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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.

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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 3 .

Process Flow Diagram for Kristen¶s Cookies 4 .

If cookies are in the oven and have a baking time in excess of 8 minutes. then. the time required to fill the ³rush order´ increases above __. the remaining baking time is at most 8 minutes. or.Question 1 Assume that Kristen¶s most important customer has just submitted an order for one dozen cookies. How long will it take to fill this order? The time required to fill the ³rush order´ is: Process¶s Throughput Time = NOTE: The answer of __ assumes that there no cookies in the oven. and that she wants to give the highest priority to this order. if there are cookies in the oven. 5 . if the cookies are not removed from the oven.

Question 2 Assuming that Kristen¶s Cookie Company is open for four hours each night. how many orders can be filled each night? Which activity is the process¶s bottleneck? The process¶s bottleneck is 6 .

how many orders can be filled each night? Once it is ³up and running´. what is the process¶s hourly capacity? The process¶s hourly capacity equals 7 .Question 2 (continued) Assuming that Kristen¶s Cookie Company is open for four hours each night.

Because the process¶s hourly capacity is 6 dozen per hour. successive dozens of cookies? The answer is known as the process¶s cycle time. and. how many orders can be filled each night? If we stood at the end of the process. if the process were continually busy. how much time would elapse between the completion of successive units (in this case.Question 2 (continued) Assuming that Kristen¶s Cookie Company is open for four hours each night. the process¶s cycle time is 8 .

and.Question 2 (continued) Assuming that Kristen¶s Cookie Company is open for four hours each night. thereafter. 226. how many orders can be filled each night? What is the process¶s nightly capacity? The process¶s nightly capacity equals NOTE: The process completes its first dozen after 26 minutes. 236 So. Kristen¶s nightly capacity is actually __ dozen. the process completes a dozen every 10 minutes. 216. 46. That is. «. 56. 36. 9 . process completes a dozen at the following times: 26.

and what percentage of time will Kristen¶s roommate be busy? Recall that the process¶s 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 6 + 2 1 + 2 + 1 Kristen's Utilization = 8/10 = 80% Roommate's Utilization = 4/10 = 40% 10 .Question 3 During each night. what percentage of time will Kristen be busy.

What can a worker do when he/she would otherwise be idle? 11 . and her roommate will be idle 60% of the time. we know that Kristen will be idle 20% of the time.Question 3 (continued) From the previous slide.

60 for ingredients and \$0. what is the minimum amount Kristen should charge for one dozen cookies? From the previous slide. If Kristen and her roommate are not paid for idle time.20/min)(12 min) = \$0. in each 10minute cycle.70 12 .40 \$0.70 \$4. for a total of \$12/hr or \$0.70 \$2. recall that.70 LABOR IS A FIXED COST (paid when idle) MATERIALS LABOR [(\$12/hr)(4 hrs)(2 persons)]/(24 dozen) = \$0.Question 4 Assume that Kristen pays herself and her roommate \$12 per hour.10 for the box.00 TOTAL \$3.10 TOTAL \$4. 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. the materials cost per dozen is \$0.20 /min Nightly capacity is 8 + 4 =12 minutes 24 dozen LABOR IS A VARIABLE COST (not paid when idle) MATERIALS LABOR (\$0. Kristen and her roommate work a total of Kristen¶s and the roommate¶s wage is From the case.

Question 5 How many food processors and baking trays will Kristen need? 13 .

on which activity should she focus? 14 .Increasing Process Capacity If Kristen wants to increase the process¶s capacity.

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 process¶s new bottleneck and new hourly capacity? 15 .

the process¶s hourly capacity did NOT increase by 100%. 16 . The process¶s new hourly capacity is the new bottleneck¶s hourly capacity ± 7.5 dozen per hour.Question 6 (continued) What is the effect of adding a second oven? If Kristen could lease a second oven. the process¶s hourly capacity increased not by 100% but by only 25% from 6 dozen per hour to 7. how could she compute the maximum daily rate she would pay for the lease? The process¶s new bottleneck is ³Mix & Spoon´. Because there was a new bottleneck.5 dozen per hour. Although Kristen doubled the hourly capacity of the former bottleneck ³Load & Bake´.

the nightly value of the 2-nd oven equals (6)[(Selling Price per Dozen)-(Variable Cost per Dozen)]. the process¶s nightly (4 hour) capacity increases from 24 to 30 dozen per night ± an increase of 6 dozen per night. 17 . how could she compute the maximum daily rate she would pay for the lease? With the acquisition of the second oven. the process¶s hourly capacity increases from 6 to 7.5 dozen per hour.Question 6 (continued) What is the effect of adding a second oven? If Kristen could lease a second oven. So. Therefore.

improvements to a non-bottleneck activity are worth considering. Examples of an improvement to a non-bottleneck activity: 18 . only adding a second oven can increase the process¶s capacity. However.Question 7 Besides adding a second oven. are there other process improvements Kristen should consider? Because ³Load & Bake´ is the bottleneck.

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 process¶s capacity. it can do one or more of the following: 19 .

what would happen if Kristen attempted to run her business without her roommate? There are two ³clues´ that. if Kristen attempted to run her business without her roommate.Question 8 Assuming there is only one oven. the process¶s capacity would decrease: Clue #1: 20 .

Question 8 (continued) Assuming there is only one oven. what would happen if Kristen attempted to run her business without her roommate? Clue #2: 21 .

if Kristen must work alone. This illustrates that the bottleneck can be either an activity (e. 22 . ³Load & Bake) or a resource (e.Question 8 (continued) Assuming there is only one oven.g.. the process¶s cycle time is 12 minutes.g. equivalent to an hourly capacity of 5 dozen (a decrease from 6 dozen. Kristen).) The bottleneck is now is Kristen. what would happen if Kristen attempted to run her business without her roommate? As indicated by the Gantt Chart below. Her utilization is 100%..

The total amount of time a unit spends in the process from beginning to end. The time it takes to perform an activity. PROCESS. THROUGHPUT TIME FOR AN ACTIVITY. 23 . THROUGHPUT TIME FOR THE PROCESS. including the time spent being actively work on at the activities of the process as well as any time spent waiting between activities. A collection of activities and resources that transforms various inputs into more valuable outputs. A diagram depicting the activities of a process and the flows between them.Summary of Concepts PROCESS FLOW DIAGRAM.

g. measured in units of output per unit of time (e. then the activity¶s cycle time is 15 minutes.Summary of Concepts (continued) BOTTLENECK. if an activity has a capacity of 4 dozen per hour. The bottleneck is usually the activity with the minimum capacity. CAPACITY OF THE PROCESS. The activity or resource that limits the capacity of the overall process.. 24 . (For example.) CAPACITY OF AN ACTIVITY. An activity¶s maximum rate of output.g. but the bottleneck can sometimes be the labor available at a particular activity or set of activities. assuming the activity operates continuously.. 4 dozen per hour). The time that elapses between the activity¶s completion of successive units. 4 dozen per hour). The maximum rate of output of the process. CYCLE TIME OF AN ACTIVITY. measured in units of output per unit of time (e.

To increase the capacity of a process.Summary of Concepts (continued) CYCLE TIME OF THE PROCESS. assuming the process operates continuously. The ratio of the time that the resource is actually used to the time that the resource is available to be used. 25 . INCREASING THE CAPACITY OF A PROCESS. The time that elapses between completion by the process of successive units. A chart that depicts for the process the times during which each activity is being performed and during which each resource is being utilized. GANTT CHART. if a process has a capacity of 4 dozen per hour. then the cycle time of the process is 15 minutes. you must increase the capacity of the bottleneck.) UTILIZATION OF A RESOURCE. (For example.