flashcards for operation management

utility

measure of the customer preference of a product or service. made up of consumption utility, price, and inconvenience.

price

The total cost of owning a product or receiving the service,

including purchase, shipping, financing

subcomponents of inconvenience

two main subcomponents of inconvenience

are location and timing.

trade-offs

The need to sacrifice one capability (dimensions of customers utility) in order to increase another one

market segments

A set of customers who have similar

utility functions

Costs for inputs

Inputs are the things a business purchases. ex. a restaurant purchases may be salad or soda.

Costs for resources

Resources are the things that help a business transform inputs into outputs help provide supply for customer demands. ex. restaurant cooking equipment, employees.

Three System Inhibitors

waste (trash), variability(unpredictable changes), inflexibility(cant adjust quickly).

Consumer Utility and Its Components and Subcomponents

	Consumer Utility
Consumption utility	Price		Inconvenience
Performance	Fit	Location	Timing

Pareto dominated

A firm’s product or service is inferior to competitors on all dimensions of the customer utility function

Efficient Frontier

The set of firms that are not Pareto dominated.

Process

A set of activities that take a collection of inputs, perform some work or activities with those inputs, and then yield a set of outputs

Process flow diagram

uses boxes to depict resources, arrows to depict flows, and triangles to depict inventory locations.

Process Scope

The set of activities and processes included in the process

flow Unit

The unit of analysis that is considered in a process analysis.

Which of the following is an appropriate flow unit for a roller coaster at an amusement park?

A. Seats on the roller coaster.

B. Riders.

C. Employees

D. miles per hour

Which of the following would be considered resources in a restaurant?

recipe, food, brand image, chefs

Riders

chefs

Process Metric

A scale or measure that informs us about the performance and capability of a process

Inventory

The number of flow units within a process (measured in number of flow units, for example, 30 patients).

Flow rate/Throughput

tells us the rate at which “stuff” (flow units) travel through the process (measured in number of flow units per unit of time, for example, 25 patients per day) flow rate is measured as per unit of time

Flow time/lead time

tells us how much time a flow unit spends in the process (measured in time units, for example, 35 minutes).

Over the course of an 8-hour day, a dentist’s office treats 24 patients. What is the hourly flow rate of patients in this dentist’s office?

flow rate =24 patients/8 hours =3 patients per hour

from 5 AM to 6 AM, four callers contact a help desk. the callers spend 2,5,3,10 minutes of their calls. what’s the average flow time (average means other details dont matter) of a caller at this help desk?

(2+5+3+10)/4=5 minutes

Little’s Law

The law describing the relationship between the three key process metrics

inventory formula

I= R*T (flow rate, flow time, inventory)

flow rate formula

inventory / flow time

if the per unit of time is missing than its just inventory

flow time formula

inventory / flow rate

During a typical Friday, the West End Donut Shop serves 2,400 customers during the 10 hours it is open. A customer spends (on average) 5 minutes in the shop. On average, how many customers (on average) are in the shop simultaneously?

2400 customers / 10 hours =240 customers

(240 customers per hour) / 60 = 4 customers per minute

Therefore, Flow rate (R) = 4 customers per minute.

Flow time (T) = 5 minutes.

I = (4)R × (5)T = 20 customers.

Ten customers visit Candy Haven Bakery from 8 am to 10 am. The customers spend 10, 15, 20, 11, 8, 12, 5, 18, 29, and 32 minutes in the bakery.

What is the average flow rate of customers in the bakery ?

What is the average number of customers in the bakery at the same time?

R=10 customers/2hours=5 customers/hour

T = (average times each customer spent in bakery

=(10+15+20+11+8+12+5+18+29+32)/10

= 160/10 = 16 min = 0.2667 hours

I=R*T= 5 customers an hour * 0.2667 hours=1.33

Last year, there were 3,400,000 visitors to a national park and, on average, each visitor spent 22 hours in the park. last year, on average, how many visitors were in the park simultaneously?

Flow rate= 3,400,000 visitors / 365 days = 9,315.07 visitors per day

flow time = 22 hours / 24 hours per day = 0.9167

9,315.07×0.9167= 8539 visitors

Utilization formula and definition

the ratio between the flow rate and the process capacity.

utilization = flow rate / capacity = 30/30 = 1

Upstream and Downstream

parts of process that’s at beginning of the process flow.

parts of process that’s at end of the process flow.

alternative process flow diagrams

Airport security consists of the following steps:

1. Verifying ID and boarding pass.

2. Searching the passenger for metal objects (security scan).

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 in parallel; so customers go through the metal detector while their luggage is in the X-ray machine. Draw a process flow diagram of this process

Processing time

the time it takes a resource to complete one flow unit

capacity

is the maximum number of flow units that can flow through a resource per unit of time.

capacity = 1 / processing time for ex. 1/120 customers/second =0.008333 customers/ second

It takes a color printer 10 seconds to print a large poster. What is the capacity of the printer expressed in posters per hour

1 / 10 = 360 posters/hour

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 = 10 calls/hour

Process capacity

the number of flow units that can be processed per unit of time capacity of the bottleneck that determines process capacity maximum flow rate a process can provide per unit of time. This determines the maximum supply of the process. The process capacity is the smallest capacity of all resources in the process

Demand Rate

The number of flow units that customers want per unit of time

each employee does all activities serving a customer we can replicate the process up to a point where process meets demand

we have each employee specialize in one or several activities. increase level of specialization leading to shorter and shorter processing times for each employee thus more capacity.

explain the benefits and limitations of specialization.

option 2 has extra idle time and thus lower labor utilization. option 1 is more balanced and has higher labor utilization. in the one-employee process, the one employee will be a bottleneck so this process is balanced and idle time would be low and labor utilization would be at 100%. option 2 has more opportunity to build skill sets for their section.

Capacity-constrained and Demand-constrained

Capacity-constrained- demand exceeds supply and the flow rate is equal to the process capacity.

(long line at airport security)

Demand-constrained-process capacity exceeds demand and thus the flow rate is equal to the demand rate

(risk at not selling enough so not enough customers)

Cycle time

time between completing two consecutive flow units. If the flow rate = 30 units per hour, then

cycle time = 1 / flow rate (30) = 0.0333 hour / customer (*60*60) = 120 sec/ customer

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?

flow rate = minimum (demand, process capacity) minimum(12,16)

12 patients/day

utilization= flow rate / capacity 12 / 16 = 75%

cycle time 1 / flow rate - 10 * (1 / 12) = 5/6(0.833) hours/patients

Lead time

the time between when an order is placed and when it is received. Process lead time a synonym for flow time.

1 * cycle time = flow time

What will be the process capacity of the following process?

• Three employees all serving each customer instead of each employee serving one customer, with the same demand (100 customers per hour). 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. Rather than having one processing time of 120 seconds per customer, there are three processing times. the processing times are (capacity is 1 / processing time)

processing time 1 is 37 seconds/customer capacity = 1/37

processing time 2 is 46 seconds/customer capacity = 1/46

processing time 3 is 37 seconds/customer capacity = 1/37

1/37 = 0.027 customers per SECOND so 97.3 customers/hour

1/46 = 0.022 customers per SECOND so 78.3 customers/hour

Process cap would be 78.3

you start in 120 seconds per customer but 100 customers per hour so you have to x60 ×60

Bottleneck

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

why might a resource might have utilization of less than 100

percent for one of two reasons:

1. A non-bottleneck resource has 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

Consider again the example of the three-step airport security process. first step, verifying ID and boarding pass, takes 30 seconds per passenger. second step, searching passenger for metal objects using a metal detector, takes 10 seconds per passenger. 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 and each of the three employees get paid $15 per hour?

A) Which resource is the bottleneck?

B) What is the capacity of the process?

C) What is the flow rate? when flow rate is equal to demand rate (flowrate=process capacity) demand is higher than capacity

D) What is the utilization of the metal detector?

E) What is the cycle time?

F) what is the cost of direct labor?

G) what is the labor content

H) what is the average labor utilization? (find utilization) (average of all)

A. 1/60 x-ray

B. capacity (ID) 1/30 capacity (metal detector) 1/10 capacity (x-ray) 1/60 the lowest capacity is the x-ray machine at 1/60 making it the bottleneck

C 1/60 passengers/second or 1 passenger per minute

D. utilization is flow rate / capacity = (1/60) / (1/10) = 0.1666 16.67%

E. cycle time is 1 / flow rate so 1 / (1/60) = 60 seconds per customer

F) 1/60 cus./sec 3×15=$45 per/hr $45/60 customers/hr =$0.75 per cus

G) 100 seconds

H) 0.5,1.0.1667 =0.5556’

1/60 / 1/10 …

processing time 16 21 19 14 16 14 20 seconds and there is a demand for 160 sandwiches per hour what is capacity, process capacity, bottleneck, flow rate, average labor utilization, cycle time?

processing time 16 21 19 14 16 14 20 seconds

capacity (per second) 1/16 1/21 1/19 1/14 1/16 1/14 1/20

capacity (per hour) 225 171.4 189.5 257.1 225 257.1 180

process capacity 171.4

bottleneck 171.4

flow rate demand’s lower than capacity so FR is demand rate 160

utilization (per hour)) 71.1 93.3 84.4 62.2 71.1 62.2 88.9=76.2

cycle time 1/160*60*60 = 22.5

160 sandwitches per hour is demand rate

Worker paced and machine paced

A process line in which each resource is free to work at its own pace

all of the steps must work at the same rate

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. The process is empty at 7 a.m. in the morning when a group of 30 passengers arrives. How long will it take to serve all 30 passengers?

The process is empty and so we first need to compute the time until the first passenger is served. The first passenger will take 30 seconds at the verification of ID step and 60 seconds at the X-ray machine. the time at the metal detector does not matter because it happens in parallel with the X-ray machine. Thus, it takes 90 seconds = 1.5 minutes until the first passenger is served. From then onward, we are serving one passenger every minute since the second person will be going through the second step process at the same time the third person if doing the first step. Because we have 29 more passengers, this will take 29 minutes, for a total time of 1.5 + 29 = 30.5 minutes for all 30 passengers

how long will it take to serve a certain amount of customers formula?

time for guest 1 +(remaining guests * cycle time)

Profit formula and profit maximization definition

Flow rate × (Average price − Average cost).

The objective of an enterprise; to maximize the difference between revenue and costs.

Efficiency

process is efficient if it is able to achieve a high flow rate with few resources

Costs of direct labor and formula

labor cost associated with serving one customer, which is the total wages paid per unit of time divided by the flow rate

cost of direct labor = (if more than one employee it will be _ employees* $ per hour) wages per unit of time / flow rate

Labor content

amount of work that goes into serving one customer (generally one flow unit) which is the sum of the processing times involving labor. add up all units 1+1+1+1=

Average labor utilization

average utilization across resources. Measure of efficiency.

labor content / (labor content +idle time)

Idle time

amount of time per flow unit for which a resource is paid but is not actually working

idle time = the bottleneck time (subtract) - itself and the other processing times

when using idle time to get total idle time you use cycle time-processing time

Total idle time

amount of idle time per flow unit added up across all resources.

Total idle time = sum of idle times across resources.

Consider the following example of a three-step

process. The first step takes 20 minutes per unit.

The second step takes 10 minutes per unit.

The third step takes 15 minutes per unit. Each step is staffed by one worker. What is the labor content of the process?

The labor content is 20 + 10 + 15 = 45 minutes per unit.

Consider the following example of a three-step

process. The first step takes 20 minutes per unit.

The second step takes 10 minutes per unit.

The third step takes 15 minutes per unit. Each step is staffed by one worker. What is the total idle time of the process, assuming unlimited demand

first step is the bottleneck (20 minutes), the cycle

time of the process is 20 minutes per unit. Idle time = Cycle time − Processing time

Idle time(Step 1) = 20 − 20 = 0 minutes per unit.

Idle time(Step 2) = 20 − 10 = 10 minutes per unit.

Idle time(Step 3) = 20 − 15 = 5 minutes per unit.

Therefore, total idle time = 0 + 10 + 5 = 15 minutes per unit.

What is the average labor utilization? The labor content is 20 + 10 + 15 = 45 minutes per unit.

What is cost of direct labor if the pay rate is 15 dollars/hour

have 3 employees

Average labor utilization = Labor content ÷ (Labor content +

Idle time) = 45 / (45+15) = 0.75

Cost of direct labor = Wages per unit time ÷ Flow rate

Wages per unit time= 3 employees * $15/hour= $45 / hour

FR= 1/20 per minute 1/20×60=3 unit/hour

Cost of direct labor= 45 / 3= 15/ units

Takt time definition and formula

ratio between the time available and the quantity that must be produced to serve demand

Takt time = available time / required quantity

Takt time = 1 ÷ Demand rate

Target manpower

ratio between the labor content and the takt time

labor content / takt time = Target manpower

A laptop manufacturer operates two 8-hour shifts.

It must produce 480 computers each day. What is the takt

time?

What should the target manpower be if each

computer takes 20 minutes to assemble?

Takt time = available time / required quantity

= (2 shifts 8 hours/shift) / 480 Computers = 0.0333 *(60) hours per computer which is 2 minutes per computer

labor content / takt time = Target manpower

20/2=10

Leveling 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

Line Balancing

Allocating activities across the process resources as evenly as possible so they have comparable utilization level

Two Scenarios of Line Balancing:

Balancing for a fixed sequence of activities: Keep adding activities to a resource in sequence as long as the total processing time at the resource stays below the takt time.

Balancing activities with no fixed sequence: Activities with no fixed sequence may be shuffled to achieve a better balance, thus providing more flexibility, higher average labor utilization and lower cost of direct labor

six activities. A1 takes 3 minutes per unit, A2 2 minutes per unit, A3, 6 minutes per unit, A4, 1 minute per unit; A5, 2 minutes per unit; A6, 1 minute per unit. Right now, the six tasks are assigned to three workers as follows: The first worker takes activities A1 and A2, the second worker takes activities A3 and A4, and the third worker takes activities A5 to A6. How can you improve the process by balancing the line

bottleneck. Worker 1 has a processing time of 3 + 2 = 5 minutes per unit and hence a capacity of 1/5 unit/minute. worker 2 has a time off 6+1=7 minutes per unit hence a capacity of 1/7 units per minute. worker 3 has a time of 2+1=3 minutes/unit and a capacity of 1/3 units/minute. so #2 is bottleneck. We can off-load the bottleneck by reassigning activity A4 to worker 3. This will increase the process capacity and flow rate from 1/7 to 1/6 unit/minute decrease the total idle time from 6 to 3 minutes per unit, increase the average labor utilization and decrease the cost of direct labor.

Equipment replication

Parallel stations in which each employee performs all activities will require each employee to have his/her own equipment,

work cells

work where small teams perform a job from start to finish.