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3. Process Flow Measures

Process Flow Analysis-Basics 1

Ardavan Asef-Vaziri June/2011

Five Elements of the Process View

Inputs

Outputs

Goods

Services

Labor & Capital

Information

structure

Network of

Activities and Buffers

Flow units

(customers, data,

material, cash, etc.)

Resources

Process

Management

3. Process Flow Measures

Process Flow Analysis-Basics 2

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How target improvement?Identify and Monitor Operational Performance Measures

Time

Quality

Cost

Flexibility

Inventory

Flow Rate

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Flow Time, Flow Rate, and Inventory

Flow Time: The time required by a flow unit to move through all theprocesses from entry to exit.

It is not the same for all flow units

different types of flow units

variability in the flow time of a flow unit

Average flow time of a process is the average flow time of all flowunits.

Flow Rate: The number of flow units passing a specific point (entry,exit or any intermediate point) in the process per unit of time.

It changes over time

variability in the flow rate

seasonality (e.g. tax season for a CPA)

Average flow rate in a stable process  Throughput

Inventory: The number of flow units within the boundaries of theprocess at any time.

3. Process Flow Measures

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The Essence of Process Flow

Process competencies

Customer Value Proposition

Customer satisfaction

Customerexpectations

Financial performance

 Essence of process flow 

Quality

Time

Cost

Flexibility

Inventory

Flow time

Flow rate



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A Stable Process

In a Stable Process

Average inflow rate is the same as average outflow rate.

Throughput (R) is the average flow rate

Ideally, R should be equal to the customer demand.

Average inflow rate

is 600 passengers/hr,

or 10 passengers/min

Scanner can handle 12passengers per minute

It can handle inflow

Is the Security Checkpoint a stable Process?

Can we have 9 instead of 12?

If we have 20 instead of 12, could we still have people waiting in the line?

Average outflow capacity (process capacity) must be greater than averageinflow rate, while average inventory is not zero.

3. Process Flow Measures

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The Little’s Law

Throughput x Flow Time = Inventory

RT=I

Inventory I

[units]

Flow rate/Throughput R

[units/hr]

...

Flow Time T [hrs]

There is a relationship between R, T, and I.

Process Flow Analysis-Basics 6

Ardavan Asef-Vaziri June/2011

3. Process Flow Measures

Process Flow Analysis-Basics 7

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Little’s Law: Examples

In Vancouver Airport:

Average waiting line length = I = 17.5 passengers

Throughput or R = 600/60 = 10 passengers/minute

Compute the flow time at

Flow time T  RT=I  T= I/R

T= 17.5 /10 = 1.75 minutes / passenger (on average).

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Little’s Law: Examples

I=2000 garage doors, with no inventory buildup (i.e. stable process;always on average we have 2000)

R=1000 garage doors/week. Each garage door costs $3,300 toproduce.

What is the Average Flow Time for $1?

We can translate volumes into $

I = 2,000(3,300) = $6,600,000 tied up in inventory (average).

R = 1,000(3,300) = $3,300,000/week.

I=RT  T=I/R

T = 6,600,000/3,300,000 = 2 weeks.

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Little’s Law applied to different process flow examples

Monetary Flow. For the new euro introduction in 2002, WimDuisenberg had to decide how many new Euro coins to stamp by2002. Euroland’s central banks’ cash-in-coins handling wasestimated at €300 billion per year. The average cash-in-coinsholding time by consumers and businesses was estimated at 2months. How many Euro coins were to be made?

Customer Flow. Taco Bell processes on average 1,500 customersper day (15 hours). On average there are 75 customers in therestaurant (waiting to place the order, waiting for the order toarrive, eating etc.). How long does an average customer spend atTaco Bell and what is the average customer turnover?

3. Process Flow Measures

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Little’s Law applied to different process flow examples

Job Flow. The Travelers Insurance Company processes 10,000claims per year. The average processing time is 3 weeks. Assuming50 weeks in a year, what is the average number of claims “inprocess”.

Material Flow. Wendy’s processes an average of 5,000 lb. ofhamburgers per week. The typical inventory of raw meat is 2,500 lb.What is the average hamburger’s cycle time and Wendy’s turnover?

Cash Flow. Motorola sells $300 million worth of cellular equipmentper year. The average accounts receivable in the cellular group is$45 million. What is the average billing to collection process cycletime?

3. Process Flow Measures

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Steel Company: Processes $400M of iron ore per year. The cost ofprocessing the ore is $200M per year.

The average inventory is $100M.

How long does a dollar spend in the process?

The flow unit is a cost dollar.

The process is the steel manufacturing operations

The value of the inventory includes both ore and processing cost. I =$100M/year

A Total of $400M + $200M = $600M flows through the process each year.Throughput R = $600M/year

Average flow time T = I/R = 100/600 = 1/6 year = 2 months

Little’s Law: Cash Flow

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Little’s Law: inventory Turns

Question: A general manager at Baxter states that her inventoryturns three times a year (Cost of Goods Sold is three times ofaverage inventory). She also states that everything that Baxterbuys gets processed and leaves the docks within six weeks. Arethese statements consistent?

Of the 3 operational measures of performance, inventory,throughput and average flow time – a process manager onlyneeds to focus on 2 measures, as they directly determine thethird measure via Little’s Law. Measuring which one ischeaper?

For a given level of throughput in any process, the only way toreduce flow time is to reduce inventory and vice versa.

3. Process Flow Measures

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Little’s Law: Auto-Moto Financial Services

Auto-Moto receives 1,000 applications per month (30 workingdays). In the old process, each application is handled individually,with 20% of applications being approved. 500 were in the processat any time. Average flow time T = ?

The firm recently implemented a new loan application process. Inthe new process, applicants go through an initial review and aredivided into three categories

Average flow time T = I/R = 500/1,000 months = 0.5 month or 15days.

Process

Ip=500

1000/month

200/month

800/month

3. Process Flow Measures

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Admission Flow

Marshall provides higher education to executives and receivesabout 1000 applications per month.

The evaluation starts with a preliminary classification with basicinformation:

 Group A: Applicants with desired recommendations,working experience, etc. (50% of the applicants)

 Group B: Other applicants. (50% of the applicants)

Applicants in group A will be further considered through anadvanced review.

Applicants in group B will be rejected.

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Work In Process (WIP)

On average there were:

200 applications in the preliminary review stage

100 applications in the advanced review stage

How long does group A spend in the application process?

How long does group B spend in the application process?

How long is the average process time?

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Admission Flow Chart

How long do the applicants spend in the preliminary stage?

RT=I  T = I/R=200/1000 = 0.2 month

Applicants spend 0.2(30) = 6 days in the first stage

Applicants from group B receive an answer in 6 days onaverage

1000

50%

200

100

Reject

3. Process Flow Measures

Process Flow Analysis-Basics 17

Ardavan Asef-Vaziri June/2011

Admission Flow

How long do the applicantsfrom group A spend in theadvanced review stage?

I =100 , R = 1000(0.5) = 500

TR= I  T=I/R  T= 100/500 = 0.2

Applicants from group A spend 0.2(30) = 6 days onaverage in the advanced review stage.

Applicants from group A receive answer in 12 days (6 +6) on average.

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Admission Flow

What is the average processing time?

 0.5(6)+0.5(12) = 9 days

Is there an alternative way to calculate the averagewaiting time? Do it------

Little’s Law holds for complicated systems.

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Assignment (Due next week)

1. Bank XYZ receives 20 loan requests per hour on average. Eachloan request goes through an initial processing stage, after which an“accept or reject” decision is made. Approximately 80% of the loansare accepted, and these require additional processing. Rejected loansrequire no additional processing. Suppose that on average 5 loans arein the initial processing stage, and 25 (accepted) loans are in theadditional processing stage.

a)What is the average processing time required for a loan request?

b)What is the average processing time required for a rejected loan?

c)What is the average processing time required for an accepted loan(including the initial processing stage)?

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Assignment (Due next week)

2. A call center employs 1000 agents. Every month 50 employees leavethe company and 50 new employees are hired.

a) How long on average does an agent work for this call center?

Suppose the cost of hiring and training a new agent is $1000. Themanager of this call center believes that increasing agents’ salary wouldkeep them working longer term in the company. The manager wants toincrease the average time that an agent works for the call center to 24months, or 2 years.

b)If an agent works for the call center for 24 months on average, howmuch can the company save on hiring and training costs over a year?Hint: first determine the current annual cost for hiring and training,then determine the new annual cost for hiring and training.

c)How much the monthly salary of each agent can be increased?

3. Process Flow Measures

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Practice 1: Auto-Moto Old Process

The firm recently implemented a new loan application process. Inthe new process, applicants go through an initial review and aredivided into three categories

Average flow time T = I/R = 500/1,000 months = 0.5 month or 15days.

Process

Ip=500

1000/month

200/month

800/month

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Practice 1: Auto-Moto New Process

Initial

Review

IIR=200

Subprocess A

Review

IA = 25

Subprocess B

Review

IB = 150

Accepted

Rejected

1000/month

25%

50%

25%

70%

30%

90%

10%

800/month

200/month

Compute average Flow time of an application.

Compute Average Flow Time for Activities IR, A, and B.

Compute average Flow time of a rejected application, an acceptedapplication, and use them to Compute average Flow time of an application.

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A hospital emergency room (ER) is currently organized so that allpatients register through an initial check-in process. At his or herturn, each patient is seen by a doctor and then exits the process,either with a prescription or with admission to the hospital. Currently55 people per hour arrive at the ER, 10% of who are admitted to thehospital. On average, 7 people are waiting to be registered and 34 areregistered and waiting to see a doctor. The registration process takes,on average, 2 minutes per patient. Among patients who receiveprescriptions, average time spent with a doctor is 5 minutes. Amongthose admitted to the hospital, average time is 30 minutes. Onaverage, how long does a patient spend in the ER? Assume theprocess to be stable; that is, average inflow rate equals averageoutflow rate.

Problem 3.4, MBPF

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Directions

o) Draw the flow process chart

b) On average how long a patient spend in ER?

c) On average how many patients are in ER?

Hints:

Compute flow time in buffer 1

Compute average activity time of Doctor

Compute the average flow time in this process

Compute average flow time for a simple prescription patient

Compute average flow time for a potential admission patient

Compute number of patients in Doctor activity

Compute the average number of patients in the process.

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A triage system has been proposed for the ER described in Exercise 3.4. As mentionedearlier, 55 patients per hour arrive at the ER. Under the proposed triage plan, enteringpatients will classify them as Simple Prescriptions or Potential Admits. While SimplePrescriptions will move on to an area staffed for regular care, Potential Admits will betaken to the emergency area. Planners anticipate that the initial examination will take 3minutes. They expect that, on average, 20 patients will be waiting to register and 5 will bewaiting to be seen by the triage nurse. Recall that registration takes an average of 2minutes per patient. Planners expect eh Simple Prescriptions area to have, on average, 15patients waiting to be seen. As before, once a patient’s turn come, each will take 5minutes of a doctor’s time. The hospital anticipates that, on average, the emergency areawill have only 1 patient waiting to be seen . As before, once that patient’s turn comes, heor she will take 30 minutes of a doctor’s time. Assume that, as before, 90% of all patientsare Simple Prescriptions, assume, too, that the triage nurse is 100% accurate in makingclassifications. Under the proposed plan, how long on average, will a patient spend in theER? On average, how long will a Potential Admit spend in the ER? On average, howmany patients will be in the ER? Assume the process to be stable; that is, average inflowrate equals average outflow rate.

Problem 3.5, MBPF

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Directions

o) Draw the flow process chart

a) On average how many patients are in ER?

b) On average, how long a patient spend in ER?

Hints:

Average flow rate is still 55 per hour (50 is typo)

Planners estimate that initial examination takes 3 minutes. It is the flowtime in triage activity. It is 3 it is not 1. One, as we will see in thefuture chapters is an estimate for the theoretical flow time.

Compute average flow rate in buffer 3 and buffer 4.

Compute average flow time in all buffers.

Compute average number of patients in all activities.

3. Process Flow Measures

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Refer again to Exercise 3.5. Once the triage system is put in place, itperforms quite close to expectations. All data conform to planners’expectations except for one set-the classifications made by the nursepractitioner. Assume that the triage nurse has been sending 91% of allpatients to the Simple Prescription area when in fact only 90% shouldhave been so classified. The remaining 1% is discovered whentransferred to the emergency area by a doctor. Assume all otherinformation from Exercise 3.5 to be valid. On average, how long doesa patient spend in the ER? On average, how long does a PotentialAdmit spend in the ER? On average, how many patients are in theER? Assume the process to be stable; that is, average inflow rateequals average outflow rate.

Problem 3.6, MBPF

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Directions

o) Draw the flow process chart

b) On average how many patients are in this process?

c) On average, how long a patient spend in this process?

Hints:

Compute flow rates at Buffer 3

Compute flow rates at Buffer 4