OPERATIONS MANAGEMENT W6-1 Process Flow Analysis • Systems Thinking • The Process View of Business • Flow Chart Analysis • Materials Flow Analysis • Information Flow Analysis • Using Process Flow Analysis • Business Process Reengineering What is Process Flow Analysis? - The micro analysis of the transformation process steps from input to output. - The intention is to improve the methods or procedures in each step. - Measuring process flow characteristics is essential to improve processes – throughput time, flow rate, inventory, and capacity. Systems Thinking - A system is a collection of interrelated elements whose whole is greater than the sum of its parts. For example the human body is a system that depends on the heart, lung, brain, etc. Each part is interrelated and cannot function on its own. - A business organization also cannot function without marketing, operations, finance, accounting, human resources, and information systems. - Every operation can be viewed as a sub-system. - Each system is isolated from its environment by its system boundary, though somewhat arbitrary, should encompass all the interacting elements for the purpose of analysis. For example, installation of a new computer system to replace the existing one, may impact HR (training) and Operations (new transaction method). Each part of the organization affected by the new computer should be included within the system boundary. - A cross-functional team should be formed to analyze the impact and the interaction between functions. Society EXTERNAL ENVIRONMENT HR ENG MKT Operations Transformation Customers Suppliers System MIS ACC FIN INTERNAL ENVIRONMENT Competitors Government OPERATIONS MANAGEMENT W6-2 The Process view of business - A business is a collection of interconnected processes. The functional view is vertical while the process view is horizontal. - Each of these processes cuts across the usual functional departments of marketing, operations, finance, and so on. - Emphasizes the cross functional nature of business – each function must handover partly completed information or data to another. - Time and information can be lost and process becomes inefficient if the number of steps in the process is too large. - Process view encourages systems thinking, allows us to understand the interactions between functions and improve processes for better efficiency. Measuring Process Flows Little’s Law - The average number of items in a system is the product of the average arrival rate to the system and the average length of time that any item stays in the system. - I = T x R, where o I = Average number of things in the system (or inventory) o T = Average throughput time (or flow time) o R = Average flow rate into the process - Example 1: At Airport checkpoint, assuming a steady state where the average output rate equals to the average input rate to the process, o Security officers can check 5 persons average per minute, R = 5 o Takes an average of 20 minutes to clear security check line, T = 20 minutes o Average number of persons in line will be, I = R x T = 100 - Example 2: A factory, o Produces an average of 100 products per day, R = 100 o Throughput time, including processing and waiting, T = 10 days o Average WIP inventory, I = 10 x 100 = 1,000 products - Example 3: Money in accounts receivables, o $2 millions in accounts receivables, I = 2,000,000 o Average money received per day is $20,000, R = 20,000 o Throughput time is, T = I/R = 100 days, which means an account spends 100 days in accounts receivables before it is collected. OPERATIONS MANAGEMENT W6-3 Capacity - The maximum rate of output of a process or the maximum flow rate that can be sustained over a period of time. - In the Airport security example the maximum capacity can be 8 per minute, but only an average of 5 is used. During peak times the maximum capacity may be reached. - Process Capacity = minimum (capacity of resource1, …, capacity of resourcen) - Most processes have several resources to process transactions. So if there are only 2 persons to check each passenger (check identification, average = 5 and X-ray scan, average = 8), o Process Capacity = minimum (check ID 5, X-ray scan 8) = 5 - The check ID process is a bottleneck or constraint, and the capacity of the entire process cannot be larger than the bottleneck process. Flow Rate - Depends on the supply, demand and capacity o Flow rate = minimum (supply, demand, capacity) o If capacity = 200, demand = 75, supply = 100, Flow rate = 75 (this means you can only produce what you can sell) and Factory utilization = 75/200 = 37.5% o If demand = 150, with rest remaining same, Flow rate = 100 (limited by supply of 100 unless it can be increased) Examples applied to a pizza store with process steps and 2x staff as follows: Process Steps Time (minutes) Who Take the order 1 Assistant Make the crust 3 Chef Prepare and add ingredients 2 Chef Bake the pizza – 4 at a time 24 Oven Cut pizza and box the order 1 Assistant Take payment 1 Assistant Assuming each order is 1 pizza and pizza can be added to oven at any time. Calculating Capacity of the process: Capacity of assistant = 1 + 1 + 1 = 3 min/order = 20 orders/hour Capacity of chef = 3 + 2 = 5 min/order = 12 orders/hour Capacity of oven = 24/4 = 6 min/order = 10 orders/hour Capacity of the process = 10, constrained by the oven (bottleneck) The Throughput time = 1 + 3 + 2 + 24 + 1 + 1 = 32 minutes This is the time taken to complete all the steps and make one pizza. Adding an oven will improve the capacity of oven, bottleneck now is the chef, but will not improve the throughput time. The Flow rate = 10 orders/hour Assuming demand and supply exceed capacity If average demand is 60% of capacity, the cost to make a pizza: At 60% capacity = 6 pizza/hour Assume chef’s pay = $10/hour, assistant’s pay = $8/hour, and overhead = 50% of $18 Hourly cost = $27/hour or $27/6 = $4.50/pizza Ingredients = $2/pizza Total cost = $4.50 + 2 = $6.50/pizza OPERATIONS MANAGEMENT W6-4 How to reduce unit cost of pizza? Three possibilities: • Increase demand through pricing, advertising, etc. • Increase the flow rate of the process by automation or process improvements • Reduce the unit cost of labor, materials, or overhead. However, demand will require capacity , flow rate will require demand . Flow chart analysis Used to describe and improve the transformation process. Some or all of the following process elements may be changed to improve the effectiveness or efficiency of the process: - Raw materials - Product design - Job design - Processing steps - Management control information - Equipment or tools - Suppliers Analysis is dependent on systems thinking and selecting the right system boundary. Process Flow chart analysis uses following steps: 1. Select a relevant process or system 2. Form a cross functional team 3. Decide on objectives (e.g. improve efficiency, throughput, etc.) 4. Define the customers and suppliers for the system (internal or external) 5. Describe existing transformation process by flow chart and efficiency measurements. 6. Develop an improved process design and flow chart 7. Gain management approval for new design 8. Implement the design Process Mapping Flow mapping techniques can help to serve management goals such as: - Optimizing process throughput (e.g., across departmental boundaries) - Locating and eliminating process flaws - Increasing value touch points with customers - Redesigning processes (e.g., for cost reduction) or introducing new processes (e.g., for new revenue streams) In the swim lane chart, graphical process elements are organized according to the department responsible for the specific part of the process. The chart then reads from left to right. One good use of swim lane charts is in reengineering and trying to analyze processes as to whether large efficiencies can be gained by eliminating process handoffs, consolidating roles, making greater use of technology, and in general, rethinking the value delivered across the entire flow. OPERATIONS MANAGEMENT W6-5 Request for and Issuance of Airline Ticket (Current Process) A Simplified Flow (Part 1): Request for an Airline Ticket OPERATIONS MANAGEMENT W6-6 A Simplified Flow (Part 2): Issuance of an Airline Ticket Materials Flow Analysis The manufacturing process is divided into detailed elements and each element is studied in detail to understand the interrelationships for the purpose of efficiency improvement. Uses of materials flow analysis - Reducing manufacturing throughput time – cycle time – by reducing or eliminated unimportant tasks - Identify waste - any operation that does not add value during the production process – only operations task add value. - Describe the flow of material in detail using symbols in a flow-process chart. - Tool for improving the flow of materials, layout, combine or simplify operations and work methods. OPERATIONS MANAGEMENT W6-7 Example of order entry at a grocery store, using a flow process chart: In above example: - Groceries spend most time waiting or in transit which is non-value added. This time is a candidate for reduction or elimination. - The total throughput time is 526 minutes, and only 57 minutes are valuable (10.8%) A key to analyzing these charts is to ask the following: - What? o What does the customer need? o What operations are really necessary? Can some operations be eliminated, combined, or simplified? o What should be redesigned to facilitate production? - Who? o Who performs each operation? o Can the operation be redesigned to use less skill or fewer hours? Combined to enrich jobs? o Who are the suppliers? Should different suppliers be used? Outsource? - Where? o Where is each operation conducted? Can layout be improved to reduce distance traveled or more accessible? - When? o When is each operation performed? o Is there excessive delay or storage? Are there bottlenecks? o Can waiting time be reduced? OPERATIONS MANAGEMENT W6-8 - How? o How is the operation done? Can better methods, procedures, or equipment be used? o Should the operation be revised to make it easier or save time? Changes made after the analysis for the grocery store example: - Layout o Layout changed to reduce transit time and aisles were removed - Methods & jobs o Methods of picking groceries were revised to reduce bottlenecks and labor - Equipment o Special carts were used to make loading/unloading easier. Overhead conveyor used to speed up flow of materials. Information Flow Analysis - Information flows are analyzed in a manner similar to materials flow. - The intent is the same: to improve the efficiency and effectiveness of the process. - 2 types of processing: o Information is the product – e.g. in banks or offices where data is processed, which is essentially a service. o Information is used for control of materials – e.g. order entry, purchasing documents, and paperwork used in manufacturing. o It is necessary to reduce waste in information processing, in addition to improving materials flow as well, to realize overall savings in efficiency. In the grocery store example, 3 types of information are used to control the flow: - Route maps – tells driver which route to follow to deliver the groceries. Computer generated. - Driver’s manifests – a listing of groceries by customer. - Pick sheets – a listing by aisles to facilitate picking After the flow chart is completed, the analysis is done by asking what, who, where, when, and how the information is used. - It also will include recording time and information flow volumes. - The analysis should allow consolidation or simplification of information flows. This can result in changes to equipment, jobs, and procedures. - The number of copies of documents can be eliminated thru electronic databases. - Such analysis is usually done by the systems analysts in IT departments. Keys used: OPERATIONS MANAGEMENT W6-9 Information flow in the grocery store: Business Process Reengineering (BPR) BPR is just one of the many tools that can be used to improve operations. - It provides a process view of the organization and a way of improving critical processes to better serve the customer. - Processes are analyzed in detail across organizational boundaries, using process mapping. - BPR assumes radical redesign of business processes. Most cannot be improved in small steps, but need complete redesign for higher performance. This is different from TQM, which encourages incremental improvement. BPR was introduced by Hammer and Champy (1993). They argue that: - Business processes are antiquated and need redesign. - Many existing processes are isolated by functions or departments, and do not make use of information technology. - Processes take too long to provide customer service and are inefficient or wasteful. The 4 principles of BPR: - Organize around outcomes, not tasks. OPERATIONS MANAGEMENT W6-10 o By organizing around outcomes, customer service, dramatic improvements can be made, rather that trying to improve tasks within departments. By having multi-skilled staffs, jobs can be broadened and handoffs between departments minimized. - Have the people who do the work process their own information. o Everyone processes information from a central database. There is no need for individuals holding information in one department only and generate unnecessary information to be passed on to another. - Put the decision point where the work is performed, and build control into the process. o Better to push decision making to the lowest level possible, to eliminate bureaucracy and speed up the decision making process. o Check and balance controls must be built in the process itself. - Eliminate unnecessary steps in the process. o Streamline the process so that unnecessary steps and paperwork are eliminated. o Only those that add value for the customer are retained. Problems associated with BPR - Lack of top management support, narrow implementation effort, assignment of wrong people to the project, and lack of changes in incentive systems, are some of the reasons. - Not many want to accept a radical change when it upsets their status quo. - BPR’s association with downsizing. Probably, this is because BPR exposes businesses that have grown too large and inefficient.
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