Operations

Process Analysis

Whilst the process flow structure of an operation is important, firms must also consider how the individual processes themselves are acting to add value to the product. As an operation itself is simply any method by which a firm uses its inputs to add value to its outputs, it is clear that the efficiency and performance of a process, and the value it adds, will have an important impact on business performance. The analysis of the various processes making up an operation is hence an important step in improving the competitiveness of a firm. Process analysis thus involves understanding the processes, the relationships between them and the overall operation, and how various can be used to analyse the process. This is generally achieved through the following model:

  • Define the individual steps in the process, the inputs into them, and the outputs they produce
  • Construct a process flow diagram to demonstrate how the steps are related and how the inputs flow through the process
  • Determine the capacity, efficiency and other properties of the various steps
  • Identify any bottlenecks where a step has a lower capacity than all other steps in its sequence
  • Determine what the impact of removing these bottlenecks would be
  • Carry out a cost benefit analysis of increasing flow through the bottlenecks
  • Decide what should be done to maximise the value of the process

As part of the analysis, a process flow diagram can be constructed to demonstrate the various steps in the process and the relationships between them. Within such a diagram:

  • Rectangles are used to represent individual steps
  • Arrows are used to represent the flow of inputs, outputs and information between the steps. Inputs and outputs are shown using a solid line and information using a dashed line
  • Inverted triangles are used to show any raw material, work in process or finished goods stored within the process. This is most common in a batch process
  • Circles represent information stored in the process, such as capacity and productivity data

In a process flow diagram, two tasks connected by a solid line will be performed one after another, whilst two tasks drawn in parallel with no connecting line will be performed simultaneously.

Construction of a process flow diagram can be complicated by the fact that many firms have confusing or inconsistent operating processes. In addition, the main source of data for constructing process flow diagrams is often the employees involved in the process. Employees are often reluctant to reveal the true nature of the process, particularly if there are any illogical or unofficial steps. This is because employees may be embarrassed to reveal any unorthodox processes or steps they use, and may also worry that revealing any workarounds they use will cause them to be disciplined, or cause the workarounds to be banned. Finally, many employees may inadvertently miss out steps which they don’t consider to be important, or which they simply do as force of habit.

Process Performance Metrics

In order to truly analyse the performance of any process, managers need to use metrics to represent factors such as cost, efficiency, quality and flexibility. Some of the most common metrics used to analyse the performance of a process are:

  • Maximum process capacity. This is defined as how many units of output can be produced by a process for a given period of time. As this is a process capacity, it will be limited by the capacity of the lowest capacity task or step. For example, a process involving a machine that can make 1,000 units of output per hour will be limited if the process can only supply the machine with 500 units per hour. However, the capacity of two machines working in parallel, when their outputs do not depend on each other, will be the sum of the capacities of both machines, provided there are no sequential steps which limit the capacity.
  • Capacity utilisation. This is the percentage of the maximum process capacity currently being used during the operation. It can also be measured for a single step. For example, the machine above has a capacity utilisation of 50% as it will only be able to produce 500 units per hour.
  • Throughput rate. This is a measure of the average rate of units flowing past a certain point in a process. In general, the maximum possible throughput rate will be the capacity of the process.
  • Flow time. This is the average time taken for a single unit to pass through the process, from the point when raw materials are input until the finished unit leaves the process. The flow time will include both the time spent working on the unit and any time the unit spends as work in progress. If the process also involves distribution or delivery, then this will be part of the total flow time.
  • Cycle time. This is a measure of the intervals between units of output leaving the process, or a step within it. Cycle time is the time per unit, and throughput rate is the number of units per time, hence the two have an inverse relationship. Cycle time is so called because it is the time taken for a task or process to repeat itself, or ‘cycle’. As with capacity, the cycle time for the entire process will be the cycle time of the longest step.
  • Idle time. This is time when a unit is in the process but no activity is occurring. This can be because of a bottleneck, or when an activity is waiting for inputs. Idle time can be used for worker time and machine time.
  • Process time. This is the average amount of time spent processing a unit. It is the flow time less any idle time.
  • Work in process. Often shortened to WIP, this is the amount of partially finished products held in the process.
  • Set up time. This is the time required to prepare a process or activity to accept a new unit or batch of units. Set up time does not depend strongly on the amount of units being set up. As such, if set up time is required in a process, it is usual to use a batch process to reduce the impact of set up time on each individual unit.
  • Direct labour content. This is the amount of worker time taken to complete a unit. Direct labour content excludes time when workers are idle, conducting maintenance or transporting raw materials and WIP. For a batch process, the direct labour content of a batch will be split over the number of units.
  • Direct labour utilisation. This is the percentage of total worker time included in the direct labour content. This can be found by taking the direct labour content and dividing by the total worker time, including idle time, transportation and other non productive time.

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Little’s Law

In 1961, John Little proved that the amount of work in process held within a process would be equal to the throughput rate multiplied by the flow time. This is Little’s Law. In other words, if a process can produce 100 units an hour, and takes five hours to complete, at any given time there will be 500 units of work in process inside the process:

WIP = Throughput Rate * Flow Time

In order to maintain a constant throughput rate, as finished units emerge from the process so new units must be fed it; thus maintaining the level of WIP. However, it is important to note that the WIP will be at various stages of completion throughout the process. In addition, as the throughput rate is the inverse of the cycle time, the law can also be shown as:

WIP = Flow Time / Cycle Time

Hence:
Flow Time = WIP * Cycle Time

The Process Bottleneck

In general, in any process there will be one task which is slower than all the others, and hence limits the capacity and throughput rate of the entire process. This task is referred to as the process bottleneck. As this task determines the capacity and throughput of the entire process, it is of vital important to operations managers looking to increase the capacity and efficiency of the process. Indeed, as long as the bottleneck remains unchanged, the firm will see no benefit from improving the efficiency of any other steps in the process. Only by eliminating the bottleneck can throughput be increased.

However, once the bottleneck has been eliminated a new task will become the bottleneck, and this task should then be focused on. Indeed, the significance of the bottleneck depends on the speed of the next slowest task. If this task has a much higher throughput that the bottleneck, the bottleneck will have a significant impact on the capacity of the overall process. As such, eliminating the bottleneck would greatly improve the capacity of the overall process. If however the next slowest task has a throughput rate which is only slightly higher than that of the bottleneck, then if the bottleneck is eliminated the overall throughput rate and process capacity will not increase by a large amount. In this case, effort should be focused on improving the efficiency of both processes for maximum benefits.

Process Improvement

Most businesses are constantly looking for ways to improve the cost, efficiency, quality and flexibility of their operations. Whilst this generally involves focusing on the bottleneck, there are a variety of potential ways this can be achieved:

  • Additional resources can be tasked to boost the capacity of any bottleneck. Other machines or workers can be tasked to work in parallel with the bottleneck, hence increasing the capacity.
  • The efficiency of the bottleneck activity itself can be improved, perhaps by using more efficient machines or working methods.
  • Alternative process flows can be developed to route work around the bottleneck. This will increase the overall capacity of the process by effectively providing a parallel flow.
  • The availability of the bottleneck resources can be increase. For example, the bottleneck machine and staff can work overtime to bring them up to the level of the second slowest process.

Other process improvements are:

  • The work in process inventory can be reduced, which reduces cycle time and the costs of storing WIP in the process
  • Activities which do not add value can be minimised or removed. For example, transport time can be minimised by arranging the process better and rework and repair activities can be minimised by implementing higher quality standards in the initial work.
  • Redesign the product itself to improve the efficiency of manufacture can help improve both capacity and throughput.
  • Outsourcing certain activities can improve flexibility and reduce costs by giving access to specialised resources.

In some cases, the most significant improvement can be produced by eliminating the bottleneck activity, particularly if the bottleneck is much slower than the rest of the process. However, in efficient processes, or where several bottlenecks have already been eliminated, it may be difficult to achieve more that a marginal improvement in the process. As many improvements require significant investments of time and money, such improvements may not justify their cost. As such, cost benefit analyses are generally carried out before any process improvements are undertaken to determine whether they will truly add value.

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