Processes Managing and Capabilities
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The Eli Broad College of Business,
Michigan State University, 2011
What is a process?
A system of structured activities that use resources to
turn inputs into valuable outputs.
Process thinking views activities in an organization as a
collection of processes
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The Eli Broad College of Business,
Michigan State University, 2011
Managers Deal With Many Processes
Innovation
Procurement
Manufacturing
Order fulfillment
Accounts Payable
Hiring
Etc.
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The Eli Broad College of Business,
Michigan State University, 2011
Thinking About Resources: Things Used to
Perform Process Activities
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People
Machines
Space
Brainpower
etc.
The Eli Broad College of Business,
Michigan State University, 2011
Capacity is Simple-But Complex
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Every Resource and Every Activity and Process in the Supply
Chain has a Capacity
Machines
Labor
Land/Buildings
Production lines
Vehicles
Etc.
In general, Capacity is nothing more than the maximum output of
a process or a resource in a period of time. However, sometimes
it is thought of as the amount of a resource that is available (an
input measure).
The Eli Broad College of Business,
Michigan State University, 2011
Process Capacity Definitions
Maximum capacity: highest achievable level under
ideal conditions, for a limited time
Effective capacity: achievable level under normal
conditions, for an extended time
Capacity cushion is the difference between the
maximum capacity and the effective capacity, usually,
but not always, stated as a percentage.
Utilization: how much available capacity is actually
used
Yield: usable output from input-for the time being, we
will assume that yield is 100%.
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The Eli Broad College of Business,
Michigan State University, 2011
Longer-term Resource Capacity Planning
The question to be answered is basically: How much
(or how many) of each resource will we need
To answer the question, you have to consider how
much needs to be produced and how much one
resource can produce,
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The Eli Broad College of Business,
Michigan State University, 2011
Resource Planning
Calculating resource needs:
Resources required =
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The Eli Broad College of Business,
Michigan State University, 2011
Total Resource Demands
Effective Capacity of 1 resource
Another Simple Problem
Jones Company manufactures widgets. It expects to make
and sell 100,000 widgets during the next month. It takes 10
minutes to make a widget. Production workers each work
200 hours per month. If Jones Company wants a 20%
capacity cushion, how many production workers should it
have?
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The Eli Broad College of Business,
Michigan State University, 2011
And Another
A neighborhood grocery store serves 80
customers per hour at its busiest time of the
day. If the store wishes to maintain a cushion
of at least 10 minutes per hour at each
checkout line and the average customer
requires 4 minutes to be wrung up at the cash
register, how many cash registers should the
store have?
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The Eli Broad College of Business,
Michigan State University, 2011
Process Capacity-An Existing Process
Capacity: amount of input that can go into or the amount of
output that can be created by a process, at a given level of
resources over a given time period
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The Eli Broad College of Business,
Michigan State University, 2011
Text Example 3-1
Internet bookseller distribution center can handle peak
demand of 200,000 orders/day. However, the facility is
designed to handle 120,000 orders/day under normal
conditions. If orders averaged 150,000/day for the first
2 weeks of December, calculate the utilization of
capacity. In addition (not part of the example) calculate
the capacity cushion.
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The Eli Broad College of Business,
Michigan State University, 2011
Process Capacity Definitions
Maximum capacity = 200,000 units per day
Effective capacity =120,000 units per day
Actual orders = 150,000 units per day
Utilization of maximum capacity =
(150,000/200,000) x 100% = 75%
Utilization of effective capacity =
(150,000/120,000) x 100% = 125%
Capacity Cushion = 80,000 units/day (40%)
Text: Example 3-1
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The Eli Broad College of Business,
Michigan State University, 2011
Anatomy of a Process
Activities
Inputs/Outputs/Flows
Structure
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The Eli Broad College of Business,
Michigan State University, 2011
We are going to look at a process problem as we go
through the lecture.
Rockness Recycling refurbishes rundown business students. The process
uses a moving belt, which carries each student through the five steps of the
process in sequence. The five steps are as follows:
Step
Description
Time/ Student
____________________________________________________
1
Unpack and place on belt
1.0 minutes
2
Strip off bad habits
1.5 minutes
3
Scrub and clean mind
0.8 minutes
4
Insert modern methods
1.0 minutes
5
Polish and pack
1.2 minutes
One faculty member is assigned to each of these steps. Faculty members
work a 40-hour week. Mr. Rockness has a contract which requires delivery of
2,000 refurbished students per week. The company has not been able to
fulfill the contract. What is going on?
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The Eli Broad College of Business,
Michigan State University, 2011
What are the Activities at Rockness
Operations?
Transportation?
Inspection?
Delay?
Storage?
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The Eli Broad College of Business,
Michigan State University, 2011
Inputs to a Process: Whats Worked On
Inputs be:
Raw can materials
Components
People
Information
What are the Rockness inputs?
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Michigan State University, 2011
Outputs of the Process
Outputs can be:
Goods
Services
Information
What are the outputs at Rockness?
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The Eli Broad College of Business,
Michigan State University, 2011
Theory of Constraints (TOC)
1. Every process has a constraint
2. Every process has variance that consumes capacity
3. Every process must be managed as a system
4. Process measures are crucial to the processs success
5. Every process must continually improve
http://www.youtube.com/watch?v=4wp3m1vg06Q&feature=related
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The Eli Broad College of Business,
Michigan State University, 2011
1. Every process has a constraint
Bottleneck: anyplace demand capacity; this limits the
ability of the process to generate output
A constraint or scarce resource
A facility, a department, a machine, a skill type, etc.
Defines the maximum capacity of a process
Go look for:
The process operation with the largest cycle time
Inventory or delay in front of the bottleneck
Vacuum behind the bottleneck
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The Eli Broad College of Business,
Michigan State University, 2011
1. Every process has a constraint (contd)
What Throughput Rate is Needed at Rockness?
What is actually happening at Rockness?
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The Eli Broad College of Business,
Michigan State University, 2011
Another Problem
Coopers Copy Shop is considering two different processes for completing copying
jobs brought in by customers. Process A uses one person to setup the job and do the
copying. If this approach is used, an experienced person can complete an average of
20 jobs per day. Process B uses two people. One person does the setup and the
second person does the actual copying. Setup on one job can be done while copying
is being completed on another but copying must be completed on a job before the
copying machine can start copying the next. After some practice, this second process
can be completed with a standard time of 10 minutes for setup and 15 minutes for
actual copying. In either case, assume an 8 hour day, 5 days per week
a. Assuming ideal conditions, what is the maximum capacity of Process B?
b. How long would it take to process 200 jobs using Process A (assume maximum
capacity and only one worker and one machine)?
c. How long would it take to process 200 jobs using Process B (assume maximum
capacity and only one production line)?
d. If Cooper is primarily interested in providing low cost to customers, which Process
should he put in place?
e. If Cooper is primarily interested in providing quick service to customers, which
Process should he put in place?
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The Eli Broad College of Business,
Michigan State University, 2011
2. Variance consumes capacity
Variance occurs in a processs inputs, activities and
outputs.
For example, inputs do not necessarily arrive at a process
or an activity at a constant rate. Arrival rates vary.
Similarly, cycle times (time to process a unit) are not
necessarily constant. They vary.
Resources may have downtime.
You will not have to work problems related to wait time
(text page 62-63), but you should understand the impact of
this variability on process capacity and understand the
types of actions companies may try to undertake to deal
with the problem of variation.
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The Eli Broad College of Business,
Michigan State University, 2011
2. Variance consumes capacity (contd)
Wait time =
2
2
ca + c p
2
+
u
1u
tp
ca = coefficient of variation (standard deviation/average) of job arrival times
cp = coefficient of variation of job processing times
u = utilization of the work center
tp = average processing (cycle) time for jobs
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The Eli Broad College of Business,
Michigan State University, 2011
3. Processes managed as systems
Changing one element of a process may impact other
elements, sometimes in unexpected ways.
Process elements are interdependent
Activities
Inputs/Outputs/Flows
Process structures
Management policies
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The Eli Broad College of Business,
Michigan State University, 2011
4. Measures processes for success
Metrics should address aspects of performance
that are important to both customers and the
organization.
They should be verifiable and quantifiable.
They should align with standards and rewards.
They should support strategy and priorities.
They provide the basis for monitoring, controlling
and improving processes.
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The Eli Broad College of Business,
Michigan State University, 2011
5. Continuous improvement of processes
Business Process Reengineering: radical redesign,
expensive, difficult, but sometimes necessary. McDonalds
in the early 1990s.
Kaizen: focused, incremental improvement efforts
small + small + small + small + + n =
LARGE
Team focus: utilize the knowledge and experience of
the people associated with the process
Short term and focused: quick, local improvement
Action-oriented: quick implementation
Repetitive: regular events
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The Eli Broad College of Business,
Michigan State University, 2011
Areas for Process Improvement
Increase Utilization
Increase up-time
Reduce changeovers and set-up times
Improve scheduling-arrival rate of inputs
Improve Efficiency
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Improve layout
Break bottlenecks
Reduce variation
Improve labor productivity
The Eli Broad College of Business,
Michigan State University, 2011