ISOM 2700: Operations Management
Session 3: Process Analysis II
Dongwook Shin
Dept. ISOM, HKUST Business School
Course Roadmap
Bottleneck
Little’s law
Utilization
Maximize
Profits
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Process Analysis: Warm-up
• (Little’s Law: I = R x T) On a typical weekday in September,
600 students visit Fusion supermarket on LG7 of the
main campus building. On average, there are 10
customers in the store. The market operates for 15 hours
a day. How much time does the average customer spend
in the store?
• Average inventory I = 10 customers
• Flow rate R = 600 customers / 15 hours = 40 customers / hour
• Flow time T = I / R = 0.25 hour
2
Process Analysis: Warm-up
• (Demand- & Capacity-constrained processes) Which of the
following suggestions may lead to an increase in flow rate
when the process is demand-constrained?
1. Advertising
2. Reallocating one non-bottleneck resource to the same
activity as the bottleneck
3. Adding a resource to do the same tasks as the bottleneck in
parallel
4. Replacing the bottleneck resource with a more efficient
resource with a lower activity time
3
Learning Objectives: Session 3
• Application of Process Analysis: The Goal
4
The Goal
• Over 3 million copies sold worldwide
• Read in hundreds of business schools (Harvard,
Columbia, NYU…)
• Read in thousands of companies
5
The Goal: Reviews of the Book
• “An entertaining novel and at the same time a thought
provoking business book”
• “It’s hard to imagine a management book in novel form
ever approaching this one in usefulness”
• “If you are in any type of managerial position, this book is
a must read”
• “I bought this one for a new CEO friend of mine. He
thought it was great!”
• “This book is a must read for anyone looking to improve
production, quality or profits. After reading the first
several pages, I could hardly put it down”
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The Beginning of the Story
• Plant out of control
• The plant is unable to fulfill customer orders in time: too many
late orders
• Stacks of work-in-process inventory
• VP of manufacturing expediting an order
• First impression of the manufacturing plant?
• Good at “fighting fires” when pressed
• Controlled chaos
7
Alex & Prof. Jonah Meet in Airport
• Alex: “Robots increased productivity by 36% in one
department”
• Jonah:
• “Are plant inventories down?”: No
• “Is employee expense less?”: No
• “Shipping more products?”: No
• Jonah: “What is the goal of your company?”
• Alex: “To make money”
• Jonah: “Call something productive if and only if it makes
more money”
8
Realizing Real Problems
• Did the throughput up? No
• Have been losing market share due to competition
• Did the inventory go down? No
• Must keep robots running to maintain efficiencies
• Did operating expenses go down? No
• High inventory cost
9
Insight from Conversation with
Professor Jonah
• Jonah: “What is the average number of outputs per
hour?”
Process A Process B
(10/hour) (10/hour)
• Alex: “10 per hour?”
• Jonah: “No, because the activity times fluctuate”
• Alex: “Doesn’t it just average out in the end?”
• Jonah: “No, if you look at the process as a whole” 10
The Hike
• Ten miles of hike. Average speed 2 mph. So it should take
5 hours. But why did it take longer?
• If every kid can all walk at an average of 2 mph, shouldn’t
the fluctuations average out?
• No, because in every point in time, the team’s speed is always
equal to the lowest speed of all team members
• Solution 1: Put the slowest first and fastest last
• The line then stays compressed (i.e., inventory has gone down
and progress has improved because Herbie is setting the pace
and doesn’t have to exert energy to catch up)
• Solution 2: Further improvement on throughput
• Off-loaded Herbie’s backpack (i.e., improve the throughput of
the bottleneck)
11
The Hike Theory to Plant
• Hilton Smyth needs 100 parts by 5pm
• Fabrication starts at noon
• Fabrication capacity is 25 units per hour on average
• Welding is done by machine, whose capacity is exactly 25
units per hour
Fabrication Transfer Weld
(25/hour) (once/hour) (25/hour)
12
The Hike Theory to Plant
• Expectation
12pm 1pm 2pm 3pm 4pm
Fabrication 25 25 25 25
Welding 25 25 25 25
• Realization
12pm 1pm 2pm 3pm 4pm
Fabrication 19 21 28 32 100
Welding 19 21 25 25 90
Message #1. View a process as a whole instead of as pieces
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Focus on the Bottleneck
• How to find the bottleneck?
• Looking at piles of inventory in front of each work station
• How to improve bottleneck capacity?
• Make sure the bottleneck is never idle
• Look for other machines to do the same job
• Check if all parts need to go through the bottlenecks, if there
are alternative routings or vendors who can subcontract
• Put the quality control before the bottleneck so that the
bottleneck does not operate on parts that are already defective
but have not been found defective yet
Message #2. Focus on the bottleneck resource
14
Balancing the Process
• How to slow down non-bottleneck resources?
• Hike example: let Herbie be the leader
• But how to do it in a real production process?
Produce only when the bottleneck resource needs it
• Impacts of slowing down non-bottleneck resources on
• Process capacity
• Flow (throughput) time
• Work-in-process inventory
Message #3. Balance the process by controlling the utilization
of non-bottleneck resources
15
New Bottleneck: Demand
• Bottleneck has moved to customer demand
• Talk with the marketing chief
• Cut batch sizes for non-bottleneck parts in half
• Impact of reducing batch size
• Inventory for non-bottleneck parts reduced by half
• Flow time? (Use Little’s law…)
• Increased number of setups for non-bottleneck operations (not
critical)
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The End of the Story
• By applying the process analysis techniques, Alex and his
team save their plant from closure, because of the
improved performance: delivering orders in time and
reducing the work-in-process inventory costs
• Alex won the bet (Gucci shoes) with the marketing chief
• Alex was promoted to manage a few more plants
• A much needed honeymoon taken by Alex and his wife
17
Takeaways
• Starting point of analyzing a process: identifying the
bottleneck
• Steps to improve the process
1. Focus on improving the bottleneck resource
2. Balance the process by letting non-bottleneck resources
share workload of bottleneck resource
3. Further balance the process by slowing down non-bottleneck
resources to accommodate the speed of the bottleneck
resource (Why? Doing so can reduce inventory without
hurting process capacity!)
Click here for
free excerpt
• Next class: Quality Management of video (10 mins)
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