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HBS Toolkit - Basic Operations Self-

Instructional Workbook
 
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4/18/2000

The word "operations" may evoke images of a large factory, but an operation is really any process that
takes inputs and transforms them into outputs of greater value. A car manufacturing plant is certainly an
operation, but so is a hospital, the claim-processing department of an insurance
company or a person
doing his or her laundry. This instructional workbook from the HBS Toolkit provides a brief introduction
to basic concepts of operations and illustrates how a complex operation can be broken down into its
components, described and mapped in a way that makes it easier to understand and improve.

Operations Basics

Welcome to the Operations Basics Self-Instructional Workbook. The purpose of this workbook is to
provide a brief introduction to the basic concepts found in operations. It is intended for use in
connection with the first-year Technology and Operations Management course by students with no or
minimal background in operations. The workbook will cover such terms as cycle time, process flow, work
in process and manufacturing lead-time. Finally, it will illustrate how a complex operation can be broken
down into its components, described and mapped in a way that makes it easier to understand and
improve.

What is an Operation?

Although for many of us the word 'operations' evokes images of a large factory, an operation is any
process through which a set of inputs go through one or more steps resulting in a (hopefully) more
valuable set of outputs. Thus, a car manufacturing plant is certainly an operation, but so is a hospital,
the claim-processing department of an insurance company or a person doing his or her laundry. Each of
these operations can be described using a common set of terminology and mapping tools. We will be
explaining the definitions and providing simple examples of the following concepts and terms:

Cycle Time (CT)

Bottleneck
Idle Time
Work-in-Process (WIP)
Buffers
Manufacturing Lead Time (MLT)
Mapping an operation using Process Flow Diagramming
Managing operations for optimal efficiency
Workbook Contents

Introduction
What is an operation?
Common Terms Used in Operations (Process Fundamentals)

Step 1: Cycle Time

 Step 2: Bottleneck

Step 3: Idle Time

Step 4: Work-in-Process

Step 5: Buffer

Step 6: Manufacturing Lead Time

Step 7: Mapping an Operation

Step 8: Operations Management Tools

Glossary of Operations Terms
Cycle Time (CT)

Cycle Time is the length of time, on average, that it takes to complete a step or set of steps within an
operation. In our laundry example, the cycle time for the washer is thirty minutes and the cycle time for
the dryer might be anywhere from forty-five minutes to an hour. Note, however, that cycle time refers to
the average time.

In a large laundry operation with ten washers, the cycle time for a single load would be three minutes
(thirty minutes divided by ten washers).

It is also important to be careful what units we are talking about. If the dryer is large enough to run two
loads of laundry (and our operation is set up in such a way that it does) the cycle time per washer-load
will be half of the cycle time per dryer-load. Later on we will also talk about the cycle time for the entire
laundry process.

Dependent steps. Many operations have dependent steps, i.e. steps that can only be done when a
previous step has been completed. You could put your laundry into the dryer before the washing
machine, or you could fold it before putting it into the dryer, but neither is likely to be productive. The
interaction of dependent steps creates much of the need for operations management.

Bottleneck

Within a set of dependent steps, there is generally one step that defines the speed at which the entire
operation can run. This step is called the bottleneck because, just like liquid coming out of a bottle, it
limits the speed of the entire operation. Let us assume that the washer and dryer can each handle one
"load" of laundry and that the cycle times for each step are as follows:
Now imagine that we have a lot of laundry to do, such that as soon as we have put our first load into the
dryer we plan to start our second load in the washer, and so on. Once our 'line' is full, which operation
will decide (i.e., limit) the speed at which we can do our laundry? The dryer will, because it will still be
drying the first load when the washer finishes its cycle on the second load. Generally, the step with the
longest cycle time will be the bottleneck.

The bottleneck is often an important area of focus for improving the capacity of an operation, since if the
bottleneck's capacity can be increased it will often increase overall capacity, while increasing the output
of a non-bottleneck step may have no effect. In our laundry example, if we can dry one load of laundry
per day by hanging it outside that will let us do an extra load of laundry per day. If, however, we could
wash a load by hand that won't let us get any more laundry done since our washer is already capable of
more laundry than our dryer can handle.

Idle Time

Sometimes you only need to do one load of laundry, but because the steps in the process are dependent,
two machines (including you the folder) will be idle part of the time.

Since many operations are capable of completing their tasks faster than the bottleneck operation, it will
often not make sense to run them at full capacity. If you ran the washer and dryer non-stop all day, you
would accumulate extra loads of wet laundry waiting to be dried. Eventually you would have to stop
running the washer in order to let the dryer catch up. Whether the washer is not running for a short
period for each load (while we wait for the dryer to finish), or has a longer period of downtime later in the
day, that downtime is called idle time.

Work in Process (WIP)

Work-in-process, or WIP, refers to inputs that are still in the operation. Laundry still in the washer, the
dryer or being folded would count as WIP in our example (as would laundry in transit to either the washer
or the dryer). WIP is sometimes discussed in dollar terms, but will generally be considered in whatever
units (such as loads of laundry) are moving through the operation. In our example, once the 'line' is full,
we would always have a load either in the washer or waiting to be put into the dryer and another load in
the dryer. We would also have a load that is being folded, but since that load doesn't have to wait for
anything, that step will be empty some of the time. Ignoring the possibility that folding is delayed by our
loading and unloading the machines, we would expect to have a load of laundry in-process at the folding
step for thirty minutes (folding time) out of every forty-five (cycle time of the laundry operation). We
would therefore say that there is two thirds of a load in that step in describing the WIP of the operation,
or 2 2/3 loads of WIP in total.
Buffer

Sometimes an operation will have storage space where WIP from one step can accumulate before being
worked on by the next step. There can be a large number of reasons for having a buffer. Suppose we
don't want the washer to run in the afternoon. We might want to run it non-stop in the morning to get as
many loads finished as possible, but we would need space to put them in while they waited for the dryer
to catch up. In larger operations, a buffer may be important in order to make sure that the bottleneck is
never starved for inputs. Since the bottleneck sets the pace, loss of production there may imply lost
production for the entire operation.

Manufacturing Lead Time (MLT)

Manufacturing lead-time, or MLT, is the average length of time it will take a new set of inputs to move all
the way through the operation, assuming no unusual measures are taken. A load of laundry, for example,
would spend one cycle (45 minutes) in the washer, including idle time, another cycle in the dryer (90
minutes total), and then two-thirds of a cycle being folded (120 minutes). From laundry bag to clean
and folded will take an average of two hours. Note that because folding took place after our bottleneck
(drying), the load didn't have to stay there for a full cycle.

The laundry example is fairly simple, but in a more complex operation it might be difficult to estimate
MLT at a glance. There is a simple formula, known as Little's Law, which can help. Little's Law states
that:

Manufacturing Lead Time = Cycle Time * Work-in-Process

This simple rule makes sense if you imagine the path a new set of inputs (like a load of laundry) must
follow in order to pass through the operation. As each unit of WIP moves forward, the new set of inputs
takes its place. Each move occurs once per cycle, so multiplying cycle time times WIP will give us our
total lead-time.

In our laundry example, we had 2 2/3 loads of WIP. Multiplying 2 2/3 times our cycle time of 45
minutes gives us 120 minutes.

Mapping an Operation

One of the ways a manager can use to understand and improve an operation is by mapping it. By
convention, we map processes (such as the washing machine) with rectangles, places where WIP or raw
materials reside with triangles, and indicate flows with lines, using arrows to indicate direction. Capacity
of each process can be added, if desired.
A starting map for our laundry room would be as follows:

Information flows are also important in understanding how an operation works. Here, the information
flow is very simple; the washer and dryer each probably have a buzzer that goes off when they are done,
or perhaps we are simply close enough that we can hear them stop running. In a more complex
operation, however, information flows would not be so straightforward. Information flows are generally
recorded with a dotted line, so that they are easily distinguished from physical flows.

Using Operations Management Tools

Let's assume for a moment that we're not doing our own laundry. Instead, we're living at our parent's
house and doing laundry for our neighbors on the weekends to make some extra money. We charge $15
per load, including folding. We currently do six loads per day before meeting up with our friends, who get
up somewhat later than we do. Suppose we are considering buying a better washer or a better dryer to
help us make more money. Our parents are willing to help out, since it will be their new washer or dryer,
but it will still cost us $100 for either upgrade. The new washer will take just 20 minutes to do a load of
laundry, while the new dryer will take just 30 minutes. Which, if either, should we do?

Well, our understanding of bottlenecks makes it clear that buying the washer is unlikely to make sense.
The pace at which we can wash, dry and fold laundry is set by the slowest step, drying. So let us
consider the new dryer. What would our map look like?

Now each process has a cycle time of 30 minutes, suggesting a cycle time of 30 minutes for the entire
line as well. In practice our cycle time will almost certainly be longer, since we were probably using our
idle time in the folding process for moving laundry in and out of the machines, resting or whatever. But
as an approximation, we can estimate our new capacity as being about 50% higher than it was before, or
nine loads per day. Thus, we would expect to earn an extra $45 per day, and would be able nearly to pay
for the dryer upgrade in a single weekend. We might want to check some assumptions, like our ability to
attract three extra loads of new business per day, but from the operations point of view the new dryer
looks like a good bet.

This concludes the Operations Basics Self-Instructional Workbook. You may want to continue to the
glossary to review some of the terms we have used.

Glossary of Operations Terms

Bottleneck:The production resource that limits the capacity of the overall process. This is usually the
production equipment at the step with the lowest overall capacity, i.e., the longest cycle time. In some
situations, the bottleneck resources may be labor available at a particular step or steps.

Buffer: Interim storage where Work-in-process can be stored between steps in a process. In our laundry
example, a laundry basket between the wash and dry cycles could be considered a buffer.

Capacity: The maximum rate of output of a process, measured in units of output per unit of time. The
unit of time may be of any length, a day, a shift, or a minute.

Cycle Time (CT): Average time between completion of successive units. It is directly related to the output
rate. A process with an output rate of 4 units per hour has a cycle time of 15 minutes.

Idle Time: The time when useful work is not being performed.

Lot Size (also called Batch Size): Number of units of a particular product type that are produced before
beginning production of another product type.

Manufacturing Lead Time (MLT): The amount of time each unit spends in the manufacturing process
(sometimes called Throughput Time). This includes time spent actively being worked upon at each step
of th the process as well as any time spend waiting between steps. The concept of a lead time applies to
the total time spent in any process in which the start and finish are well-defined events. We can talk
about lead times, for example, in service operations, or in the entire order-to-delivery process.

Operation, Operating System, (also Process): Any part of an organization that takes inputs and
transforms them into outputs of greater value to the organization than the original inputs.

Process: For purposes of this workbook and these definitions, a "Process" may refer to the complete
production process, such as doing a load of laundry or making bread from start to finish, or to a segment
of the complete process, such as the wash cycle or the baking process

Process Flow Diagram: Breaking a process into its discrete components and diagraming it as a series of
small rectangles (processes), arrows (information and material flows), and inverted triangles (storage of
goods).

Utilization: Ratio of the input actually used over the amount of the input available. Labor utilization is
the ratio of the actual labor time spent processing to the total amount of labor time available.
Differences between the two can be due to inefficiencies in the process that lead to lost working time, as
well as to imbalances in the cycle times at each step of the process that lead to idle time of workers at
some steps while those at others are working. Capacity utilization is the ratio of the capacity actually
used (i.e., the output of the process) to th the total capacity available.

Work-in-Process: Number of units in the process at any point in time. If the process includes buffer
inventories between steps, they the work-in-process is the total number of units being worked upon as
well as waiting in the inventory between steps. The units in inventory are usually referred to as Work-in-
process inventory, to distinguish them from raw materials inventory or finished goods inventory.

Source: Adapted from Professor W. Bruce Chew, "A Glossary of TOM Terms." HBS No. 687-019

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