Class 2b - ULisboa

Class 2b - ULisboa

Operations Management & Performance Modeling 1 Operations Strategy 2 Class 1a: Introduction to OM Class 1b: Strategic Operational Audits Process Analysis Class 2a + 2b: Process Flow Analysis 3 4 5 6 7 CRU Computer Rentals presentation Detailed Capacity Analysis: Kristens Cookies Key levers for improving process capacity and flow time Lean Operations Supply Chain Management Capacity Management in Services Total Quality Management

Business Process Reengineering OM&PM/Class 2b 1 CRU Computer Rentals: Revenue and Cost Drivers Status 40 Ship Receiving 30% Repairs 70% R Status 24 Customer Ic 15% Status 41 Pre-Config R2

R1 Parts places order Receives from Supplier Status 32 Ship Config Repairs Status 20 OM&PM/Class 2b Status 42 2 Kristens Cookies: Flow Chart Take Order Order Ready Wash & Mix

Spoon Load & Set Timer You You Roommate, Oven 6min / 1-3doz 2min / doz 1 min / doz Pay Pack Cool Unload Roommate 1 min / order Roommate 2 min /doz ---

Roommate OM&PM/Class 2b Bake Oven 9 min/doz 5 min 3 Process Architecture is defined and represented by a process flow chart: Process = network of activities performed by resources 1. Process Boundaries: input output 2. Flow unit: the unit of analysis 3. Network of Activities & Storage/Buffers activities with activity times routes: precedence relationships (solid lines) 4. Resources & Allocation 5. Information Structure & flow (dashed lines) OM&PM/Class 2b 4 Operational Measure: Flow Time Driver: Activity Times (Theoretical)

Critical Flow Flow Time Activity Time efficiency OM&PM/Class 2b 5 Levers for Reducing Flow Time Decrease the work content of critical activities work smarter work faster do it right the first time change product mix Move work content from critical to non-critical activities to non-critical path or to ``outer loop Reduce waiting time. OM&PM/Class 2b 6

Most time inefficiency comes from waiting: E.g.: Flow Times in White Collar Processes Industry Process A verage Flow Time Theoretical Flow Time Flow Time Effi ciency Life Insurance N ew Policy A pplication 72 hrs. 7 min. 0.16% Consumer Packaging N ew Graphic Design

18 days 2 hrs. 0.14% Commercial Bank Consumer Loan 24 hrs. 34 min. 2.36% H ospital Patient Billing 10 days 3 hrs. 3.75% A utomobile M anufacture Financial Closing

11 days 5 hrs 5.60% OM&PM/Class 2b 7 Operational Measure: Capacity Drivers: Resource Loads (Theoretical) Bottleneck Resource (Theoretical) Capacity Capacity of a Resource Capacity of the Process Utilization of a Resource/Process = throughput [units/hr] capacity [units/hr] OM&PM/Class 2b 8 A Recipe for Capacity Measurements

Resource Unit Load Resource Capacity (time/job) Unit Capacity # of units Total Process Resource Capacity Utilization* * assuming system is processing at full capacity OM&PM/Class 2b 9 Cost Capacity Profile Demand Capacity [units/time] Process Capacity Resource x NCX-10 Furnaces OM&PM/Class 2b Marginal Investment Cost [$/unit/time] 10

Levers for Increasing Process Capacity Decrease the work content of bottleneck activities work smarter work faster do it right the first time change product mix Move work content from bottlenecks to non-bottlenecks to non-critical resource or to third party Increase Net Availability work longer increase scale (invest) increase size of load batches eliminate availability waste OM&PM/Class 2b

11 Increasing Process Capacity in The Goal is to increase the capacity of only the bottlenecks ensure the bottlenecks time is not wasted increase availability of bottleneck resources eliminate non-value added work from bottlenecks reduce/eliminate setups and changeovers synchronize flows to & from bottleneck reduce starvation & blockage the load of the bottlenecks (give it to non-bottlenecks) move work from bottlenecks to non-bottlenecks need resource flexibility unit capacity and/or invest #of units. OM&PM/Class 2b

12 Pricing and Capacity Investment: Trays + Rent another oven at $10/hr? Resource Material cost = cost = Minimum sale price = Contribution margin if sale price is $5 / dozen = OM&PM/Class 2b 13 Other factors affecting Process Capacity Batch (Order) Sizes Product other Mix

managerial policies ... OM&PM/Class 2b 14 Chocolate Chip and Peanut Butter Data Flavor Clean Spoon on Load and Bake Bowl and Tray Set Oven Mix Cool Pack Into Box Receive Payment Chocolate 6 min Chip 2 min / doz 1 min 9 min

5 min 2 min / doz 1 min Peanut Butter 2 min / doz 1 min 7 min 3 min 2 min / doz 1 min 9 min OM&PM/Class 2b 15 Class 2b Learning Objectives CRU:

manage better with the three key operational measures and an inter-functional macro process view of the organization Process measures: Flow time manage critical activities Capacity manage bottleneck resources Levers for improving Flow time manage critical activities Capacity & Throughput Process capacity depends on a zillion things OM&PM/Class 2b 16

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