Lecture-1-2 Intro & Process Analysis(1)

Slide 1

An Introduction to Operations & Supply Chain ManagementGuanyi LuApril 2, 2014

1AgendaIce breakReview of SyllabusIntroduction to Operations Mgmt (OM) and Supply Chain Mgmt (SCM)Q&A All Rights Reserved, G. Lu, 201422 All Rights Reserved, G. Lu, 20143

Pic of my hometown3 All Rights Reserved, G. Lu, 20144

Pic of my hometown4Two companies All Rights Reserved, G. Lu, 20145COB & Co. (400 employees)CarTV200 (5 people & 1 month / 1 car)40200 (2 people & 1 month / 1 TV)100OSU & Co. (400 employees)CarTV200 (20 people & 1 month / 1 car)10200 (2.5 people & 1 month / 1 TV)80High EfficiencyLow EfficiencyTwo companies All Rights Reserved, G. Lu, 20146COB & Co. (400 employees)CarTV200 (5 people & 1 month / 1 car)40200 (2 people & 1 month / 1 TV)100OSU & Co. (400 employees)CarTV200 (20 people & 1 month / 1 car)10200 (2.5 people & 1 month / 1 TV)80COB & Co. (400 employees)CarTV300 (5 people & 1 month / 1 car)60100 (2 people & 1 month / 1 TV)50OSU & Co. (400 employees)CarTV0400 (2.5 people & 1 month / 1 TV)160Two companies All Rights Reserved, G. Lu, 20147TOTAL OUTCOMEBeforeAfterCar5060TV180210Both parties can be better off if they work together We call it cooperation (collaboration, integration, etc.).A supply chain is formed by a number of firms that cooperate with each other in order to generate values. All Rights Reserved, G. Lu, 20148

8A story about ice creamIce cream infects my car!!A well-educated familyA nice family tradition

All Rights Reserved, G. Lu, 201499Review of SyllabusInstructor / TAGuanyi Lu309, Bexell HallOffice hours: 12:15 PM 1:45 PM, TRPhone: 541-737-3995Email: [email protected]. Emails should have BA 554 in the subject line.

All Rights Reserved, G. Lu, 20141010Tell me more about youI work forI like I hateI hope this course All Rights Reserved, G. Lu, 201411Review of SyllabusGrading

MBA Exit Hurdle

Course flow & Text book

All Rights Reserved, G. Lu, 20141212Operations ManagementOperations and supply chain management: the design, operation, and improvement of the systems that create and deliver the firms primary products and servicesFunctional field of business

Concerned with the management of the entire system that produces a good or delivers a service

All Rights Reserved, G. Lu, 20141313Operations Management All Rights Reserved, G. Lu, 201414InputsOutputsgoods,services(raw material, customers)TransformationProcessResources:labor & capitalA process view of OM14Operations Management All Rights Reserved, G. Lu, 201415OrganizationInputsOutputs_______________________________________________

Automobilesheet steel,cars factoryengine parts

Restauranthungry customerssatisfied customers

Collegehigh schooleducated individuals graduates15Operations Management All Rights Reserved, G. Lu, 201416

16Operations Management All Rights Reserved, G. Lu, 201417History of OMLean manufacturing, JIT, and TQCManufacturing strategy paradigmService quality and productivityTotal quality management (TQM) and quality certificationsBusiness process reengineeringSix-sigma qualitySupply chain managementElectronic commerceService science

17Operations Management All Rights Reserved, G. Lu, 201418Matching supply with demandEfficiencyRight balancePush the envelop

18Operations Management All Rights Reserved, G. Lu, 201419 low priceresponsivenessEliminateinefficiencyABCCurrent frontier in the industryhighlowhigh priceEfficiency19Operations Management All Rights Reserved, G. Lu, 201420 low priceresponsivenessCurrent frontier in the industryhighlowhigh priceRightBalance20Operations Management All Rights Reserved, G. Lu, 201421Push theEnvelop low priceresponsivenessCurrent frontier in the industryhighlowhigh priceNew frontier21Operations ManagementTrends in O&SCMSupply chain integrationManufacturing and service outsourcingIncreased co-production of goods and serviceSustainability and the triple bottom lineManaging customer touch point enhance service experienceRaising senior management awareness of operations and supply chain management as a significant competitive weapon

All Rights Reserved, G. Lu, 20142222Process AnalysisPart 1Guanyi LuApril 2, 2014

23Learning ObjectivesUnderstand basic flowcharting of processes.Recognize various types of processes.Explain how to analyze processes using Littles law.Understand how to calculate process performance measures.Understand the role and impact of bottleneck.Understand how to interpret and compute utilizations.

All Rights Reserved, G. Lu, 20142424Process AnalysisProcess FlowchartingProcess flowcharting: the use of a diagram to present the major elements of a process Symbols:

All Rights Reserved, G. Lu, 201425

25Process AnalysisProcess: any part of an organization that takes inputs and transforms them into outputs

Cycle time: the average successive time between completions of successive units

Utilization: the ratio of the time that a resource is actually activated relative to the time that it is available for use

All Rights Reserved, G. Lu, 20142626Process AnalysisSingle-stage vs. Multi-stage

All Rights Reserved, G. Lu, 201427Stage 1Stage 1Stage 2Stage 3Multi-stage processSingle-stage process27Process AnalysisVarious Multi-stage Processes

All Rights Reserved, G. Lu, 201428Serial flow processAlternative pathsDifferent products28Process AnalysisAnalyzing a Las Vegas Slot Machine


29Process AnalysisBuffering, Blocking, and StarvingBuffer: a storage area between stages where the output of a stage is placed prior to being used in a downstream stage

Blocking: occurs when the activities in a stage must stop because there is no place to deposit the item

All Rights Reserved, G. Lu, 201430FastSlow30Process AnalysisBuffering, Blocking, and StarvingStarving: occurs when the activities in a stage must stop because there is no work

Bottleneck: stage that limits the capacity of the processCan a stage be bottleneck if it is blocking or starving?

All Rights Reserved, G. Lu, 201431SlowFast31Process AnalysisMake-to-orderOnly activated in response to an actual orderBoth work-in-process and finished goods inventory kept to a minimum

Make-to-stockProcess activated to meet expected or forecast demandCustomer orders are served from target stocking level

HybridCombine the features of both make-to-order and make-to-stock

All Rights Reserved, G. Lu, 20143232Process AnalysisExample: Making Hamburgers at McDonald's (old process)


33Process AnalysisExample: Making Hamburgers at McDonald's (current process)


34Process AnalysisPacingPacing: Movement of items through a process is coordinated through a timing mechanism.Assembly lines are usually paced.

Moving at a constant rate (demo)e.g., moving to the right by 1 position every 30 seconds

All Rights Reserved, G. Lu, 20143535Process AnalysisCycle time: The average time between completions of successive unitsOften used in the context of a processCan also be used in the context of a specific job or process stage

Throughput rate (a.k.a. Flow rate): The output rate that the process is expected to produce over a period of time

Process capacity: The maximum rate with which the process can generate outputs

All Rights Reserved, G. Lu, 20143636Process AnalysisExample: The BBA Bagel Store

All Rights Reserved, G. Lu, 201437SpreadcreamcheeseCut&ToastCustomerplacesorderRawmaterialsWIP3 minutes/order1 minute/order2 minutes/orderAssuming1 bagel/orderIf a customer arrives every 4 minutes, thencycle time = __________ minute(s) and throughput rate = __________ /hourProcess capacity = __________/hour37Process AnalysisExample: The BBA Bagel Store

All Rights Reserved, G. Lu, 201438380:001st customer arrives0:02The first order is taken and payment collected0:05The1st bagel is cut & toasted & the 2nd order has spent 1 minute with the order taker0:06The 1st order is completed & the 2nd order is taken & payment collected0:09The 2nd bagel is cut & toasted & the 3rd order has spent 1 minute with the order taker0:10The 2nd order is completed & the & 3rd order is taken & payment collected 0:13The 3rd bagel is cut & toasted & the 4th order has spent 1 minute with the order taker0:14The 3rd order is completed & the 4th order is taken & payment collected 38Process AnalysisFlow time: The average time that it takes a unit to move through an entire process. Includes the time that the unit spent actually being worked on together with the time spent waiting in a queue

All Rights Reserved, G. Lu, 20143939Process Analysis All Rights Reserved, G. Lu, 201440SpreadcreamcheeseCut&ToastCustomerplacesorderRawmaterialsWIP3 minutes/order1 minute/order2 minutes/orderAssuming1 bagel/orderIf a customer arrives every 4 minutes, thencycle time = __________ minute(s) and throughput rate = __________ /hour;

flow time = __________ minute(s).Process capacity = __________/hour40Process AnalysisPart 2Guanyi LuApril 2, 201441Process AnalysisSetup Time and Run Time Example

Production plan: make 100 units of component A, then 100 units of component B, then 100 units of component A, then 100 units of component B, and so forth.What is the average hourly output?

All Rights Reserved, G. Lu, 201442ManufacturingPackingsetup time: 5 minutesrun time: 20 minutes/100 unitssetup time: 10 minutesrun time: 10 minutes/100 unitsrun time:2 seconds/unitnegligible42Process AnalysisEfficiency and Productivity

Efficiency: A ratio of the actual output of a process relative to some standard.Efficiency can be measured by dividing the actual output by the designed outputEfficiency can indicate the loss or gain in a process

Productivity = Outputs / inputs

Both measures are related to throughput rate, which measures the actual output of a process.

All Rights Reserved, G. Lu, 20144343Process Analysis All Rights Reserved, G. Lu, 201444

44Process AnalysisInventory

Inventory: The number or value of all the flow units in a process.

Total average value of inventory: The total average investment in raw material, work-in-process, and finished goods. This is valued at the cost to the firm, usually for accounting purposes.

All Rights Reserved, G. Lu, 20144545Process AnalysisRelevance of three Performance Measures

All Rights Reserved, G. Lu, 201446Performance MeasureImpactInventoryUse of working capital, reflected in the balance sheetThroughput rateRate of revenue generation, reflected in the income statementFlow timeLead time, responsiveness46Process AnalysisConveyer

A conveyor moving at a constant rateThroughput rate: 2 / minute On average 6 pieces in the systemFlow time ?

All Rights Reserved, G. Lu, 20144747Process AnalysisLittles LawEstablishes a mathematical relationship between Inventory, Throughput rate and Flow timeInventory = Throughput rate x Flow time

All Rights Reserved, G. Lu, 201448Inventory, [units]Throughput rate, [units/time unit].........Throughput time, [time units].........48Process AnalysisAn intuitive example of Littles Law: Student FlowConsider a 4-year college. Every year 200 high school graduates are admitted, on average. Every student admitted will graduate in 4 years, on average. On average, how many students are in the college at any given time?

All Rights Reserved, G. Lu, 20144949Process AnalysisRecall that Inventory is the number or value of all the flow units in a process

Indirect measuresDays-of-supply: The (average) number of days until the firm would run out of an item if not replenishedDays-of-supply is essentially flow time.

Inventory turn: The cost of goods sold divided by the total average value of inventoryInventory turn is also the inverse of days-of-supply

All Rights Reserved, G. Lu, 20145050Process AnalysisRaw Materials and WIP

All Rights Reserved, G. Lu, 20145112 hrs/carAssembly(1 battery/car)Rawmaterials200 cars/8-hr shift 8,000 batteries are kept in Raw materials inventory, on average. Those batteries translate into _____ days of supply on average, assuming 8 hrs/day

The average number of batteries in Assembly = __________.

51Process AnalysisInventory Turn

All Rights Reserved, G. Lu, 201452Inventory turn = 1 / flow timeInventory turn = COGS / inventory

52Process AnalysisInventory Turn: practices

All Rights Reserved, G. Lu, 201453K-Mart (01/29/02)

Inventory = $4,825 million COGS = $26,258 million

Inventory turn =

Wal-Mart (01/29/02)

Inventory = $22,749 millionCOGS = $171,562 million

Inventory Turn =53Process AnalysisMaterial Flow: practiceWendys 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 flow time and Wendys inventory turn?

All Rights Reserved, G. Lu, 20145454Process AnalysisJob Flow: practiceThe 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?

All Rights Reserved, G. Lu, 20145555Process AnalysisCash Flow: practiceMotorola sells $300 million worth of cellular equipment per year. The average accounts receivable in the cellular group is $45 million. What is the average time between billing to revenue collection?

All Rights Reserved, G. Lu, 20145656Process AnalysisDecipher News Reports

All Rights Reserved, G. Lu, 201457The following was reported in the Wall Street Journal:

.. although GM and Toyota are operating with the same number of inventory turns, Toyotas throughput rate is twice that of GM. The discrepancy could be due to much faster flow times and lower inventories by virtue of Toyotas production system.

Anything wrong with this statement?57Process AnalysisPart 3Guanyi LuApril 2, 201458Process AnalysisThe BBA Bagel Store Revisited

All Rights Reserved, G. Lu, 201459SpreadcreamcheeseCut&ToastCustomerplacesorderRawmaterialsWIP3 minutes/order1 minute/order2 minutes/orderAssuming1 bagel/orderProcess capacity = __________/hourIf a customer arrives every 2 minutes, thencycle time = __________ minute(s) and throughput rate = __________ /hour;flow time = __________ minute(s).59Process Analysis All Rights Reserved, G. Lu, 201460

Bottleneck refers to a resource that limits the capacity or maximum output of the process60Bottleneck and Inventory Buildup All Rights Reserved, G. Lu, 20146160/hr 90/hr 120/hr 100/hr120/hr 90/hr 60/hr 100/hr120/hr 60/hr 90/hr 100/hr90/hr 120/hr 60/hr 100/hr61Inventory Buildup Computation All Rights Reserved, G. Lu, 201462TimeDemand12pm2pm6pm10am50200Time200Inventory10012pm2pm6pm10amProcess Capacity = 100 / hr.

62Wet Cranberry Processing All Rights Reserved, G. Lu, 201463BinsBad berries (disposed)Separator LinesShipping of good berriesKiwaneeDumpersDechaffingDryersTruck queue63Cranberry Processing Example All Rights Reserved, G. Lu, 201464BinsBad berries (disposed)Separator LinesShipping of good berriesKiwaneeDumpersDechaffingDryersTruck queue1,500 barrels/hr1,250 barrels/hr600 barrels/hr2,400 barrels800 barrels/hr64Demand and Capacity Information All Rights Reserved, G. Lu, 201465Demand: 6000 barrels over 12 hrs

Kiwanee dumpers: Capacity = 1500 barrels/hr Storage bins: Capacity = 2400 barrelsDechaffers: Capacity = 1250 barrels/hrDryers: Capacity = 600 barrels/hrSeparators: Capacity = 800 barrels/hr

Process Capacity = __________ barrels/hr

Throughput Rate = __________ barrels/hr

65Demand and Capacity Information All Rights Reserved, G. Lu, 201466Demand: 10800 barrels over 12 hrs

Kiwanee dumpers: Capacity = 1500 barrels/hr Storage bins: Capacity = 2400 barrelsDechaffers: Capacity = 1250 barrels/hrDryers: Capacity = 600 barrels/hrSeparators: Capacity = 800 barrels/hr

Process Capacity = __________ barrels/hr

Throughput Rate = __________ barrels/hr

66Inventory Buildup Diagram All Rights Reserved, G. Lu, 201467WetberriesTime7am10am1pm4pm7pm1am10pm67Utilization All Rights Reserved, G. Lu, 201468Utilization of a resource is the ratio of the time that a resource is actually activated to the time that it is available for use.Utilization of a resource can also be expressed as throughput rate over resource capacity.

Utilization never exceeds 100% (=1).

When the utilization of a resource is 1, the resource may or may not be able to satisfy all the demand within its available time.

68Cranberry Processing Example All Rights Reserved, G. Lu, 201469BinsBad berries (disposed)Separator LinesShipping of good berriesKiwaneeDumpersDechaffingDryersTruck queue1,500 barrels/hr1,250 barrels/hr600 barrels/hr2,400 barrels800 barrels/hr69Utilization Computations All Rights Reserved, G. Lu, 201470Resource utilizations: (time available = 12 hrs)KiwaneeDumpersDechaffersDryersSeparatorsCapacity1,500/hr1,250/hr600/hr800/hrIf demand = 500 barrels/hrIf demand = 900 barrels/hr70Demand Constrained Process All Rights Reserved, G. Lu, 201471Excess capacityFlow RateDemandInputBottleneck(Capacity)Throughput RateThroughput rate = demand for a demand constrained process71Supply Constrained Process All Rights Reserved, G. Lu, 201472DemandBottleneck(Capacity)Excess capacityFlow RateInputThroughput RateThroughput rate = process capacity for a supply constrained process72Two Types of Cranberries All Rights Reserved, G. Lu, 201473BinsBad berries (disposed)Separator LinesShipping of good berriesKiwaneeDumpersDechaffingDryersTruck queueDestoningBinsdrydrydrydrywetwetwetwet1,500 barrels/hr2,400 barrels1,250 barrels/hr600 barrels/hr400 barrels/hr800 barrels800 barrels/hr73Utilization Computations (II) All Rights Reserved, G. Lu, 201474Demand = _______ barrels of wet berries and _______ barrels of dry berries per hour (from 7am to 7pm)Resource utilizations:

KiwaneeDumpersDe-chaffersDe-stonersDryersSeparators74Recall Bottleneck All Rights Reserved, G. Lu, 201475Bottleneck: stage that limits the capacity of the process75Identify Bottleneck All Rights Reserved, G. Lu, 201476

76Identify Bottleneck All Rights Reserved, G. Lu, 201477Time available = 480 minutes for each workerUtilizations:Station A: time available = time activated = ____________________; util. = __________

Station B: time available = time activated = ____________________; util. = __________

Station C: time available = time activated = ____________________; util. = __________

Station D: time available =time activated = ____________________; util. = __________

Station E: time available = time activated = ____________________; util. = __________77Job Shop All Rights Reserved, G. Lu, 201478

78Project Layout All Rights Reserved, G. Lu, 201479

79Work Center All Rights Reserved, G. Lu, 201480

80Manufacturing Cell All Rights Reserved, G. Lu, 201481

81Assembly Line All Rights Reserved, G. Lu, 201482

82Continuous Processes All Rights Reserved, G. Lu, 201483

83

Lecture-1-2 Intro & Process Analysis(1)

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