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Copyright © 2014 McGraw-Hill Higher Education. All rights reserved.
CHAPTER 3
Managing Processes and Capacity
McGraw-Hill/Irwin
1
Learning Objectives
LO3-1 Understand the importance of processes and process thinking
LO3-2 Define the various components of a process
LO3-3 Distinguish between operational, tactical, and strategic capacity planning
LO3-4 Estimate capacity and utilization
LO3-5 Explain the impacts of bottlenecks, variance, and other factors on performance.
LO3-6 Describe process improvement methodologies
3–2
2
Managing Processes: A Shirt’s Dry Cleaning Journey
3–3
Activities
Inputs/Outputs/Flows
Management Policies
Process Structures
LO3-1
3
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
3–4
LO3-1
4
Types of Processes
3–5
LO3-1
5
“Anatomy” of a Process
3–6
LO3-2
6
Process
Activities
Inputs, Outputs, and Flows
Process structures
Management policies
Activities of a process
Operations change inputs
Transportation moves an input from place to place
Inspection verifies the results of an activity
Delay unintentionally stops the flow of an input
Storage is the formal inventorying of an input
3–7
LO3-2
7
Inputs, Outputs, and Flows
3–8
LO3-2
8
Inputs
Information
Output
Material
Process Structure
3–9
LO3-2
9
Management Policies
3–10
LO3-2
10
Management
Design
.
Process Capacity
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
3–11
LO3-4
11
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
Utilization: how much available capacity is actually used
Yield: usable output from input
3–12
LO3-4
12
3–13
Example 3-1
Process Capacity: An Example
LO3-4
A DC for an internet bookseller can handle a peak demand of 200,000/day, under ideal conditions. However, the facility was designed to handle up to 120,000/day during normal operating conditions. Orders processed for the first two weeks of December averaged 150,000 per day.
13
Maximum capacity = 200,000 units per day
Effective capacity =120,000 units per day
Actual orders = 150,1000 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%
3–14
Example 3-1
Process Capacity: An Example
LO3-4
14
3–15
Capacity Planning: Time Frames
LO3-3
15
3–16
Capacity Planning:
Economies of Scale
Figure 3-1
LO3-3
16
Theory of Constraints (TOC)
Every process has a constraint
Every process has variance that consumes capacity
Every process must be managed as a system
Process measures are crucial to the process’s success
Every process must continually improve
3–17
LO3-5
17
TOC-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.
Demand
Defines the maximum capacity of a system
3–18
LO3-5
18
Serial/Sequential Structure: processes occur one after another
Parallel Structure: two or more processes occur simultaneously
3–19
TOC-1: Every process has a constraint
LO3-5
Figure 3-2
19
3–20
A
B
C
D
Finished
Item
325 items 400 items 275 items 375 items per hour per hour per hour per hour
Bottleneck
TOC-1: Every process has a constraint
LO3-5
Figure 3-2
20
3–21
Figure 3-3
A
B
C
D
Finished
Item
325 items 90 items 275 items 375 items
per hour per hour per hour
400 items
per hour
E
F
180 items
130 items
TOC-1: Every process has a constraint
LO3-5
21
Measures of process flow:
Flow time: time for one unit to get through a process
Cycle time: time it takes to process one unit at an operation in the overall process
Little’s Law: there is a relationship between flow time (F), inventory level (I) and throughput rate (TH)
TOC-1: Every process has a constraint
3–22
LO3-5
22
In order to process 18,000 ‘items’ in 12 hours, what throughput rate is needed?
12 hours = 18,000 / TH
TH = 1,500 per hour
Example 3-4
TOC-1: Every process has a constraint
3–23
LO3-5
23
TOC-2: Variance consumes capacity
3–24
B
A
Wait
time
0%
100%
Capacity utilization
Process B has
greater variability
than process A
LO3-5
24
Variability in:
Outputs: product variety and variable schedules
Processes: quality variance, resource availability, and processing speed
Inputs: variance in quality and delivery
3–25
TOC-2: Variance consumes capacity
LO3-5
25
3–26
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
p
p
a
t
u
u
c
c
time
Wait
1
2
2
2
+
=
TOC-2: Variance consumes capacity
LO3-5
Equation (3.2)
26
3–27
ca = 2
cp = 1.5
u = 85%
tp = 3 minutes
Example 3-6
min
125
.
53
=
3
85
.
1
85
.
2
5
.
1
2
2
2
÷
ø
ö
ç
è
æ
-
÷
÷
ø
ö
ç
ç
è
æ
+
=
p
p
a
t
u
u
c
c
time
Wait
1
2
2
2
+
=
TOC-2: Variance consumes capacity
LO3-5
27
TOC-3: Processes managed as systems
3–28
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
LO3-5
28
TOC-4: Measures processes for success
Metrics should address aspects of performance that are important to both customers and the organization.
3–29
LO3-5
29
TOC-4: Measures processes for success
Effective metrics…
are verifiable and quantifiable.
are aligned with standards and rewards.
should support strategy and priorities.
provide the basis for monitoring, controlling and improving processes.
3–30
LO3-5
30
TOC-5: Continuous improvement of processes
Kaizen: focused, incremental improvement efforts
small + small + small + small + … + n = LARGE
3–31
LO3-5
31
TOC-5: Continuous improvement of processes
Kaizen Events
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
3–32
+ CHANGE
LO3-6
32
3–33
Managing Process and Capacity: A Summary - Part I
Processes define a business.
A process is a collection of activities.
Processes are characterized by activities, flows, structures, resources, and metrics.
Supply chain capacity should be managed strategically.
There is a proven link between output volumes and process economies.
33
3–34
The bottleneck activity sets the maximum level of output of any process.
Capacity requirements depend on processing and setup times.
Variability consumes capacity, cost, and lead times.
Processes need to be continuously improved
Managing Process and Capacity: A Summary - Part II
34
TH
I
F
=
