Process Analysis Part II

A Motivating Example to Understand Some Key Terms

and Better Visualize Processes
 Motivating Example Flow unit Completion
Number Time (minutes)
Process Flow Diagram (Unrestricted Input) 1 15

2 25 Cycle
Activity A Activity B time
10 minutes 5 minutes 3 35

4 45
Resource X Resource Y

Gantt Chart (NOT for quiz/exam; just to help you

visualize the process better) Time through an empty
process = flow time = 15 min

0 10 20 30 Time to make an additional

Time (min) flow unit = cycle time = 10 min
Resource X
Flow rate = capacity = 1/10
unit/min = 6 units/hour
0 10 15 20 25 30 35 Time (min) Time to make X units from start
Resource Y = 15 + (X – 1)*10
Motivating Example (Contd.) Flow unit Completion
Number Time (minutes)
Process Flow Diagram (Restricted Input)
1 15

2 27 Cycle
Activity A Activity B
time
Input is only 10 minutes 5 minutes
3 39
5 units/hour =
1 unit/12 min Resource X Resource Y 4 51

Gantt Chart (NOT for quiz/exam; just to help you

visualize the process better)
Time through an empty
process = flow time = 15 min

0 10 12 22 24 34 Time to make an additional

Time (min) flow unit = cycle time = 12 min
Resource X
Flow rate = 5 units/hour
< capacity = 6 units/hour
0 10 15 22 27 34 39 Time to make X units from start
Resource Y Time (min) = 15 + (X – 1)*12
 Chapter 3
Process Analysis
Operations Management, 1st Edition
Gerard Cachon and Christian Terwiesch

3-1
 Chapter Learning Objectives

• Determine the capacity for a one-step process.

• Determine the flow rate, the utilization and the
cycle time of a process.
• Find the bottleneck of a multistep process and
determine its capacity.

3-2
 Process Analysis/Process Flow Diagram
• Process Analysis – a rigorous framework for understanding the
detailed operations of a business. Among other things, process
analysis determines process capacity (units processed per unit time)
and utilization (how busy resources are)

• The best way to begin any analysis of an operation is by drawing a

Process Flow Diagram. Process flow diagram – A graphical way to
describe the process.

Boxes to depict Arrows to depict

resources Flows Triangles
performing to depict
activities Inventory
location 3-3
 Building a Sandwich
Flow Unit – The unit of analysis. We use arrows in a
process to capture the flow unit’s journey from input to
output.

Please note: in this situation the waiting customers are considered

inventory – why? 3-4
 A Complete Process Flow Diagram
• Figure 3.2 Shows a Complete Process Flow Diagram

3-5
Alternative Process
Flow Diagrams

3-6
 Check Your Understanding
Airport security consists of the following steps
1. Verify ID and boarding pass by an officer
2. Searching the passenger for metal objects (Individual
security scan through a metal detector)
3. Running the carry-on luggage through X-ray machine
There is a long line of passengers before the first step, but
sometimes lines also build up at steps 2 and 3. Step 2 and 3
are parallel; that is customers go through the metal detector
while their luggage is in the X-ray machine. Draw a process
flow diagram of this process.
3-7
Process Flow Diagram for Airport Security

SEARCH THE
PASSENGER

Metal detector

VERIFY ID

Officer

RUN CARRY-
ON LUGGAGE

X-ray machine
 Capacity for a One-Step Process

Processing time – The time it takes a resource to

complete processing of one flow unit .

• Must be concise for example there is a difference

between seconds and seconds/person.
• Think in terms of averages.

3-8
Capacity for a One-Step Process: Activity Times

3-9
Capacity for a One-Step Process: Typical Processing Times

3-10
 Capacity
Resource Capacity – The maximum number of flow units that can
flow through that resource per unit of time. For an employee in a
sandwich shop (mentioned earlier),

3-11
 Check Your Understanding
It takes a color printer 10-seconds to print a large poster.
What is the capacity of the printer expressed in posters per
hour?
(hint: how many seconds in an hour?)

Capacity = 1/10per second

= 360/hour

3-12
 Check Your Understanding
A call center has one operator who answers
incoming calls. It takes the operator 6-minutes to
answer one call. What is the capacity of the call
center expressed in calls per hour?

1/6 calls per minute = X calls/hour

X = 1/6 calls/minute * 60 minutes/hour

= 10 calls /per hour
3-13
 Process Capacity
Process capacity – The maximum flow rate a process
can provide
It thus determines the maximum supply of the
process
The process capacity is the smallest capacity of all
resources in the process
If the sandwich shop has three employees (all of them
doing everything from greeting customer to ringing
up bell on register) then
Process capacity = 3*1/120 = 0.025 customers/second
= 0.025* 3600 customers/hour = 90 customers/hour 3-14
 Process Capacity Formula
Process Capacity =

Minimum {Capacity of Resource 1,

Capacity of Resource 2,
…,
Capacity of Resource n}
 Computing Flow Rate

Flow Rate =

Minimum {Demand, Process Capacity}

 How to Compute Flow Rate,
Utilization, and Cycle Time
LO3-3
Demand Rate – The number of flow units that customers
want per unit of time.

Capacity-constrained – The case in which demand exceeds

supply and the flow rate is equal to process capacity.

Demand-constrained – The case in which process capacity

exceeds demand and thus the flow rate is equal to the
demand rate.
3-15

Throughput Rate/Throughput – Synonyms for flow rate

 Utilization
• Process/Resource Utilization – The ratio between
the flow rate (how fast the process is currently
operating) and the process/resource capacity
(capturing how fast the process could be operating
if there was sufficient demand).
• Consider the sandwich shop with a single employee
and a demand of 40 customers/hour

Utilization = Flow rate = 30 = 1.0 (100%)

Capacity 30 3-16
 Cycle Time
Cycle time – The time between completing two
consecutive flow units
Recall:
Processing time = 120 secs

Cycle time = 1 = 0.0333 hour = 120 seconds

Flow rate Customer Customer

3-17
 Check Your Understanding
A primary care doctor has the capacity to see 16
patients per day. The demand rate is, however, only
12 patients per day.
a. What is the flow rate?
b. What is the utilization of the doctor?
c. What is the cycle time, assuming a 10-hour
workday?

3-18
 Check Your Understanding
Answer
We compute the flow rate as the minimum of demand
and process capacity:

3-19
 Cycle time & Lead time
Don’t confuse the terms cycle time and lead time.
Cycle time – 1/Flow rate.

Lead time – The time between when an order is placed

and when it is received. Lead time, is thus a special case of
what we previously defined as flow time.

Remember Little’s Law

3-20
 How to Analyze a Multistep Process
(Back to Sandwich Example, Demand rate is 100 customers per hour, see page 51 of textbook)

Let us compare 2 systems.

(1) 3 employees each serving a customer from beginning to the end. In this case, each
employee has a capacity of (1/120) customer per sec = 30 customers / hour. Therefore , the
total capacity with 3 customers is = 3 * 30 customers / hour = 90 customers per hour. Flow
Rate = MIN [ Capacity, Demand ] = MIN (90, 100) = 90 customers per hour

(2) 3 employees each working in series each taking up a sub-set of activities.

What will be the flow rate of this process? Three employees, with the same demand - one
might argue that the flow rate will remain unchanged. However, things are slightly more
complicated than this now that we have moved from one resource staffed by three employees
to three resources staffed with one employee each. Employee 1 does all activities from
greeting customers until adding cheese, employee 2 does all activities from adding onions until
wrapping and bagging, and employee 3 finishes off with the rest of the activities. Rather than
having one processing time of 120 seconds/customer, we now have three processing times.
More specifically, the processing times are = 4 + 5 + 4 + 3 + 12 + 9
=3+3+4+5+4+4+3
+ 2 + 5 + 13
= 3 + 14 + 20 3-21
 Multistep
Continued

The resources are working in series (not parallel)

Each resource has its own capacity.
To get from the resource's capacity to the overall
capacity of the process -- that is to compute the
process capacity -- We find process capacity as 3-22

Min{Capacity(i)} = 78.3 customers per hour.

 Is System 1 always better than
System 2?
Yes. The mathematical reasoning is as follows (NOT for quiz/exam):

Let x, y, and z be the processing times of employees 1, 2, and 3

respectively. Then we have to see whether

3/(x + y + z) ≥ min(1/x, 1/y, 1/z)

i.e. 3/(x + y + z) ≥ 1/max(x, y, z)
i.e. (x + y + z)/max(x, y, z) ≤ 3

which is true. Similar reasoning applies to n employees instead of

three employees.
 Bottleneck
Bottleneck – Resource with the lowest capacity in a
process.
Understanding the location of the bottleneck is critical for
improving a process. Take the example of airport security.
Typically, airport security consists of the steps:
1. Verifying ID and boarding pass
2. Searching the passenger for metal objects using some
form of a scanner or metal detector
3. Running the carry on luggage through an x-ray machine.
Most of us associate airport security with long waiting
times and all too often a long queue greets us when we
arrive at the airport. A line of passengers who wait before 3-23

the first step.

 Bottleneck
In general, a resource might have utilization of less than 100 percent
for one of two reasons:
1. A non bottleneck resource has, by definition, some extra
capacity relative to the bottleneck.
2. In the case of a demand-constrained process, even the
bottleneck would not be working at 100 percent.

If a process is constrained by demand, we might think of demand

being the bottleneck. In that case, one might argue that no single
resource in the process should be called the bottleneck. However, we
find it easier to refer to the resource with the lowest capacity as the
bottleneck, even in a process that is demand-constrained. So every
process has a bottleneck, even if the capacity constraint created by the
bottleneck might not be binding. 3-24
 Check Your Understanding
Question: Consider again the example of the three-step
airport security. The first step, verifying ID and boarding
pass, takes 30 seconds per passenger. The second step,
searching the passenger for metal objects using a metal
detector, takes 10 seconds per passenger. The third step,
running the carry on luggage through an X-ray machine,
takes 60 seconds per passenger. Assume that there are
many customers waiting in the process.

A) Which resource is the bottleneck? B) What is the

capacity of the process? C) What is the flow rate? D) What
is the utilization of the metal detector? E) What is the cycle 3-25

time?
Check Your Understanding
Continued

1/60

3-26
 Time to Produce a Certain Quantity
Types of Processes

Worker paced: A process in which each resource is

free to work at its own pace: If the first resource
finishes before the next one is ready to accept the
flow unit, then the first resource puts the completed
flow unit in the inventory between the two resources.

Machine Paced: A process in which all steps are

connected through a conveyor belt and all of the steps
must work at the same rate even if some of them have
more capacity than others.
3-27
 Time to Produce a Certain Quantity
Continued

Time through empty process: The time it takes the

first flow unit to flow through an empty process i.e.,
for a process that has no inventory

Time for X units = Time Through empty process (first

unit) + (X – 1)* Cycle Time (remaining X – 1 units)

3-28
 Chapter 4
Process Improvement
Operations Management, 1st Edition
Gerard Cachon and Christian Terwiesch

4-1
 Learning Objectives
• Compute the costs of direct labor, labor content, idle time,
and average labor utilization
• Compute the takt time of a process and translate this to a
target manpower
• Process Improvement
• Off-loading the bottleneck and balancing the process
• Pros and Cons of Process Specialization
• Financial Impact of Process Improvements

4-2
 Measures of Process Efficiency
Obtaining high output at low costs is the key
idea behind efficiency

Efficiency is only one of multiple dimensions

of operational performance.

Business should not set efficiency as their

only goal. 4-3
 Measures of Process Efficiency

• Efficiency – A process is efficient if it is able to

achieve a high flow rate with few resources.
• Costs of direct labor – The labor cost associated
with serving one customer, which is the total
wages paid per unit of time divided by the flow
rate.
Costs of direct labor = Wages per unit of time
Flow rate
4-4
Measures of Process Efficiency

Labor content – The amount of work that goes into

serving one customer (generally one flow unit) which is the
sum of the processing times involving labor.
A high number is less desirable than a low number
(other things being the same).

Average labor utilization- The average utilization

across labor resources.
Measure of efficiency.
Average labor utilization should be as high as possible. 4-5
 Measures of Process Efficiency
Idle time – The amount of time per flow unit for which a
resource is paid but is not actually working.
• An unutilized worker creates unnecessary expense.
• Measures how long the resource is idle for each flow unit
it serves.
• Idle time is expressed in units of time

Idle time of Resource i = Cycle time – Processing time of

Resource i

4-6
 Measures of Process Efficiency
Total idle time – The amount of idle time per flow
unit added up across all resources.

Total idle time = Sum of idle time across resources.

• For every customer we serve, we incur and pay for idle

time.
• Laborers get paid while they are working and while they
are idle.
• Labor content is the productive time of our resources.
• To evaluate the cost of idle time it is necessary to 4-7

compare idle time with the labor content.

 Measures of Process Efficiency
Based on idle time
Average labor utilization = Labor content/(Labor content + Total
idle time of all labor resources)

Or based on cycle time

Average labor utilization = Labor content/Number of employees
Cycle time

In a perfectly balanced process the labor content is divided up

equally across the number of employees 4-8
Equivalence of Average Labor Utilization
based on idle time and based on cycle time

• This reasoning is just FYI (NOT for quiz/exam)

• Suppose n is the number of employees, pj is the processing time
of employee j (j = 1…n), and Ij is his/her idle time. Then
Labor Content + Total idle time of all labor resources
= 𝑛𝑗=1 𝑗 𝑛
𝑗=1 𝑗 = 𝑛
𝑗=1 𝑗 𝑗
= Cycle time * Number of employees

Hence, we obtain
Labor content/(Labor content + Total idle time of all labor resources)
= Labor content/Number of employees
Cycle time
 Check Your Understanding
Consider the following example of the three-step process.
• The first step takes 20 minutes/unit.
• The second step takes 10 minutes/unit.
• The third step takes 15 minutes/unit.

Each step is staffed by one worker. What is the labor content

of the process?

Answer – The labor content is 20+ 10+ 15 = 45 minutes/unit.

4-9
 Check Your Understanding
Continued
What is the total idle time of the process assuming
unlimited demand?

Answer – First establish that the worker doing the first step is the
bottleneck (20 minutes). It has the lowest capacity. Then process
capacity is 1/20 unit/minute and cycle time is
1/Flow rate = 20minutes/unit
Idle Time (Stn 1) = 20 – 20 = 0 min/unit
Idle Time (Stn 2) = 20 – 10 = 10 min/unit
Idle Time (Stn 3) = 20 – 15 = 5 min/unit
Total Idle Time = 15 min/unit

Suppose each employee is paid $15/hour.

Average Labor Utilization = ? Cost of Direct Labor = ?
4-10

Average labor utilization Cost of Direct Labor

= 45/(45 + 15) = 0.75 = 3*15/(1/20*60)
= $15/unit
Another Example

Activity A Activity B
10 minutes 5 minutes

Resource X Resource Y

• Resources X and Y are employees. Each of them is

paid $15/hour. Calculate the following measures:
• Cost of Direct Labor
• Labor Content
• Idle times of resources X and Y
• Average Labor Utilization
 Answers (Only Final Answers)
• Cost of Direct Labor is $5/unit
• Labor content is 15 min
• Idle times for resources X and Y are 0 min and 5 min
respectively
• Average labor utilization is 75%
 How to Choose a Staffing Level
to Meet Demand
LO4-2

Matching supply with demand always

starts with taking the demand rate as
given and attempting to staff a
sufficient number of resources in order
to meet that demand.

4-11
 Takt Time
Takt time – The ratio between the time available
and the quantity that has to be produced to serve
demand .
• Measure driven by demand.
• Goal to design a process flow that meets the demand rate.
• Process should not operate at the discretionary flow of
resources.
• Should happen at the rate of demand.

Takt time = Available time

Required quantity
4-12
where Available time measures the amount of time we have
available in the process to produce the quantity
 Takt time and Cycle time
• Takt time = 1/Demand rate (in which we set the Available time
equal to one unit of time).
• Takt time does not depend on process capacity.
• Takt time is driven by demand rate.
• Cycle time – 1/Flow rate (and the flow rate is the minimum of
demand and process capacity).
• Cycle time depends on process capacity.
• Takt time ≤ Cycle time. Why?
• Because demand rate ≥ flow rate
• In the spirit of matching supply with demand, the goal is to
have a cycle time that is as close to the Takt time as
possible. 4-13
 How to Choose Staffing Level to
Meet Demand
Target manpower - The ratio between the labor content
and the takt time determines the minimum number of
resources required to meet demand. This minimum doe not
have to be an integer number and it is assumes all resources
are perfectly utilized.

Target Manpower = Labor Content

Takt Time

More demand means a shorter takt time – shorter takt time 4-14
requires more employees to handle the same amount of
labor content.
Staffing Process Improvement

In most businesses the demand varies, it could be

by the hour of the day, day of the week, or the time
of year. For planning purposes, the manager should
be prepared to level the demand.

Leveling the Demand – Setting an expected demand

rate for a given period of time so that one can look
for an appropriate staffing plan for that time period.

4-15
 Off-Loading Bottleneck

Process improvement starts by looking at the

bottleneck
• Remember a bottleneck is a resource with the
lowest capacity. Understanding the location of
the bottleneck is critical for improving a process

• Off-Load Bottleneck – Reassign, Automate,

Outsource

4-16
 How to Balance a Process

• Balancing for fixed sequence of activities

• Balancing for activities with no fixed

sequence

4-17
How to Balance a Process
Figure 4.5

4-18
 Pros and Cons of Specialization
Pros
• Reduction in processing times due to elimination of
setups
• Reduction in processing times due to learning
• Lower skilled labor
• Reduced Equipment replication
Cons
• Increased idle time
• Worker Boredom

4-19
Financial Impact of Process
Improvements: Table 4.1

4-20
Financial Impact of Process
Improvements: Table 4.2

4-21
 Week 2 Learning objectives
• Determine the capacity for a one-step process.
• Determine the flow rate, the utilization and the cycle time
of a process.
• Find the bottleneck of a multistep process and determine
its capacity.
• Compute the costs of direct labor, labor content, idle
time, and average labor utilization
• Compute the takt time of a process and translate this to a
target manpower
• Process Improvement
• Off-loading the bottleneck and balancing the process
• Pros and Cons of Process Specialization
• Financial Impact of Process Improvements 4-22