 Operations Management

Emergency Room: Example
For the total time spent (waiting + service), Average WIP = ( ) / 4 = 1 Average waiting time = Calculate average time spent directly = ( )/3 = 20 minutes Session 3 Operations Management

Operations Management
Emergency Room Randomness/Variability forces resource idleness and longer waiting time. Little’s Law still holds. Session 3 Operations Management

Operations Management
What Have We Learned Process Measures Throughput Rate Capacity Throughput Time WIP Little’s Law Session 3 Operations Management

Operations Management
Next Time Kristen’s Cookie Company Everybody: read the case and be prepared for class discussion Presenting teams: prepare a write-up and presentation for 10 minutes (exactly) Note that Kristen’s cookies case slides (and all case slides) will not be posted to Blackboard. Session 3 Operations Management