Process Capacity: Evaluation and Optimization - Content ...

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Slide 1Process Analysis & Improvement © Gurvich

Process Capacity: Evaluation and Optimization

Information

structure

Outputs

GoodsServices

Inputs

Flow units/Entities(customers, data,

material, cash, etc.)

Labor & Capital

Resources

ProcessManagement

Network ofActivities and Buffers


Process Architecture is defined and represented by a process flow chart:

Process = network of activities performed by resources

1. Process Boundaries:– input

– output

2. Flow unit: the unit of analysis

3. Network of Activities & Storage/Buffers– activities with activity times

– Buffers with waiting flow times

– routes: precedence relationships (solid lines) with throughputs

4. Resources & Allocation- who does what?

5. Information Structure & flow (dashed lines)

Key for Capacity Analysis

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Pizza Pazza: Flow Chartif job order = 2 identical pizzas

start Take Order Sauce Prep Dough Prep Spread

Activity time: 2 3 12 = 2Resource: Jean Jean Jean, Pan

end BillUnload &

PackBake

Load & Set timer

Activity time: 2 1 2 = 2 3 15 1Resource: Jaqueline Jaqueline, Pan Pan Oven, Pan Jaqueline, Oven, Pan

cool


Pizza Pazza: Flow Time

1. Flow Time: What is the minimum time to fill a rush order, assuming that all steps of

the process are started only after the order is received?

Without spending money, how would you reduce this response time?

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Most time inefficiency comes from waiting:E.g.: Flow Times in White Collar Processes

Industry Process Average Flow Time

Theoretical Flow Time

Flow Time Efficiency

Life Insurance New Policy Application

72 hrs. 7 min. 0.16%

Consumer Packaging

New Graphic Design

18 days 2 hrs. 0.14%

Commercial Bank

Consumer Loan 24 hrs. 34 min. 2.36%

Hospital Patient Billing 10 days 3 hrs. 3.75%

Automobile Manufacture

Financial Closing

11 days 5 hrs 5.60%


Levers for Reducing Flow Time

Decrease the work content of critical activities

– work smarter

– work faster

– do it right the first time

– change product mix

Move work content from critical to non-critical activities

– to non-critical path or to ``outer loop’’

Reduce waiting time.

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Pizza Pazza: Throughput/Capacity

2. Maximal throughput = capacity:

What is the maximum number of orders that PP can fill per hour in steady state?


Resource Unit Load(time/job)

Resource Capacity ProcessCapacity

ResourceUtilization

*Unit Capacity # of

unitsTotal

A Recipe for Capacity Measurements

* assuming system is processing at full capacity

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Pizza Pazza: Let’s mathematize this


Pizza Pazza: Flow Rate/Capacity Analysisif job order = 2 identical pizzas

2. What is the maximum number of orders that PP can fill per hour in steady state?

3. If the Jacqueline calls in sick one day, what is the maximum number of orders that PP can fill?

4. What is the minimum number of pizza pans needed to ensure that no order has to wait for a pan?

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5. Assume Jean and Jacqueline decide to hire two employees to perform their respective tasks; each paid €8 per hour. What is the contribution margin (revenue - variable costs) generated per hour of operation of the process if pizzas sell for €5 each?

– Throughput R = … pizzas/hr– Revenue rate if sale price is €5 =

– Resource cost rate per hour =– Material cost rate per hour =– Contribution margin rate =

Pizza Pazza: Financial Flows & Pricingif job order = 2 identical pizzas

price: €5/pizzamaterial cost: €1.4/pizza


6. The pizzas have become wildly popular and Jean feels that they caneasily sell thirty pizzas per hour. To increase capacity, he is thinking ofrenting additional industrial ovens, which would cost €10 for each hour thatan oven is used. Should Jean rent more ovens, assuming the rest of theprocess is kept as is? How many? What would be the contribution marginfrom each hour of operation of the process (assume the employees do allthe work)? Rent second oven Rent third oven

Bottleneck

Additional throughput

Additional revenue

Additional costs

Additional profit

ROI

Pizza Pazza: Capacity Investmentif job order = 2 identical pizzas


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Resource Unit Load(time/job)

Resource Capacity ProcessCapacity

ResourceUtilization

*Unit Capacity # of

unitsTotal

A Recipe for Capacity Measurements



7. Can Jean do better, relative to question 8 above, by restructuring theprocess? For example, can he increase profits by reallocating tasksbetween the employees? (Assume all orders are for two pizzas.)

Rent third oven after process change =

Bottleneck

Additional throughput

Additional revenue

Additional costs

Additional profit

ROI

Pizza Pazza: Capacity Investmentif job order = 2 identical pizzas


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Product Mix Decisions:Pizza Pazza offers 2 pizza types

Sale Price of thin crust: €5

Cost of Direct Materials: €1.40

Sale Price of deep dish: €7.50

Cost of Direct Materials: €2.10

Which of these two products should Jean push to customers that call in andare undecided?


Product Mix Decisions

Unit margin of thin crust pizza = €3.60

Unit margin of deep dish pizza = €5.40

Margin rate from thin crust

= €3.60 * 7.5/hr = € 27/hr

Margin rate from deep dish

= €5.40 * 4/hr = € 21.60/hr

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Solver Model for Optimal Product Mix Selection

xt: Number of thin crust pizzas sold.

xd: Number of deep dish pizzas sold.

Max 3.60 xt + 5.40 xd

subject to

16 xt + 25 xd < 1200

… < …

… < …

xt < 100

xd < 50

Technology/ResourceConstraints

Market/Demand Constraints

Assume we work 20 hrs = 1200min per week

Assume this is maximal weeklydemand


Product mix: mathematize

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Networks


Bike sharing networks (popular routes and utilization)

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Networks with Feedback

Activity 1Mean Service time = m1

1 11

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Exogenous arrivals at rate α

Number of visit = 1/(1-p)

Load on the server per unit of flow = m/(1-p)

Another way:


Capacity Handout

Some math on the board

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“Theory of Constraints”:Increasing Process Capacity in The Goal

“is to increase the capacity of only the bottlenecks”– “ensure the bottlenecks’ time is not wasted”

increase availability of bottleneck resources eliminate non-value added work from bottlenecks

• reduce/eliminate setups and changeovers

synchronize flows to & from bottleneck• reduce starvation & blockage

– “ the load of the bottlenecks (give it to non-bottlenecks)” move work from bottlenecks to non-bottlenecks need resource flexibility

– unit capacity and/or #of units. invest


A refresher exercise

■ How long will it take?

■ How much work can we do? / What is the capacity of the process?

A

Activity time: 20 min/job

Resource: Kyle

D

30 min/job

Stan

B20 min/job

Kenny

C

E

20 min/job

Eric

20 min/job

Timmy

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How long: Theoretical flow time

■ TFT: Time to complete the process assuming:1. All activities are done at their average speed.2. All resources are immediately available when needed.

■ Look at paths through the process:– Here: A-B-C-E & A-D-E

■ Longest path (critical path) determines the theoretical flow time.– A-B-C-E = 20 + 20 + 20 + 20 = 80 min– A-D-E = 20 + 30 + 20 = 70 min

A

Activity time:

20min/job

Kyle

D

30 min/job

Stan

B

20min/job

Kenny

C

E

20 min/job

Eric

20 min/job

Timmy


How much work: Theoretical capacityResource Unit Load Resource Capacity Process Resource

(time/job) Unit Capacity # of units Total Capacity Utilization*

Kyle 20min/job 3 jobs/hr 1 3jobs/hr

(2) (3) = 66.67%

Kenny 20 3 jobs/hr 1 3jobs/hr

66.67%

Eric 20 3 jobs/hr 1 3jobs/hr

2jobs/hr

66.67%

Timmy 20 3 jobs/hr 1 3jobs/hr

66.67%

Stan 30 2 jobs/hr 1 2jobs/hr

100%


A

Activity time:

20min/job

Kyle

D

30 min/job

Stan

B

20min/job

Kenny

C

E

20 min/job

Eric

20 min/job

Timmy

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Process Changes: Impact on capacity and flow time

Process Change TFT Capacity

None

Reduce the average time for activity B by 5 mins

Kenny and Eric work in parallel

Reduce the average time for activity D(Stan) by 10 mins

Move 10 min’s work from Stan to Timmy

Kenny is fired and Kyle takes over


Process Changes: Impact on capacity and flow time

Process Change Concept TFT Capacity

None Baseline 80 min 2 jobs/hr

Reduce the average time for activity B by 5 min.

Work faster 75 min 2 jobs/hr

Kenny and Eric work in parallel Work smarter

70 min 2 jobs/hr

Reduce the average time for activity D(Stan) by 10 min.

Work faster 80 min 3 jobs/hr

Move 10min.’s work from Stan to Timmy Work smarter

90 min 2 jobs/hr

Kenny is fired and Kyle takes over ??? 80 min 1.5 jobs/hr

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Predictable queues

Arrivals to an emergency room


A “fluid” view

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Mathematize

Input rate at time t

Output rate at time t

total number in system

Example:

N servers (say beds in ER)

Fixed service rate ⋅ min ,

Finite differences solution (can be implemented easily in code): Δ

Δ ⋅ min , Δ


What happens when input rate is smaller than maximal output rate?

We will get to that in queueing

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