Kristen’s Cookies

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 Examples of a Process
in Service Companies

Processing an insurance claim for an accident.

Admitting a patient to a hospital.

Performing the 30,000-mile maintenance on a car.

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 Concepts
This case will familiarize you with the following concepts:
PROCESS FLOW DIAGRAM
THROUGHPUT TIME FOR AN ACTIVITY
THROUGHPUT TIME FOR THE PROCESS
CAPACITY OF AN ACTIVITY
CYCLE TIME OF AN ACTIVITY
BOTTLENECK
CAPACITY OF THE PROCESS
CYCLE TIME OF THE PROCESS
UTILIZATION OF A RESOURCE
GANTT CHART
PROCESS
INCREASING THE CAPACITY OF A PROCESS
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Process Flow Diagram
for Kristen’s Cookies

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 Question 1
Assume that Kristen’s most important customer has just submitted an
order for one dozen cookies, and that she wants to give the highest
priority to this order. How long will it take to fill this order?

The time required to fill the “rush order” is:

Process’s Throughput Time =

NOTE: The answer of __ assumes that there no cookies in the oven,

or, if there are cookies in the oven, the remaining baking time is at
most 8 minutes. If cookies are in the oven and have a baking time
in excess of 8 minutes, then, if the cookies are not removed from the
oven, the time required to fill the “rush order” increases above __. 5
 Question 2
Assuming that Kristen’s Cookie Company is open for four hours each
night, how many orders can be filled each night?

Which activity is the process’s bottleneck?

The process’s bottleneck is

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 Question 2 (continued)
Assuming that Kristen’s Cookie Company is open for four hours each
night, how many orders can be filled each night?

Once it is “up and running”, what is the process’s hourly capacity?

The process’s hourly capacity equals

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 Question 2 (continued)
Assuming that Kristen’s Cookie Company is open for four hours each
night, how many orders can be filled each night?

If we stood at the end of the process, and, if the process were

continually busy, how much time would elapse between the
completion of successive units (in this case, successive dozens of
cookies? The answer is known as the process’s cycle time.

Because the process’s hourly capacity is 6 dozen per hour, the

process’s cycle time is

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 Question 2 (continued)
Assuming that Kristen’s Cookie Company is open for four hours each
night, how many orders can be filled each night?

What is the process’s nightly capacity?

The process’s nightly capacity equals

NOTE: The process completes its first dozen after 26 minutes, and, thereafter, the process completes a
dozen every 10 minutes. That is, process completes a dozen at the following times:
26, 36, 46, 56, …, 216, 226, 236
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So, Kristen’s nightly capacity is actually __ dozen.
 Question 3
During each night, what percentage of time will
Kristen be busy, and what percentage of time will
Kristen’s roommate be busy?

Recall that the process’s cycle time is 10 minutes.

KRISTEN ROOMMATE
Total Total
Busy Time Busy Time
Within Within
Mix + Spoon = Load + Pack + Pay =
Each Each
10-minute 10-minute
Cycle Cycle

Kristen's Utilization = 8/10 = 80% Roommate's Utilization = 4/10 = 40%

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 Question 3 (continued)
From the previous slide, we know that Kristen will
be idle 20% of the time, and her roommate will be
idle 60% of the time.
What can a worker do when he/she would
otherwise be idle?

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 Question 4
Assume that Kristen pays herself and her roommate $12 per hour.
If Kristen and her roommate are not paid for idle time, what is the minimum
amount Kristen should charge for one dozen cookies?
If Kristen and her roommate are paid regardless of whether they are busy or idle,
what is the minimum amount Kristen should charge for one dozen cookies?
From the previous slide, Kristen’s and the roommate’s From the case, the
recall that, in each 10- wage is materials cost per
minute cycle, Kristen and dozen is $0.60 for
her roommate work a $12/hr or $0.20 /min ingredients and
total of $0.10 for the box,
Nightly capacity is for a total of
8 + 4 =12 minutes
24 dozen $0.70
LABOR IS A VARIABLE COST LABOR IS A FIXED COST
(not paid when idle) (paid when idle)
MATERIALS $0.70 MATERIALS $0.70
LABOR ($0.20/min)(12 min) = $2.40 LABOR [($12/hr)(4 hrs)(2 persons)]/(24 dozen) = $4.00
TOTAL $3.10 TOTAL $4.70
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 Question 5
How many food processors and baking trays will Kristen need?

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 Increasing Process Capacity

If Kristen wants to increase the process’s capacity, on which

activity should she focus?

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 Question 6
What is the effect of adding a second oven?
If Kristen could lease a second oven, how could she compute the
maximum daily rate she would pay for the lease?

What is the process’s new bottleneck and new hourly capacity?

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 Question 6 (continued)
What is the effect of adding a second oven?
If Kristen could lease a second oven, how could she compute the
maximum daily rate she would pay for the lease?
The process’s new bottleneck is “Mix & Spoon”.
The process’s new hourly capacity is the new bottleneck’s
hourly capacity – 7.5 dozen per hour.

Although Kristen doubled the hourly capacity of the

former bottleneck “Load & Bake”, the process’s
hourly capacity did NOT increase by 100%.
Because there was a new bottleneck, the process’s
hourly capacity increased not by 100% but by only
25% from 6 dozen per hour to 7.5 dozen per hour.
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 Question 6 (continued)
What is the effect of adding a second oven?
If Kristen could lease a second oven, how could she compute the
maximum daily rate she would pay for the lease?

With the acquisition of the second oven, the process’s hourly

capacity increases from 6 to 7.5 dozen per hour.
So, the process’s nightly (4 hour) capacity increases from 24
to 30 dozen per night – an increase of 6 dozen per night.

Therefore, the nightly value of the 2-nd oven equals

(6)[(Selling Price per Dozen)-(Variable Cost per Dozen)].

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 Question 7
Besides adding a second oven, are there other
process improvements Kristen should consider?
Because “Load & Bake” is the bottleneck, only
adding a second oven can increase the process’s
capacity.
However, improvements to a non-bottleneck activity
are worth considering.
Examples of an improvement to a non-bottleneck
activity:

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 Question 7 (continued)
Besides adding a second oven, are there other process
improvements Kristen should consider?

Even if a process improvement to a non-bottleneck activity

cannot increase the process’s capacity, it can do one or more
of the following:

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 Question 8
Assuming there is only one oven, what would
happen if Kristen attempted to run her business
without her roommate?
There are two “clues” that, if Kristen attempted to
run her business without her roommate, the
process’s capacity would decrease:

Clue #1:

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 Question 8 (continued)
Assuming there is only one oven, what would
happen if Kristen attempted to run her business
without her roommate?
Clue #2:

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 Question 8 (continued)
Assuming there is only one oven, what would happen if Kristen
attempted to run her business without her roommate?
As indicated by the Gantt Chart below, if Kristen must work alone,
the process’s cycle time is 12 minutes, equivalent to an hourly
capacity of 5 dozen (a decrease from 6 dozen.)

The bottleneck is now is Kristen. Her utilization is 100%.

This illustrates that the bottleneck can be either an activity
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(e.g., “Load & Bake) or a resource (e.g., Kristen).
 Summary of Concepts
PROCESS FLOW DIAGRAM. A diagram depicting the activities of a
process and the flows between them.

THROUGHPUT TIME FOR AN ACTIVITY. The time it takes to

perform an activity.

THROUGHPUT TIME FOR THE PROCESS. The total amount of

time a unit spends in the process from beginning to end, including
the time spent being actively work on at the activities of the process
as well as any time spent waiting between activities.

PROCESS. A collection of activities and resources that transforms

various inputs into more valuable outputs.
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 Summary of Concepts
(continued)
BOTTLENECK. The activity or resource that limits the capacity of the
overall process. The bottleneck is usually the activity with the
minimum capacity, but the bottleneck can sometimes be the labor
available at a particular activity or set of activities.
CAPACITY OF THE PROCESS. The maximum rate of output of the
process, measured in units of output per unit of time (e.g., 4 dozen
per hour).
CYCLE TIME OF AN ACTIVITY. The time that elapses between the
activity’s completion of successive units, assuming the activity
operates continuously. (For example, if an activity has a capacity of 4
dozen per hour, then the activity’s cycle time is 15 minutes.)
CAPACITY OF AN ACTIVITY. An activity’s maximum rate of output,
measured in units of output per unit of time (e.g., 4 dozen per hour).

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 Summary of Concepts
(continued)
CYCLE TIME OF THE PROCESS. The time that elapses between
completion by the process of successive units, assuming the process
operates continuously. (For example, if a process has a capacity of 4
dozen per hour, then the cycle time of the process is 15 minutes.)

UTILIZATION OF A RESOURCE. The ratio of the time that the

resource is actually used to the time that the resource is available to
be used.

GANTT CHART. A chart that depicts for the process the times
during which each activity is being performed and during which each
resource is being utilized.

INCREASING THE CAPACITY OF A PROCESS. To increase the

capacity of a process, you must increase the capacity of the
bottleneck.
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