Operations management

Session 3: Measures:
Capacity, Time, and More

Previous Week
What are the key concepts learned in the last week?

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Class Objectives
Review of the last week How do we quantitatively evaluate a process?

Capacity Time Other? A general rule that links various performance measures Examples

Littles Law

Summary
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Analyzing Business Process

Inputs Outputs

Transformation Process
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.

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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.

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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 30000 hits per min A worker can assemble 2.22 hamburgers per min A stove can cook 20 hamburgers per min or 0.33333 per second (Note: Units are important!)

It is a rate: Units/Time
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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?
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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 Assembly Cooking First 20 10 20 30 40 50 60

Second 20

Third 20

3:00 1:00 2:00 If order continues to come, how many more hamburgers do we produce for every minute?
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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.

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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?

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Utilization Rate

Throughput rate (Capacity used) Utilizatio n rate Capacity

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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 cashiers throughput rate is only 72 customers per shift. What is the capacity utilization? 72/96 = 0.75

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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?

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Utilization Rate
Can utilization rate be greater than 1?

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

Second 20 1:00

Third 20 2:00 3:00

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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

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Throughput Time
Average time a customer spends in a bank
Waiting
Customer arrives

Processing
Service ends

Service begins

Throughput Time

Average time a book stays at the Amazon.coms warehouse

Book arrives Stored Order arrives Picked Packaged Shipped

Throughput Time

How do we measure throughput time?

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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.

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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

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Littles 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
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Littles 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?

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Implications of Littles 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

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Implications of Littles 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?

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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.

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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?

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Admission Flow
The admission process
100 50% 1000 200

Accept Process

50%

Reject Process

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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

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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.

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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?

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Alternative Solution
What is the average processing time?

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Admission Flow
Littles Law holds for complicated systems.

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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?

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Emergency Room: Example

Imagine the following sequence of event

Service Waiting

15

30

45

60

75

1,2
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Emergency Room: Example

Do we have enough capacity? What is the utilization rate? Why patients wait?

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Emergency Room: Example

In the waiting room, Average WIP = (0 + 1 + 0 + 0) / 4 = 0.25 Average waiting time = Calculate average waiting time directly = (15 + 0 + 0)/3 = 5 minutes

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Emergency Room: Example

For the total time spent (waiting + service), Average WIP = (0 + 2 + 1 + 1) / 4 = 1 Average waiting time = Calculate average time spent directly = (15 + 30 + 15)/3 = 20 minutes

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Emergency Room
Randomness/Variability forces resource idleness and longer waiting time. Littles Law still holds.

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What Have We Learned

Process Measures

Throughput Rate Capacity Throughput Time

WIP

Littles Law

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Next Time
Kristens 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 Kristens cookies case slides (and all case slides) will not be posted to Blackboard.
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