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Ko ç Un iversity. OPSM 301 Operations Management. Class 2: Business process flows: Measurement. Zeynep Aksin zaksin @ku.edu.tr. Announcements. Wrap-up: King Sooper’s video New module: business process flows From notes and handouts Study questions Also: cases at the end

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opsm 301 operations management

Koç University

OPSM 301 Operations Management

Class 2:

Business process flows:

Measurement

Zeynep Aksin

zaksin@ku.edu.tr

announcements
Announcements
  • Wrap-up: King Sooper’s video
  • New module: business process flows
  • From notes and handouts
  • Study questions
  • Also: cases at the end
    • Kristen’s Cookie
    • Benihana
performance measurement
Performance Measurement
  • External performance strongly depends on output, input, and resource markets, and transformation effectiveness of the process
  • Internal performance measures: processing cost, flow time, variety, service availability...
the dynamics of a process
The Dynamics of a Process
  • We examine processes from the perspective of flow
  • To study process flows, we first answer three important questions:
    • On average, how many flow units pass through the process per unit time?
    • On average, how much time does a typical flow unit spend within process boundaries?
    • On average, how many flow units are within process boundaries at any point in time?
operational measures
Operational Measures
  • On average, how many flow units pass through the process per unit time?

THROUGHPUT RATE (TH)

operational measures1
Operational Measures
  • On average, how much time does a typical flow unit spend within process boundaries?

FLOW TIME (FT)

operational measures2
Operational Measures
  • On average, how many flow units are within process boundaries at any point in time?

INVENTORY (I)

little s law

Inventory I

[units]

...

...

...

...

...

Throughput Rate

[units/hr]

Flow Time T[hrs]

LITTLE’S LAW
  • Relating throughput rate, flow time, and inventory
slide9

Inventory I

[units]

...

...

...

...

...

Time=0

Throughput Rate

[units/hr]

Flow Time T[hrs]

Inventory I

[units]

...

Time=t

...

...

...

...

Throughput Rate

[units/hr]

Flow Time T[hrs]

Inventory I

[units]

...

...

...

...

...

Time=FT

Throughput Rate

[units/hr]

Flow Time T[hrs]

Understanding Little’s Law:

Consider a first come first served Queue

an intuitive argument for little s law
An Intuitive Argument for Little's Law
  • Consider a process with the FCFS queue discipline
  • An order departs the process: At this moment there are I (Inventory) orders within the process
  • The orders that are in the process now are the ones that came after our departing order had arrived, in other words, they arrived during the waiting period of the departing order
  • Since order arrival rate is equal to the throughput rate, we have the following relationship:

Inventory = Throughput Rate x Flow Time

once again
Once again...

Inventory = Throughput x Flow Time

little s law basics
Little’s Law basics
  • Little’s Law is for a system in steady state:

input rate = output rate

  • Applies to most systems, even those with variability
  • Uses AVERAGE values
example flow unit is material
Example: flow unit is material
  • Fast food restaurant processes an average of 5000kgs, of hamburgers per week. Typical inventory of raw meat in cold storage is 2500kg.
  • Throughput R=5000kg/week
  • Average Inventory I=2500 kg.
  • Average flow time T=I/R=2500/5000=0.5 weeks
example flow unit is customers
Example: flow unit is customers
  • A café in Beyoglu serves on average 60 customers per night. A typical night is about 10 hours. At any point there are on average 18 customers in the café.
  • Throughput R=60 customers/night; 6 customers/hour
  • Average Inventory I=18 customers
  • Average flow time T= I/R= 3 hours
example flow unit is cash
Example: flow unit is cash
  • A steel company processes $400 million of iron ore per year. The cost of processing is $200 million per year. The average inventory is $100 million. How long does a typical dollar spend in the process?
  • R=$600 million/year
  • I=$100 million
  • T=I/R=1/6 year or 2 months
example
Example
  • Koç University

3000 students

enrolled

600 new students

admitted on average

example mbpf finance inc adapted from managing business flows by anunpindi et al
Example: MBPF Finance Inc.adapted from Managing Business Flows, by Anunpindi et al.
  • MBPF Finance Inc. provides loans to qualified customers. The company receives about 1000 loan applications per 30-day working month and makes accept/reject decisions based on an extensive review of each application
mbpf finance inc
MBPF Finance Inc.
  • Currently, MBPF Finance Inc. processes each application individually. On average, 20% of all applications received approval. An internal audit showed that, on average, MBPF Finance Inc. had about 500 applications in process at various stages of the approval procedure, but on which no decisions had yet been made.
  • In response to customer complaints about the time taken to process each application, MBPF Finance Inc. called in OPSM Consulting Inc.
example cont d
Example: cont’d
  • OPSM Consulting found out that although most applications could be processed rather quickly, some took a disproportionate amount of time because of insufficient and/or unclear documentation. They suggested the following Process II:
  • Because, the percentage of approved applications is fairly low, and Initial Review Team should be set up to pre-process all applications according to strict but fairly mechanical guidelines.
mbpf finance inc1
MBPF Finance Inc.
  • Each application would fall into one of three categories: type A (looks excellent), type B (needs more detailed evaluation), and type C (reject summarily). Type A and B applications would be forwarded to different specialist subgroups
  • Each subgroup would then evaluate the applications in its domain and make accept/reject decisions
e xample cont d
Example: (cont’d)
  • Process II was implemented on an experimental basis. The company found out that, on average, 25% of all applications were of type A, 25% were of B, and 50% were of C. Typically, about 70% of type A and 10% of B were approved on review.
example cont d1
Example (cont’d)
  • Internal audit checks showed that, on average, 200 applications were with the Initial Review Team undergoing preprocessing. Only 25 were with the Subgroup A Team undergoing the next stage of processing and approximately 150 were with the Subgroup B Team
  • MBPF Finance Inc. would like to determine if the implemented changes have improved service performance.
flowloan inc initial process
FlowLoan Inc.(Initial Process)

20%

Accept

200/month

1000/month

Review

500

80%

Reject

800/month

flowloan inc modified process

Subgroup A

Review

70%

200/month

Accept

25

30%

25%

Subgroup B

Review

10%

1000/month

25%

Initial

Review

150

90%

Reject

800/month

200

50%

FlowLoan Inc.(Modified Process)