Process Analysis Module 2

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Questions and Answers

What are the three operational measures mentioned?

Time T, Inventory I, Throughput rate R

Which of the following are improvement levers for economic value?

Increase price

Reduce costs

Improve quality

All of the above (correct)

Inventory Turnover is calculated as Throughput / Inventory.

True

The ___ is the average cost incurred in moving a flow unit through the process.

Process Cost Signup and view all the answers

What is the formula for Inventory based on Little's Law?

Inventory I = Throughput R x Flow Time T Signup and view all the answers

What are the two aspects that are balanced against each other in Process Analysis?

Flow Time and Capacity Signup and view all the answers

What is the average number of claims 'in process' if Travelers Insurance processes 10,000 claims per year with an average processing time of 3 weeks?

Approximately 576 claims Signup and view all the answers

A general manager stating that their inventory turns three times a year and everything leaves the docks within six weeks is consistent.

False Signup and view all the answers

What are the total current assets for MBPF Inc.?

87.7 Signup and view all the answers

What is the net income reported by MBPF Inc.?

8.3 Signup and view all the answers

Which of the following are included in MBPF Inc.'s cost of goods sold? (Select all that apply)

Raw materials Signup and view all the answers

What is the amount of total liabilities reported?

11.9 Signup and view all the answers

Match the following values with their respective categories for MBPF Inc.:

Net Property, Plant and Equipment = 49.2 Total Assets = 146.9 Net Income per Common Share = 0.83 Dividend per Common Share = 0.21 Signup and view all the answers

What is the flow time for raw materials?

6.75 Signup and view all the answers

How many units were on rent last year according to CRU Computer Rentals?

8,000 Signup and view all the answers

What operating margin was reported for CRU Computer Rentals last year?

34,530 Signup and view all the answers

What is the total demand anticipated for CRU this year?

1,400 units/week Signup and view all the answers

What is the operating margin calculated for the potential situation without sales drive?

20,718 Signup and view all the answers

What is the demand in units per week for the customer?

1400 units/week Signup and view all the answers

What is the total number of units available?

16,967 Signup and view all the answers

What is the utilization percentage?

47% Signup and view all the answers

What is the contribution margin per week?

$97,618/week Signup and view all the answers

What is the operating margin per week?

-$11,145/week Signup and view all the answers

What is the minimum sale price Jean can charge per pizza to make a positive contribution margin?

€5 Signup and view all the answers

What is the definition of Flow Time?

The minimum time to fill a rush order. Signup and view all the answers

What is the effect of decreasing the work content of critical activities?

Increased efficiency Signup and view all the answers

What is the total process capacity?

Dependent on the bottleneck Signup and view all the answers

How many max orders can Pizza Pazza fill per hour in steady-state?

To be calculated based on throughput rates. Signup and view all the answers

What is the primary focus of the Theory of Constraints?

Increase capacity of bottlenecks. Signup and view all the answers

What is the total theoretical capacity for process A-B-C-E?

8 hr Signup and view all the answers

What is the total time for process A-D-E?

7 hr Signup and view all the answers

Which resource has the highest capacity utilization?

Stan Signup and view all the answers

What happens when Kenny is fired and Kyle takes over?

Bottleneck changes Signup and view all the answers

Ocean Spray is the most famous ______ cooperative.

cranberry Signup and view all the answers

What is the impact of technological changes in cranberry processing today?

Increased automation and computerized scanning using UV light and lasers. Signup and view all the answers

What is the primary functionality of agricultural cooperatives?

Farmers pool processing and marketing resources. Signup and view all the answers

What are levers for reducing flow time?

Work faster Signup and view all the answers

Kenny and Eric work in parallel to reduce average time for activity D.

True Signup and view all the answers

Match the following resources with their unit load:

Kyle = 2 hr/job Kenny = 2 hr/job Eric = 2 hr/job Stan = 3 hr/job Signup and view all the answers

Study Notes

Process Analysis & Improvement Overview

Operational measures include Time (T), Inventory (I), and Throughput rate (R).
Little’s Law connects these measures: Inventory (I) = Throughput (R) x Flow Time (T).
Firm and divisional examples: MBPF Inc. and CRU Computer Rentals focus on process efficiency.

Targeting Improvement

Improvement levers involve:
- Increasing price and throughput.
- Reducing costs and capital intensity.
- Enhancing quality and lowering inventory.
- Reducing time within processes to create economic value.

Importance of Time in Operations

Toyota's approach emphasizes minimizing non-value-added time from order to cash collection.
Fast-track systems are essential for large retailers like Wal-Mart facing sales constraints.

Operational Performance Measures

Flow Time (T): Average time a flow unit spends in the process.
Throughput rate (R): Average flow units processed per time unit.
Inventory (I): Average units present in the process boundaries at any given moment.
Process Cost: Average cost for moving a flow unit through the process.

Little’s Law Applications

Cash Flow example: Motorola’s cycle time from a 300Mequipmentsaleand300M equipment sale and 300Mequipmentsaleand45M accounts receivable.
Customer Flow example: Taco Bell processes 1,500 customers/day with an average of 75 in the restaurant.
Job Flow example: Travelers Insurance processes 10,000 claims annually with a 3-week average processing time.

MBPF Inc. Financial Insights

Current Assets Total: $87.7M, includes Cash, Receivables, and Inventories.
Net Property, Plant & Equipment: $49.2M, post-depreciation values.
Net Income Reported: 8.3M,withEarningsperShareat8.3M, with Earnings per Share at 8.3M,withEarningsperShareat0.83.

Inventory and Cost of Goods

Total inventory recorded at $50.6M split into raw materials, WIP, and finished goods.
Cost of Goods Sold totals $175.8M, comprising various material and labor costs.

Throughput and Flow Time Metrics

Detailed flow times for different stages:
- Raw Materials: Flow Time 6.75 weeks
- Fabrication: Flow Time 7.12 weeks
- Assembly: Flow Time 3.14 weeks.

CRU Computer Rentals Analysis

Flow chart outlines bottlenecks in receiving, shipping, and repairs impacting throughput.
Situation last year revealed total throughput of 1,000 units/week with an inventory total of 14,405 units.

Financial Performance of CRU

Revenue rate calculated at 240,000/weekagainstvariablecostsof240,000/week against variable costs of 240,000/weekagainstvariablecostsof113,130/week.
Contribution Margin of 126,870/weekleadingtoaweeklyOperatingMarginof126,870/week leading to a weekly Operating Margin of 126,870/weekleadingtoaweeklyOperatingMarginof34,530.

Marginal Analysis of CRU Routes

Cycle durations vary by route, with True Non-Defectives taking 12.64 weeks and False Non-Defectives 18.57 weeks.
Cost analysis per cycle indicates variable expenses and depreciation affecting profit margins.

Future Considerations for CRU

Potential demand drop to 600 units/week requires examination of inventory and flow time implications.
Emphasis on maintaining throughput rates while addressing inventory strategies for operational efficiency.### CRU Potential Situation Without Sales Drive
Demand remains at 600 units/week.
Current rental units: 4,800.
Total units in the system: 8,643.
Utilization rate stands at 56%.
Weekly revenue generated: 144,000(4,800rentalsat144,000 (4,800 rentals at 144,000(4,800rentalsat30 each).
Total weekly costs amount to $67,878, comprising various costs related to rentals and suppliers.
Contribution margin calculated at $76,122 weekly.
Weekly depreciation value: 55,404,leadingtoanoperatingmarginof55,404, leading to an operating margin of 55,404,leadingtoanoperatingmarginof20,718.

CRU Current Year Analysis with Increased Demand

Target demand increases to 1,400 units/week.
Rental units rise to 8,000; total system units increase to 16,967.
New utilization rate drops to 47%.
Revenue jumps to $256,000 weekly from additional units.
Weekly costs reach $158,382.
Contribution margin at 97,618butreflectsanoperatinglossof97,618 but reflects an operating loss of 97,618butreflectsanoperatinglossof11,145 weekly.

Pricing Analysis for 4-Week Segment

Analysis of 4-week segment shows losses of $31,863.
Pricing adjustments needed to break even calculated at approximately $44.96 per week.
Revenue adjustments linked to changes in pricing strategies for the four-week segment.

Process Architecture and Flow Analysis

Process defined as a network of activities, including input and output points.
Flow unit serves as the unit of analysis; resources assigned to specific tasks.
Importance of minimizing waiting times highlighted, illustrating inefficiencies in various industries.

Strategies for Reducing Flow Time

Recommended actions include decreasing work content in critical activities and moving work to non-critical paths.
Emphasis on the need for efficient work practices, reducing variability, and synchronizing flows to streamline process efficiency.

Capacity Management Principles

Maximum throughput represents system capacity when fully operational.
Suggestions on how to manage bottlenecks to optimize capacity and prevent idle times.
Critical assessment of resources, including potential for reallocating tasks to improve overall efficiency.

Product Mix and Pricing Decisions

Cheesepizza Pazza examines the profitability of two types of pizzas: thin crust and deep dish.
Unit margin for thin crust at €3.60 and deep dish at €5.40 identified for strategic promotion.
Consideration of batch order handling and potential ‘rush charges’ for expedited orders to maximize profitability.

Theoretical Flow Time and Capacity Studies

Theoretical flow time defined through analysis of average speeds and resource availability.
Critical path analysis for determining time requirements for completing processes.
Tips on improving process efficiency through strategic capacity investments and task reallocations.

Overall Process Improvement Initiatives

Stress on “Theory of Constraints” aimed at addressing bottlenecks without incurring additional costs.
Flexibility in resources highlighted as key for optimizing process performance and overall management.### Process Capacity and Utilization
Total time for activities A-B-C-E is 8 hours; for A-D-E it is 7 hours.
Resource unit loads:
- Kyle, Kenny, Timmy each require 2 hours per job.
- Stan requires 3 hours per job.
Resource capacities indicate that each worker processes 0.5 jobs per hour, except for Stan, who processes 0.33 jobs per hour (100% utilization).

Theoretical Capacity and Work Management

Theoretical capacity for the base case is 8 hours, equivalent to 1/3 job per hour for processing.
Strategies to improve capacity include:
- Reduce time for critical activities (e.g., activity B).
- Enable parallel work and adjust task assignments (e.g., Kenny leaves, Kyle takes over).

Reducing Flow Time

Key levers for reducing flow time:
- Minimize work content in bottleneck resources.
- Increase efficiency through smarter task execution.
- Shift tasks from critical to non-critical areas to enhance flexibility.

National Cranberry Cooperative Overview

Agricultural cooperatives enhance processing and marketing resources for farmers.
Ocean Spray is a notable cooperative with 750 growers, 2000 employees, and $1.9 billion in sales (2008).
Other significant cooperatives include Florida’s Natural, Land’o’Lakes, Sunkist, and Sun-Maid.

Key Process Flow of National Cranberry

Process includes receiving, weighing, color grading, and processing cranberries.
The processing capacity involves multiple stages with different throughput rates, critical to managing inventory effectively.

Inventory Management Insights

Inventory levels fluctuate based on processing rates and truck arrival times.
Trucks wait based on the operational capacity, affecting the overall throughput and efficiency of the processing.

Rough Investment Analysis

Analyzes impact of different operational changes on processing time and return on investment (ROI).
Starting at 7 AM significantly improves waiting time and overall value added.
Adding dryers improves capacity but with diminishing returns, revealing complexities in capacity investment.

Current Trends in Cranberry Processing

Cranberry products are gaining popularity as health foods driving global demand.
Prices are unstable due to supply-demand mismatches.
Technological advances have shifted from manual inspections to automated systems using UV and laser technology for quality control.

Learning Objectives

Emphasize the importance of managing flow time and capacity in multi-product environments.
Understand the impact of product mix on process capacity and the shifting nature of bottleneck resources.
Recognize the implications of diminishing returns when considering additional capacity investments.

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Description

This quiz covers the fundamentals of Process Analysis and Improvement, focusing on operational measures such as time, inventory, and throughput rate. Students will explore the links to financial measures and strategies for targeting improvements at both firm and divisional levels. Additionally, concepts of responsiveness versus capacity will be discussed.