Process Analysis

January 26, 2021
The Goal: Chapter 1-5 presentation…
Once we have an operations strategy, how can we measure performance of the system?
We talked about input… leading to resources… leading to output

- How are resources used
Productivity is a common measure for how well a company is utilizing its resources
Productivity = outputs/inputs
- A measure of efficiency with which inputs are transformed to outputs
- Need to take into consideration units for inputs and outputs
Single factor productivity

- A ratio of outputs to only one input
Multifactor productivity
- A ratio of outputs to several inputs
Total Productivity
- The ratio of outputs to all inputs
Consider the following case. A bank has output(revenue) of 500 million. The bank employs
40,000 people.
The single factor labor productivity is revenue = output = 500,000,000 and labor = input =
40,000 people
Productivity = output/input
= 500,000,000/40,000 = 12,500
What are the units? 12,500$ revenue per person
Revenue = output = 400 units at 15$ = $6,000
Cost = input
Labor = 60 hours at $10 hour = $600
Materials = 400 units at 7.50$ = $3000
= 3600$
These costs have already been converted to dollars
Productivity = 6000/3600 = 1.67 on its own doesn’t tell us much, each dollar we invest in labor
and material we get $1.67
The productivity index is a relative measure. It has to be compared with something else to know
if our company’s productivity measurement is good, could be better:
- Benchmarking (compared to another company)
- Changes over time (in q1, it was 1.4, in q2 it was 1.6… clearly we are doing better and
are utilizing employees, materials, processes are improving,
The important thing is to be consistent in measurement
SG&A = line item for many public company’s

This is multiline productivity but we already have total expenses.
2015 = 2.467
2016 = 3.089
Productivity Measurement
- Shows us what is going on in tesla
- 2013 to 2015, productivity went down
- In 2016, productivity went back up
Can go in more depth…

SG&A productivity = revenue/sg&a expenses
R&D = revenue/r&d expenses
Revenue = 1000 x 500 = 500,000
= 300 x 1000 = 300,000
= 800,000 output
Utilities = 40,000
Hourly employees = 3,000 x 20 = 60,000
Raw materials = 300,000
= input = 400,000
= 800,000/400,000 = $2 productivity
P2018 p2019
% change
- Baseline is 2018
P2019-p2018/p2018 = is how to calculate percent change for questions 1-3
Questions 4-6
How much better is frankford compared to cincinnati
Pf , Pc
Pf - Pc/Pc
How much better is cincinnati compared to frankford
Pc - Pf/Pf
Process Analysis
- One of the more fundamental topics for operations
What is a process?
Process: a series of actions, changes, or functions bringing about a result. It consists of a series
of independent tasks that transform an input into output of higher value for the organization
- Can apply this to any sector
Two examples:
- Honda transforms steel, rubber, and plastic into cars
- McDonald’s transforms meat, potatoes, and sauces into packaged foods
Why analyze a process?

- To identify inefficient taks/make it faster (more efficient)
- To spot possible effectiveness improvement tasks (make it more responsive)
- To understand where value can be added
Assessing capacity of a process

- What do we need to measure in order to understand the efficiency of the process?
- Bottleneck/which production step limits the process capacity?
- Step that will limit the process capacity
- At chipotle, the bottleneck is always at the cash register or when they run out of
food
- Cycle time(capacity)/how many units per unit time go through each task or process?
- Amount of time it takes to do a certain task
- Throughput time/how long does it take for a unit to get through the system?
- Time spent in the process from getting food to purchase
Measuring Process Performance

Cycle time: average time for completion of a unit at a production step or process
- Measured as time/unit
Processing rate (throughput): average number of units processed over a time interval
- Measured as units/time
- Opposite of cycle time
Capacity of a task is the physical limitation in terms of “how much can be processed at this task”
The capacity of the process is:
- Minimum processing rate at any of the stages
- Capacity of the stage with the longest cycle time
- min(processing rate) = max(cycle time) = bottleneck
- The bottleneck is C because they are producing the slowest because it processed 2
units per hour
- The throughput time is 55 minutes

- How long this product is spending in the system
Takt time: connecting our process with customer
40 hours = 40 hours x 60 minutes = 2,400 minutes

2,400 mins/120 units = 20 minutes is the takt time to satisfy customer demand
From above… 2 units/hr = 30 minutes so this doesn’t satisfy customer demand
Process Analysis HW:
Processing rate = 60 minutes/bottleneck
January 28, 2021
We can think of any process in terms of inputs, resources, outputs

- The goal of every firm is to make money
- How can we get closer to the goal? Reduce inventory, reduce operating expenses,
increase throughput sales/need to do all three to get closer and closer to the goal
Input (raw inventory)
Resources (wip)
Output (finished goods inventory)
- As long as these are in our company’s hands, it’s on our books and we want to reduce
this
- Once we sell, we get cash back
Capacity of a task or process

- Capacity of a task if the physical limitation in terms of “how much can be processed at
this task”
- The capacity of the process is:
- Minimum processing rate at any of the stages
- Capacity of the stage with the longest cycle time
- Min (processsingrate) = bottleneck
C = bottleneck because it has the lowest processing rate and also the longest cycle time of 30
minutes
Process throughput time = the time it takes for a unit to go from start to finish in a process
Takt time = time available/demand

What should be the takt time of the above process if the expected output in 40 hours is 120
units? Can the above process meet the demand?
= 2400/120 = 20 minutes is the takt time
- But the bottleneck is processing time of 30 minutes
- Bottleneck step cycle time > takt time, so demand cannot be met
Work in process inventory
- Assume each is working at full capacity, at the end of each hour they will complete and
process all of their units ex: A will do 3, B will do 2, C will do 2 because of step B
- Problem in Step A and B is that at the end of one hour, step a has processed 3 units but
step b only processed 2 units
- The third unit will be left over waiting to be processed between the two steps
- At the second hour, there will be one more unit left over and on and on
- After 40 hours, there will be 40 units left over because every hour there is an
extra unit left over
A fundamental Relationship
Little’s Law
L=yxW
- L = average number of items in the queuing system (WIP inventory = aka WIP)
- Y (should actually be lamda) = average number of items arriving per unit time (arrival
rate)
- W = average waiting time in the system for an item/ think of this as throughput time
- L = 45,000
- Lamda (y) = 1,000 wafers per day
- 45000 = 1000 x W
- W = 45,000/1000
- W = 45 days
- Lamda (y) = 5 per day

- W = 2 days at 90%, 7 days at 10%
- 2 x .9 + 7 x .1 = 1.8 + .7 = 2.5
- L = 2.5 x 5 = 12.5
Process Selection
Projects
- One of a kind production of a product to customer order
Batch Production
- Process many different jobs at the same time in groups or batches; ex: bakery
Mass Production
- Produces large volumes of a standard product for a mass market; toyota
Continuous production
- Used for very high volume commodity products; coke or pepsi plant
Product Process Matrix

- Projects have low variety
- when you move away from the diagonal, it can get expensive
- Micheal Dell was able to mass production with lower costs
Break Even Analysis

- A standard approach to choosing among alternative processes or equipment
- Study cost trade-offs based on demand volume
- Need to find out ROI; Recoup (how fast can you make up the cost)
- Fixed cost = capital expense
- Variable cost = operating expense
- Usually always have four parameters
- Usually we always need to find volume, will be given the other three
- 2000/(100-50) = 40 units
= 5000/(25-5) = 250 customers

Break even point for each unit
Option1 : 0/(300 - 200) = 0
- Immediately after selling 1, there’s a profit of $100
Option 2: 80,000/(300 - 70) = 347.83 = 348
Option 3: 220,000/(300-15) = 771.93 = 772

Process Analysis

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January 26, 2021

The Goal: Chapter 1-5 presentation…

We talked about input… leading to resources… leading to output

Single factor productivity

The important thing is to be consistent in measurement

SG&A = line item for many public company’s

Can go in more depth…

P2019-p2018/p2018 = is how to calculate percent change for questions 1-3

How much better is cincinnati compared to frankford

Why analyze a process?

Assessing capacity of a process

Measuring Process Performance

- The throughput time is 55 minutes

40 hours = 40 hours x 60 minutes = 2,400 minutes

Process Analysis HW:

Processing rate = 60 minutes/bottleneck

January 28, 2021

We can think of any process in terms of inputs, resources, outputs

Capacity of a task or process

Takt time = time available/demand

Work in process inventory

- Lamda (y) = 5 per day

Product Process Matrix

- Micheal Dell was able to mass production with lower costs

Break Even Analysis

= 5000/(25-5) = 250 customers

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