EWMBA 204: OPERATIONS, TUESDAY SECTION #2, 8/16

TUESDAY DISCUSSION SECTION #2

AGENDA

• Introduction

• Lecture takeaways

• Practice Problem I (Process Analysis)

• Practice Problem II (Little’s Law)

• Practice Problem III (Little’s Law)

• Statistics Review

• Q&A
LECTURE TAKEAWAYS

• Little’s Law
− Average Inventory = Avg. Flow Rate x Avg. Flow Time
− Rent The Runway Example

• National Cranberry Cooperative case

− Process flow diagram

− Inventory build-up
analysis
LECTURE TAKEAWAYS

• System performance is determined by the limiting resource (system capacity

is the bottleneck capacity)
o Kristen’s: Oven capacity dictates system capacity
o NCC: Dryers for wet berries

• Process choices should be integrated, consistent, self-reinforcing

o Southwest: Power of consistent process decisions.

• Uncertainty and variability are painful…

o VISA Commercial: In services, customers introduce variability.

• …but proper actions mitigate this pain

o Seinfeld’s The Soup Nazi: Reduce the variability you can and
intelligently accommodate the rest.
QUESTIONS ON THE LECTURE MATERIAL
PRACTICE PROBLEM 1

The Bubba Chump Shrimp Company processes and packages shrimp for sale to wholesale
seafood distributors. The shrimp are transported to the main plant by trucks that carry
1,000 pounds (lbs.) of shrimp. Once the continuous flow processing of the shrimp begins,
no inventory is allowed in buffers due to spoilage and all of the shrimp must be processed
within 12 hours to prevent spoilage. The processing begins at the sorter, where the trucks
dump the shrimp onto a conveyor belt that feeds into the sorter, which can sort up to 500 lbs.
per hour. The shrimp then proceed to the desheller, which can process shrimp at a rate of 400
lbs. per hour. However, after 3 hours and 45 minutes of processing, the desheller must be
stopped for 15 minutes to clean out empty shrimp shells that have accumulated. The veins of
the shrimp are then removed in the deveining at a maximum rate of
360 lbs. per hour. The shrimp proceed to the washing area, where they are processed at 750
lbs. per hour. Finally, the shrimp are packaged and frozen.

Note: All unit weights given are in “final processed shrimp”. You do not need to account for
the weight of the waste in the deshelling area. The plant operates continuously for 12 hours
per day, beginning at 8:00 AM. Finally, there is negligible time to fill the system in the
morning.

a) What is the daily process capacity of the desheller (in isolation of the other processes)?
b) What is the daily process capacity of the deveiner (in isolation of the other processes)?
c) What is the daily process capacity of the processing plant (excluding the packaging and freezing)?
d) If five trucks arrive one morning at 8:00AM, what is the total number of pounds of shrimp
that must be wasted?
PRACTICE PROBLEM 1

Sorter Desheller Deveiner Washer

500 lbs. per 400 lbs. per 360 lbs. per 750 lbs. per
hour hour. 15 hour hour
minutes
cleaning
after 3.75
processing
hours

a) What is the daily process capacity of the desheller (in isolation of the other processes)?
b) What is the daily process capacity of the deveiner (in isolation of the other processes)?
c) What is the daily process capacity of the processing plant (excluding the packaging and freezing)?
d) If five trucks arrive one morning at 8:00AM, what is the total number of pounds of shrimp
that must be wasted?
PRACTICE PROBLEM 1

a) What is the daily process capacity of the desheller (in isolation of the other
processes)?
Desheller
400 lbs. per
hour. 15 minutes
cleaning every 4
processing
hours

Every 4 hours, the desheller is working only 3 hours and 45 minutes

➔ Every 4 hours the desheller processes 1,500 lbs. (400 lbs. x 3.75 hrs.)
➔ Every 12 hours (1 day), the desheller process 4,500 lbs. (1,500 x 3)

The daily capacity of the desheller is 4,500 lbs. per day

PRACTICE PROBLEM 1

b) What is the daily process capacity of the deveiner (in isolation of the other
processes)?
Deveiner
360 lbs. per hour.

Daily capacity is 360 lbs. per hour x 12 hours = 4,320 lbs. per day

c) What is the daily process capacity of the processing plant (excluding the packaging
and freezing)?

• When the plant is operating, the bottleneck is the deveiner, with a capacity of 360 lbs. per
hour.
• BUT, 15 minutes every 4 hours, the plant is not processing anything due to the cleaning
taking place in the desheller
➔ Therefore, every 4 hours the plant processes 1,350 lbs. of shrimp (360 lbs. x 3.75 hrs.)

The daily (12 h) capacity of the plant is 4,050 lbs. (1,350 lbs. x 3)
PRACTICE PROBLEM 1

d) If five trucks arrive one morning at 8:00AM, what is the total number of pounds
of shrimp that must be wasted?

Total volume to be processed = 5,000 lbs. (1,000 lbs. per truck x 5 trucks)
Processing plant daily (12 hour) capacity = 4,050 lbs.

5,000 lbs. – 4,050 lbs. = 950 lbs. will be wasted

PRACTICE PROBLEM 2

Sara is searching for colleges to apply for next year and she figures that she really likes
Bière College, located in South Beach, Florida. Her college reference book states that it’s an
institution with 11,000 students, they admit 2000 students each year and have an equal
amount of graduates every year.

Considering she would be an average Bière student, in how many years should she
expect to graduate?

2000
students/yr. 2000
students/yr.
11000 students
Little’s Law
I = R x T or average inventory = average flow rate × average flow time

can be written as
average inventory
average flow time =
average flow rate
11000 students
= = 5.5 years
2000 students/yr
Sara should expect to graduate in 5.5 years.
PRACTICE PROBLEM 3

Dane is a strategy consulting firm that divides its consultants into three classes:
associates, managers, and partners. The firm has been stable in size for the last 20 years,
ignoring growth opportunities in the 1990s, but also not suffering from a need to
downsize in the recession at the beginning of the 21st century. Specifically, there have
been—and are expected to be—200 associates, 60 managers, and 20 partners.

The work environment at Dane is rather competitive. After four years of working as an
associate, a consultant goes “either up or out”; that is, becomes a manager (for 6 years)
or is dismissed. The company recruits MBAs as associate consultants; no hires are made
at the manager or partner level. A partner stays with the company for another 10 years
(a total of 20 years with the company).

(a) How many new MBA graduates does Dane have to hire every year?

(a) What are the odds that a new hire at Dane will become a partner (as
opposed to being dismissed after 4 years or 10 years)?
PRACTICE PROBLEM 3

200 60 20
MBA grad Associate Manager Partner

4 years 6 years 10 years

Level Inventory Flow Time

(# of consultants at that level) (time spent at that level)
Associate 200 4 years
Manager 60 6 years
Partner 20 10 years

(a) How many new MBA graduates does Dane have to hire every year?

(a) What are the odds that a new hire at Dane will become a partner (as
opposed to being dismissed after 4 years or 10 years)?
PRACTICE PROBLEM 3

(a) How many new MBA graduates does Dane have to hire every year?

Given that the firm size is stable, finding the flow rate for the associate consultants
gives us the number of MBA grads to be recruited to keep the firm in its current size.

We can use Little’s law to find the flow rate for associate consultants:

inventory = flow rate × flow time

Level Inventory Flow Time

(# of consultants at that level) (time spent at that level)
Associate 200 4 years

200 associates = flow rate x 4 years

so MBA grad
50/year

flow rate = 200 associates / 4 years = 50 associates / year

PRACTICE PROBLEM 3

(b) What are the odds that a new hire at Dane will become a partner (as opposed to being
dismissed after 4 years or 10 years)?
200 60 20
MBA grad Associate Manager Partner
50/year 10/year

4 years 40/year 6 years 10 years

To find the odds that a new hire will become a partner, we first need to examine the manager level.

For the Manager level the flow rate = 60 managers/6 years = 10 managers/year

This indicates the flow rate of 10 consultants a year into the manager level. In order to have 10
consultants as a flow rate at the manager level, we need to promote 10 associates to manager
level (remember, the firm is not recruiting to the higher ranks from the outside).

As every year 50 associates leave their position, this indicates that the firm dismisses 40
associates and promote 10 associates to the manager level.

Therefore, odds of leaving the associate level and becoming a manager are 10 / 50 = 20%.
PRACTICE PROBLEM 3

(b) What are the odds that a new hire at Dane will become a partner (as opposed to being
dismissed after 4 years or 10 years)?
200 60 20
MBA grad Associate Manager Partner
50/year 10/year 2/year

4 years 40/year 6 years 8/year 10 years

Now let's examine the partner level.

For the Partner level the flow rate = 20 partners/10 years = 2 partners/year

Therefore, odds of leaving the manager level and becoming a partner are 2 / 10 = 20%.

In order to find the odds of a new hire to become partner, we need to multiply the probabilities

0.2 × 0.2 = 0.04

Thus, a new hire has a 4% chance of making it to partner.

QUESTIONS ON THE PRACTICE PROBLEMS
STATISTICS REVIEW

The expected value of a random variable is the long-run average value of repetitions of the
experiment it represents.

Also known as the expectation, mathematical expectation, EV, mean, or first moment

Variance measures how far a set of numbers is spread out

Standard Deviation = (Variance) ^ (1/2) or square root of variance

STATISTICS REVIEW

If D1, D2, and D3 are independent random variables, then…

Mean ➔ E[D1 + D2 + D3] = E[D1] + E[D2] + E[D3]

Variance ➔ Var [D1 + D2 + D3] = Var [D1] + Var [D2] + Var [D3]

*NOTE: Variance is additive, standard deviation is not…

std. dev. = 5000 std. dev. = 5000 std. dev.

+……… = =?
mean =10,000 …+ mean =10,000 mean = ? distribution
distribution of D1 distribution of D10 of D1 +D2 +…+D10
STATISTICS REVIEW

𝑿−𝝁
𝒛=
𝝈
where:
• 𝒛 is the z-score,
• 𝑿 is the value of the element,
• 𝝁 is the population mean, and
• 𝝈 is the standard deviation

68%
95%
99.7%
STATISTICS REVIEW – PROBLEM 1

A dad has a cell phone plan for 350 anytime cell phone minutes. His mean usage is 300
anytime minutes a month with a standard deviation of 80 minutes.

a) What is the probability that Dad will go over his minutes?

The probability that dad goes over his 350 anytime cell phone minutes is 26.6%
STATISTICS REVIEW – PROBLEM 2

A family plan for 1000 anytime cell phone minutes is shared by three people. The
mean and variance of individual monthly anytime minute usage is as follows:
Mean Std. Dev.

Dad 300 80
Mom 120 36
Kid 415 166

a) Find the mean and variance of the monthly minutes used under this plan
b) What is the probability that the family will not run out of their monthly plan minutes?
c) How many minutes should they have in their plan if they want to be 99% certain that
they would not run out of their minutes (i.e. they want to make sure that they will
not run out of minutes with probability 0.99)?
d) What is the probability that an individual’s minutes usage would be higher than
his/her average?
e) What is the probability that everyone’s minute usage would be higher than their own
average use?
STATISTICS REVIEW – PROBLEM 2

a) Find the mean and variance of the monthly minutes used under this
plan, assuming minutes usage in the family is uncorrelated (independent)
STATISTICS REVIEW – PROBLEM 2

b) What is the probability that the family will not run out of their monthly plan minutes?
STATISTICS REVIEW – PROBLEM 2

c) How many minutes should they have in their plan if they want to be 99% certain that
they would not run out of their minutes (i.e. they want to make sure that they will
not run out of minutes with probability 0.99)?
STATISTICS REVIEW – PROBLEM 2

d) What is the probability that an individual’s minutes usage would be higher than his/her
average?

e) What is the probability that everyone’s minute usage would be higher than their own
average use?

If Dad has a high usage month, this might get canceled out with a kid’s low usage month.

Therefore, pooling cell phone minutes in a family plan reduces risk of running out of plan
minutes.
OPEN Q&A