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Process and Layout Choices

References:Ballou, Business Logistics Management, 4th Ed., Prentice-Hall, 1999.Anupindi, Chopra, Deshmukh, Van Mieghem, Zemel, Managing Business Process Flows, Prentice-Hall,1999.

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Process View of Organization

Input Goods Services

Value added

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Process Architecture/Structure

1.Inputs and outputs2.Flow units3.Network of activities and buffers4.Resources (capital and labour)5.Information structure

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Table 1.1 (ACDVZ, p. 5)Table 1.1 Some Generic Business Processes

Process Flow Unit Input-output Transformation

Order fulfillment Orders From the receipt of an order to the delivery of the product

Production Products From the receipt of materials to the completion of the finished product

Outbound logistics Products From the end of production to the delivery of the product to the customer

Supply cycle Supplies From issuing of a purchase order to the receipt of the supplies

Customer service

New product development

Customers

Projects

From the arrival of a customer to the departure

From the recognition of a need to the launching of a product

Cash cycle Cash From the expenditure of funds (costs) to the collection of revenues

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A Business Process is a network of activities performed by resources that transforms inputs into outputs.Process Flow Management is a set of managerial policies specifying how a process should be operated over time.

Design of processesHow and when to operateResources allocated

Goal: Improve performance

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Product AttributesCost

Total costs (purchase and maintenance) incurred by customer to own and experience the product

Delivery response timeTotal time a customer waits before receiving the productDepends on availability and accessibility

Product varietyRange of choice to meet needs of customer

QualityWhat functions and how well product performsDepends on product design and conformance to standards

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Product SpaceA product is a bundle of these four A product is a bundle of these four attributes.attributes.

A point in the 4-dimensional product space.A point in the 4-dimensional product space.

Customers make trade-off between different Customers make trade-off between different product choices, according to her utility.product choices, according to her utility.

Company must select the right combination Company must select the right combination of attributes for product range to appeal to of attributes for product range to appeal to target market segment.target market segment.

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Goods vs. Services ?Services are experiential, requiring close interaction between service providers, and participation by the customerServices cannot be produced in advance and stored as inventoryService quality difficult to measure

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Process AttributesProcess Cost

Total costs incurred in producing and delivering outputs

Process Flow TimeTotal time needed for transforming one unit of input into output

Process FlexibilityAbility of the process to produce and deliver desired product variety

Process QualityIncludes process accuracy, conformance to design specifications, reliability and maintainability

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Flow-Time AnalysisFlow time is the total amount of time a flow unit spends in a process, and includes:

Theoretical flow time – minimal time required for processing if no waiting occurs, Waiting time – time spent waiting to be processed.

Flow-time efficiency = . theoretical flow time . average total flow time

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Flow-time as performance measure

Flow time affects response timeShort flow time leads to lower inventory

Little’s lawWIP earns no revenue, incurs costs

Short flow time in product design and development => early market introduction => first-mover advantageShort manufacturing flow time => can delay production until better demand forecastShort flow time requires better quality control

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Process Flow ChartA graphical representation of all the elements that make up a process

Decisions Information flowActivities ResourcesBuffersTransportDelayEvents

Value-added and non-value added Value-added and non-value added activitiesactivitiesSub-processes and cascadingSub-processes and cascading

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Theoretical Flow TimeActivity timeActivity time is the time required by a typical flow unit to complete the activity onceRepetitions of the activity during processing are called visitsvisits

Can be fractional to represented expected expected proportion that needs rework

Work content Work content is the activity time multiplied by average number of visits.

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Critical Paths and Critical Activities

If unit is processed sequentially (process chart consists of a single path), total theoretical time is sum of work content.If process consists of parallel and sequential activities, a flow unit can exit only after all the activities along all the paths are complete.Theoretical flow time is the time to complete the longest path(s) in the process flow chart.Any such path is a Critical path; Critical path; activities on path are critical activitiescritical activitiesDelay of critical activities delays total flow-time

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The Critical Path Method

CPM (critical path method)J. E. Kelly of Remington-Rand and M. R. Walker of Du Pont (1957)Scheduling maintenance shutdowns of chemical processing plants

PERT (program evaluation and review technique)

U.S. Navy Special Projects Office (1958) Polaris missile project

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CPM FrameworkSet of activities with precedence Set of activities with precedence

relationshipsrelationships

1. Develop activity network with precedence relationships and activity times.

2. Compute the critical path (the longest path through the network).

3. Use the network to plan, schedule, monitor and control the project.

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CPM ExampleCPM ACTIVITY DESIGNATIONS AND TIME ESTIMATES

Activity Designation Immediate predecessors Time in weeks

Design A - 21

Build prototype B A 5

Evaluate equipment C A 7

Test prototype D B 2

Write equipment report E C, D 5

Write methods report F C, D 8

Write final report G E, F 2

A

C

B D

F

E

G

21

7

5 2 5

8

2

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Earliest start time (ES) : the earliest time that an activity can begin (without violating precedence relationships)Earliest finish time (EF): the earliest time an activity can finish

A

C

B D

F

E

G

21

7

5 2 5

8

2

19

Latest finish time (LF) : the latest time that an activity can finish (without delaying the entire project)Latest start time (LS): the latest time an activity can start (without delaying the entire project)

A

C

B D

F

E

G

21

7

5 2 5

8

2

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A Critical PathA critical path is a sequence of activities that establishes the earliest completion time.A delay (or increase in duration) of any activity on the critical path delays the entire project.

Slack = amount of time an activity can be delayed without delaying the entire project

Slack = LS - ES = LF - EF

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Managing Theoretical Flow Time

Decrease work content of activities on critical path(s)

“Principles of Scientific Management” – Taylor, Gilbreths

Move some work content offoff the critical path

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Reducing Work Content

Work smarterWork analysis – eliminate unnecessary and non-value added activities

Work fasterChange process and/or environment to reduce fatigueOffer incentives to boost moraleAcquire faster equipment

Do it right the first timeImprove quality, reduce rework

Statistical process control, Autonomation

Change the product mixFocus on products in demand and has short processing times

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Moving Work OFF the Critical Path

Move to non-critical pathConcurrent engineeringParallelize activities

Move work to “Outer Loop”Pre-processingPost-processing

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Process ChoiceProcess types:

projectjobbatchlinecontinuous

Best choice depends on volume and degree of customisation of goods and services produced.

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Project processone-of-a-kind products complex, large scale and scopehigh degree of job customisation unique process/task sequencerelease of substantial resources on completion

e.g. technology/product development, political campaign, construction, Y2K assurance

Firm’s competitive focus on capabilities rather than products

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Job Processhigh customisation, low volumeeach job has different processing sequenceorder-bidding, repeat orders infrequent and unpredictableflexible workforce and equipmentmake-to-order

e.g. emergency room care, customised furniture/machine parts manufacture, “health farms”

Firm’s resources organised around the

process.

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Batch Processhigher volumenarrower range of services and productsassemble-to-orderproduction in batches, “rotating” through the product rangejumbled flow patterns, but with some dominant paths

e.g. packaged tours, parts manufacturing for an assembly line, grants/admissions processing

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Line Process (Mass production)

high volumestandardised products or servicesmaterials move “linearly” from operation to operations in fixed sequenceproduction orders not linked to customer ordersmake-to-stock (finished goods inventory)

e.g. automobile/appliance manufacture, fast-food restaurants

Mass customisation?

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Continuous Process

high volumerigid line flows single productcapital intensivespecialised equipment“non-stop” production

e.g. petroleum refinery, beer production, electricity generation

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Layout PlanningThe physical arrangement of economic

activity centres within a facility. Which centres to consider?How much space?Configuration?Location?

Relative positionAbsolute location

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Production/Service Layout:General Principles

Product Layout vs Process Layout

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Product layout

Equipment placed along the “flow-path” of a particular producte.g. assembly linesEquipment duplicated to avoid “backtracking”Dedicated equipment, low flexibilityLow unit processing costs, low WIP inventoryAppropriate for high volume production, low product varietyKey: avoid bottlenecks, balance workload, avoid unnecessary idleness

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1. Review application for correctness

2. Process and record payment

3. Check for violations and restrictions

4. Conduct eye test5. Photograph applicant6. Issue temporary license

(state trooper)

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• Capacity analysis• Flow analysis

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Assembly LinesProduct manufactured by visiting a sequence of workstationsPACED - each workpiece spend exactly the same amount of time at each workstation

(Cycle time = C)

Cycle time determined by desired production rateAssembly line balancing

tasks, precedence relationsdetermine no. of workstations and task assignments (n)Efficiency = (Total task time)/[(Cycle time)(#workstations)]

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Assembly line balancing exampleAssembly line balancing example Precedence graph for model J. Wagon

A

D

B

E

C

H

I

F

G

J K

40s

50s

11s

15s

9s

12s

12s

12s

12s

8s 9s

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Assembly line balancing example

C = cycle time = 50.4 seconds

A. Balance made according to largest number of following task rule

Task Task time (s)

Remainingunassignedtime (s)

Feasible remainingtasks

Task with most followers

Task with longest operation time

Station 1 A 45 5.4 Idle None

Station 2 D 50 0.4 Idle None

Station 3 BECF*

1115912

39.424.415.43.4 Idle

C,E C,H,IF,G,H,INone

C,E CF,G,H,I

E

F,G,H,I

Station 4 GH*IJ

1212128

38.426.414.46.4 Idle

H, IIJNone

H,I H,I

Station 5 K 9 41.4 Idle None

*Denotes task arbitrarily selected where there is a tie between longest operation times

Efficiency = T / NC = 195 / (5)(50.4) = 77%

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Assembly line balancing exampleAssembly line balancing example

A

D

B

E

C

H

I

F

G

J K

45s

50s

11s

15s

9s

12s

12s

12s

12s

8s 9s

WS1

WS3

WS2

WS5

WS4

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Process LayoutSimilar equipment or functions grouped togetherAppropriate for low-volume, high-variety productionEach product visit the functional areas (departments) in a different sequential ordere.g. hospitals, mail-order warehouse, job shopsIn service context: allow each customer to define his/her own sequence of service activities (customization)general purpose equipment, flexible to adapt to new productsloss production due to setups, fluctuating workloadsjumbled work flow, costly material-handling waiting between activities , higher WIP inventory

Key: job dispatching, minimize material handling costs

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Ocean World Theme Park

Major attractions:A: killer whaleB: sea lionsC: dolphinsD: water skiiingE: aquariumF: water rides

Want to minimize visitors’travel distance between attractions.

(From Fitzsimmons and Fitzsimmons,Service Management for Competitive Advantage)

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CRAFT (1964)(Computerised Relative Allocation of

Facilities Technique)Tries to place departments with large interdepartmental traffic adjacent to each otherData requirements:

interdepartmental flowcost per unit distance travelled

SPACECRAFT multi-storey layout

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CRAFT Cost of layout = pairwise sum of

(flow)(distance)(cost/unit distance) Heuristic:

starts with an initial layoutinterchange of locations of two departments if cost reduced stop when no pairwise improvements found

Limitations:optimality not guaranteeddistance may not be reflect true material handling costs

Assumes every department same-sized and rectangular

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Copyright: The McGraw-Hill Companies, Inc., 1998

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Process Layout: Systematic Layout PlanningNumerical flow of items between departments

Can be impractical to obtainDoes not account for the qualitative factors that may be crucial to the placement decision

Systematic Layout PlanningAccounts for the importance of having each department located next to every other departmentIs also guided by trial and error

Switching departments then checking the results of the “closeness” score

Copyright: The McGraw-Hill Companies, Inc., 1998

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Systematic Layout Planning--Example: Reasons for Closeness

Code

1

2

3

4

5

6

Reason

Type of customer

Ease of supervision

Common personnel

Contact necessary

Share same price

Psychology

47Copyright: The McGraw-Hill Companies, Inc., 1998

Systematic Layout Planning--Example

Importance of Closeness

Value

A

E

I

O

U

X

ClosenessLinecode

Numericalweights

Absolutely necessary

Especially important

Important

Ordinary closeness OK

Unimportant

Undesirable

16

8

4

2

0

80

48Irwin/McGraw-Hill

Systematic Layout Planning--Example

Relating Reasons and Importance

From

1. Credit department

2. Toy department

3. Wine department

4. Camera department

5. Candy department

6

I

--

U

4

A

--

U

--

U

1

I

1,6

A

--

U

1

X

1

X

To2 3 4 5

Area(sq. ft.)

100

400

300

100

100

Letter

Number

Closeness rating

Reason for rating

Copyright: The McGraw-Hill Companies, Inc., 1998

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Systematic Layout Planning--Example

Initial Relationship Diagram

1

2

4

3

5

U U

E

A

I

Copyright: The McGraw-Hill Companies, Inc., 1998

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Systematic Layout Planning--Example

Initial and Final Layouts

1

2 4

3

5

Initial Layout

Ignoring space andbuilding constraints

2

5 1 43

50 ft

20 ft

Final Layout

Adjusted by squarefootage and buildingsize

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Flow shops – Product Layout

Uses specialized resources that perform limited tasks but with precision and speedLimited product variety, large volumeHigh fixed cost spread over huge volume, leading to low per unit costResources located according to the sequence of activities needed to produce particular product; may duplicate resourcesLow unit processing cost, high volume, consistent quality

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Job Shop – Process LayoutUses flexible resources to produce low volumes of customized high-variety productsUses general purpose equipmentResources with similar functional capabilities located in close proximityMany products simultaneously flowing through, each with its own routeJumbled work flows, large WIP, waiting between activitiesFrequent setups, fluctuating workload, long flow timesHigh process flexibility and product customization

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Matching Products and ProcessHayes and Wheelwright (1979)

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External Performance Measures

Estimate a firm’s ability to attract and retain customers

Competitive industry analysisDemand estimatesCustomer satisfaction survey

Cost of attracting new customer is 5 times that of keeping old customersOnly 4 % of dissatisfied customers bother to complainLagging indicator

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Internal Performance Measures

External measures can be linked to internal measures via the process attributesProcess Cost

Per unit production cost

Process Flow TimeLead time and delivery time

Process FlexibilityCustomization, delivery response time

Process QualityFailure rates

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Process PlanningStrategic Positioning and Operational Effectiveness

Strategic Fit Terry Hill’s procedure to develop a manufacturing strategy

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Operations FrontierThe smallest curve(surface) that contains all the current industry positionsFirms located on the same ray (from origin) share same competitive prioritiesFirms on operations frontier have superior performance (best practices, benchmarks)Operational effectiveness measured by “distance” between current position and the operations frontier

Concave frontier => tradeoffs between performance dimensionsOperational frontier shifts outward

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The Operations Frontier

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Process Flow MeasuresQuestions:

Average flow rate? Units processed per unit time?

Average flow time?Time unit spends within “process boundaries”

Average Work-in-Process?Units being process

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Flow rate and flow timeFlow rate = number of units flowing through a specific point in process per unit time Stable process :

average in flow rate = average out flow rate

(throughput rate)

Flow time = processing and waiting timeMay vary from unit to unit depending on process choice

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WIP InventoryInventory accumulation rate =

inflow rate – outflow rate

Little’s law:Little’s law:

I = R x TI = R x T

Inventory turns (turnover ratio)=Inventory turns (turnover ratio)=Ratio of throughput to average inventory Ratio of throughput to average inventory

= R/I = 1/T= R/I = 1/T

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Managing Flow RateFlow rate depends on:

theoretical capacityresource unavailability & idleness

Manage supply and demandhave reliable suppliersbetter forecasts

Decrease resource idlenesssynchronise flows to reduce starvationset appropriate buffer size to reduce blockage

Increase net availabilityimprove maintenanceimprove worker morale, reduce absenteeismreduce setup/changeover frequency

Increase theoretical capacitydecrease unit loadincrease load batch or resource unitsincrease scheduled availability

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SummaryProcess choice and impact on competitive prioritiesFlow Time Analysis

Critical Path Method

Job shop vs. flow shopLayout Design methodsFlow rate/flow time/WIP measures