Introduction Session 1 Prof. Christian Terwiesch Operations in a - - PowerPoint PPT Presentation

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Introduction Session 1 Prof. Christian Terwiesch Operations in a - - PowerPoint PPT Presentation

Apr 30, 2023 243 likes •598 views

Introduction Session 1 Prof. Christian Terwiesch Operations in a Restaurant Prof. Christian Terwiesch Operations in an Emergency Room Prof. Christian Terwiesch Four Dimensions of Performance Quality Cost Product quality (how good?)

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Introduction

Session 1

  • Prof. Christian Terwiesch
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Operations in a Restaurant

  • Prof. Christian Terwiesch
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Operations in an Emergency Room

  • Prof. Christian Terwiesch
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Four Dimensions of Performance

Cost

▪ Efficiency

Quality

▪ Product quality (how good?) ▪ Process quality (as good ▪ Process quality (as good

as promised?) Time

▪ Responsiveness to

demand Variety

▪ Customer heterogeneity

Important for

  • Performance measurement
  • Defining a business strategy
  • Prof. Christian Terwiesch
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Four Dimensions of Performance: Measurements for a Sandwich Store

Cost

▪ Efficiency

Quality

▪ Product quality (how good?) ▪ Process quality (as good as

promised?) Time

▪ Responsiveness to demand

p ) Variety

▪ Customer heterogeneity ▪ Responsiveness to demand ▪ Customer heterogeneity

  • Prof. Christian Terwiesch
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Introduction

Session 2

  • Prof. Christian Terwiesch
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Four Dimensions of Performance: Trade-offs

Cost

▪ Efficiency ▪ Measured by:

Quality

▪ Product quality (how good?)

=> Price

▪ Process quality (as good

  • cost per unit
  • utilization

▪ Process quality (as good

as promised?) => Defect rate Time

▪ Responsiveness to

Variety

▪ Customer heterogeneity

p demand

▪ Measured by:

  • customer lead time
  • flow time

Customer heterogeneity

▪ Measured by:

  • number of options
  • flexibility / set-ups

make to order

  • Prof. Christian Terwiesch
  • flow time
  • make-to-order
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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 Trade-

  • ff

Long waiting times, yet operators are almost fully utilized

Example: Call center of a large retail bank

Labor Productivity (e.g. $/call) Low Low labor productivity High labor productivity y

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
  • Prof. Christian Terwiesch

OM helps: Provides tools to support strategic trade-offs

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What Can Ops Management (This Course) Do to Help? Step 2: Overcome Inefficiencies

Responsiveness High Current frontier Eliminate inefficiencies In the industry Competitor A Low Competitor C Competitor B Labor Productivity (e.g. $/call) Low labor productivity High labor productivity Competitor B

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

  • Prof. Christian Terwiesch

Types of inefficiencies:

  • Poor process design
  • Inconsistencies in activity network
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What Can Ops Management (This Course) Do to Help? Step 3: Evaluate Proposed Redesigns/New Technologies

Responsiveness High High Redesign process Current frontier New frontier Low In the industry Labor Productivity ( $/ ) Low labor High labor

Example:

  • What will happen if we develop / purchase technology X?

Better technologies are al a s (?) nice to ha e b t ill the pa ?

(e.g. $/call) productivity productivity

  • Prof. Christian Terwiesch
  • Better technologies are always (?) nice to have, but will they pay?

OM helps: Evaluates system designs before they occur

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Example: The US Airline Industry

  • Prof. Christian Terwiesch
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Example: The US Airline Industry

  • Prof. Christian Terwiesch
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Introduction

Session 3

  • Prof. Christian Terwiesch
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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 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%

  • Prof. Christian Terwiesch

q ;

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Text Book

Course book Cachon, Gerard, Christian Terwiesch, Matching Supply with Demand: An Introduction to Operations Management, 3rd edition, Irwin - McGraw Hill, 2012 (ISBN 978-0073525204, 507 pages)

  • Prof. Christian Terwiesch
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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 Senior Fellow Leonard Davis Institute for Health Economics 573 Jon M. Huntsman Hall Philadelphia, PA 19104.6366

  • Prof. Christian Terwiesch
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Process Analysis

Session 1

  • Prof. Christian Terwiesch
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Subway – Sitting in Front of the Store

  • Prof. Christian Terwiesch
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Subway – Sitting in Front of the Store

  • Prof. Christian Terwiesch
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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

Flow Unit: Customer or Sandwich

  • Prof. Christian Terwiesch
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Process Analysis: The Three Measures

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

  • Prof. Christian Terwiesch
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Why Do We Care About Inventory?

About $1 Trillion in Inventory in the US Economy About $1 Trillion in Inventory in the US Economy That is manufacturing inventory alone

  • Prof. Christian Terwiesch
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Why Do We Care About Inventory? (ctd)

Inventory corresponds to Supply Demand mismatches 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

h i th l l H it l ER hours in the local 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
  • Waiting times for drive-through at McDonald s: 159 seconds; Long queues deter customers to join

Production Examples

  • Buying an Apple computer

B i D ll t

  • Prof. Christian Terwiesch
  • Buying a Dell computer

=> Make-to-order vs Make-to-Stock

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Summary

When observing a process always aim to understand the three process measures 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

  • 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 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

  • Prof. Christian Terwiesch
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Process Analysis

Session 2

  • Prof. Christian Terwiesch
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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

  • 3. Conduct a basic process analysis
  • Prof. Christian Terwiesch
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Subway – Inside the Store

  • Prof. Christian Terwiesch
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Drawing a Process Flow Diagram

  • Prof. Christian Terwiesch
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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

  • Prof. Christian Terwiesch
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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
  • Prof. Christian Terwiesch

Inventory: The number of flow units in the system

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Process Analysis

Session 3

  • Prof. Christian Terwiesch
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Labor Productivity Measures

Time a2 a4 Bottleneck

=Idle Time =Processing time

a1 Processing a

  • Cycle time CT= 1/ Flow Rate

Di t L b C t t Labor Productivity Measures P a3 Direct Labor Content=p1+p2+p3+p4 If one worker per resource: Direct Idle Time=(CT-p1) +(CT-p2) +(CT-p3) A l b tili ti 1 2 3 4

  • Capacityi =

Review of Capacity Calculations Resources

  • f

Number

i

time idle direct content labor content labor  

  • Average labor utilization

Capacityi

  • Process Capacity=Min{Capacityi}
  • Flow Rate = Min{Demand Capacity}

i

Time Processing

time

  • f

unit per Rate Flow time

  • f

unit per wages Total 

  • Cost of direct labor
  • Prof. Christian Terwiesch

Flow Rate Min{Demand, Capacity}

  • Utilizationi=

i

Capacity Rate Flow

p

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Example: Assembly Line with Six Stations

3 min/unit 5 min/unit 2 min/unit 3 min/unit 6 min/unit 2 min/unit

  • Prof. Christian Terwiesch
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100%

The Role of Labor Costs in Manufacturing: The Auto Industry

70% 80% 90% 100% Quality Warranty Overhead Other 30% 40% 50% 60% Purchased parts and assemblies Parts and material costs Logistics costs Assembly and other Labor costs 0% 10% 20% 30% Fi l I l di I l di R ll d Material costs Final Assembler’s cost Including Tier 1 Costs Including Tier 2 Costs Rolled-up Costs over ~ 5 Tiers

  • While labor costs appear small at first, they are important

look relative to value added

  • look relative to value added
  • role up costs throughout the value chain
  • Implications
  • Prof. Christian Terwiesch
  • also hunt for pennies (e.g. line balancing)
  • spread operational excellence through the value chain

Source: Whitney / DaimlerChrysler