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Chapter 5: Flow Rate and Capacity Analysis: 5.1 Objective
Chapter 5: Flow Rate and Capacity Analysis: 5.1 Objective
5.1 Objective
Chapter 3 introduced the three basic building blocks of process flow namely the (average) flow time,
(average) flow rate and (average) inventory. It is followed by a sequence of three chapters, 4, 5 and 6,
which examine each one of these measures individually. Chapter 5 is concerned with flow rate analysis
and issues of capacity. The major managerial concept discussed in the in the chapter is that of the
bottleneck. We use the notion of the theoretical capacity as a practical and easy to grasp introduction to
this topic.
You may want to download (from http://www.prenhall.com/anupindi/) and use the Excel workbook
NCC.xls to analyze this case. We have allowed the students to use the spreadsheet. In class we illustrate
how one could analyze the case (without the spreadsheet) using inventory build-up diagrams.
5.1
a. At 50% product mix, the Unit load at each department is given
Unit Load
Shopping
(hrs per contract)
Unit Load
Unit Load
Medical
Mix
Paralegal
Tax lawyer
Senior partner
Hours Available
(hours per day)
Capacity
Paralegal
24
4.8
Tax lawyer
24
12
Senior partner
Unit Load
Hours required
Hours Available
(hours per
professional per
month)
Number of
Professionals
required
Paralegal
750
120
6.25
Tax lawyer
300
160
1.875
Senior partner
150
80
1.875
a.
The unit load from the three hair stylists is 10+ 15 +5 = 30 minutes per customer. Checking in
(LuLu) takes 3 minutes. Thus, the capacity of the stylists is 3 * 60 /30 = 6 customers per hour,
and of LuLu is 1* 60/3 = 20 customers per hour. The bottleneck are the stylists.
b.
The theoretical capacity will increase to 7.2 customers per hour:
If LuLu does the billing, the unit load of the stylists is reduced to 25 minutes per customer, and
their theoretical capacity increases to 3* 60/ 25 = 7.2 customers per hour. On the other hand,
Lulus unit load increases to 3+5 = 8 minutes per hour, and her capacity decreases to 60/8=7.5
customers per hour.
5.4
a.
A is more profitable :
The capacity of A and B respectively are 900/10= 90 and 900/20= 45 units per day. The margin
capacity of the two products are 90*20 =$1800 and 45*35 = $1575 per day respectively.
b. The unit load of the mix is 60%*10 +40%*20 = 14 minutes per unit. The
capacity is 900/14 = 64.3 units per day
c. The margin per unit is 60%*20+40%*35= $26 per unit. The financial
capacity is 64.3*26 = $1671.42 per day.
5.5 Insurance Company
One should average the reciprocal of the capacities :
(500 + 1000)/2 = 1500/2 = 750
5.6
a.
The variable cost is 33%*15 = $5 million per month. The throughput profit multiplier is
(18 5)/(18-15) = 13/3= 4.3
5.7
a. The theoretical capacity is 6.00 cases per day:
Capacity
Waste
Theoretical
capacity
Paralegal
4.8
20%
4.8/(1-0.2)=
6.00
Tax lawyer
12
30%
12/(1-0.3)=
17.14
Senior partner
35%
8/(10.35)=12.31
customers arrive at the rate of 5 per minute. After 10:00AM, the rate reduces to 2 per minute. The store
admits customers at the rate of 4 per minute.
a. Jacob plans to arrive to the store at 9:00AM. How long should he expect to wait?
b. Rachel does not want to wait more than 15 minutes. When should she show up?
2.
EZS is a small fast food outlet located in midtown Manhattan and serving mainly the corporate
clientele. EZS main fare is a freshly prepared, customizable line of sandwiches. It is supplemented with
an assortment of drinks, light salads, seasonal fruit and snacks. The restaurant is open 10:00AM to
10:00PM, but the peak demand is during lunch hours, 11:30 to 2:00PM.
A customer joining the line makes a sandwich selection by consulting the billboard, marks her selection
on a customized form, and hands the form to one of several assemblers who produce the sandwich. The
customer does not wait for the sandwich to be assembled, but proceeds directly down the line to select
additional items onto her tray. Next, the customer proceeds to pay at the cash register. Finally, (after the
payment is completed) she collects her prepared sandwich at a designated location.
Selecting the sandwich and marking the form takes 45 seconds. Assembling the sandwich requires 90
seconds. Selecting additional items takes 60 seconds. Paying at the cash register requires 40 seconds.
Collecting the prepared sandwich requires 20 seconds. The restaurant employs 2 cash registers and 6
sandwich assemblers, and one person to disburse the prepared sandwiches.
a.
b.
c.
d.
3. A temp work service maintains an inventory of 200 computer specialists who are assigned to
various customers on a short term basis. The typical tour of duty lasts for 7 weeks, and the period
between assignments typically lasts for 3 weeks. Assume 50 weeks per year.
4. A companys income statement for FY06 contains the following information (in $ Million):
Revenue
COGS
SGA&O
Profit
700
400
200
100
It is estimated that 20% of COGS and 10% of SGA&A are Throughput Cost (vary with throughput), and
the rest are Capacity Cost ( fixed with respect to throughput). The throughput is 100,000 units per year.
a. What will be the increase in profit if throughput increases by 1%?
Exam Solutions:
Problem 1:
At 8:00Am, 120 customers are waiting
From 8:00 to 10:00AM, line increase by 1 customer per minute
From 10:00 to 12:00PM, line decrease by 2 customers per minute
a.
At 9:00
the line is
180.
Jacob will
wait 180/4
= 45
minutes
b. To wait 15 minutes, the line has to be at most 15*4 = 60. Rachel must show up after
11:30AM
Problem 2:
a.
b. The critical path is the top one, = 45 +60 + 40 +20 = 165 sec
c. Capacity per minute:
Assembly: 6*60/90 = 4
Cash register 2*60/40 = 3
Disburse 1*60/20= 3 (assuming time to collect = time to disburse)
d. No. Assembler is not a bottleneck
Problem 3:
a. The flow time of entire process is 3+7 = 10 weeks
Inventory is 200
Therefore R= I/t = 200/10 = 20 per week
b. The flow time of idle is 3 weeks
The throughput is 20 per week
Therefore I=R*T= 20*3 = 60
Alternative way % of idle time 3/10= 30%. Thus 30% of staff will be idle on average, ( 30% of 200 = 60)
Problem 4:
a. First we need to separate the total cost (COGS +SGA&O) into throughput cost and capacity cost
Throughput cost = 20% * 400 + 10% * 200 = 100 ($M per year),
The rest ($500M) is capacity cost
Throughput is 100,000 units per year. Thus, we have, In $ per unit:
Profit= 100M/100K= 1000
Revenue= 700M / 100K = 7000
Throughput cost = 100M/ 100 K = 1000
Margin per unit = 7000- 1000 = 6000