Kristens Cookies

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.

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 Kristens Cookies

Question 1
Assume that Kristens 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: Processs 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 Kristens Cookie Company is open for four hours each night, how many orders can be filled each night?

Which activity is the processs bottleneck? The processs bottleneck is

Question 2 (continued)
Assuming that Kristens 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 processs hourly capacity?

The processs hourly capacity equals

Question 2 (continued)
Assuming that Kristens 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 processs cycle time. Because the processs hourly capacity is 6 dozen per hour, the processs cycle time is
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Question 2 (continued)
Assuming that Kristens Cookie Company is open for four hours each night, how many orders can be filled each night?

What is the processs nightly capacity? The processs 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 So, Kristens nightly capacity is actually __ dozen.

Question 3
During each night, what percentage of time will Kristen be busy, and what percentage of time will Kristens roommate be busy? Recall that the processs cycle time is 10 minutes.

KRISTEN
Mix + Spoon Total Busy Time Within = Each 10-minute Cycle = 8 minutes Load +

ROOMMATE
Pack + Pay Total Busy Time Within = Each 10-minute Cycle = 4 minutes

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, recall that, in each 10minute cycle, Kristen and her roommate work a total of Kristens and the roommates wage is From the case, the materials cost per dozen is $0.60 for ingredients and $0.10 for the box, for a total of

$12/hr or $0.20 /min

Nightly capacity is

8 + 4 =12 minutes

24 dozen

$0.70

LABOR IS A VARIABLE COST (not paid when idle)

MATERIALS LABOR ($0.20/min)(12 min) = $0.70 $2.40

LABOR IS A FIXED COST (paid when idle)

MATERIALS LABOR [($12/hr)(4 hrs)(2 persons)]/(24 dozen) = $0.70 $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 processs 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 processs 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 processs new bottleneck is Mix & Spoon. The processs new hourly capacity is the new bottlenecks hourly capacity 7.5 dozen per hour.

Although Kristen doubled the hourly capacity of the former bottleneck Load & Bake, the processs hourly capacity did NOT increase by 100%. Because there was a new bottleneck, the processs 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 processs hourly capacity increases from 6 to 7.5 dozen per hour. So, the processs 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 processs 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 processs 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 processs 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 processs 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 (e.g., Load & Bake) or a resource (e.g., Kristen).
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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 activitys completion of successive units, assuming the activity operates continuously. (For example, if an activity has a capacity of 4 dozen per hour, then the activitys cycle time is 15 minutes.) CAPACITY OF AN ACTIVITY. An activitys 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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