s. chopra/operations/process analysis & apps1 operations management: process analysis and...
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S. Chopra/Operations/Process Analysis & Apps 1
Operations Management:
Process Analysis and Applications Module Operational Measures: Time T, Inventory I, Throughput rate R
Capacity and Flow Time Analysis» Pizza Pazza / Bariatric Surgery
» Levers for Improvement
Multi-product Capacity Management and Investment» Joint Marketing & Production Decisions
» Optimal Capacity Investment
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Operational Performance Measures
How to measure and decrease flow times? How to measure and increase throughput?
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Process Architecture is defined and represented by a process flow chart:Process = network of activities performed by resources
1. Process Boundaries:– input
– output
2. Flow unit: the unit of analysis
3. Network of Activities & Storage/Buffers– activities with activity times
– routes: precedence relationships (solid lines)
4. Resources & Allocation
5. Information Structure & flow (dashed lines)
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Pizza Pazza Flow Chart
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Operational Measure: Flow TimeDriver: Activity Times
(Theoretical) Flow Time
Critical Activity
Flow Time efficiency
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Industry Process Average FlowTime
Theoretical FlowTime
Flow Time Efficiency
Life Insurance New PolicyApplication
72 hrs. 7 min. 0.16%
ConsumerPackaging
New GraphicDesign
18 days 2 hrs. 0.14%
Commercial Bank Consumer Loan 24 hrs. 34 min. 2.36%
Hospital Patient Billing 10 days 3 hrs. 3.75%
AutomobileManufacture
FinancialClosing
11 days 5 hrs 5.60%
Most time inefficiency comes from waiting: E.g.: Flow Times in White Collar Processes
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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.
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Operational Measure: CapacityDrivers: Resource Loads
(Theoretical) Capacity of a Resource
Bottleneck Resource
(Theoretical) Capacity of the Process
Capacity Utilization of a Resource/Process = throughput [units/hr]
capacity [units/hr]
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A Recipe for Capacity Measurements
Resource Unit Load Resource Capacity Process Resource
(time/job) Unit Capacity # of units Total Capacity Utilization*
* assuming system is processing at full capacity
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Bariatric Surgery : Flow Chart
Initial phone call
5×1.2=6 min.receptionist , patient20% callback
Initial Consultation
30 min.surgeon patient
40% quit
Preliminary Test Request
10 min.surgeon patient
Test 1 Appointment
5 min.receptionistpatient
Test
60 min.nursepatient
2 dayspatient
Med. Nec. Letter
20 min.surgeonpatient
3 wkspatient More tests
(50%)
Yes (50%)
Test 230 min.nursepatient
2 dayspatient
Second Visit 15 min.surgeon patient
Test 2Appointment
5 min.receptionistpatient
2 wkspatient
20% Deny 80% approve
10% Quit
Visit 320 min.surgeonpatient
Scheduling10 min.nursepatient
Patients arrive
60 min.SurgeonPatient (x6)
Surgery Prep
30 min.nursepatient
Surgery Cleaning
15 min.2 NurseSurgery room
Surgery Laparoscopic
Surgery Open
x%
1-x%
75 min.2 nurses, surgeon, anesthetistPatient , surgery room
45 min.2 nurses, surgeon, anesthetistPatient, surgery room
STAY (from arrival)
2 daysPatient, room
STAY (from arrival)
4 daysPatient, room
Follow up
30 minutesnurse
Nurse Care120 minutes
Nurse Care 240 minutes
DelayCash /
InsuranceInsurance Insurance
ApprovalQuit
Or not90%
Delay
InsuranceApproval
Appointment
5 min.receptionistpatient
Scheduling
Cash
Seminar
Complete Flow Chart for Bariatric Patients
Team Prep
15 min.surgeon, anesthetist
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Bariatric Clinic Capacity – Open Surgeries & Cash Payment
Cash-Open
Resource Load/patient Patients/hr Hrs/day Patient/day Patients/wk resources Capacity/wkreceptionist (min) 20 3.00 12.00 36.00 180.00 1 180.00surgeon (min) 150 0.40 12.00 4.80 24.00 4 96.00nurse surgery (min), team of 2 60 1.00 12.00 12.00 60.00 2 120.00nurse care (min) 370 0.16 12.00 1.95 9.73 10 97.30room-in (days) 4 1.25 63 78.75room-out (min) 80 0.75 24.00 18.00 126.00 2 252.00surgery room (min) 60 1.00 12.00 12.00 60.00 2 120.00anesthesist (min) 60 1.00 12.00 12.00 60.00 2 120.00
Capacity 78.75
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Bariatric Clinic Capacity – Laparoscopic Surgeries & Cash Payment
Cash-Laparoscopic
Resource Load/patient Patients/hr Hrs/day Patient/day Patients/wk resources Capacity/wkreceptionist (min) 16 3.75 12.00 45.00 225.00 1 225.00surgeon (min) 180 0.33 12.00 4.00 20.00 4 80.00nurse surgery (min), team of 2 90 0.67 12.00 8.00 40.00 2 80.00nurse care (min) 250 0.24 12.00 2.88 14.40 10 144.00room-in (days) 2 2.50 63 157.50room-out (min) 80 0.75 24.00 18.00 90.00 2 180.00surgery room (min) 90 0.67 12.00 8.00 40.00 2 80.00anesthesist (min) 90 0.67 12.00 8.00 40.00 2 80.00
Capacity 80.00
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Bariatric Clinic Capacity – Open Surgeries & Insurance Payment
Insurance- Open
Resource Load/patient Patients/hr Hrs/day Patient/day Patients/wk resources Capacity/wkreceptionist (min) 26.60 2.26 12.00 27.06 135.31 1 135.31surgeon (min) 198.00 0.30 12.00 3.64 18.18 4 72.73nurse surgery (min) 60.00 1.00 12.00 12.00 60.00 2 120.00nurse care (min) 402.59 0.15 12.00 1.79 8.94 10 89.42room-in (days) 4.00 1.25 63 78.75room-out (min) 112.59 0.53 24.00 12.79 63.95 2 127.89surgery room (min) 60.00 1.00 12.00 12.00 60.00 2 120.00anesthesist (min) 60.00 1.00 12.00 12.00 60.00 2 120.00
Capacity 72.73
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Bariatric Clinic Capacity – Laparoscopic Surgeries & Insurance Payment
Insurance-Laparoscopic
Resource Load/patient Patients/hr Hrs/day Patient/day Patients/wk resources Capacity/wkreceptionist (min) 26.6 2.26 12.00 27.06 135.31 1 135.31surgeon (min) 228.0 0.26 12.00 3.16 15.79 4 63.15nurse surgery (min) 90.0 0.67 12.00 8.00 40.00 2 80.00nurse care (min) 282.6 0.21 12.00 2.55 12.74 10 127.39room-in (days) 2.0 2.50 63 157.50room-out (min) 112.6 0.53 24.00 12.79 63.95 2 127.89surgery room (min) 90.0 0.67 12.00 8.00 40.00 2 80.00anesthesist (min) 90.0 0.67 12.00 8.00 40.00 2 80.00
Capacity 63.15
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Levers for Increasing Process Capacity
Decrease the work content of bottleneck activities– work smarter, work faster– do it right the first time– eliminate non-value added work from bottlenecks
» reduce/eliminate setups and changeovers– synchronize flows to & from bottleneck
» reduce starvation & blockage
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
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Increasing Process Capacity in The Goal
“is to increase the capacity of only the bottlenecks”– “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
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Other factors affecting Process Capacity
Batch (Order) Sizes
Product Mix
other managerial policies ...
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Product Mix Decisions:Open or Laparoscopic Surgery
Revenue per open surgery: $15,000
Variable Cost of Materials: $1,000
Revenue per Laparoscopic surgery:$18,000
Variable Cost of Materials: $2,000
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Product Mix Decisions
Open and Laparoscopic have exactly the same process. The
only difference is in surgery (laparoscopic takes 30 minutes
extra) and in the rooms (laparoscopic uses rooms for 2 days
whereas open uses rooms for 4 days.
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Product Mix Decisions
Margin per Open surgery = $14,000
Margin per Laparoscopic surgery = $16,000
Margin per week from Open surgery = 72.72*(15,000 - 1,000) = $1,018,055 / week
Margin per week from Laparoscopic surgery = 63.15*(18,000 - 2,000) = $1,010,400 / week
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Learning Objectives: Process Analysis Manage better with the three key operational measures and an
inter-functional macro process view of the organization Process measures:
– Flow time manage critical activities
– Capacity manage bottleneck resources
Levers for improving– Flow time manage critical activities
– Capacity & Throughput
Many marketing and financial decisions are linked to process– Effect of product mix decisions on process capacity
» marginal contribution per unit of bottleneck capacity used
– Bottleneck may shift on adding capacity diminishing returns to capacity investment