Process Analysis

OPIM 631 Note on Process Analysis 1

T h e W h a r t o n S c h o o l Quarter IIThe University of Pennsylvania Fall 1999

OPIM 631Operations Management: Quality and Productivity

Note on Process Analysis

Introduction1

In this course, we look at organizations as processes. A process can, at the mostaggregate level, be thought of as a "black box" that transforms inputs (raw materials, un-served customers) into outputs (finished goods, served customers). This transformation isaccomplished through resources (machines, workers, capital). For example, each yearThe Wharton school transforms 6000 MBA applications into 780 graduates and 5220rejected applications. The school's resources are its faculty and administration, thebuildings, the coffee machines, etc.

Whereas many other courses that you might take, including finance, economics, andstrategy, can live with this aggregate view, the approach of operations management is tolook inside the black box of this transformation process. Specifically, the objective of thiscourse is to enable you to:

1. analyze existing business processes along performance dimensions outlined below

2. improve business processes to achieve higher profits.Thus, this course is about understanding and improving business processes.

Start with a pictureThe most helpful tool in analyzing business processes is the process flow diagram. It is agraphical way to describe the process and will help you to structure the information thatyou find.

As with any management or consulting project, you first need to focus on a part of theprocess that you want to analyze in greater detail, i.e. you need to define the processboundaries and an appropriate level of detail. Placement of the process boundaries willdepend on the project you are working on. For example, in the operation of a hospital,one project concerned with patient waiting time might look at what happens to the patientbefore she sees a doctor (e.g. check-in, waiting time, encounter with the nurse). In thisproject, the encounter with the doctor would be outside the boundaries of the analysis.Another project related to the quality of surgery, however, might look at the encounterwith the doctor in great detail, while either ignoring the admissions process or treating itwith less detail.

A process operates on flow units, which are the entities flowing through the process (e.g.,people, materials, information). A process flow diagram is a collection of boxes,triangles, and arrows. Boxes stand for process steps (which can themselves be processes).

1 This note was prepared by Professors Terwiesch, Fisher, Ulrich, and Pearson as a first introduction toprocess analysis. Its purpose is to help students with no experience in process analysis prepare the firstcouple of cases in OPIM631.


Triangles represent waiting areas or buffers holding inventory. Arrows represent theroute of flow of the flow units. If there are different flow units that take different routesthrough the process flow diagram, it can be helpful to use different colors for the differentroutes.

Simple ExampleAssume your learning team needs to produce 100 bagel sandwiches with ham, cheese,and veggies on them. After some experimentation, you find out that the tasks involvedtake approximately the following durations:

- Cutting (0.5 minutes)- Spreading mayonnaise (2.5 minutes)- Cutting vegetables (3 minutes)- Putting vegetables on bagel (2 minutes)- Dressing (1 minute)- Wrapping (1 minute)

You decide that each of the three of you (when it came to making bagels, the otherstudents on your team remembered that they had to prepare for a finance exam) will taketwo tasks. Your process now looks like the process described in Figure 1. The trianglesbetween process steps indicate that there may be an accumulation of incompletesandwiches at those locations. All of the flow units within the process boundaries arecalled work-in-process inventory or WIP (pronounced "whip").

Figure 1: Simple bagel process

After operating for one hour, you realize that you are not too happy with this process(except the person doing the dressing and the wrapping, who looks the least tired of thethree of you). Here is the current state of your system (kitchen):

Figure 2: Your kitchen after one hour of work

The first thing you notice after looking up from your work is a huge pile of bagelswaiting for veggies. The "cut and mayonnaise person" has clearly worked hard andmanaged to prepare a total of 20 bagels in the one hour. From those 20, only 12 werepicked up by the "veggie person".

Raw Bagels Finished Bagels

Cut/mayo Veggies Dressing/ Wrap

1 bagel / 2 min.1 bagel / 5 min.1 bagel / 3 min.

Raw Bagels 10 Bagels

Cut/mayo Veggies Dressing/ Wrap

40% busy, wasthe one who yelled

100% busy,got yelled at

100% busy

Huge pile nothing


This leads to the second issue, which is the frustration of the veggie person. Despitedoing his best, he never could keep up with the speed of the dress-and-wrapper. Thisresulted in no WIP between the two and in under-utilization of the "dress-and-wrapper"person (which gave her plenty of time to shout for more bagels).

Third, and most importantly, all three of you are somewhat disappointed when yourealize that you have only finished 11 bagels. Your preliminary analysis prior to startingwent like this: it takes 10 minutes of work to finish one bagel; if three persons work for60 minutes, this should result in 3*60/10=18 bagels. However, only 11 bagels arefinished. So you fall short by almost 50%! After some discussion, you realize whathappened:

- It took ten minutes to "fill the pipe line" in your process, thus the first bagel wasdone after 10 minutes.

- From minute 10 onwards, you finished one bagel every 5 minutes, despite thehard work of the cut-and-mayo person.

But even then, why did the hard work not lead to more output? Was it really just a start-up problem? Or, was there something more fundamental at work?

The Basic Measures of Process PerformanceIn process analysis, we focus on three fundamental performance measures:

- The number of flow units contained within the process is called the inventory (I)(or WIP). Assuming we define the process boundary just before cutting and justafter wrapping, this inventory includes bagels currently being worked on by anyof the three of you and bagels between operations.

- The time it takes a flow unit to get through the process is called the Flow time (T).An interesting question to ask is "how long does it take one bagel to move fromthe beginning to the end of the process?" Although this question is somewhathypothetical in the present example, it would be an important variable if you wereselling bagels made to order.

- Finally, the most important measure is the rate (measured in [flow units/time]) atwhich the process is delivering output, which we will call the Flow rate (R). R issometimes referred to as throughput rate. The maximum rate with which theprocess can generate output is also called the capacity of the process.

You might be somewhat irritated that we have not talked about cost so far. However, notethat any improvement in inventory, flow rate, or flow time will have a direct impact oncost, or even better, on profit. Shorter flow times will make it easier to rapidly respond tocustomers (especially in make-to-order environments and service operations). Typically,shorter flow time will result in additional unit sales and/or higher prices. Lower inventoryresults in lower working capital requirements as well as many quality advantages that wewill explore in this course. Higher inventory is also directly related to longer flow times(explained below). Thus a reduction in inventory also yields a reduction in flow time.Higher flow rate translates directly into more revenues, assuming your process is


currently capacity constrained, i.e. there is sufficient demand that you could sell anyadditional output you make.

Process AnalysisAfter building the process flow diagram, the next step towards understanding andimproving a business process is to perform a process analysis. The objective of theprocess analysis is to:

Find the process step that is limiting the rate at which the process generatesoutput. This limiting step is called the bottleneck.

Find the maximum rate at which the process can generate output (capacity). Ifthere is sufficient demand, the capacity of the process will correspond to the flowrate defined above.

Compute the time it takes for a flow unit to go through the process, the flow time,including processing time and waiting time.

Compute the time it takes to fulfill an order of a given size, e.g. 100 bagels.There is no precise recipe2 for how to draw process flow diagrams and how to perform aprocess analysis. You will learn how to perform these tasks over the next two or threeweeks as you prepare the cases for class. Figure 3 is a summary of the major steps.

1. Choose the process boundaries and the flow unit.

2. Understand how the physical process works and draw a process flow diagram.Show process steps, inventory holding points, and arrows depicting product flow.

3. Determine the capacity of each step in the process expressed as the number offlow units of product that can be processed per unit time.

4. Identify the capacity bottleneck. This is the step with least capacity.

5. Once the bottleneck is identified, think about how the bottleneck influences otherprocess steps as well as the overall behavior of the process. Calculate differentperformance measures such as the process capacity, flow time, work in processinventory, and labor utilization.

6. Consider changes to improve system performance.

Figure 3: Six steps for process analysis

2 Actually there are recipes for process analysis. However, in order to be applicable to all situations, therecipe is rather complex and involves many, many definitions. Thus, we prefer to give you a somewhatsimplified version that will work in 80% of the cases and rely on your common sense for performing theresidual 20%.


How to determine capacity?As discussed above, each process step in a process flow diagram can be thought of aprocess in itself. Therefore, the concept of capacity applies to both an individual processstep and to an entire process.

Let's revisit the bagel example. Remember that the first step (cutting and mayospreading) took 3 minutes per bagel, the second step (cutting veggies and putting them onthe bagel) took 5 minutes and the third step (dressing and wrapping) took 2 minutes.

The duration of the activities that comprise a process step is called the activity time. Todetermine the capacity of an individual process step, we write:

capacity=1/activity-time.

E.g. for the first step, we write: capacity1=1/(3 minutes/bagel)=0.333 bagels/minute,which we can rewrite as 0.333 bagels/minute = 0.333 bagels/minute * 60 minutes/hour =20 bagels/hour. (These computations using measurement units might remind you of yourhigh school science class, and YES, your physics teacher was right after all: keep track ofthe measurement units!) Similarly, we can compute capacities of the second step to be 12bagels/hour and of the third step to be 30 bagels/hour.

If there is more than one person (or machine) carrying out a process step, the aboveformula changes to:

capacity=number-of-workers/activity-time.

This is intuitive, as the capacity grows proportionally with the number of workers.

In simple processes with just one type of product (flow unit), we call the process stepwith the least capacity the bottleneck. The capacity of the overall process is equal to thecapacity of the bottleneck. In the bagel example, this is the veggie process step, thus theoverall process capacity is 12 bagels/hour.

In processes with multiple product types, the analysis is a little more complicated. Whycan't we just do the same analysis as above? Consider the process flow diagram shown inFigure 4, which describes a process where multiple variants of bagels get produced; e.g.cream cheese, veggie bagels and bagels with grilled bacon and veggies.

This product mix complicates the process analysis. It is important to understand that thecapacity of the process crucially depends on the product mix. For example, the processstep "cream cheese" might have a very long activity time, resulting in a low capacity ofthis activity. However, if only one out of a hundred customers requires cream cheese, thislow capacity would not be a problem.

Thus, to find the bottleneck and to determine capacity in a multi-product situation weneed to compare the available capacity with the requested capacity. The analysis is givenin Table 1. Numbers that are raw data (i.e. that you would find in the case or byobserving the real process) are printed in bold. Numbers that are derived by analysis areprinted in italics. We assume the demand is 180 bagels a day, of which there are 30


grilled-veggie, 110 veggie only, and 40 cream cheese. Assuming that the working day is10 hours, demand is 3 grilled-veggie bagels/hour, 11 veggie bagels/hour, and 7 creamcheese bagels/hour.

Figure 4: Process analysis for three bagel types

Cut Grilled Stuff Veggies Cream Cheese WrapActivity time 3 [min/bagel] 10 [min/bagel] 5 [min/bagel] 4 [min/bagel] 2 [min/bagel]Available capacity 1/3 [bagel/min]

=20 [bagel/hour]1/10 [bagel/min]=6 [bagel/hour]

1/5 [bagel/min]=12 [bagel/hour]



Requested capacity grilled -veggie+ veggie+ cream cheese

= total

3 [bagel/hour]11 [bagel/hour]4 [bagel/hour]

18 [bagel/hour]

3 [bagel/hour]00

3 [bagel/hour]

3 [bagel/hour]11 [bagel/hour]0

14 [bagel/hour]

004 [bagel/hour]

4 [bagel/hour]

3 [bagel/hour]11 [bagel/hour]4 [bagel/hour]

18 [bagel/hour]

Implied Utilization= requested Cap/ available Cap

18/20=90% 3/6=50% 14/12=117% 4/15=27% 18/30=60%

Table 1: Finding the bottleneck in the multi product case

When computing the requested capacity, it is important to remember that some activities(e.g. cutting) will be requested by all product types, whereas others (e.g. grilled stuff) willonly be requested by one product type. This will (hopefully) become clear by looking atthe process flow diagram.

By comparing the ratio of requested capacity and available capacity, which is also calledthe implied utilization of the activity, we can now find the "busiest" activity, in this casethe veggie operation. As this ratio is above 100%, the process is capacity constrained and,unless we can work overtime (i.e. add extra hours at the end of the day, in which case ouravailable capacity would go up), we will not be able to meet demand.

Littles LawFlow Time, Flow Rate, and Inventory are related by the following identity (known asLittles Law):

I = R * T.

Cut

Raw Bagels

Finished Bagels

Put GrilledStuff on B.

Veggieson Bagel

CreamCheese

WrapCream Cheese

VeggieGrilled-Veggie


You might think this relationship is trivial, however, it is not and its proof is rathercomplex for the general case (which includes stochastic variability) and by mathematicalstandards is very recent. Little's Law is useful in finding any third variable when the othertwo are known.

For example, if you want to find out how long patients - on average - spend in the waitingroom for a certain hospital operation, e.g. X-ray, you could do the following:

- observe the queue at a couple of random points during the day, giving you anaverage inventory I. Let's say this number is 7 patients.

- look in your computer to see how many patients came through X-ray on that day,giving you the average flow rate R. Let's say there were 100 patients over a periodof 8 hours, yielding R=100/8=12.5 patients/hour

- use Little's Law to compute T=I/R=7/12.5=0.56 hours=33.6 minutesThis formula will be helpful in computing T in many applications you will encounter.Obviously, if you see how to compute T directly, then its easier not to use the formula.Little's Law can also be used to find I given R and T or to find R given I and T.

When does Little's Law hold? The short answer is always. Little's Law does not dependin which sequence the flow units (e.g. patients) are served3 (remember FIFO and LIFOfrom your accounting class?). The only caveat is that if I, R or T vary over time, thenLittles Law is still valid, but only if used with average values of I, R and T.

Total Time x to process a given quantity of work QRemember the disappointment when finding out that you had produced only 11 bagelswhen operating in the process of Figure 1? How could we have computed this beforestarting the work?

We now understand that the veggie process step was the bottleneck, because it has theleast capacity. As we tried to push as many bagels through the system as possible, wewere capacity constrained and the flow rate of the system, once it got going, was equal tothe capacity: 12 bagels/hour.

So how long does it take to produce ten bagels, starting with an empty system? It willtake ten minutes (the sum of the three activity times) until the first bagel is completed.This is the time to "fill the pipeline". From then onwards, we get an additional bagelevery five minutes. (This is because the Veggie operation can produce no more than onebagel every five minutes.) Thus bagel 1 is produced after 10 minutes, bagel 2 is producedafter 15 minutes and bagel 10 is produced after 55 minutes.

More formally, we can write the following formula. The time x to finish Q units is:x = T + (Q-1)/R

3 Note however, that changing the sequence will impact a given flow unit (e.g. the patient coming in first inthe morning). But Littles Law deals with averages, i.e. if patient A will wait longer, one or more otherpatients will have less waiting time.


For a continuous flow process, this time is:x = T + Q/R.

Types of ProcessesThe decision to arrange your process as depicted in Figure 1 was not dictated by theproduct (the recipe of the ham-cheese bagel) but it was your managerial choice. Considerthe two alternative process layouts in Figure 5.

Figure 5: Two alternative process lay-outs

The first process is called a machine-paced line flow. A single conveyor belt carries thebagels between workers and moves at a constant speed. Such a process is different fromthe example we had in Figure 1, called a worker-paced line flow, as it does not allow fora build up of inventory between the process steps. The pace with which the workers mustcomplete activities is dictated by the speed of the conveyor belt.

The second process corresponds to three work cells. In this example, each work cellconsists of one person who completes the entire set of activities to produce a completedunit. As a result of this process layout, there is no need for inventory between theactivities.

Let's go and see some real organizations in action. Make sure to visit the following web-pages, each of which offer a virtual tour through their (manufacturing) process:

Buell Motorcycles: http://www.buell.com/tour/factour.html Monitor Sugar: http://www.monitorsugar.com/htmtext/Pictflow.htm Peavey Guitars: http://www.peavey.com/wolfgang/index.html Statton Furniture: http://www.statton.com/tourpics.htm

Raw Bagels Finished Bagels

Cut/mayo Veggies Wrap

Conveyor Belt

Raw BagelsCut/mayo Veggies Wrap



Finished Bagels

Same Person

Machine-Paced Line Flow

Three Parallel Work Cells


How are the processes different from each other? Some produce a large variety ofproducts (e.g. Statton furniture), while others basically produce one single product(Monitor). Some processes are highly automated, while others are largely manual. Someprocesses resemble the legendary Ford assembly line, while others resemble more theworkshop in your local bike store

There are many other dimensions along which processes can differ. Empirical researchin operations management, which has looked at thousands of processes, has identifiedfive clusters or types of processes. Within each o the five clusters, processes are verysimilar concerning variables such as product variety or production volume, as isdescribed in Table 2.

Examples

Productvariety

( variants)

Productvolume

(units / year)

Specificity ofProcess

Technologies Process Flow / LayoutJob Shop Design

company Consulting

High(100+)

Low(1-100)

General purpose Similar process equipmentgrouped together. Differenttypes of jobs proceed alongdifferent paths through facility

Batchprocess

Apparelsewing

Bakery Semi-

conductorwafers

Medium(10-100)

Medium(100-100k)

General purpose Similar process equipmentgrouped together. Mostbatches follow similar path

Worker-paced lineflow

Autoassembly

Computerassembly

Medium(1-50)

High(10k-1M)

Specialized Equipment laid out in order ofprocess steps. Linear flow,identical across products.

Machine-paced lineflow

Large Autoassembly

1-10 High(10k 1M)

Specialized Similar to worker paced lineflow. However, the speed ofthe operation is dictated by anautomated line.

ContinuousProcess

Paper mill Oil refinery Food

processing

Low(1-10)

Very High Highlyspecialized,customdesigned

Straight line, direct connectionbetween process steps

Table 2: Process types and their characteristics

Identifying the process type is more than an academic exercise in definitions.Specifically, there are two benefits to this exercise:

1. When creating the process flow diagram, you will know whether your diagramwill look more like Figure 1 or one of the two cases described in Figure 5.

2. Similar process types tend to have similar problems. For example, as in the bagelprocess described in Figure 1, worker paced lines tend to have the problem ofwork-balancing and inventory build-up. Job-shops tend to suffer from long flowtimes. Thus, once you know the process type, you can determine fairly quicklythe important issues in the case (or what problem your consulting customer isfacing).


We will discuss these issues further in class, when we talk about the virtual plant tours.

How to Improve a Process?Now that we have all the tools available to understand what is going on in a process, thelogical question becomes "How can we improve the performance of a process?" Again,there is no single recipe, but at least a short list of generic answers:

Add capacity to the bottleneck. This is an improvement if the value of theextra capacity exceeds the cost of the extra capacity. For example, if youcould get one additional person to help out on the veggies, it would improvethe flow rate through your process.

Improve balance by moving work from the bottleneck activity to a nonbottleneck activity. For example, your process in Figure 1 would improve ifthe person who is in charge of the dressing / wrapping would take over thetask of putting the vegetables on the bagel. This would bring her activity timeup to 4 minutes/bagel (and thus her capacity up to 15 bagels / hour), but theveggie activity would go to 3 minutes/bagel (capacity of 20 bagels/hour). Asthe process capacity is determined by the activity with the least capacity, theprocess capacity would move from 12 to 15 bagels/hour.

Determine the best span of control for a worker; e.g. do we have a cell with asingle worker who builds the entire product or do we have an assembly line onwhich each worker performs a narrow, short task. Assuming that there is nobenefit of specializing in one activity (thus the times for performing each taskwould remain unchanged if a worker carries out several activities), the workcell layout in Figure 3 is extremely attractive. The activity time of completingone bagel is 10 minutes/bagel. Thus an individual can produce 6 bagels/hour.Multiplied by 3 workers, this would give 18 bagels/hour. This improvementarises because no worker is forced to be idle.

If a process is demand rather than capacity constrained, stimulate demand byoffering additional value to the customer; e.g. higher quality, more productvariety or shorter lead time.

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Process Analysis