Ch. 11: Process Design and Analysis

A process is any set of activities that takes inputs and transforms them into outputs of greater value. A process that does not fit the firm "punishes it every minute": if one restaurant makes a burger for $0.50 and another for $0.75, the second loses $0.25 on every burger. Process analysis answers questions such as: how many customers can the process handle, how long does service take, what change adds capacity, what does it cost? Start by defining the purpose and keep the analysis as simple as possible.

Basic measures (slot machine example)

An old slot machine with a 15-second cycle processes $4 per minute or $240 per hour; with 95 percent payout the casino keeps $12 per hour. A new 10-second machine processes $360 per hour and keeps $18. At 50 percent utilization over 24 hours: $144 versus $216 per day. Faster processes matter elsewhere too: casino restaurants must serve quickly because time spent eating is time not gambling.

Flowcharting

Drawing a picture is the first step. Tasks are rectangles, flows are arrows, storage is an inverted triangle, decision points are diamonds. Horizontal or vertical bands can separate tasks by actor (customer versus machine).

Types of processes

• Single-stage versus multiple-stage processes.
• A buffer is storage between stages that lets them work independently. Without buffers, blocking (a stage stops because there is no place to put its output) and starving (a stage stops because it has no work) occur.
• The bottleneck is the resource that limits the capacity of the whole process. With stage times of 30 and 45 seconds, the 45-second stage is the bottleneck; 100 units take 4,530 seconds whichever order the stages are in.
• Make-to-order: built from raw materials in response to a specific order (traditional burger, Wendy's); make-to-stock: customers served from finished goods inventory (traditional McDonald's holding bin); hybrid: a generic product is stocked and finished to order (Burger King conveyor-broiler with assemble-to-order, current McDonald's system).
• Pacing: movement through the process is coordinated by a timing mechanism, such as a line that moves every 45 seconds.

Process performance metrics

Examples: a bottle filler with 2 seconds per bottle and a 30-minute setup needs 1,800 + 20,000 = 21,800 seconds (363.33 minutes) for 10,000 bottles. A six-station paced line with a 30-second cycle has a flow time of 3 minutes and a throughput of 120 units per hour; with 10 always-full buffer positions the flow time becomes 8 minutes and process velocity is 3 / 8 = 0.375. In practice setup time is often excluded from utilization, so always ask how a metric was calculated.

Inventory measures and Little's law

Material in a process is either in transit (including work-in-process) or waiting in a buffer. The total average value of inventory is the sum of raw material, WIP and finished goods at cost. Better for comparison is inventory turn = cost of goods sold / average inventory value, and its inverse days-of-supply (6 turns per year = 1/6 x 365 = about 61 days).

Example 11.1: a car plant builds 200 cars per 8-hour shift (25 per hour), flow time 12 hours, one battery per car. WIP = 25 x 12 = 300 batteries; with 8,000 in raw material stock the total is 8,300 batteries worth 8,300 x $45 = $373,500. Days of supply in raw material = 8,000 / 200 per day = 40 days. Little's law does not hold during start-up, before the system has filled.

Job design

Job design specifies the work activities of an individual or group, meeting both organizational and worker needs. Specialization of labor gives fast, low-cost production but can harm workers. Job enrichment makes specialized work more interesting: horizontal enlargement adds more or varied tasks; vertical enlargement adds planning, organizing and inspecting one's own work. Enrichment improves quality strongly and productivity less predictably. Work measurement sets time standards to schedule work, motivate and measure workers, bid on contracts and benchmark. Techniques: direct methods time study (stopwatch) and work sampling (random observations, for infrequent or long-cycle work); indirect methods predetermined motion-time data systems and elemental data. Criticism includes unattainable standards and "rate cutting".

Process analysis examples

• Bread making: batches of 100 loaves; baking takes 1 hour, packaging 0.75 hour, so baking is the bottleneck (100 loaves/hour, packaging 75 percent utilized). With two baking lines, packaging (133.3 loaves/hour) becomes the bottleneck; running baking two shifts and packaging three shifts gives average WIP of 600 loaves, a WIP time of 600 / 133.3 = 4.5 hours and total flow time 1 + 4.5 + 0.75 = 6.25 hours.
• Restaurant: 40 tables, 30 minutes per party gives a cycle time of 30 / 40 = 0.75 minute and a capacity of 80 parties per hour. Although 110 parties in two hours seems fine, uneven arrivals create a queue at the lunch peak (a non-steady-state process).
• Transit bus: average wait is half the cycle time between buses. A 2-hour loop with a 2-minute average wait needs a 4-minute cycle, so 120 / 4 = 30 buses. Capacity is checked in passenger-hours per bus.

Reducing flow time

Without new equipment: perform activities in parallel (concurrent engineering), change the sequence of activities, and reduce interruptions. Often 90 percent or more of flow time is waiting. A key principle: what goes into a process must come out; if input exceeds the output rate of the bottleneck, waiting time grows, like liquid in a funnel. The most efficient process is not always the most profitable one (the coffee shop queue that sells pastries).