Introduction Session 1. Prof. Christian Terwiesch

Transcription

1 Introduction Session 1

2 Operations in a Restaurant

3 Operations in an Emergency Room

4 Four Dimensions of Performance Cost Efficiency Quality Product quality (how good?) Process quality (as good as promised?) Variety Customer heterogeneity Time Responsiveness to demand Important for - Performance measurement - Defining a business strategy

5 Four Dimensions of Performance: Measurements for a Sandwich Store Cost Efficiency Quality Product quality (how good?) Process quality (as good as promised?) Variety Customer heterogeneity Time Responsiveness to demand

6 Introduction Session 2

7 Four Dimensions of Performance: Trade-offs Cost Efficiency Measured by: - cost per unit - utilization Quality Product quality (how good?) => Price Process quality (as good as promised?) => Defect rate Variety Customer heterogeneity Measured by: - number of options - flexibility / set-ups - make-to-order order Time Responsiveness to demand Measured by: - customer lead time - flow time

8 What Can Ops Management (This Course) Do to Help? Step 1: Help Making Operational Trade-Offs Responsiveness High Very short waiting times, Comes at the expense of Frequent operator idle time Low Tradeoff Long waiting times, yet operators are almost fully utilized Low labor productivity High labor productivity Example: Call center of a large retail bank - objective: 80% of incoming calls wait less than 20 seconds - starting point: 30% of incoming calls wait less than 20 seconds - Problem: staffing levels of call centers / impact on efficiency OM helps: Provides tools to support strategic trade-offs Labor Productivity (e.g. $/call)

9 What Can Ops Management (This Course) Do to Help? Step 2: Overcome Inefficiencies Responsiveness High Current frontier In the industry Competitor A Eliminate inefficiencies Competitor C Low Competitor B Low labor productivity High labor productivity Labor Productivity (e.g. $/call) Example: Benchmarking shows the pattern above Don t just manage the current system Change it! Provides tools to identify and eliminate inefficiencies => Define Efficient Frontier Types of inefficiencies: -Poor process design - Inconsistencies in activity network

10 What Can Ops Management (This Course) Do to Help? Step 3: Evaluate Proposed Redesigns/New Technologies Responsiveness High Redesign process Low Current frontier In the industry New frontier Low labor productivity High labor productivity Labor Productivity (e.g. $/call) Example: What will happen if we develop / purchase technology X? Better technologies are always a (?) nice to have, but will they pay? OM helps: Evaluates system designs before they occur

11 Example: The US Airline Industry

12 Example: The US Airline Industry

13 Introduction Session 3

14 Course Outline / Grading / Homework Objective of the course: Understanding and improving business processes Performance measures How-to Mix of industries: healthcare, restaurants, automotive, computers, call centers, banking, etc Course Outline Introduction (0.5 weeks) 1. Process analysis (1.5 weeks) 2. Productivity 3. Product variety 4. Responsiveness 5. Quality Requirements / Prerequisites: There are no prerequisites for the course Some modules require statistical knowledge (standard deviation, normal distribution) Homework assignments One large assignment after each module (five assignments); 10% each Final exam with questions from all modules; 50%

15 Text Book Course book Cachon, Gerard, Christian Terwiesch, Matching Supply with Demand: An Introduction to Operations Management, 3rd edition, Irwin - McGraw Hill, 2012 (ISBN , 507 pages)

16 Personal Introduction MBA core course: Operations Management: Quality and Productivity Taught ~ 60 times ~ 4000 MBA students Research: Operations Management, focus on Healthcare Management Innovation tournaments and contests Christian Terwiesch Andrew M. Heller Professor at the Wharton School Senior Fellow Leonard Davis Institute for Health Economics 573 Jon M. Huntsman Hall Philadelphia, PA

17 Process Analysis Session 1

18 Subway Sitting in Front of the Store

19 Subway Sitting in Front of the Store

20 Processes: The Three Basic Measures Flow rate / throughput: number of flow units going through the process per unit of time Flow Time: time it takes a flow unit to go from the beginning to the end of the process Inventory: the number of flow units in the process at a given moment in time Flow Unit: Customer or Sandwich

21 Process Analysis: The Three Measures Immigration department Champagne MBA program Auto company Applications Bottle of champagne Student Car Approved or rejected cases Bottles sold per year Graduating class Sales per year Processing time Time in the cellar 2 years 60 days Pending cases Content of cellar Total campus population Inventory

22 Why Do We Care About Inventory? About $1 Trillion in Inventory in the US Economy That is manufacturing inventory alone

23 Why Do We Care About Inventory? (ctd) Inventory corresponds to Supply-Demand mismatches That is inventory waiting for customers, but also customers wait for products and services Service Examples ER Wait Times: 58-year-old Michael Herrara of Dallas died of a heart attack after an estimated 19 hours in the local l Hospital ER Some ER s now post expected wait times online / via Apps It takes typically 45 days do get approval on a mortgage; Strong link between wait times and conversion Waiting times for drive-through at McDonald s: 159 seconds; Long queues deter customers to join Production Examples Buying an Apple computer Buying a Dell computer => Make-to-order vs Make-to-Stock

24 Summary When observing a process, always aim to understand the three process measures Flow rate / throughput: number of flow units going through the process per unit of time Flow Time: time it takes a flow unit to go from the beginning to the end of the process Inventory: the number of flow units in the process at a given moment in time In the next session, we will discuss what drives these measures We will then find out that the three measures are related to each other

25 Process Analysis Session 2

26 Process Analysis In this session, we will take you INSIDE the black box Specifically, you will learn how to: 1. Create a process flow diagram 2. Find the bottleneck of the process and determine the maximum flow rate 3. Conduct a basic process analysis

27 Subway Inside the Store

28 Drawing a Process Flow Diagram

29 Drawing a Process Flow Diagram Customers Station 1 Station 2 Station 3 Symbols in a process flow diagram Difference between project management and process management

30 Basic Process Vocabulary Processing times: how long does the worker spend on the task? Capacity=1/processing time: how many units can the worker make per unit of time If there are m workers at the activity: Capacity=m/activity time Bottleneck: process step with the lowest capacity Process capacity: capacity of the bottleneck Flow rate =Minimum{Demand rate, Process Capacity) Utilization =Flow Rate / Capacity Flow Time: The amount of time it takes a flow unit to go through the process Inventory: The number of flow units in the system

31 Process Analysis Session 3

32 Labor Productivity Measures Bottleneck Time a 4 a 2 =Idle Time =Processing time Processing a 1 Labor Productivity Measures Cycle time CT= 1/ Flow Rate a 3 Direct Labor Content=p t 1 +p 2 +p 3 +p 4 If one worker per resource: Direct Idle Time=(CT-p 1 ) +(CT-p 2 ) +(CT-p 3 ) Review of Capacity Calculations Number of Resources Capacity i = Processing Time i Process Capacity=Min{Capacity i } Flow Rate = Min{Demand, Capacity} Utilization i = Flow Rate Capacity i i Average labor utilization labor content labor content direct idle time Cost of direct labor Total wages per unit of time Flow Rate per unit of time

33 Example: Assembly Line with Six Stations 3 min/unit 5 min/unit 2 min/unit 3 min/unit 6 min/unit 2 min/unit

34 The Role of Labor Costs in Manufacturing: The Auto Industry 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Purchased parts and assemblies Parts and material costs Final Including Including Rolled-up Assembler s Tier 1 Tier 2 Costs over cost Costs Costs ~ 5 Tiers Other Overhead Warranty Quality Assembly and other Labor costs Logistics costs Material costs While labor costs appear small at first, they are important - look relative to value added - role up costs throughout the value chain Implications - also hunt for pennies (e.g. line balancing) - spread operational excellence through the value chain Source: Whitney / DaimlerChrysler