03. lecture - little's law (1)
TRANSCRIPT
Class 3(Chapters 3 and 4)
Dr. Ursula G. Kraus
Learning Objectives
Study current performance of a process as well as identify target areas for improvement
Study the three basic building blocks of process flow namely the (average) flow time, (average) flow rate and (average) inventory.
Focus on flow time analysis showing that flow time can be fruitfully divided into two components namely waiting time and activity time (theoretical flow time).
*/39
Agenda
Batch Bakery, Classroom
Job Shop
Flow Shop
Source: Managing Business Process Flows (1999)
low
medium
high
linked.
High
Low
High
Note that the product-process matrix connects only one product with one process attribute ...
*/39
*/39
For
Self-service groceries
No real sharp distinction, a gradual scale with extreme examples.
*/39
- expensive resources and variable output
Often difficult to evaluate for quality
In framework of importance of improving service productivity for wealth creation: these are opportunities for service managers. Find ways to improve, possibly by looking at manufacturing. Point out that most of this was true of manufacturing as well (except quality), 100 years ago. Hard to maintain exports of service if labor cost is such a critical component.
Ask students to provide examples of services having each characteristic. Once they have done this, ask if they can think of a way to overcome or change the characteristics for that service so as to increase productivity.
Phone service as a good example of a service that became more productive. From manual to computer switches. Quote that by 1970, everyone in the country would be a telephone operator (and they were right -- importance of automation in creating SELF SERVICE and de-intellectualizing, or deskilling tasks).
*/39
Agenda
Business Process Flows
Movement of flow units through a network of activities where resources transform inputs into outputs.
Inputs
Outputs
Information
Definition: Process Flow Measures
Flow Time (T): The average time a job spends in the process
Inventory (I): The average number of jobs accumulated in the process
Throughput, or Flow Rate (R): The average rate at which jobs flow through a process (units/time)
Turnover: The ratio of throughput to average inventory (inventory turn)
Capacity: The largest sustainable flow rate possible
Source: Managing Business Process Flows (1999)
Processes and Strategy
I = R x T
Turnover = Throughput / Inventory = R/I
[units/hr]
Processes and Strategy
Inverse of a rate is a time, inverse of a time is a rate. Turnover is the RATE at which we replace our inventory. E.g., per year.
*/39
Material Flow: Bakery
We are a bakery that specializes in making bread. We bake our bread in batches of 100 loaves at a time. The typical inventory of bread in our bakery is 9 batches and we produce an average of 100 loaves per hour.
What is the average flow time
of a batch of bread?
Processes and Strategy
Process Flow Examples
(1) Material Flow: A fast-food restaurant processes an average of 5,000 lb. of hamburgers per week. The typical inventory of raw meat is 2,500 lb. What is the average hamburger’s flow time and the restaurant’s turnover?
(2) Customer Flow: The above fast-food restaurant 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 the restaurant and what is the average customer turnover?
Processes and Strategy
Process Flow Examples
(3) Job Flow: A branch office of an 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”.
(4) Cash Flow: A major manufacturer 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 flow time?
Processes and Strategy
Process Flow Examples
(5) Material Flow: A general manager at at a pharmaceutical company states that her inventory turns three times a year. She also states that everything that the company buys gets processed and leaves the docks within six weeks. Are these statements consistent?
(6) Shouldice Hospital: Shouldice performs 137 surgeries per week, and the average patient stays 4 days. There are 125 regular hospital beds, and 12 pressure sensitive beds for patients susceptible to bed sores. What is the average number of beds occupied at Shouldice?
Processes and Strategy
Process Flow Examples
(7) AIMD: The AIMD (Aircraft Intermediate Maintenance Division) onboard USS Roosevelt has an average of 13 hydraulic actuators awaiting repair at any given time. Last year, they repaired 156 actuators.
What is the flow time for hydraulic actuators at AIMD?
If the AIMD could cut flow time by 10%, by how much would the average inventory go down?
Processes and Strategy
Process Flow Examples
(8) NADEP: The F-18 Repair shop at NADEP JAX (Naval Aviation Depot, Jacksonville) repairs engines in an average 86 days. They receive (and ship) an average of 30 engines per month.
What is the average number of engines at the NADEP?
At $3 million per copy, what is the value of the inventory?
By how much would the value of inventory decrease if NADEP could cut T by 1 day? 2 days? 30 days?
Processes and Strategy
Applies to the long run average of a stable system
In any given time period (sample) the average may be different (especially for small samples)
In an unstable, or dynamic system, the average may not be very useful
In systems with variance, we often need to know about more than the average
Fast Food Example (2) (what does Little’s Law tell us? Is that enough?)
More in chapter 8
Processes and Strategy
Note: Little’s law is perhaps the best-known result from queuing theory. But it isn’t the ONLY result in queuing theory. It relates the number of items or customers waiting, to the rate at which customers flow through the system, and the time the stay in the system. It is a statement about the LONG RUN average of a STABLE system. For any given period of time (e.g., a sample) it may not be accurate (especially for a short period of time, or a small sample). And when the process is dynamic (that is, not stable) it may not hold, either. It is useful in this way as a rough approximation, for aggregate planning. We’ll look more at queuing theory later, and see some results that help judge such things as the probability of inventory being larger than a particular amount, or the probability that flow time takes longer than some time period. (Hamburger example on p. 44; Accounts receivable example on p. 45).
*/39
Agenda
Process Flow Measures
Flow Time (T): The average time a job spends in the process
Inventory (I): The average number of jobs accumulated in the process
Throughput, or Flow Rate (R): The average rate at which jobs flow through a process
Little’s Law
Processes and Strategy
short delivery response time
production closer to time of sale which increases (demand) predictability
fast feedback on quality problems
Reduced development flow time means
quicker time to market (resulting in larger market share)
*/39
„… possibly the most innovative and devastating retailer in the world“
(Daniel Piette, Louis Vuitton - Fashion Director)
Source: Business Week, 4 April, 2006
Two weeks to develop a new product and get it to stores
(9-month industry average)
Only limited production in low-cost countries
Zero advertising
32,000 employees and 200 fashion designers
Processes and Strategy
0
10
20
30
40
50
GM
Ford
Honda
Toyota
Months
Company
46
37
36
27
Processes and Strategy
Theoretical Flow Time
Process Flow Chart …
… is the visual representation of a business process showing major activities and their inter-relationships.
Inputs
Outputs
Information
Resources
Process
Management
The book says to define the right Flow Unit to come up with the right level of analysis
*/39
Operational Measures – Flow Time
Activity Time, or Cycle time: Is the time required by a typical flow unit to complete an activity once
(Theoretical) Flow Time: Min. time required for processing a typical flow unit through the whole process – without any waiting
Critical Path: A sequence of activities that takes the longest total (flow) time for completion
Critical Activities: All activities on a critical path
Flow Time Efficiency =
Processes and Strategy
Critical Path Example:
Pusan Port (Korea)
NWCF is a fund that supports certain Naval Activities. At the end of the year, those activities must have revenues = costs, so that, theoretically, the NWCF funds balance and are never depleted.
Shipyards perform work – how to they pay for it? Where does the money come from.
Ships need maintenance work done. An transfer of funds is required from ships O&MN funds. The ship will requisition the work from shipyard, and the payment will be recorded as an internal transfer. The shipyard will draw down on the NWCF to pay for labor, material, etc.
DFAS is responsible for authorizing the internal transfer of funds from the Ships accounts, to the NWCF.
Is 30 days a problem, why?
*/39
slack time of zero
EST: Earliest Start Time
EFT: Earliest Finish Time
LST: Latest Start Time
LFT: Latest Finish Time
EST(first activity) = 0
B. Now visit all activities from “finish to start”
LFT(final activity) = EFT (final activity)
LST = LFT – activity time
C. Calculate Slack Times = LST - EST = LFT - EFT
*/39
Camp here & work through LS, ES, LF, EF on board
Slack time = LST - EST = LFT - EFT
*/39
Complex Example …
NWCF is a fund that supports certain Naval Activities. At the end of the year, those activities must have revenues = costs, so that, theoretically, the NWCF funds balance and are never depleted.
Shipyards perform work – how to they pay for it? Where does the money come from.
Ships need maintenance work done. An transfer of funds is required from ships O&MN funds. The ship will requisition the work from shipyard, and the payment will be recorded as an internal transfer. The shipyard will draw down on the NWCF to pay for labor, material, etc.
DFAS is responsible for authorizing the internal transfer of funds from the Ships accounts, to the NWCF.
Is 30 days a problem, why?
Dr. Ursula G. Kraus
Learning Objectives
Study current performance of a process as well as identify target areas for improvement
Study the three basic building blocks of process flow namely the (average) flow time, (average) flow rate and (average) inventory.
Focus on flow time analysis showing that flow time can be fruitfully divided into two components namely waiting time and activity time (theoretical flow time).
*/39
Agenda
Batch Bakery, Classroom
Job Shop
Flow Shop
Source: Managing Business Process Flows (1999)
low
medium
high
linked.
High
Low
High
Note that the product-process matrix connects only one product with one process attribute ...
*/39
*/39
For
Self-service groceries
No real sharp distinction, a gradual scale with extreme examples.
*/39
- expensive resources and variable output
Often difficult to evaluate for quality
In framework of importance of improving service productivity for wealth creation: these are opportunities for service managers. Find ways to improve, possibly by looking at manufacturing. Point out that most of this was true of manufacturing as well (except quality), 100 years ago. Hard to maintain exports of service if labor cost is such a critical component.
Ask students to provide examples of services having each characteristic. Once they have done this, ask if they can think of a way to overcome or change the characteristics for that service so as to increase productivity.
Phone service as a good example of a service that became more productive. From manual to computer switches. Quote that by 1970, everyone in the country would be a telephone operator (and they were right -- importance of automation in creating SELF SERVICE and de-intellectualizing, or deskilling tasks).
*/39
Agenda
Business Process Flows
Movement of flow units through a network of activities where resources transform inputs into outputs.
Inputs
Outputs
Information
Definition: Process Flow Measures
Flow Time (T): The average time a job spends in the process
Inventory (I): The average number of jobs accumulated in the process
Throughput, or Flow Rate (R): The average rate at which jobs flow through a process (units/time)
Turnover: The ratio of throughput to average inventory (inventory turn)
Capacity: The largest sustainable flow rate possible
Source: Managing Business Process Flows (1999)
Processes and Strategy
I = R x T
Turnover = Throughput / Inventory = R/I
[units/hr]
Processes and Strategy
Inverse of a rate is a time, inverse of a time is a rate. Turnover is the RATE at which we replace our inventory. E.g., per year.
*/39
Material Flow: Bakery
We are a bakery that specializes in making bread. We bake our bread in batches of 100 loaves at a time. The typical inventory of bread in our bakery is 9 batches and we produce an average of 100 loaves per hour.
What is the average flow time
of a batch of bread?
Processes and Strategy
Process Flow Examples
(1) Material Flow: A fast-food restaurant processes an average of 5,000 lb. of hamburgers per week. The typical inventory of raw meat is 2,500 lb. What is the average hamburger’s flow time and the restaurant’s turnover?
(2) Customer Flow: The above fast-food restaurant 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 the restaurant and what is the average customer turnover?
Processes and Strategy
Process Flow Examples
(3) Job Flow: A branch office of an 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”.
(4) Cash Flow: A major manufacturer 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 flow time?
Processes and Strategy
Process Flow Examples
(5) Material Flow: A general manager at at a pharmaceutical company states that her inventory turns three times a year. She also states that everything that the company buys gets processed and leaves the docks within six weeks. Are these statements consistent?
(6) Shouldice Hospital: Shouldice performs 137 surgeries per week, and the average patient stays 4 days. There are 125 regular hospital beds, and 12 pressure sensitive beds for patients susceptible to bed sores. What is the average number of beds occupied at Shouldice?
Processes and Strategy
Process Flow Examples
(7) AIMD: The AIMD (Aircraft Intermediate Maintenance Division) onboard USS Roosevelt has an average of 13 hydraulic actuators awaiting repair at any given time. Last year, they repaired 156 actuators.
What is the flow time for hydraulic actuators at AIMD?
If the AIMD could cut flow time by 10%, by how much would the average inventory go down?
Processes and Strategy
Process Flow Examples
(8) NADEP: The F-18 Repair shop at NADEP JAX (Naval Aviation Depot, Jacksonville) repairs engines in an average 86 days. They receive (and ship) an average of 30 engines per month.
What is the average number of engines at the NADEP?
At $3 million per copy, what is the value of the inventory?
By how much would the value of inventory decrease if NADEP could cut T by 1 day? 2 days? 30 days?
Processes and Strategy
Applies to the long run average of a stable system
In any given time period (sample) the average may be different (especially for small samples)
In an unstable, or dynamic system, the average may not be very useful
In systems with variance, we often need to know about more than the average
Fast Food Example (2) (what does Little’s Law tell us? Is that enough?)
More in chapter 8
Processes and Strategy
Note: Little’s law is perhaps the best-known result from queuing theory. But it isn’t the ONLY result in queuing theory. It relates the number of items or customers waiting, to the rate at which customers flow through the system, and the time the stay in the system. It is a statement about the LONG RUN average of a STABLE system. For any given period of time (e.g., a sample) it may not be accurate (especially for a short period of time, or a small sample). And when the process is dynamic (that is, not stable) it may not hold, either. It is useful in this way as a rough approximation, for aggregate planning. We’ll look more at queuing theory later, and see some results that help judge such things as the probability of inventory being larger than a particular amount, or the probability that flow time takes longer than some time period. (Hamburger example on p. 44; Accounts receivable example on p. 45).
*/39
Agenda
Process Flow Measures
Flow Time (T): The average time a job spends in the process
Inventory (I): The average number of jobs accumulated in the process
Throughput, or Flow Rate (R): The average rate at which jobs flow through a process
Little’s Law
Processes and Strategy
short delivery response time
production closer to time of sale which increases (demand) predictability
fast feedback on quality problems
Reduced development flow time means
quicker time to market (resulting in larger market share)
*/39
„… possibly the most innovative and devastating retailer in the world“
(Daniel Piette, Louis Vuitton - Fashion Director)
Source: Business Week, 4 April, 2006
Two weeks to develop a new product and get it to stores
(9-month industry average)
Only limited production in low-cost countries
Zero advertising
32,000 employees and 200 fashion designers
Processes and Strategy
0
10
20
30
40
50
GM
Ford
Honda
Toyota
Months
Company
46
37
36
27
Processes and Strategy
Theoretical Flow Time
Process Flow Chart …
… is the visual representation of a business process showing major activities and their inter-relationships.
Inputs
Outputs
Information
Resources
Process
Management
The book says to define the right Flow Unit to come up with the right level of analysis
*/39
Operational Measures – Flow Time
Activity Time, or Cycle time: Is the time required by a typical flow unit to complete an activity once
(Theoretical) Flow Time: Min. time required for processing a typical flow unit through the whole process – without any waiting
Critical Path: A sequence of activities that takes the longest total (flow) time for completion
Critical Activities: All activities on a critical path
Flow Time Efficiency =
Processes and Strategy
Critical Path Example:
Pusan Port (Korea)
NWCF is a fund that supports certain Naval Activities. At the end of the year, those activities must have revenues = costs, so that, theoretically, the NWCF funds balance and are never depleted.
Shipyards perform work – how to they pay for it? Where does the money come from.
Ships need maintenance work done. An transfer of funds is required from ships O&MN funds. The ship will requisition the work from shipyard, and the payment will be recorded as an internal transfer. The shipyard will draw down on the NWCF to pay for labor, material, etc.
DFAS is responsible for authorizing the internal transfer of funds from the Ships accounts, to the NWCF.
Is 30 days a problem, why?
*/39
slack time of zero
EST: Earliest Start Time
EFT: Earliest Finish Time
LST: Latest Start Time
LFT: Latest Finish Time
EST(first activity) = 0
B. Now visit all activities from “finish to start”
LFT(final activity) = EFT (final activity)
LST = LFT – activity time
C. Calculate Slack Times = LST - EST = LFT - EFT
*/39
Camp here & work through LS, ES, LF, EF on board
Slack time = LST - EST = LFT - EFT
*/39
Complex Example …
NWCF is a fund that supports certain Naval Activities. At the end of the year, those activities must have revenues = costs, so that, theoretically, the NWCF funds balance and are never depleted.
Shipyards perform work – how to they pay for it? Where does the money come from.
Ships need maintenance work done. An transfer of funds is required from ships O&MN funds. The ship will requisition the work from shipyard, and the payment will be recorded as an internal transfer. The shipyard will draw down on the NWCF to pay for labor, material, etc.
DFAS is responsible for authorizing the internal transfer of funds from the Ships accounts, to the NWCF.
Is 30 days a problem, why?