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Koç University Graduate School of Business EMBA Program

Today’s Agenda
Wrap-up: How to manage processes effectively to improve flow rate? Quiz 1 How does variability impact processes flow rate and fl d flow ti ? time?
– Multi-stage processes: process time variability – Single stage process arrival and process time variability - Lean Principles

OPSM 901: Operations Management
Session 4: -The role of Variability -Lean Principles

- Turkish Airlines Case
OPSM901 Operations Management OPSM901 Operations Management

Wrap-Up: Multi-Product Process Analysis & Apps
Manage better with the three key operational measures and an interfunctional macro process view of the organization Process measures:
– Flow time → manage critical activities – Capacity → manage bottleneck resources

Bottleneck:The factor which limits production (Internal)Theoretical bottleneck is the resource with minimum theoretical capacity
Effect of product mix on the bottleneck:
Part A
R1:Cutting 3 min/part R2:Finishing 2 min/part

Levers for improving
– Flow time → manage critical activities – Capacity & Throughput

Process capacity depends on a zillion things
– Effect of product mix decisions on process capacity
• marginal contribution per unit of bottleneck capacity used

– Bottleneck may shift on adding capacity
diminishing returns to capacity investment

Part B 50% A-50% B product mix, unit loads: R1: 1.5 min/part (3x0.5) bottleneck! R2: 2 min/part

Unit Load calculations can Account for the product mix– i.e. How much a resource is needed affects the Bottleneck

OPSM901 Operations Management OPSM901 Operations Management

Bottlenecks: Buffers and Inspection

Theory of Constraints: from “The Goal”
Five steps for effective process management:

Station #1

Station #2

Station #4

Station #5

3.5 /hr

3.5 /hr

1 /hr

3.5 /hr

3.5 /hr

How would you release Raw Material into station #1? Where should you place buffer inventory? Why? Where would you place inspection equipment?
OPSM901 Operations Management

Step 1: Identify the constraint Step 2: Exploit the system’s constraints system s Step 3: Subordinate everything else Step 4: Elevate the constraint Step 5: if new constraint go to Step 1-2

OPSM901 Operations Management


etc.Things that influence flow time Process control Protecting the bottleneck: effective scheduling and effective lot-sizing – What we illustrated with Gantt charts – Schedule resources to synchronize flows with the bottleneck Lotsize – Before I move from one product run to another. loading programs. P3 Produce 100 units of each Alternatives – 100 P1 – 1P1 1P2 100 P2 1P3 1P1 1P2 100P3 1P3 Large batches (high-inventory) A When do you detect quality problems? How do you incorporate engineering changes? Due-date performance? Margins? (lead time) Forecast accuracy? B C • 100 times set-up B Set-up time – Cutting tools. 7 days a week) inventory 1. P2.64 months (24 hrs a day. 11 12 OPSM901 Operations Management D OPSM901 Operations Management 2 . calibration. inventory C : 1 hr/unit 1 2 1 9 Wait for the bottleneck OPSM901 Operations Management C : 1 hr/unit 3 3 4 4 5 1000 1290 2000 B : 1/10 hr/unit D : 3/4 hr/unit 750 850 1000 1850 2000 2450 5 inventory avg. inventory B : 1/10 hr/unit D : 3/4 hr/unit 2 Time (hours) Time (hours) 10 OPSM901 Operations Management Comparison: Large batches or Small batches? Small batches (low-ınventory) Lotsize decision Three products: P1. how much will I produce • Physical constraints • Customer order size • Managerial decisions Set-up time/production time 8 OPSM901 Operations Management OPSM901 Operations Management High-Inventory Manufacturing Batch size=1000 Low-Inventory Manufacturing Order : 1000 units Batch size=200 3. cleaning.91 months 1 1 2 2 3 3 4 4 5 5 Move batches of 200 Release materials according to the bottleneck Order : 1000 units A : 1/2 hr/unit B : 1/10 hr/unit A : 1/2 hr/unit B : 1/10 hr/unit avg.

13 OPSM901 Operations Management Note that the bottleneck may shift after improvement OPSM901 Operations Management Variability = Actual . throughput (rate) decreases 18 OPSM901 Operations Management 3 . etc. streamline + eliminate nonvalue added work – do it right the first time: eliminate rework/corrections – work faster Long set-up times large lotsizes Reduce set-up time to produce in small lotsizes Move work content from bottlenecks to non-bottlenecks – create flexibility to offload tasks originally assigned to bottleneck to non-critical resource or to third party • Can we offload tasks to cross-trained staff members? Increase Net Availability of Process – work longer: increase scheduled availability – increase scale of process: invest in more human and capital resources – eliminate unscheduled downtimes/breakdowns • Preventive maintenance. backups. idleness is minimized In the presence of variability full synchronization cannot be achieved 17 OPSM901 Operations Management As variability increases. Production time depends on lotsize – Not always (baking. heat treat) y ( g ) Key action = optimize only bottleneck management Decrease the work content of bottleneck activities – Never unnecessarily idle (“starve”) bottlenecks = eliminate bottleneck waits: • Reduce variability if it leads to bottleneck waiting • Synchronize flows to and from the bottleneck: sync when resources start an activity – work smarter: • Reduce & externalize setups/changeover times.How increase capacity?Summary of Typical Actions Set-up times Set-up time does not depend on lotsize and is the same for all lotsizes.Expected Average value Range of observed values THE ROLE OF VARIABILITY Fluctuations in values Variance (or Standard deviation) of the values 15 16 OPSM901 Operations Management OPSM901 Operations Management Variability in task times if task times are similar will have a balanced line 6units/hr 6units/hr 6/hr Key Points: The role of variability Note there is no buffer between stages: Capacity/hr: Capacity/hr: 6units/hr 4 or 8/hr 2 or 10 0 or 12 6units/hr 4 or 8/hr 2 or 10 0 or 12 6/hr 5/hr 4/hr 3/hr in the absence of variability (deterministic task times) complete synchronization is possible.

changing procedure. the impact of resource interaction increases 19 OPSM901 Operations Management OPSM901 Operations Management 20 Want to reduce resource interference in your processes: how? –Dependent Events: Products require more than one step –Statistical Fluctuations: Machine and human variations.5/hr 3/hr 1. change technology) through cross-training eliminate steps buffers integrate work (pooling) Reduced Production Whenever we have dependent events.5/hr 6/hr 4 or 8/hr 2 or 10 4/hr 2 or 6/hr 0 or 8 4/hr 3. lotsize – Reduce variability 23 OPSM901 Operations Management OPSM901 Operations Management 24 4 . raw material quality problems. their fluctuations don’t average out. Dependent Events + Statistical Fluctuations smaller lotsizes (smaller batches) better balanced line by speeding-up bottleneck (adding staff. cost.5/hr 3 5/h 2. flexibility Process design. appropriate selection of resources Process documentation: flowchart Analyze at macro level – – – – Where is the bottleneck? Is capacity enough? How is time performance? Where do quality problems occur? Analyze at micro level – Scheduling: focus on the bottleneck – Set-up times. different incentives.5/hr 4 or 8/hr 6/hr 6/hr 2 or 10 0 or 12 2 or 10 0 or 12 2 or 10 0 or 12 As variability increases. errors. prompts. Incentives Scheduled arrivals to reduce demand variability Initiatives to smoothen arrivals Process management Strategic positioning-establish product capabilities Determine appropriate process capabilities: time.Resource interaction effects In a serial process downstream resources depend on upstream resources: can have temporary starvation (idleness) 6/hr 6/hr 6/hr 6/hr 4 or 8/hr 6/hr 4 or 8/hr Compounding effect of variability and unbalanced task times 6/hr 4. quality. they accumulate 21 OPSM901 Operations Management 22 OPSM901 Operations Management Want to eliminate as much variability as possible from your processes: how? specialization in tasks can reduce task time variability standardization of offer can reduce job type variability automation of certain tasks IT support: templates. etc.

e. their arrival times are not known in advance Customers are processed.Framework for Process Flow Management Flow Chart Process Identify Bottlenecks Maximal Flow Rate mean Demand Pattern variability Identify Critical Path Minimal Flow Time VARIABILITY DRIVES WAITING: EVEN IN SINGLE STAGE PROCESSES Macro Average Performance Micro Variability Performance Competitive? No Process Re-Design Demand & Supply Mgt Continuous Improvement 25 Yes Competitive? No Yes OPSM901 Operations Management OPSM901 Operations Management Consider service processes This could be a call center or a restaurant or a shared service center Customers or customer jobs arrive to the process. Processing rates have some processed variability. We need to build some safety capacity in order to reduce waiting due to variability Stability condition: average system capacity > average demand=throughput 27 OPSM901 Operations Management Why do queues form? Why is there waiting? Call # High utilization: – throughput/capacity – High inflow rate – Low processing rate 10 9 8 7 6 5 4 3 2 1 0 0 20 40 60 80 100 variability: – arrival times – service times – processor availability TIME Inventory (# of calls in system) 5 4 3 2 1 0 0 20 40 60 80 100 TIME OPSM901 Operations Management 28 Why is there waiting? the perpetual queue: insufficient capacity the predictable queue: peaks and rush-hours the stochastic queue: whenever customers come faster than they are served In presence of variability we need to build safety capacity in system to have a stable system: (i. average system capacity > average demand=throughput) A measure of variability Needs to be unitless Only variance is not enough Use the coefficient of variation CV= σ/µ (standard deviation/mean) 29 OPSM901 Operations Management OPSM901 Operations Management 30 5 . The combined variability results in queues and waiting. Performance Improvement Levers Capacity Utilization / Safety Capacity – Demand Management (arrival rate) • Peak load pricing – Increase Capacity (processing rate) • Number of Servers (scale) • Processing Rate (speed) Variability Reduction – Arrival times • Scheduling. Specialization.Interpreting the variability measures CVi = coefficient of variation of inter-arrival times i) constant or deterministic arrivals CVi = 0 Example: CV=1 Histogram of exponential distribution: interarrival times at an outpatient clinic ii) completely random or independent arrivals CVi =1 iii) scheduled or negatively correlated arrivals CVi < 1 iv) bursty or positively correlated arrivals CVi > 1 31 OPSM901 Operations Management OPSM901 Operations Management 32 Generalized Throughput-Delay Curve Average Flow Time T In words: In high utilization case: small decrease in utilization yields large improvement in response time This marginal improvement decreases as the g p slack in the system increases Reducing the utilization of bottleneck stage results in the highest response time reduction Variability Increases Tp Utilization (ρ)= arrival rate/service rate 100% OPSM901 Operations Management ρ 33 OPSM901 Operations Management 34 Check a simulation: Waiting Line Simulation http://archive. Reservations. Training Synchronization – Matching capacity with demand 36 OPSM901 Operations Management You can check the effect of CV and utilization (arrival rate/service rate) on waiting 35 OPSM901 Operations Management 6 . Appointments – Processing times • Standardization.ite.

. . movement are non-value adding Expose sources of waste (Jidoka) Problems are natural and are opportunities to learn – Problem visibility. reduces resource interference..Effect of Pooling (Resources) Ri/2 Ri Ri/2 Queue 2 Queue 1 Server 1 The impact of task integration (pooling) balances utilization.. improve communication to minimize resource interference for high utilization processes build-in more slack MANAGING VARIABILITY IN OUTPUT PERFORMANCE: QUALITY MANAGEMENT & LEAN PRINCIPLES 40 OPSM901 Operations Management 39 OPSM901 Operations Management Elements of Lean Thinking (TPS) The Ideal: Synchronization and Efficiency : Just the right part in the right quantity at the right time in the right place. correction – Management by sight Continuous improvement (Kaizen) – Buffer reduction and employee involvement – Management by stress OPSM901 Operations Management P r roce M asure ss e Time Information: Control Limits: Decision Rule: Errors: 41 Monitor process variability over time Average + z Normal Variability Ignore variability within limits as “normal” Investigate variation outside as “abnormal” Type I . inventory. fast feedback.. at minimum cost Process Control Chart All processes in control and capable Level production (Heijunka) – Smooth production runs – Connect the production system to the customers-produce as they want (“pull”) – Minimize changeover times Eliminate Waste (Muda) Every task/activity/function must add value – Defect..False alarm (unnecessary investigation) Type II .waiting.Missed signal (to identify and correct) OPSM901 Operations Management 42 7 ..therefore reduces the impact of temporary bottlenecks there is more benefit from pooling in a high utilization and high variability process pooling is beneficial as long as • it does not introduce excessive variability in a low variability system • the benefits exceed the task time reductions due to specialization 37 38 OPSM901 Operations Management Server 2 Server 1 Ri Queue Server 2 OPSM901 Operations Management Summary of fundamental process principles identify and eliminate bottlenecks reduce as much variability as possible eliminate handoffs.

where it is needed. Reduce transfer batches Level load production Pull rather than push work Quality at source Set up cells 47 OPSM901 Operations Management Reducing waste: Increase Problem Visibility The River Analogy:Lower the Water to Expose the Rocks Inventory Defects Defective Materials Long Lead times Unreliable Suppliers Machine Breakdowns Unsuitable Equipment Inefficient Layouts OPSM901 Operations Management Long Set ups Uneven Schedules Absenteeism Rigid Work Rules 48 8 .766 Reducing σ to 2. when it is needed.699 LS Out of Control UCL µ LCL In Control Improved µ US Shifting µ to 80 yields P(Meet Specs) = 0.5 yields P(Meet Specs) = 0.9544 43 OPSM901 Operations Management OPSM901 Operations Management 44 LS µ US Synchronize to reduce waste: customer demand pulls product PUSH: Inputs availability triggers execution Supplier Process Customer Synchronize to reduce waste: Quality at the Source Quality at source also improves time and throughput performance Fool-proof/Fail-safe design (Poka-Yoke) Inspection – Self – Automated (Jidoka) Line-stopping empowerment (Andon) Human infrastructure inputs outputs PULL: Outputs need triggers execution Supplier Process Customer inputs outputs 45 OPSM901 Operations Management OPSM901 Operations Management 46 Synchronize to reduce waste: Just-In-Time operations JIT = have exactly what is needed. in the quantity it is needed.85) Proportion of Output Within Specs: Given a Process in control with µ = 82.US)=(75.2 psi P(Meet Specs) = 0.Process Capability: Process Control and Improvement Ability to Meet Customer Requirements Process output Customer Requirements(Specs): (LS.5 psi and σ = 4.

Parasuraman.Ongoing objectives Improve process flows – Efficient plant layout – Fast and accurate flow of material and information Process Improvement Measurement Increase process flexibility – Reduce changeover times – Cross-training Cross training – External and Internal Analysis – Analyze Variation Control P C D A Decrease process variability – Flow rates – Processing times – Quality – Adjust Process Improvement Innovate P C D A Improve – Reduce Variation Innovation Minimize processing costs – Eliminate transportation. inspection. 1985 word-of-mouth personal needs expected service Gap 5 perceived service Customer Provider Gap 1: quality of design Gap 3: conformance quality Gap 2: quality function deployment service delivery Gap 4 external communications to customer past experience Next Time Quiz 2: Chapters 4.5 and today’s lecture notes Study questions: Exercises from the book Individual Assignment Please read the beer game handout and be prepared to play the game Barilla Case-a quick read will be enough service quality specifications OPSM901 Operations Management management perceptions 54 OPSM901 Operations Management 9 . rework 49 OPSM901 Operations Management – Redesign Improve Product/Process Control 50 OPSM901 Operations Management Services: customers introduce variability Arrival variability Request variability Capability variability Effort variability Subjective preference variability Customer assessment of service quality Dimensions of service quality external word of mouth personal needs past experience communication • tangibles • reliability • responsiveness • competence • courtesy • credibility • security • access • communication • understanding the customer 51 expected service Perceived service quality perceived service OPSM901 Operations Management OPSM901 Operations Management Identifying quality shortfalls Reference:A. VA Zeitham and LL Berry. Journal of Marketing.