Lecture-1-2 Intro & Process Analysis

An Introduction to Operations & Supply Chain Management
Guanyi Lu April 20, 2014
Agenda
Ice break Review of Syllabus Introduction to Operations Mgmt (OM) and Supply Chain Mgmt (SCM) Q&A
All Rights Reserved, G. Lu, 2014
Two companies
COB & Co. (400 employees) 200 (5 people & 1 month / 1 car) 200 (2 people & 1 month / 1 TV) Car 40 100 High Efficiency TV
OSU & Co. (400 employees) 200 (20 people & 1 month / 1 car)
200 (2.5 people & 1 month / 1 TV)
Car 10
TV
80
Low Efficiency
Two companies
COB & Co. (400 employees) 200 (5 people & 1 month / 1 car) 200 (2 people & 1 month / 1 TV) COB & Co. (400 employees) 300 (5 people & 1 month / 1 car) 100 (2 people & 1 month / 1 TV) OSU & Co. (400 employees) 200 (20 people & 1 month / 1 car) 200 (2.5 people & 1 month / 1 TV) OSU & Co. (400 employees) 400 (2.5 people & 1 month / 1 TV)
Car 40
TV 100 Car 60 50 TV 80 Car 0 160

6
TV
Car 10
TV
Two companies
TOTAL OUTCOME Car TV Before 50 180 After 60 210
Both 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.
A story about ice cream

Ice cream infects my car!!
A well-educated family A nice family tradition
Review of Syllabus
Instructor / TA
Guanyi Lu 309, Bexell Hall Office hours: 12:15 PM 1:45 PM, TR Phone: 541-737-3995 Email: Guanyi.Lu@oregonstate.edu. Emails should have BA 554 in the subject line.
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Tell me more about you

I work for I like I hate I hope this course
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Review of Syllabus
Grading MBA Exit Hurdle
Course flow & Text book
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Operations Management
Operations and supply chain management: the design, operation, and improvement of the systems that create and deliver the firms primary products and services
Functional field of business
Concerned with the management of the entire system that produces a good or delivers a service
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Inputs
(raw material, customers)
Transformation Process
Outputs
goods, services
Resources: labor & capital
A process view of OM
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Organization Inputs Outputs _______________________________________________ Automobile factory sheet steel, engine parts cars
Restaurant
College
hungry customers satisfied customers

high school graduates educated individuals
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History of OM
Lean manufacturing, JIT, and TQC Manufacturing strategy paradigm Service quality and productivity Total quality management (TQM) and quality certifications Business process reengineering Six-sigma quality Supply chain management Electronic commerce Service science
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Matching supply with demand
Efficiency Right balance Push the envelop
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responsiveness
high Current frontier in the industry
Efficiency
A
Eliminate inefficiency
low
B
high price low price
All Rights Reserved, G. Lu, 2014 19
responsiveness
high Current frontier in the industry
Right Balance
low
high price
low price
responsiveness high
Push the Envelop

New frontier Current frontier in the industry
low
high price
low price
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Trends in O&SCM
Supply chain integration
Manufacturing and service outsourcing Increased co-production of goods and service Sustainability and the triple bottom line Managing customer touch point enhance service experience Raising senior management awareness of operations and supply chain management as a significant competitive weapon
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Process Analysis Part 1

Learning Objectives
Understand 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.
24
Process Analysis
Process Flowcharting
Process flowcharting: the use of a diagram to present the major elements of a process Symbols:
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Process Analysis
Process: 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
Process Analysis
Single-stage vs. Multi-stage
Single-stage process Stage 1
Multi-stage process
Stage 1
Stage 2
Stage 3
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Process Analysis
Various Multi-stage Processes
Serial flow process
Alternative paths
Different products
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Process Analysis
Analyzing a Las Vegas Slot Machine
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Process Analysis
Buffering, Blocking, and Starving
Buffer: 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
Fast Slow
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Process Analysis
Buffering, Blocking, and Starving
Starving: occurs when the activities in a stage must stop because there is no work
Slow Fast
Bottleneck: stage that limits the capacity of the process Can a stage be bottleneck if it is blocking or starving?
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Process Analysis
Make-to-order
Only activated in response to an actual order Both work-in-process and finished goods inventory kept to a minimum
Make-to-stock
Process activated to meet expected or forecast demand Customer orders are served from target stocking level
Hybrid
Combine the features of both make-to-order and make-tostock
Process Analysis
Example: Making Hamburgers at McDonald's (old process)
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Process Analysis
Example: Making Hamburgers at McDonald's (current process)
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Process Analysis
Pacing
Pacing: 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
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Process Analysis
Cycle time: The average time between completions of successive units
Often used in the context of a process Can 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
Process Analysis
Example: The BBA Bagel Store
3 minutes/order Raw materials Cut & Toast WIP 1 minute/order Spread cream cheese
Assuming 1 bagel/order
Customer places order

2 minutes/order
Process capacity = __________/hour
If a customer arrives every 4 minutes, then cycle time = __________ minute(s) and throughput rate = __________ /hour
Process Analysis
Example: The BBA Bagel Store
0:00 0:02 0:05 0:06 0:09 1st customer arrives The first order is taken and payment collected The1st bagel is cut & toasted & the 2nd order has spent 1 minute with the order taker The 1st order is completed & the 2nd order is taken & payment collected The 2nd bagel is cut & toasted & the 3rd order has spent 1 minute with the order taker
0:10
0:13 0:14
The 2nd order is completed & the & 3rd order is taken & payment collected
The 3rd bagel is cut & toasted & the 4th order has spent 1 minute with the order taker The 3rd order is completed & the 4th order is taken & payment All Rights Reserved, G. Lu, 2014 collected
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Process Analysis
Flow 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
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Process Analysis
3 minutes/order Raw materials 1 minute/order WIP
Cut & Toast
Spread cream cheese
Customer places order 2 minutes/order
If a customer arrives every 4 minutes, then cycle time = __________ minute(s) and throughput rate = __________ /hour; flow time = __________ minute(s).

Process Analysis
Setup Time and Run Time Example
setup time: 5 minutes run time: 20 minutes/100 units
Manufacturing
Packing run time: 2 seconds/unit negligible
setup time: 10 minutes run time: 10 minutes/100 units
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?
Process Analysis
Efficiency 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 output Efficiency 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.
43
Process Analysis
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Process Analysis
Inventory
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.
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Process Analysis
Relevance of three Performance Measures
Performance Measure
Inventory
Impact Use of working capital, reflected in the balance sheet

Rate of revenue generation, reflected in the income statement Lead time, responsiveness
Throughput rate Flow time
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Process Analysis
Conveyer
A conveyor moving at a constant rate Throughput rate: 2 / minute On average 6 pieces in the system Flow time ?
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Process Analysis
Littles Law
Establishes a mathematical relationship between Inventory, Throughput rate and Flow time Inventory = Throughput rate x Flow time
Inventory, [units]
Throughput rate, [units/time unit]
... ... ...
...
...
...
Throughput time, [time units]
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Process Analysis
An intuitive example of Littles Law: Student Flow
Consider 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?
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Process Analysis
Recall that Inventory is the number or value of all the flow units in a process Indirect measures
Days-of-supply: The (average) number of days until the firm would run out of an item if not replenished Days-of-supply is essentially flow time. Inventory turn: The cost of goods sold divided by the total average value of inventory Inventory turn is also the inverse of days-of-supply
50
Process Analysis
Raw Materials and WIP
12 hrs/car
Raw materials Assembly (1 battery/car) 200 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 = __________.
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Process Analysis
Inventory Turn
Inventory turn = COGS / inventory Inventory turn = 1 / flow time
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Process Analysis
Inventory Turn: practices
K-Mart (01/29/02)
Inventory = $4,825 million COGS = $26,258 million Inventory turn = Wal-Mart (01/29/02)
Inventory = $22,749 million COGS = $171,562 million

Inventory Turn =
Process Analysis
Material Flow: practice
Wendys 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?
54
Process Analysis
Job Flow: practice
The 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?
55
Process Analysis
Cash Flow: practice
Motorola 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?
56
Process Analysis
Decipher News Reports
The 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?
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Process Analysis
The BBA Bagel Store Revisited
3 minutes/order Raw materials Cut & Toast WIP 1 minute/order Spread cream cheese
Customer places order 2 minutes/order
If a customer arrives every 2 minutes, then cycle time = __________ minute(s) and throughput rate = __________ /hour; flow time = __________ minute(s).
Process Analysis
Bottleneck refers to a resource that limits the capacity or maximum output of the process
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Bottleneck and Inventory Buildup

100/hr 60/hr 90/hr 120/hr
100/hr
120/hr
90/hr
60/hr
100/hr
90/hr
120/hr
60/hr
100/hr
120/hr
60/hr
90/hr
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Inventory Buildup Computation

Demand
200
Process Capacity = 100 / hr.
50 10am 12pm 2pm 6pm
Time
Inventory
200 100
10am 12pm
2pm
6pm
Time
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Wet Cranberry Processing

Truck queue
Kiwanee Dumpers Dechaffing Bins Dryers Separator Lines
Bad berries (disposed)
Shipping of good berries
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Cranberry Processing Example

Truck queue
Kiwanee Dumpers Dechaffing Bins 2,400 barrels 1,500 barrels/hr 1,250 barrels/hr 600 barrels/hr Dryers Separator Lines
800 barrels/hr
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Demand and Capacity Information

Demand: 6000 barrels over 12 hrs Kiwanee dumpers: Capacity = 1500 barrels/hr Storage bins: Capacity = 2400 barrels Dechaffers: Capacity = 1250 barrels/hr Dryers: Capacity = 600 barrels/hr Separators: Capacity = 800 barrels/hr
Process Capacity = __________ barrels/hr

Throughput Rate = __________ barrels/hr
Demand and Capacity Information

Demand: 10800 barrels over 12 hrs
Kiwanee dumpers: Capacity = 1500 barrels/hr Storage bins: Capacity = 2400 barrels Dechaffers: Capacity = 1250 barrels/hr Dryers: Capacity = 600 barrels/hr Separators: Capacity = 800 barrels/hr
Process Capacity = __________ barrels/hr

Throughput Rate = __________ barrels/hr
Inventory Buildup Diagram

Wet berries
7am
10am
1pm
4pm
7pm
10pm
1am
Time
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Utilization
Utilization 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.
Cranberry Processing Example

Truck queue
Kiwanee Dumpers Dechaffing Bins 2,400 barrels 1,500 barrels/hr 1,250 barrels/hr 600 barrels/hr Dryers Separator Lines
800 barrels/hr
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Utilization Computations
Resource utilizations: (time available = 12 hrs)
Kiwanee Dumpers Capacity If demand = 500 barrels/hr If demand = 900 barrels/hr
Dechaffers
Dryers
Separators
1,500/hr
1,250/hr
600/hr
800/hr
Demand Constrained Process
Bottleneck (Capacity) Input

Flow Rate Throughput Rate
Demand Excess capacity
Throughput rate = demand for a demand constrained process

Supply Constrained Process

Bottleneck (Capacity) Input Throughput Flow Rate Rate Excess capacity
Demand
Throughput rate = process capacity for a supply constrained process
Two Types of Cranberries

800 barrels 400 barrels/hr Destoning dry Kiwanee Dumpers
Truck queue
dry
Bins
dry Separator Lines dry Dechaffing
800 barrels/hr
wet
Bins
wet
wet
Dryers
wet
2,400 barrels 1,500 barrels/hr 1,250 barrels/hr 600 barrels/hr

Utilization Computations (II)

Demand = _______ barrels of wet berries and _______ barrels of dry berries per hour (from 7am to 7pm) Resource utilizations:
Kiwanee Dumpers
De-chaffers
De-stoners
Dryers
Separators
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Recall Bottleneck
Bottleneck: stage that limits the capacity of the process
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Identify Bottleneck
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Identify Bottleneck
Time available = 480 minutes for each worker Utilizations: 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 = All Rights Reserved, G. Lu, 2014 time activated = ____________________; util. = __________
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Job Shop
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Project Layout
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Work Center
80
Manufacturing Cell
81
Assembly Line
82
Continuous Processes
83

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An Introduction to Operations & Supply Chain Management

Guanyi Lu April 20, 2014

All Rights Reserved, G. Lu, 2014

All Rights Reserved, G. Lu, 2014

All Rights Reserved, G. Lu, 2014

All Rights Reserved, G. Lu, 2014

TV 100 Car 60 50 TV 80 Car 0 160

All Rights Reserved, G. Lu, 2014

All Rights Reserved, G. Lu, 2014

A story about ice cream

All Rights Reserved, G. Lu, 2014

All Rights Reserved, G. Lu, 2014

Tell me more about you

All Rights Reserved, G. Lu, 2014

Course flow & Text book

All Rights Reserved, G. Lu, 2014

All Rights Reserved, G. Lu, 2014

Resources: labor & capital

All Rights Reserved, G. Lu, 2014

hungry customers satisfied customers

All Rights Reserved, G. Lu, 2014

All Rights Reserved, G. Lu, 2014

All Rights Reserved, G. Lu, 2014

All Rights Reserved, G. Lu, 2014

Push the Envelop

All Rights Reserved, G. Lu, 2014

Process Analysis Part 1

All Rights Reserved, G. Lu, 2014

All Rights Reserved, G. Lu, 2014

All Rights Reserved, G. Lu, 2014

All Rights Reserved, G. Lu, 2014

All Rights Reserved, G. Lu, 2014

All Rights Reserved, G. Lu, 2014

All Rights Reserved, G. Lu, 2014

All Rights Reserved, G. Lu, 2014

All Rights Reserved, G. Lu, 2014

All Rights Reserved, G. Lu, 2014

Customer places order

Process capacity = __________/hour

All Rights Reserved, G. Lu, 2014

Cut & Toast

Spread cream cheese

Customer places order 2 minutes/order

Process capacity = __________/hour

Process Analysis Part 2

Packing run time: 2 seconds/unit negligible

setup time: 10 minutes run time: 10 minutes/100 units

All Rights Reserved, G. Lu, 2014

All Rights Reserved, G. Lu, 2014

All Rights Reserved, G. Lu, 2014

Impact Use of working capital, reflected in the balance sheet

Throughput rate Flow time

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All Rights Reserved, G. Lu, 2014

Throughput time, [time units]

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All Rights Reserved, G. Lu, 2014

All Rights Reserved, G. Lu, 2014

The average number of batteries in Assembly = __________.

All Rights Reserved, G. Lu, 2014

All Rights Reserved, G. Lu, 2014

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

All Rights Reserved, G. Lu, 2014