Operation Process Flow
Operations Management: Process Analysis and Applications Module
• Changing Sources of Competitive Advantage • Operational Measures: Time T, Inventory I, Throughput rate R
• • • • Link through Little’s Law Link to Financial Measures Levers for Improvement CRU Computer Rentals
S. Chopra/Process Flows
1
How can operations help a company compete? The changing sources of competitive advantage
• Low Cost & Scale Economies (< 1960s) – You can have any color you want as long as it is black Focused Factories (mid 1960s) Flexible Factories and Product variety (1970s) – A car for every taste and purse. Quality (1980s) – Quality is free. Time (late 1980s-1990s) – We love your product but where is it? – Don’t sell what you produce. Produce what sells.
S. Chopra/Process Flows
• •
•
•
2
Operational Performance Measures
• • • • • Flow time Throughput Inventory Process Cost Quality
S. Chopra/Process Flows
3
The business imperative: creating economic value
Improvement levers Revenues Price x Quantity Material + Labor + Energy + Overhead PP&E + Inventory + Other 1. 2. Increase price Increase throughput
Profit
Costs Economic value added (EVA) -
1. 2.
Reduce costs Improve quality
Capital invested Opportunity cost x Weighted average cost of capital
1. 2.
Reduce capital intensity Reduce inventory
Reduce time
Operational metrics 4
Financial metrics S. Chopra/Process Flows
Relating operational measures (flow time T, throughput R & inventory I) with Little’s Law
... ... ...
Inventory I
[units]
Flow rate/Throughput R
... ...
[units/hr]
Flow Time T [hrs]
• Inventory = Throughput x Flow Time I = RxT • Turnover = Throughput / Inventory = 1/ T
S. Chopra/Process Flows 5
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
• Changing Sources of Competitive Advantage • Operational Measures: Time T, Inventory I, Throughput rate R
• • • • Link through Little’s Law Link to Financial Measures Levers for Improvement CRU Computer Rentals
S. Chopra/Process Flows
1
How can operations help a company compete? The changing sources of competitive advantage
• Low Cost & Scale Economies (< 1960s) – You can have any color you want as long as it is black Focused Factories (mid 1960s) Flexible Factories and Product variety (1970s) – A car for every taste and purse. Quality (1980s) – Quality is free. Time (late 1980s-1990s) – We love your product but where is it? – Don’t sell what you produce. Produce what sells.
S. Chopra/Process Flows
• •
•
•
2
Operational Performance Measures
• • • • • Flow time Throughput Inventory Process Cost Quality
S. Chopra/Process Flows
3
The business imperative: creating economic value
Improvement levers Revenues Price x Quantity Material + Labor + Energy + Overhead PP&E + Inventory + Other 1. 2. Increase price Increase throughput
Profit
Costs Economic value added (EVA) -
1. 2.
Reduce costs Improve quality
Capital invested Opportunity cost x Weighted average cost of capital
1. 2.
Reduce capital intensity Reduce inventory
Reduce time
Operational metrics 4
Financial metrics S. Chopra/Process Flows
Relating operational measures (flow time T, throughput R & inventory I) with Little’s Law
... ... ...
Inventory I
[units]
Flow rate/Throughput R
... ...
[units/hr]
Flow Time T [hrs]
• Inventory = Throughput x Flow Time I = RxT • Turnover = Throughput / Inventory = 1/ T
S. Chopra/Process Flows 5
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