Process Analysis & Improvement PDF

Module 2 Process Analysis Process Analysis & Improvement Slide 1 © Shamir  Process Analysis and Improvement Module  Operational Measures: Time T, Inventory I, Throughput rate R  Link t...

Module 2 Process Analysis Process Analysis & Improvement Slide 1 © Shamir  Process Analysis and Improvement Module  Operational Measures: Time T, Inventory I, Throughput rate R  Link through Little’s Law  Link to Financial Measures  Targeting Improvement  Firm & Divisional Level: MBPF Inc.  Mkt-Ops: CRU Computer Rentals  Responsiveness vs. Capacity – Flow Time vs. Bottleneck Analysis Pizza Pazza Company Levers for Improvement – Multi-product Capacity Management and Investment Joint Marketing & Production Decisions Optimal Capacity Investment Process Analysis & Improvement Slide 2 © Shamir  How to target improvement? Identify/Monitor Operational Performance Measures  Flow time T On average, how much time does a typical flow unit spend within the process boundaries?  Throughput rate R On average, how many flow units pass through the process per unit of time?  Inventory I On average, how many flow units are within the process boundaries at any point in time?  Process Cost The average cost incurred in moving a flow unit through the process Process Analysis & Improvement Slide 3 © Shamir  The business imperative: creating economic value Improvement levers Price 1. Increase price Revenues x 2. Increase throughput Quantity Profit - Material + Labor Costs + 3. Reduce costs Economic Energy 4. Improve quality value added - + (EVA) Overhead PP&E Capital + 5. Reduce capital intensity Inventory invested 6. Reduce inventory + Opportunity x Other cost Weighted average Reduce time cost of capital Financial metrics Operational metrics Process Analysis & Improvement Slide 4 © Shamir  The Importance of Time What is Toyota doing now? “All we are doing is looking at the time line from the moment the customer gives us an order to the point when we collect the cash. And we are reducing that time line by removing the non-value- added wastes.” -- Taiichi Ohno. Toyota Production System: Beyond Large-Scale Production. As Wal-Mart Stores Inc. grapples with damped sales growth and rising costs, the world’s largest retailer may find some relief by establishing a fast track through its warehouses. -- “Wal-Mart's Need for Speed,” WSJ Sept 26, 2005. Process Analysis & Improvement Slide 5 © Shamir  Relating operational measures (flow time T, throughput R & inventory I) with Little’s Law Flow rate/Throughput R Inventory I [units/hr]......... [units]...... Flow Time T [hrs] Inventory = Throughput x Flow Time I = RxT Inventory Turnover = Throughput / Inventory = 1/ T Process Analysis & Improvement Slide 6 © Shamir  Little’s Law applied to different process flow examples Cash Flow: Motorola sells $300 million worth of cellular equipment per year. The average accounts receivable in the cellular group is $45 million. What is the average billing to collection process cycle time? Customer Flow: Taco Bell processes on average 1,500 customers per day (15 hours). On average there are 75 customers in the restaurant (waiting to place the order, waiting for the order to arrive, eating etc.). How long does an average customer spend at Taco Bell and what is the average customer turnover? Job Flow: The Travelers Insurance Company processes 10,000 claims per year. The average processing time is 3 weeks. Assuming 50 weeks in a year, what is the average number of claims “in process”. Question: A general manager at Baxter states that her inventory turns three times a year. She also states that everything that Baxter buys gets processed and leaves the docks within six weeks. Are these statements consistent? Process Analysis & Improvement Slide 7 © Shamir  MBPF Inc.: Balance Sheet CURRENT ASSETS Cash 2.1 Short-term investments at cost (approximate mkt.) 3.0 Receivables, less allowances of $0.7 mil 27.9 Inventories 50.6 Other current assets 4.1 TOTAL CURRENT ASSETS 87.7 PROPERTY, PLANT AND EQUIPMENT (at cost) Land 2.1 Buildings 15.3 Machinery and equipment 50.1 Construction in progress 6.7 Subtotal 74.2 Less accumulated depreciation 25.0 NET PROPERTY, PLANT AND EQUIPMENT 49.2 Investments 4.1 Prepaid expenses and other deferred charges 1.9 Other assets 4.0 TOTAL ASSETS 146.9 (Selected) CURRENT LIABILITIES Payables 11.9 Process Analysis & Improvement Slide 8 © Shamir  MBPF Inc.: Consolidated Statement Net Sales 250.0 Costs and expenses Cost of Goods Sold 175.8 Selling, general and administrative expenses 47.2 Interest expense 4.0 Depreciation 5.6 Other (income) expenses 2.1 TOTAL COSTS AND EXPENSES 234.7 INCOME BEFORE INCOME TAXES 15.3 PROVISION FOR INCOME TAXES 7.0 NET INCOME 8.3 RETAINED EARNINGS, BEGINNING OF YEAR 31.0 LESS CASH DIVIDENDS DECLARED 2.1 RETAINED EARNINGS AT END OF YEAR 37.2 NET INCOME PER COMMON SHARE 0.83 DIVIDEND PER COMMON SHARE 0.21 Process Analysis & Improvement Slide 9 © Shamir  MBPF Inc.: Inventory and Cost of Goods INVENTORY Raw materials (roof) 6.5 Fabrication WIP (roof) 15.1 Purchased parts (base) 8.6 Assembly WIP 10.6 Finished goods 9.8 TOTAL 50.6 COST OF GOODS SOLD Raw materials 50.1 Fabrication (L&OH) 60.2 Purchased parts 40.2 Assembly(L&OH) 25.3 TOTAL 175.8 Process Analysis & Improvement Slide 10 © Shamir  MBPF Inc.: Detailed Financial Flows $60.2/yr $25.3/yr $50.1/yr $110.3/yr $6.5 $15.1 Raw Materials Fabrication (roofs) (roofs) $175.8/yr $175.8/yr $10.6 $9.8 $40.2/yr Assembly Finished Goods $8.6 $40.2/yr Purchased Parts (bases) Process Analysis & Improvement Slide 11 © Shamir  MBPF Inc.: Detailed Flow Times Raw Fabrication Purchased Assembly Finished Materials Parts Goods Throughput R $/Year 50.1 110.3 40.2 175.8 175.8 $/Week 0.96 2.12 0.77 3.38 3.38 Inventory I ($) 6.5 15.1 8.6 10.6 9.8 Flow Time T = 6.75 7.12 11.12 3.14 2.90 I/R (weeks) Process Analysis & Improvement Slide 12 © Shamir  Other representations of R, T and I Flow rate R ($/week) 5.0 3.38 Accounts Receivable Assembly 2.12 Finished Goods 0.96 Fabrication Raw Materials 0.77 Purchased Parts 11.12 6.75 7.12 3.14 2.90 5.80 Flow Time T (weeks) Process Analysis & Improvement Slide 13 © Shamir  Case: CRU Computer Rentals Linking Financial and Operational Flows & Targeting Areas for Improvement Process Analysis & Improvement Slide 14 © Shamir  CRU Computer Rentals: Flow Chart Status 40 30% Ship Receiving Repairs 70% Status 24 15% Parts places order Customer Pre-Config Status 41 Receives from Supplier Status 32 Ship Config Repairs Status 20 Status 42 Process Analysis & Improvement Slide 15 © Shamir  CRU Computer Rentals: Revenue and Cost Drivers Status 40 30% Ship Receiving Repairs R3 = 70% 300/wk R = 1000/wk Status 24 15% Parts R2 = 105/wk places order Customer Status 41 Ic Pre-Config Receives from Supplier R1 = 595/wk Status 32 Ship Config Repairs Status 20 Status 42 Process Analysis & Improvement Slide 16 © Shamir  CRU Situation last year: Customer term = 8 wks, Demand = 1000 units/wk Customer Receiving Status 24 Status 40 Status 41 Status 42 Status 20 Parts Suppliers Total Throughp 1,000 1,000 700 300 + 105 405 405 405 405 1,000 ut = 405 (units/wee k) Inventory 500 1,500 1,000 500 500 (units) Flow 8 1 2 Time (weeks) Process Analysis & Improvement Slide 17 © Shamir  CRU Situation last year: Customer term = 8 wks, Demand = 1000 units/wk Customer Receiving Status 24 Status 40 Status 41 Status 42 Status 20 Parts Suppliers Total Throughp 1,000 1,000 700 300 + 405 405 405 405 1,000 ut 105 = (units/week 405 ) Inventory 8,000 500 1,500 1,000 500 405 500+405 500 2,000 (units) = 905 Total = 14,405 Flow Time 8 0.5 2.14 2.47 1.23 1 1.23+1 1.23 2 (weeks) = 2.23 Process Analysis & Improvement Slide 18 © Shamir  CRU Situation last year: Financial Performance: per week  Number of units on rent = 8,000  Total number of units = 14,405  Utilization = 0.56 (56%)  Revenue rate = 8,000 x $30 = $240,000/wk  Variable Cost rate = $25 x 1,000 (receive) + $25 x 1,000 (ship) + $4 x 595 (preconfig) + $150 x 405 (repair) = $113,130/wk  Contribution Margin = $126,870/wk  Depreciation = 14,405 x ($1000/156wks) = $92,340/wk  Operating Margin = $34,530/wk Process Analysis & Improvement Slide 19 © Shamir  CRU Situation last year: Financial Performance: per route & per computer R1: True Non- R2: False Non- R3: Defectives Defectives Defectives Duration of a 8 + 0.5 + 2.14 + 2 8 + 0.5 + 2.14 + 2 8 + 0.5 + 2 + 2.47 cycle (weeks) = 12.64 + 2.47 + 2.23 + + 2.23 + 1.23 = 1.23 = 18.57 16.43 Cost per cycle ($) 25 + 25 + 4 = 54 25 + 25 + 150 = 25 + 25 + 150 = 200 200 Depreciation per 12.64 weeks × 18.57 weeks × 16.43 weeks × cycle ($) $6.41/week = $81 $6.41/week = $6.41/week = $119 $105 Margin per cycle 240 – 54 – 81 240 – 200 – 119 240 – 200 – 105 ($) = 105 = -79 = -65 Margin per week 105/12.64 = 8.31 -79/18.57 = - 4.25 -65/16.43 = - 3.96 ($/wk) Process Analysis & Improvement Slide 20 © Shamir  CRU Potential situation this year: without sales drive, Demand = 600 units/wk  R : what about I and T?  Assume T remains as before: what about I? Customer Receiving Status 24 Status 40 Status 41 Status 42 Status 20 Parts Suppliers Total Throughput 600 600 420 180 + 63 243 243 243 243 600 (units/week) = 243 Inventory 4,800 300 900 600 300 243 300+243 300 1,200 (units) = 543 Total = 8,643 Flow Time 8 0.5 2.14 2.47 1.23 1 1.23+1 1.23 2 (weeks) = 2.23 Process Analysis & Improvement Slide 21 © Shamir  CRU Potential situation this year: without sales drive, Demand = 600 units/wk  Number of units on rent = 4,800  Total number of units = 8,643  Utilization = 0.56 (56%)  Revenue = 4,800 x 30 = $144,000/wk  Cost = $25 x 600 (R) + $25 x 600 (S) + $4x(420-63) + $150 x 243 = $67,878/wk  Contribution Margin = $76,122/wk  Depreciation = 8,643 x (1000/156) = $55,404/wk  Operating Margin = $20,718/wk = 60% of 1996 OpMargin Process Analysis & Improvement Slide 22 © Shamir  CRU Situation this year: Target short term market. Total demand = 1400units/wk u What about I?  At the customer: I4wk = , I8wk = , Tmarket =  In the process: Assume T remains as before: Customer Receiving Status 24 Status 40 Status 41 Status 42 Status 20 Parts Suppliers Total Throughput 1,400 1,400 980 420 + 567 567 567 567 1,400 (units/week) 147 = 567 Inventory 8,000 700 2,100 1,400 700 567 700+567 700 2,800 (units) = 1,267 Total = 16,967 Flow Time 5.7 0.5 2.14 2.47 1.23 1 1.23+1 1.23 2 (weeks) = 2.23 Process Analysis & Improvement Slide 23 © Shamir  CRU Situation this year: flow times unchanged, Demand = 1400 units/wk  Number of units on rent = 8,000  Total number of units = 16,967  Utilization = 0.47 (47%)  Revenue = 4,800 x 30 + 3,200 x 35 = $256,000/wk  Cost = 25 x 1,400 (R) + 25 x 1,400 (S) + 4 x 980x.85 + 150 x 567 = $158,382/wk  Contribution Margin = $97,618/wk  Depreciation = 16,967 x (1000/156) = $108,763/wk  Operating Margin = - $11,145/wk Process Analysis & Improvement Slide 24 © Shamir  Analysis of 4 week segment  Total product portfolio: - $11,145/wk  8 wk segment alone: $20,718/wk  4wk segment = - $11,145/wk - $20,718/wk = - $31,863/wk  (Inelastic) Pricing of the 4 wk segment: – Revenue rate = (p4wk – 35) x 3,200 – Cost rate = 0 – At p4wk = $40/wk, p = 5 x 3,200 = 16K/wk  p = - $11,145/wk + $16,000/wk = $4,855/wk – Break even to make 4wk profitable:  p = (p4wk – 35) x 3,200 = $31,863/wk  p4wk = (31,863 + 35x3,200) /3,200 = $44.96/wk Process Analysis & Improvement Slide 25 © Shamir  Process Analysis and Improvement Module  Changing Sources of Competitive Advantage  Operational Measures: Time T, Inventory I, Throughput rate R  Link through Little’s Law  Link to Financial Measures  Targeting Improvement  Firm & Divisional Level: MBPF Inc.  Mkt-Ops: CRU Computer Rentals  Responsiveness vs. Capacity – Flow Time vs. Bottleneck Analysis Pizza Pazza Company Levers for Improvement – Multi-product Capacity Management and Investment Joint Marketing & Production Decisions Optimal Capacity Investment National Cranberry Cooperative Process Analysis & Improvement Slide 26 © Shamir  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 – Buffers with waiting flow times – routes: precedence relationships (solid lines) with throughputs 4. Resources & Allocation - who does what? Key for Capacity Analysis 5. Information Structure & flow (dashed lines) Process Analysis & Improvement Slide 27 © Shamir  Pizza Pazza: Flow Chart if job order = 2 identical pizzas start Take Order Sauce Prep Dough Prep Spread Activity time: 2 3 12 = 2 Resource: Jean Jean Jean, Pan Unload & Load & Set end Bill Bake Pack cool timer Activity time: 2 1 2 = 2 3 15 1 Resource: Jaqueline Jaqueline, Pan Pan Oven, Pan Jaqueline, Oven, Pan Process Analysis & Improvement Slide 28 © Shamir  Pizza Pazza: Flow Time 1. Flow Time:  What is the minimum time to fill a rush order, assuming that all steps of the process are started only after the order is received?  Without spending money, how would you reduce this response time? Process Analysis & Improvement Slide 29 © Shamir  Most time inefficiency comes from waiting: E.g.: Flow Times in White Collar Processes Industry Process Average Flow Theoretical Flow Time Time Flow Time Efficiency Life Insurance New Policy 72 hrs. 7 min. 0.16% Application Consumer New Graphic 18 days 2 hrs. 0.14% Packaging Design Commercial Consumer Loan 24 hrs. 34 min. 2.36% Bank Hospital Patient Billing 10 days 3 hrs. 3.75% Automobile Financial 11 days 5 hrs 5.60% Manufacture Closing Process Analysis & Improvement Slide 30 © Shamir  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. Process Analysis & Improvement Slide 31 © Shamir  Pizza Pazza: Throughput/Capacity 2. Maximal throughput = capacity:  What is the maximum number of orders that PP can fill per hour in steady state? Process Analysis & Improvement Slide 32 © Shamir  A Recipe for Capacity Measurements Resource Unit Load Resource Capacity Process Resource (time/job) Capacity Utilization * Unit Capacity # of Total units * assuming system is processing at full capacity Process Analysis & Improvement Slide 33 © Shamir  How increase capacity? Summary of Typical Actions  Key action = optimize only bottleneck management  Decrease the work content of bottleneck activities – Never unnecessarily idle (“starve”) bottlenecks = eliminate bottleneck waits:  Reduce variability if it leads to bottleneck waiting  Synchronize flows to and from the bottleneck: sync when resources start an activity – work smarter:  Reduce & externalize setups/changeover times, streamline + eliminate non-value added work – do it right the first time: eliminate rework/corrections – work faster  Move work content from bottlenecks to non-bottlenecks – create flexibility to offload tasks originally assigned to bottleneck to non-critical resource or to third party  Can we offload tasks to cross-trained staff members?  Increase Net Availability of Process – work longer: increase scheduled availability – increase scale of process: invest in more human and capital resources – eliminate unscheduled downtimes/breakdowns  Preventive maintenance, backups, etc. Process Analysis & Improvement Slide 35 © Shamir  Operational Measure: Flow Time How to quote a due-date at Pizza Pazza 3. Assume that there is one order waiting to be processed, Jean is just about to start mixing the sauce for a second order and Jacqueline is just about to start loading the two pizza pans of a third order into the oven. A customer calls in with a new order for two pizzas and wants to know when she can pick up her order. What due-date time should Jean promise assuming that they process all orders in the sequence received? Process Analysis & Improvement Slide 36 © Shamir  Pizza Pazza: Flow Rate/Capacity Analysis if job order = 2 identical pizzas * What is the maximum number of orders that PP can fill per hour in steady state? 4. If Jacqueline calls in sick one day, what is the maximum number of orders that PP can fill? 5. What is the minimum number of pizza pans needed to ensure that no order has to wait for a pan? Process Analysis & Improvement Slide 37 © Shamir Pizza Pazza: Financial Flows & Pricing price: €5/pizza material cost: €1.4/pizza if job order = 2 identical pizzas 6. Assume Jean and Jacqueline decide to hire two employees to perform their respective tasks; each paid €8 per hour. What is the contribution margin (revenue - variable costs) generated per hour of operation of the process if pizzas sell for €5 each? – Throughput R = … pizzas/hr – Revenue rate if sale price is €5 = – Resource cost rate per hour = – Material cost rate per hour = – Contribution margin rate = 7. What is the minimum amount that Jean can charge per pizza, and still make a positive contribution margin? – Minimum sale price = Process Analysis & Improvement Slide 38 © Shamir Pizza Pazza: Capacity Investment price: €5/pizza material cost: €1.4/pizza if job order = 2 identical pizzas 8. The pizzas have become wildly popular and Jean feels that they can easily sell thirty pizzas per hour. To increase capacity, he is thinking of renting additional industrial ovens, which would cost €10 for each hour that an oven is used. Should Jean rent more ovens, assuming the rest of the process is kept as is? How many? What would be the contribution margin from each hour of operation of the process (assume the employees do all the work)? Rent second oven Rent third oven Bottleneck Additional throughput Additional revenue Additional costs Additional profit ROI Process Analysis & Improvement Slide 39 © Shamir Pizza Pazza: Capacity Investment price: €5/pizza material cost: €1.4/pizza if job order = 2 identical pizzas 9. Can Jean do better, relative to question 8 above, by restructuring the process? For example, can he increase profits by reallocating tasks between the employees? (Assume all orders are for two pizzas.) Rent third oven after process change = Bottleneck Additional throughput Additional revenue Additional costs Additional profit ROI Process Analysis & Improvement Slide 40 © Shamir  Pizza Pazza: Other factors affecting Process Capacity  Batch (Order) Sizes: – Over time, Pizza Pazza has also started to accept orders for one pizza. In effect, half of all orders are for only one pizza and those have been pushed through the system as “emergency orders” resulting in only one pizza in the oven. Should Jean consider a “rush charge” for such orders? – Realizing the importance of batch economies, should Jean offer a discount to encourage all orders to be for three pizzas? If so, how much? Process Analysis & Improvement Slide 41 © Shamir  Product Mix Decisions: Pizza Pazza offers 2 pizza types Sale Price of thin crust: €5 Cost of Direct Materials: €1.40 Sale Price of deep dish: €7.50 Cost of Direct Materials: €2.10 Which of these two products should Jean push to customers that call in and are undecided? Process Analysis & Improvement Slide 42 © Shamir  Product Mix Decisions Unit margin of thin crust pizza = €3.60 Unit margin of deep dish pizza = €5.40 Margin rate from thin crust = €3.60 * 7.5/hr = € 27/hr Margin rate from deep dish = €5.40 * 4/hr = € 21.60/hr Process Analysis & Improvement Slide 43 © Shamir  “Theory of Constraints”: 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 Process Analysis & Improvement Slide 44 © Shamir  A simple process D 3 hr/job A Stan E Activity time: 2 hr/job 2 hr/job B C Timmy Resource: 2 hr/job 2 hr/job Kyle Kenny Eric How long will it take? How much work can we do? / What is the capacity of the process? Process Analysis & Improvement Slide 45 © Shamir  How long: Theoretical flow time TFT: Time to complete the process assuming: 1. All activities are done at their average speed. 2. All resources are immediately available when needed. Look at paths through the process: – Here: A-B-C-E & A-D-E Longest path (critical path) determines the theoretical flow time. – A-B-C-E = 2+2+2+2= 8 hr – A-D-E = 2 + 3 + 2 = 7 hr D 3 hr/job A Stan E Activity 2 hr/job B C time: Timmy 2 hr/job 2 hr/job 2 hr/job Kyle Kenny Eric Process Analysis & Improvement Slide 46 © Shamir  How much work: Theoretical capacity Resource Unit Load Resource Capacity Process Resource (time/job) Unit Capacity # of units Total Capacity Utilization* Kyle 2 hr/job 1/2 jobs/hr 1 1/2 66.67% jobs/hr Kenny 2 1/2 jobs/hr 1 1/2 66.67% jobs/hr Eric 2 1/2 jobs/hr 1 1/2 1/3 66.67% jobs/hr jobs/hr Timmy 2 1/2 jobs/hr 1 1/2 66.67% jobs/hr Stan 3 1/3 jobs/hr 1 1/3 100% jobs/hr D 3 hr/job A Stan E Activity 2 hr/job B C time: Timmy 2 hr/job 2 hr/job 2 hr/job Kyle Kenny Eric * assuming system is processing at full capacity Process Analysis & Improvement Slide 47 © Shamir  Process Changes: Impact on capacity and flow time Process Change Concept TFT Capacity 1/3 job per None Base case 8 hr hr Reduce the average time for activity B by Work faster 0.5 hours Work Kenny and Eric work in parallel smarter Reduce the average time for activity Work faster D(Stan) by 1 hr Work Move 0.5 hr work from Stan to Timmy smarter Kenny is fired and Kyle takes over Process Analysis & Improvement Slide 48 © Shamir  Levers for Reducing Levers for Increasing Flow Time Process Capacity Decrease the work content of bottleneck resources Decrease the work content of – work smarter critical activities – work faster – work faster – do it right the first time – work smarter – change product mix – do it right the first time – change product mix Move work content from bottlenecks to non-bottlenecks Move work content from critical to – create flexibility to handle tasks non-critical activities originally assigned to bottleneck – to non-critical path or to “outer loop” – to non-critical resource or to third party Increase Net Availability – work longer: increase scheduled Reduce waiting time availability – increase scale (invest) – increase size of load batches/reduce or eliminate setups & changeovers – eliminate availability waste Process Analysis & Improvement Slide 50 © Shamir  National Cranberry Cooperative Process Analysis & Improvement Slide 51 © Shamir  Agricultural Cooperatives and Cranberries  Agricultural cooperatives: farmers pool processing and marketing resources  Ocean Spray is the most famous cranberry cooperative – 750 member growers – 2000 employees – $1.9 billion in sales (2008) – Sells a wide variety of popular processed cranberry products and fresh cranberries  Some other famous cooperatives; – Florida’s Natural (citrus) – Land’o’Lakes (dairy) – Sunkist (citrus) – Sun-Maid (raisins) Process Analysis & Improvement Slide 52 © Shamir  National Cranberry Cooperative Key Process Flow Chart Receiving Processing Weigh x bbls/hr Truck Color Grade 2 Samples arrivals Truck Queue 4500bbls/hr 4500bbls/hr 600bbls/hr 1200bbls/hr 3@1500bbls/hr 3@ 1500bb ls/h r 3@200/hr 3@400bbls/hr 4000bbls Dry 16@ 250bb ls 30% Bin Destoning 1-16 2000bbls Kiwanee 8@ 250b bls Dumpers Bin Dechaffing Jumbo 17-24 Separator 1200bbls 70% Bin 3@ 4 00bbls Drying 3000 bbls/ hr = 5 dum pe rs Wet 25-27 a verage 75 bb ls/truck 7.5 m in /truck,d u m per (= 600 bbls/h r,dum per) Process Analysis & Improvement Slide 53 © Shamir  Inventory [bbls] 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 Time [hrs] 0 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 01 02 03 04 05 06 07 08 Ri Ro R I I 0 Process Analysis & Improvement Slide 54 © Shamir  Inventory [bbls] # Trucks waiting 10000 9000 8000 4600/75 = 61 1/3 7000 540 Truck hours 6000 2200/75 = 29 1/3 5000 1000/75 = 13 1/3 4000 125 Truck hours 3000 2000 1000 Time [hrs] 0 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 01 02 03 04 05 06 07 08 Ri 1050/hr 1050/hr 0/hr Ro 0/hr 600 800 600/hr 800 600/hr 800 R 1050/hr 450 250 450/hr 250 -600/hr -800 I 4200 1800 1000 3600 2000 -7800 = 13hrs -5400 = 9hrs -3000 = 3 ¾ hr I 0 4200 1800 1000 7800 5400 3000 Process Analysis & Improvement Slide 55 © Shamir  National Cranberry: Rough Investment Analysis Processing Value Added Waiting Time Value added Total Marginal Investment Action Time(hrs) ($/yr) (Thrs) ($/yr) Value ($/yr) Cost ($) ROI 0. Do nothing 21 0 540 0 0 0 (540- 125)Thrs/day *$100/hr *20days/yr = 1. Start@7:00AM 21 0 125 830K 830K 0 HIGH (21-15.75) hrs/day *20persons (125-0)Thrs/day *20days/yr *$100/hr *$15.75/person *20days/yr 2. +1 dryer 15.75 =33.1K 0 =250K 283.1K 60K 283.1/60 = 472% (15.75-15)hrs/day *20people *20days 3. +2 dryer 15 * $15.75 = 4.7K 0 0 4.7K 60K 4.7/60 = 8% 4. 1 bin +1dryer NO CHANGE 0 0 0 0 10K 0% 7hrs *(250bbls/75) *$100/hr 5. 1 bin , ONLY WAITING *20days/yr = No dryer NO CHANGE 0 TIME CHANGE 46.7K 46.7K 10K 46.7/10=467% Process Analysis & Improvement Slide 56 © Shamir  Cranberry Processing Today  Increased popularity as a health food  Price is all over the place (bad supply-demand matching problems)  Growth in global demand  95% are wet harvested  Technological changes: – Case: bouncing berries and visual inspection, many employees – Today: computerized scanning equipment using UV light and lasers, more automation Process Analysis & Improvement Slide 57 © Shamir  Learning Objectives: Multi-Product Process Analysis & Apps  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  Process capacity depends on a zillion things – 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 Process Analysis & Improvement Slide 58 © Shamir