Module 1 – Process

Analysis

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Business Process
• A business process is a set of structured activities designed to
achieve a specific organizational goal. Key characteristics include:

• Repeatability: Processes are performed regularly.

• Measurability: Performance can be tracked through metrics.

• Predictability: Outcomes are consistent when the process is followed.

• Value-Driven: Each process adds value to the organization/customer.

• Interconnectedness: Processes interact with or depend on other

processes.

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Business Process: Examples
• Order Fulfillment: Handling customer orders from receipt to delivery.

• Recruitment: Managing the hiring process from job posting to

onboarding.

• Customer Service: Addressing customer inquiries and resolving

issues.

• Product Development: Designing, testing, and launching new

products.

• Financial Reporting: Preparing and distributing financial statements to

stakeholders.

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Process Flow Diagram (Process Map)
• A process flow diagram (or process map) is a visual representation of
the sequence of steps in a process.

• It is essential in understanding how various components of a system

interact.

• A process map includes symbols for activities (squares), decisions

(diamonds), buffers (triangles) and the flow of materials (arrows).

• Process maps are widely used in industries like manufacturing,

healthcare, and software development to streamline operations,
enhance communication, and improve decision-making.

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Example: Assembly Line
A Linear Process Flow Diagram

Material Quality
Assembly Packaging Dispatch
Preparation Inspection
(15 Mins) (12 Mins) (5 Mins)
(10 Mins) (8 Mins)

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 Example: Patient Admission
In Critical No Waiting
Patient Arrives Registration
Condition? Area

Yes
Initial
ER Assessment

Yes Need Treatment Yes Need Immediate

Admission
to Stay? Room Treatment?

Yes
No
No
No Need
Discharge Diagnosis
Treatment?
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Gantt Chart
• A Gantt chart is a visualization of the timeline of a process, showing
the duration of each activity.

Activity Duration (Minutes)

Material 10
Preparation

Assembly 15

Quality 8
Inspection

Packaging 12

Dispatch 5

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 Decisions in business operations
Operational Frontier often involve tradeoffs (finding
the optimal decision under limited
resources)
• The operational frontier represents
the maximum level of performance
that can be achieved given the
available resources.

• Moving along the frontier involves

trade-offs: improving one aspect
(e.g. capacity) may require
sacrificing another (e.g. cost
efficiency).

• Organizations strive to operate on

or near the frontier to maximize
efficiency and competitiveness.

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Utilization and Efficiency
• Utilization: Measures how much of the design capacity (maximum
possible output) is being used in a process under ideal conditions.

Utilization = (Actual Output / Design Capacity) × 100%

• Efficiency: Measures how much of the effective capacity (realistic

maximum output) is being used accounting for normal downtime,
maintenance, and other expected disruptions.

Efficiency = (Actual Output / Effective Capacity) × 100%

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Factory Example
• Suppose a factory operates 7 days/week, with two 8-hour shifts per
day, under the following conditions.

• Actual output = 80,000 items per week

• Effective capacity = 100,000 items per week
• Design capacity (hourly) = 1,000 items per hour

• Design capacity (weekly) = (7 x 2 x 8) x (1,000) = 112,000 items

• Utilization = 80,000/112,000 = 71.4%

• Efficiency = 80,000/100,000 = 80%

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Bottleneck and Capacity
• Bottleneck analysis identifies the slowest point in a process, where
the flow is restricted.

• Identifying bottlenecks helps in streamlining operations, reducing

delays, and optimizing resource allocation.

• Capacity is the maximum output a process can handle. Ensuring

optimal capacity involves balancing resources to prevent bottlenecks.

• A bottleneck has the lowest capacity in a process.

i.e. The bottleneck limits the capacity of the entire process. To improve
a process, the bottleneck must be improved.

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Metrics in Process Analysis
• Flow time: Total time spent by a unit to move through the entire
process (including waiting time).

• Process time: Actual time during which work is actively being done on
a unit within the process (excluding any waiting or idle time).

• e.g. In a hospital, suppose a patient spends 6 hours from the time of

admission to discharge, with 1 hour spent waiting for tests and some
time spent receiving treatment.

• The flow time is 6 hours, and the process time is 5 hours.

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Metrics in Process Analysis
• Flow rate: The number of units that flow through a specific point in the
process over a period of time.

• Throughput rate: The rate at which a process produces finished

goods or completed tasks over a period of time.

• Capacity: The maximum output (upper limit) of a process over a

period of time.

• Inventory: Total number of units within the process.

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 Buffers can be used to store extra inventory (e.g.
Example extra items waiting to be process)

A B C
(1 min/unit) (5 min/unit) (2 min/unit)

• The process time of the 3 stations are 1, 5, and 2 minutes per unit
respectively.

• The process time of the entire process (system) is 1 + 5 + 2 = 8

minutes per unit.

• The capacity of the system is the inverse of the longest process time
of an activity: 1 hr / (5 min/unit) = 12 units / hr.

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Example
A B C
(1 min/unit) (5 min/unit) (2 min/unit)

• Activity B is the bottleneck because it limits the system to a capacity

of 12 units per hour.

• In a system with constant flow of units in and out, there will be a build-
up of inventory (waiting line) in the first buffer before activity B.

• To improve the process, the bottleneck must be improved first.

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 Parallel processes are more efficient
than serial processes
Parallel Process
B C D
(5 s/unit) (15 s/unit) (10 s/unit)
A E
(1 s/Unit) (20 s/unit)
B C D
(5 s/unit) (15 s/unit) (10 s/unit)

• Activity C has the longest processing time or 15 secs, but the 2

parallel machines reduces the processing time by half to 7.5 secs.
Some parallel processes can be analyzed easily. More complex processes
need more advanced methods such as simulation.
• Activity E is the actual bottleneck at 20 secs per unit, which limits the
system to a capacity of 1 min / (20 secs/unit) = 3 units per minute.

• The flow time of a unit is 1 + 5 + 15 + 10 + 20 = 51 secs.

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Theory of Constraints
• The Theory of Constraints (TOC) is a management philosophy
introduced by Eli Goldratt.

• Every system has at least one constraint that limits its performance.

• Improving this constraint can significantly enhance the overall

system's efficiency and effectiveness.

• The primary goal of TOC is to continuously improve the system by

managing and optimizing the constraint.

When the current bottleneck is improved, a new one emerges. The new
bottleneck is the to improve next. Note that it’s possible to have multiple
activities be the bottleneck (same limiting capacity)

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Theory of Constraints
• 5-step process for recognizing and managing constraints:

• Step 1: Pinpoint the existing constraints.

• Step 2: Create a strategy to address these constraints.

• Step 3: Direct resources towards executing the strategy from Step 2.

• Step 4: Mitigate the impact of constraints by redistributing work or

enhancing capacity.

• Step 5: After resolving the constraint, return to Step 1 to identify new

constraints.

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Variability in Business Processes
• Variability are fluctuations and inconsistencies that can occur in
different aspects of a business operation.

• Variability can lead to inefficiencies, increased wait times, bottlenecks,

and higher costs.

• Techniques such as standardization, process optimization,

forecasting, and inventory management help reduce variability.

Aggregate measures such as total demand and capacity over a longer period
can give an overview of the ability of the process to meet demand. But this
can be misleading: the process may not handle the demand during smaller
periods in the timeframe.

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Examples of Variability
• Demand variability: Seasonal spikes in retail or unexpected surges in
hospital admissions.

• Process variability: Variation in processing times due to human error

or equipment malfunctions.

• Supply chain variability: Delays in raw material delivery due to

supplier issues or logistical challenges.

• Environmental variability: Economic shifts, regulatory changes, or

natural disasters impacting supply chains or demand.

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Effects of Input Variability
• Variability disrupts the smooth flow of operations, leading to delays,
increased waiting times, inefficiencies, and lost revenues.

• Overall throughput will be reduced, meaning fewer units are

processed per period.

• Even if the aggregate capacity over a period of time can handle all the
inputs, there may be certain periods where queues build up.

• e.g. At a bank, customer arrivals vary throughout the day. During peak
hours, sudden surges in customer arrivals can overwhelm staff,
leading to longer waiting times.

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 The aggregate capacity (160) is greater than aggregate input (121 customers),
but the process cannot handle peak hours, leading to queues.
Case: Bank Customers
Input Capacity Excess Excess
Time (Customers Per Period) (Customers Per Period) Demand Capacity Queue
13:15 2 10 0 8 0
13:30 5 10 0 5 0
13:45 3 10 0 7 0
14:00 7 10 0 3 0
14:15 4 10 0 6 0
14:30 12 10 2 0 2
14:45 10 10 0 0 0
15:00 15 10 5 0 7
15:15 18 10 8 0 15
15:30 13 10 3 0 18
15:45 9 10 0 1 17
16:00 6 10 0 4 13
16:15 7 10 0 3 10
16:30 3 10 0 7 3
16:45 5 10 0 5 0
17:00 2 10 0 8 0
Total 121 160
A manager would want to allocate the resources (servers) to handle peak hours
more effectively. 22
Case: Bank Customers
• An inventory buildup diagram can be used to track the length of the
waiting line (queue) in the system by the period.

This shows the periods

when the process cannot
handle the demand and
queue (waiting line)
builds up

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Case: Bank Customers
• In the entire afternoon, the overall input (number of customers that
arrive) is 121 customers and the overall capacity is 160 customers.

• Looking at the aggregate numbers can be misleading.

• In the afternoon, there are periods with customers waiting, leading to

excess demand and potential loss of revenue.

• The periods with excess capacity have idle resources and

unnecessary expenses.

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The OM Triangle
• The OM Triangle represents the balance between 3 critical elements.

• Inventory: Buffer stock that ensures demand is met even with

variability.

• Capacity: The ability of resources to produce goods in a given time.

• Information: Accurate data that helps Capacity

forecast demand, plan production,
and manage inventory.

Inventory Information

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Trade-Offs in the OM Triangle
• Increasing capacity reduces lead times but incurs higher costs.

• Better information allows for leaner inventory and optimized capacity

use but requires investment in technology and systems.

• Holding more inventory can buffer against variability and capacity

constraints, ensuring customer service levels.

Operations managers make decision involving tradeoffs. Gaining in one metric

often means sacrificing another (because businesses operate under limited
resources)

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 Little’s Law is a simple yet powerful tool for analyzing

Little’s Law business processes in the long-run, with continuous

inputs and outputs (all metrics are averages).

• Little’s Law is a fundamental principle in OM that relates 3 key

variables in a stable system, which is a long-term state where the
average inflow rate is the same as the outflow rate.

• L (Average Inventory): The average number of items (customers,

products, etc.) in a system.

• λ (Average Throughput Rate): The rate at which items enter or exit

the system.

• W (Average Wait Time): The average time an item spends in the

system.

L = λW
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Little’s Law
• Little’s law applies universally to various types of queues, systems
and subsystems.

• Limitations: Little’s Law assumes a stable system with consistent

input/output rates and does not account for fluctuations or variability
in processes.

Average
Throughput Rate
Average Inventory

Average Wait Time

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Applications of Little’s Law
Industry L λ W
Healthcare Patients in ED Arrival rate of Avg time a patient
patients spends in the ED
Manufacturing Avg number of Avg rate of Avg time each
products on the products entering product spends
assembly line the line on the assembly
line
Customer Service Avg number of Avg rate of Avg time a
customers in the customers customer waiting
checkout line entering checkout
Software Systems Avg number of Avg rate of Avg time to
requests being incoming web process each
processed requests request
Supply Chain Avg number of Avg rate of items Avg time an item
items in the entering the spends in the
warehouse warehouse warehouse
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Application of Little’s Law: Material Flow
• Consider a manufacturing plant where raw materials are processed
into finished products. The plant processes materials at an average
rate of 20 units per hour (arrival rate, λ). Each unit of material spends
an average of 3 hours in the system (processing time + waiting time,
W).

L = λW = 20 units/hr x 3 hours = 60 units

• On average, there are 60 units of material within the manufacturing

process at any given time. This includes materials that are currently
being processed as well as those waiting to be processed.

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Application of Little’s Law: Customer Flow
• A retail store observes that, on average, 30 customers are present in
the store at any given time. The store records that, on average, 120
customers enter the store every hour.

• Calculate the average flow time (W), which is the average time a
customer spends in the store.

W = L/λ = 30 customers / 120 customer/ hour = 0.25 hours

• The average flow time (W) for a customer in this retail store is 0.25
hours (15 minutes). This means that, on average, a customer spends
15 minutes in the store from the time they enter until they leave.

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Application of Little’s Law: Cash Flow
• Imagine a company that processes invoices. On average, the
company has 500 invoices being processed at any given time. Each
month, 2,000 invoices are received and processed by the company.

• We want to find out the average flow time (T), which is the average
time an invoice spends in the system from receipt to completion.

W = L/λ = 500 invoices / 2000 invoices / month = 0.25 months

• The average flow time for an invoice in this company is 0.25 months
(7.5 days). This means that, on average, it takes 7.5 days for an
invoice to be processed from the time it is received until it is
completed.

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Application of Little’s Law: Service Flow
• A bank processing loan applications has on average, 10 loan
applications submitted per hour. Each application takes, on average,
30 minutes (0.5 hours) to be processed.

• We want to find the average number of loan applications (L) in the

system at any given time, which includes both those being processed
and those waiting to be processed.

L = λW = 10 applications/hour x 0.5 hours/application = 5 applications

• This result means that, on average, there are 5 loan applications in

the system at any given time. This includes both the applications
currently being processed and those waiting to be processed.

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Insights from Little’s Law
• Managers cannot set throughput time, throughput rate, and inventory
levels independently.

• Control Two, Determine One: Once any two factors are controlled,
the third is automatically determined.

• To lower inventory, a manager must either increase throughput rate or

decrease throughput time.

• To boost throughput, increasing inventory or decreasing throughput

time is necessary.

• Minimizing delays (throughput time) can lead to lower inventory needs

and higher throughput without additional resources.
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