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OPSM 301 Operations Management

Ko ç Un iversity. OPSM 301 Operations Management. Class 5: Business process flows: Analysis. Zeynep Aksin zaksin @ku.edu.tr. Office Hours. My office hours, slight modification Mon. 13-15 TA’s office hours TA: Canan Uckun, IEOM Graduate Student Tuesday-Thursday 15:30-17:00 ENG 218

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OPSM 301 Operations Management

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  1. Koç University OPSM 301 Operations Management Class 5: Business process flows: Analysis Zeynep Aksin zaksin@ku.edu.tr

  2. Office Hours • My office hours, slight modification • Mon. 13-15 • TA’s office hours • TA: Canan Uckun, IEOM Graduate Student • Tuesday-Thursday 15:30-17:00 ENG 218 • My office hours modified • Monday 13:00-15:00

  3. Announcements • First set of study questions • Benihana to be discussed on 13/10 Thursday • Read the case, be prepared to discuss • Mini-quiz as part of class participation grade • Kristen’s due 18/10 Tuesday • First quiz on 18/10

  4. Example: Focusing Improvement Efforts • MBPF operations called for the purchase of both sheet metal (raw materials) and prefabricated bases (purchased parts). Garages were made in the fabrication area from sheet metal and then assembled with prefabricated bases in the assembly area. Completed garages were stored in the finished goods warehouse until they were shipped to customers • Analyze the firm’s income statement, balance sheet, and cost of goods sold to determine in which department process improvements have the greatest impact on working capital

  5. Definition: working capital • Working capital requirements include the value of inventories in the process and the value of any accounts receivable. Any reduction in working capital reduces the firm’s interest expense and makes extra cash available for other investments.

  6. Consolidated Statements of Income and Retained Earnings • NET SALES 250.0 • COSTS AND EXPENSES • Cost of goods sold 175.8 • Selling, general and administrative expenses 47.2 • Interest expense 4.0 • Depreciation 5.6 • Other (income) expenses 2.1 • TOTAL COSTS AND EXPENSES 234.7 • INCOME BEFORE INCOME TAXES 15.3 • PROVISION FOR INCOME TAXES 7.0 • NET INCOME 8.3 • RETAINED EARNINGS, BEG. OF YEAR 31.0 • LESS CASH DIVVIDENDS DECLARED 2.1 • RETAINED EARNINGS AT THE END OF YEAR 37.2 • NET INCOME PER COMMON SHARE 0.83 • DIVIDENDS PER COMMON SHARE 0.21

  7. Consolidated Balance Sheet of Dec. 31, x Current Assets Cash 2.1 Short-term investments at cost 3.0 Receivables, less allowances of $0.7 mil 27.9 Inventories 50.6 Other current assets 4.1 TOTAL CURRENT ASSETS 87.7 Property, Plant, and Equipment (at cost) Land 2.1 Buildings 15.3 Machinery and equipment 50.1 Construction in progress 6.7 Subtotal 74.2 Less accumulated depreciation 25.0 NET PROPERTY, PLANT, AND EQUIPMENT 49.2 Investments 4.1 Prepaid expenses and other deferred charges 1.9 Other assets 4.0 TOTAL ASSETS 146.9

  8. Inventories and Cost of Goods Details Cost of Goods Sold • Raw Materials 50.1 • Fabrications (Labor and Overhead) 60.2 • Purchased Parts (Labor and Overhead) 40.2 • Assembly (Labor and Overhead) 25.3 • TOTAL 175.8 Inventory • Raw Materials (roof) 6.5 • Fabrications WIP (roof) 15.1 • Purchased Parts (base) 8.6 • Assembly WIP 10.6 • Finished goods 9.8 • TOTAL 50.6

  9. Process Flows $60.2/yr $25.3/yr Raw materials Fabrication $50.1/yr $6.5 $15.1 $110.3/yr Assembly Finished goods $175.8/yr Purchased Parts $10.6 $9.8 $40.2/yr $8.6 $40.2/yr

  10. Detailed look at Inventories and Flow times $60.2/yr $25.3/yr $50.1/yr 110.3/yr $6.5 $15.1 Raw materials Fabrication $175.8/yr 7.12 week 6.75 week $9.8 $10.6 $40.2/yr Assembly Finished goods $8.6 3.14 weeks 2.90 weeks Purchased parts 11.12 weeks

  11. Inventory Value Representation TH (mil/week) 5.0 3.38 Accounts Receivable 2.12 Fabrication Assembly Finished goods 0.96 Raw materials 0.77 Purchased Parts 11.12 6.75 7.12 3.14 2.90 5.80 CT (week)

  12. Operational Measure: Flow TimeDriver: Activity Times, Critical Activity • (Theoretical) Flow Time • Critical Activity • Flow Time efficiency =

  13. Most time inefficiency comes from waiting:E.g.: Flow Times in White Collar Processes

  14. Critical Path & Critical Activities • Critical Path: A path with the longest total cycle time. • Critical Activity: An activity on the critical path. A B D C

  15. X-Ray Service Process • 1. Patient walks to x-ray lab • 2. X-ray request travels to lab by messenger • 3. X-ray technician fills out standard form based on info. From physician • 4. Receptionist receives insurance information, prepares and signs form, sends to insurer • 5. Patient undresses in preperation of x-ray • 6. Lab technician takes x-ray • 7. Darkroom technician develops x-ray • 8. Lab technician checks for clarity-rework if necessary • 9. Patient puts on clothes, gets ready to leave lab • 10. Patient walks back to pysicians office • 11. X-rays transferred to physician by messenger

  16. Example 4.5 3 7 1 2 9 10 6 12 7 75% 4 5 6 7 8 start end 5 3 2 3 25% 11 20 6 20 transport support Value added decision Measured actual flow time: 154 minutes

  17. 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.

  18. Operational Measure: Capacity Drivers: Resource Loads • (Theoretical) Capacity of a Resource • Bottleneck Resource • (Theoretical) Capacity of the Process

  19. X-Ray revisited

  20. Utilizations given an observed throughput of 5.5 patients/hr

  21. 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

  22. Increasing Process Capacity in the Smiley Factory • Focus on the bottleneck • “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 #of units. • invest

  23. 6/hr 6/hr The role of variability 4 or 8/hr 4 or 8/hr 2 or 10 2 or 10 0 or 12 0 or 12 As variability increases, throughput (rate) decreases

  24. 6/hr 4/hr Compounding effect of variability and unbalanced task times 4/hr 3.5/hr 4 or 8/hr 2 or 6/hr 2 or 10 0 or 8 2.5/hr

  25. Summary of fundamental process principles • identify and eliminate bottlenecks • reduce as much variability as possible • eliminate handoffs, improve communication to minimize resource interference

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