So, why are some operations more productive than others?

Why are some operations more responsive than others?

To answer these questions, we have to go inside the business processes that make up

for the operations. The sole purpose of this module, process

analysis. In this module, we'll introduce the three

most important performance measures of an operation which are called, flow rate,

also known as the through put, inventory, and flow time.

To motivate these three performance measures and get some intuition on how

process analysis works, I would like you to join me once again over to our local

subway restaurant, and just see what's going on.

You may take ourselves outside, comfortable outside the restaurant, we'll

just spend a couple of hours observing how people come in and to of the restaurant.

Now, we're here to learn, not to eat. And so, I will not let you get inside the

restaurant, instead, I will give you an assignment.

Keep track at what times the various customers arrive.

Then, try to draw the following graph. On the x-axis in this graph, you're going

to plot the time. On the vertical dimension, you are going

to draw the cumulative number of the customers that have arrived.

That mean, s if the first customer arrived after two minutes and 30 seconds, you are

going to draw the first point here. Is the next customer came in a minute

latter? At three minutes 30, the second person has

arrived, and you're going to plot them as a data point over here.

So, step by step, you're going to draw the times at which customers arrive, and then,

the number of the customer that just had arrived.

This will create a graph that we can call the cumulative inflow of customers to the

restaurant. I will do a similar exercise.

I will draw a graph. But, my time points, I'm not based on the

arrival of the customers but based on their departure.

So, whenever there's a customer leaving, I'm going to draw a step up and keep track

of the departure times. When we do this, we're going to get a

graph that looks like the following. Now, 25 minutes later, you and I will have

collected the following data. I will show your graph and my graph on the

same piece of paper. The information here looks like this,

remember you were in charge of keeping track of the cumulative inflow of the

customers here, while I was computing the cumulative outflow.

We notice that our first customer came at roughly 30 seconds into it.

And then, stayed in the system for about a minute and a half at which time the

customer left again. That's when I graphed the, the customer

and made this person an outflow. If you look at our two graphs, you can see

a couple of interesting things. The vertical distance between our graphs

is the number of customers currently in the restaurant.

These are customers that went in but have not yet come out of the restaurant.

The horizontal difference between our lines is the amount of time the customer

spent in the restroom. We saw this with the first customer who

arrived after roughly 30 seconds of observation time, and then left after two

minutes. And then, we see later on, that some

customers had a little longer wait. So, for example, if you look here, as the

seventh customer, this person came in around here, and it took until here 'till

this person was leaving. This suggests there was, beyond the

activity times and the process, potentially, a fair bit of waiting going

on. Now, before we can do any process

analysis, we first have to define what we want to analyze.

We'll define the flow unit of the process as the atomic unit of analysis.

In this case, we want to analyze the flow of customers.

Note that we could also analyze other things in the process.

For example, the flow of cheese, the flow of money, the flow of sandwiches or other

things. For this computation here, our flow unit

is, indeed, the customer. We define the flow rate of the process,

also known as the throughput, as the number of units, flow units going through

the process per unit of time. This is expressed in customers per unit of

time, for example, customers per hour. Its simply correspondent to the slope of

the two lines that we've just been drawing as a cumulative inflow and cumulative

outflow. Second, we define the flow time as the

time it take the flow unit to go through the process.

This was, as you recall, is the horizontal difference between the inflow line and the

outflow line. And third, we define the inventory as a

number of flow units in the process at any given amount of time, this was the

vertical distance between your line and my line.

Given how important these three definitions are, let's practice some of

these for examples. Consider first an immigration process.

In this case, the flow unit would be a Visa application.

So, flow rate would be the total number of Visa applications that are either approved

or rejected in a given period of time. So, flow time would be the processing

time. How long our Visa applicant had to wait

for his or her Visa? And finally, the inventory would be the

number of pending cases. Let's consider the production of

champagne. The flow unit would be a bottle of

champagne. So, flow rate would be the bottles sold

every year. The flow time would be the time that the

champagne would sit in the cellar before it is sold.

And, the inventory would simply be the content of the wine cellar.

Consider an MBA program as a production process.

The flow unit here is the student. The flow rate is the incoming, and or the

graduating class, so simply the number of students going through the process per

year. The processing time, at least here at

Wharton, it's a two year program, so that's the time that the student spent at

school. The inventory then is the total number of

students on campus in the first year and in the second year.

And finally, consider a car company. The flow unit here is the car, the flow

rate is the amount of cars sold every year.

The flow time is the time from the beginning of the production to the time

that the vehicle is finally sold, and the inventory of the cars in the system.

Notice that only in the second and fourth case here, my definition of inventory will

be similar to the world of financial accounting.

In this case here, and in this case here, both service settings, these are flow

units that will never show up on the balance sheet of an organization.