Discussion Question

Week 3 ~ Discussion Question 5 ~ Due Wednesday

How would you define the maximum capacity for the front desk of a hotel? What is meant by the effective capacity? Define the difference in these two terms relative to the number of customers that can be checked in to the hotel in a given period. (125-150 words)

NO Ai, Chegg, etc.

PPTX is your source

Swink_MOAS_4e_Ch03_PPT.pdf

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Chapter 3

Managing Processes and Capacity

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Learning Objectives

3-1 Understand the importance of processes and process thinking to operations and supply chain management.

3-2 Define the various components that make up processes, including types of inputs and outputs.

3-3 Distinguish between operational, tactical, and strategic capacity planning.

3-4 Estimate the capacity and utilization of a process.

3-5 Explain the impacts of bottlenecks, variance, and other factors on process performance.

3-6 Describe process improvement methodologies such as business process reengineering.

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Learning Objective 3-1

What Is a Process?

• A system of structured activities that use resources to turn inputs into valuable outputs.

• Process thinking views activities in an organization as a collection of processes.

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Learning Objective 3-1

Juran’s Law

• At the heart of process thinking is Juran’s Law. Joseph M. Juran (1904–2008) was one of the leading quality gurus of the 20th century.

• Juran once observed that 15 percent of operational problems are the result of human errors; the other 85 percent are due to systemic process errors.

• To improve operations we should focus our attention on processes first.

Human Error (15%) + Systematic Process Error (85%) → Problems (100%)

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Learning Objective 3-1

Types of Processes

Table 3-1 Major Types of Business Processes

Business Process Inputs Outputs

Strategic Planning Competitor data, market assessment, internal capability assessments, economic forecasts

Strategic vision, long-term objectives and plans

Innovation Technological developments, customer needs, production capabilities

New products, new production technologies

Customer service Customer orders and request, complaints, demand forecasts, priorities

Entered orders, delivery commitments, resolved problems

Resource management

Strategic objectives, resource costs, availability of existing resources

Capacity plans, facilities plans

Human resource management

Strategic objectives, skill requirements, demand requirements by area, staffing requirements and shortfalls

Hiring plans, training programs (both at time of hire and subsequently), staffing plans, employee development plans

Supply management Supplier capabilities, raw materials, customer orders, demand forecasts

Fulfilled orders, production schedules, good and services

Performance measurement

Raw information, benchmarks, standards

Performance variances, trends

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Learning Objective 3-2

“Anatomy” of a Process

Process

• Activities

• Inputs, outputs, and flows

• Process structures

• Management policies

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Learning Objective 3-2

Activities of a Process

• Operations change inputs • Transportation moves an input from place

to place • Inspection verifies the results of an activity • Delay unintentionally stops the flow of an

input • Storage is the formal inventorying of an

input

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Learning Objective 3-2

Inputs, Outputs, and Flows

• Inputs: items that are acted upon or consumed by the process

• Outputs: both intended and unintended products of the process

• Inputs and outputs are created through a series of flows

• Information flows

– Data communicated in many forms (speech, binary code, written words or pictures, currency)

• Material flows

– Physical products, people

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Learning Objective 3-2

Process Structure

Process Capabilities: the specific types of outputs and levels of performance that a process can generate

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Learning Objective 3-2

Management Policies

• Management of resources

• Design metrics, rewards, and controls consistent

with the overall mission

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Learning Objective 3-3

Capacity Planning: Time Frames

Table 3-2 Capacity Decisions Addressing Different Time Frames

Time Frame (time required for changes)

Limiting Resource Types of Capacity Change

Examples

Short term (0–6 months) Low-skilled labor Overtime, part-time, temporary labor, layoffs

Restaurant wait staff, bank tellers, production line workers

Equipment, space Rental, leasing Landscaping equipment, temporary storage

Medium term (6–24 months)

Specialized labor Hiring, firing, contract labor

Engineers, accountants, machine operators, physicians

Equipment, space Leasing, subcontracting, equipment installation and renovation

Distribution/warehousin g, fast-food restaurant rebuild, production line renovation

Long term (more than 2 years)

Physical plant New building, outsourcing

Automotive plant open or closure, new office building

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Learning Objective 3-3

Capacity Planning: Economies of Scale

Figure 3-1 Economies and Diseconomies of Scale

Economies of Scale: As production volumes increase with additions of capacity, the unit cost to produce a product decreases to an optimal level

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Learning Objective 3-3

Reasons for Economies of Scale

• Allocation of fixed costs can be spread over more units as output grows, reducing the cost per unit.

• Equipment and construction costs do not increase proportionally with size.

• Lower costs for purchases because of higher volumes.

• As volume increases, learning occurs—a phenomenon called the learning curve. Learning is higher in assembly processes and for new products. Learning is lower in automated processes, and the rate of learning diminishes as employees gain experience making the product.

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Learning Objective 3-3

Process Capacity

Capacity: amount of output a process can produce

given amount of inputs and resources made

available to the process

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Learning Objective 3-3

Capacity and Process Activities

Table 3-3 Capacity and Process Activities

Process Activity Associated Resources That Limit Capacity

Operation Tools, labor, machine capacity, supplier capacity

Transportation Pallets, carts, fork-lift trucks, trucks, trains, airplanes

Inspection Inspectors, inspection stations, gauges, robots, or machine-vision equipment

Delay Space on the shop floor, bins, carts, racks

Storage Floor space, racks, bins, stockrooms, stockroom clerks

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Learning Objective 3-4

Process Capacity: Definitions

• Maximum Capacity: highest output rate under ideal conditions, in the short term

• Effective Capacity: achievable level under normal conditions, for an extended time

• Utilization: how much available capacity is actually used

• Yield Rate: the percentage of units produced as a percentage of inputs

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Learning Objective 3-4

Process Capacity: An Example (1 of 2)

Example 3-1: A distribution center for an Internet bookseller can handle a peak demand of 200,000 orders in a single day, under ideal conditions. However, the facility was designed to handle up to 120,000 orders per day during normal operating conditions. Orders processed for the first two weeks of December averaged 150,000 per day. Calculate the utilization of the distribution center relative to both maximum capacity and effective capacity.

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Learning Objective 3-4

Process Capacity: An Example (2 of 2)

Solution:

Given:

Maximum capacity = 200,000 units per day

Effective capacity = 120,000 units per day

Actual orders = 150,000 units per day

Utilization of maximum capacity:

= Actual orders / Maximum capacity

= (150,000/200,000) × 100% = 75%

Utilization of effective capacity:

= Actual orders / Effective capacity

= (150,000/120,000) × 100% = 125%

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Learning Objective 3-5

Theory of Constraints (TOC)

1. Every process has a constraint.

2. Every process has variance that consumes capacity.

3. Every process must be managed as a system.

4. Performance measures are crucial to the process’s success.

5. Every process must continually improve.

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Learning Objective 3-5

Principle 1: Every Process Has a Constraint (1 of 4)

• Bottleneck: any place where demand ≥ capacity; this limits the ability of the process to generate output

• A constraint or “scarce resource”

– A facility, a department, a machine, a skill type, etc.

– Demand

• Defines the maximum capacity of a system

• Serial/Sequential Structure: processes occur one after another

• Parallel Structure: two or more processes occur simultaneously

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Learning Objective 3-5

Principle 1: Every Process Has a Constraint (2 of 4)

Figure 3-2 Maximum Capacity in a Serial Process

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Learning Objective 3-5

Principle 1: Every Process Has a Constraint (3 of 4)

Figure 3-3 Maximum Capacity in a Parallel Process

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Learning Objective 3-5

Principle 1: Every Process Has a Constraint (4 of 4)

Measures of process flow:

• Flow Time: time for one unit to get through a process

• Cycle Time: time it takes to process one unit at an operation in the overall process

• Little’s Law: there is a relationship between flow time (F), inventory level (I), and throughput rate (TH)

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Learning Objective 3-5

Principle 1: Little’s Law Example (1 of 2)

Example 3-4: A theme park plans to introduce a new thrill ride. At present, about 18,000 people come to the park every day, and the park is open for 12 hours. If managers want everyone in the park to have at least one chance to experience the ride, what should the maximum cycle time for the ride be?

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Learning Objective 3-5

Principle 1: Little’s Law Example (2 of 2)

Solution:

I F =

12 hours = 18,000/TH

TH = 18,000/12 hours

TH = 1,500 per hour

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Learning Objective 3-5

Student Activity

What symptoms would you look for that would indicate the presence of a bottleneck? Go to a fast- food restaurant and see if you can identify the bottleneck resource or operation.

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Learning Objective 3-5

Principle 2: Variance Consumes Capacity (1 of 3)

Figure 3-4 Effects of Process Variability on Wait Time

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Learning Objective 3-5

Principle 2: Variance Consumes Capacity (2 of 3)

Variability in:

• Outputs: product variety and variable schedules

• Processes: quality variance, resource availability,

and processing speed

• Inputs: variance in quality and delivery

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Learning Objective 3-5

Principle 2: Variance Consumes Capacity (3 of 3)

Equation 3.2( )

Wait time= ca 2 +cp

ç ç ç

÷ ÷ ÷ u

1-u

è ç

ø ÷t p

ca = coefficient of variation standard deviation average( ) of job arrival times

cp =Coefficient of variation of job processing times

u =Utilization of the work center

t p=average processing cycle( ) time for jobs

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Learning Objective 3-5

Wait Time: Example (1 of 4)

Example 3-6: Suppose you are the manager of the Accounts Receivable department in your university. Recently, you have been hearing complaints from the students about having to wait too long in line before they can discuss their bills with one of the counselors. After discussing the situation with your boss, you decide that students should expect an average wait time of 20 minutes. With this standard in mind, you collect the following information during periods of high demand (i.e., the start of term).

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Learning Objective 3-5

Wait Time: Example (2 of 4)

Average arrival rate = 5 minutes

Standard deviation of arrivals = 10 minutes

Average time to discuss bill = 3 minutes

Standard deviation of discussion time = 4.5 minutes

Utilization = 85 percent

Solution: Wait time =

ca 2 + cp

ç ç

÷ ÷ u

1-u

è ç

ø ÷t p

ca = coefficient of variation standard deviation average( ) of job arrival times

cp = Coefficient of variation of job processing times

u =Utilization of the work center

t p= average processing cycle( ) time for jobs

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Learning Objective 3-5

Wait Time: Example (3 of 4)

Step 1: Compute the coefficient of variation of job arrival times

= Standard deviation of arrival rates/Average job arrival rate

= 10/5

ca =2 Coefficient of variation of job arrival timesé ë

ù û

Step 2: Compute the coefficient of variation of processing times

= Standard deviation of job processing time/average processing time

= 4.5/3

cp =1.5 Coefficient of variation of job processing timesé ë

ù û

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Learning Objective 3-5

Wait Time: Example (4 of 4)

Step 3: Compute the average wait time

Average wait time = ca 2 +cp

ç ç ç

÷ ÷ ÷ u

1-u

è ç

ø ÷t p

= 22+1.52

ç ç

÷ ÷

.85 1-0.85

è ç

ø ÷ 3( )

=53.125 minutes

=0.8854 hours

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Learning Objective 3-5

Principle 3: Processes Managed as Systems

• Changing one element of a process may affect other elements, sometimes in unexpected ways.

• Process elements are interdependent

– Activities

– Inputs/outputs/flows

– Process structures

– Management policies

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Learning Objective 3-5

Principle 4: Performance Measures Are Crucial to Process’s Success (1 of 2)

Metrics should address aspects of performance that are important to both customers and the organization.

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Learning Objective 3-5

Principle 4: Performance Measures Are Crucial to Process’s Success (2 of 2)

• Effective metrics:

– are verifiable and quantifiable.

– are aligned with standards and rewards.

– should support strategy and priorities.

– provide the basis for monitoring, controlling, and improving processes.

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Learning Objective 3-6

Principle 5: Continuous Improvement of Processes (1 of 2)

Process Type Why Critical?

Bottleneck Limits output; increases lead time; adversely affects cost, quality, and flexibility.

Visible to the customer

Affects how the customer views not only the process but also the firm.

Core capability A process that incorporates a critical strategic skill set that is difficult for the competition to copy. Must be guarded, managed, and improved continuously because it is the major source of the firm’s value.

Table 3-7 Six Types of Critical Processes

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Learning Objective 3-6

Principle 5: Continuous Improvement of Processes (2 of 2)

Process Type Why Critical?

Feeder process A process that feeds a number of alternative processes coming out of it. A problem in this process (e.g., delay) can affect many downstream outcomes.

Greatest variance Variances are amplified by sequential steps in processes. To reduce variance, managers should identify those steps that are sources of greatest variance.

Most resources consumed

We focus on these processes because they offer the “biggest bang for the buck.”

Table 3-7 Six Types of Critical Processes

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Managing Processes and Capacity: A Summary

1. Processes define a business.

2. A process is a collection of activities.

3. Processes are characterized by activities, flows, structures, resources, and metrics.

4. Supply chain capacity should be managed strategically.

5. There is a proven link between output volumes and process economies.

6. The bottleneck activity sets the maximum level of output of any process.

7. Capacity requirements depend on processing and setup times.

8. Variability consumes capacity, cost, and lead times.

9. Processes need to be continuously improved.

Week 3 ~ Discussion Question 5 ~ Due Wednesday

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