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Production and operations Management
Lecture 5Production and operations ManagementLecture 5: Module 1 Process Analysis
Labor productivity measures
Labor productivityLabor content: P1+P2+P3: Sum of processing/activity times with worker/labor. Cycle time: 1/Flow rate: How fast is the process creating output.Idle time: how much unproductive time a worker has for every unit of output produced.Average labor utilization: ratio between the labor content and the labor content plus all the direct idle time
a1Processing Timea2a3a4123Bottleneck=Idle Time Capacityi =
Process Capacity=Min{Capacityi}
Flow Rate = Min{Demand, Capacity}
Utilizationi=
Review of Capacity Calculations
Labor Productivity Measures=Processing time
Cycle time CT= 1/ Flow Rate Labor Content=p1+p2+p3 If one worker per resource: Idle Time=(CT-p1) +(CT-p2) +(CT-p3) If m workers at resource 1: Idle time= (CTxm)-p1 +(CT-p2) +(CT-p3) Average labor utilization
Cost of direct laborLabor Productivity Measures5Practice problem
Read handout 3
Littles law
Processes: The Three Key Metrics
Shown by Professor Little in 1961
What it is: Inventory (I) = Flow Rate (R) * Flow Time (T)
How to remember it: - units
Implications: Out of the three fundamental performance measures (I,R,T), two can be chosen by management, the other is GIVEN by nature Hold throughput constant: Reducing inventory = reducing flow time
Given two of the three measures, you can solve for the third: Indirect measurement of flow time: how long does it take you on average to respond to an email? You write 60 email responses per dayYou have 240 emails in your inbox
Littles law: Its more powerful than you think...Examples for Littles Law ApplicationsIn a large Philadelphia hospital, there are 10 cases per day.80% of the cases are easy and require patients to stay for 2 days20% of the cases are more complicated and require a 5 day stay
What is the average occupancy of the department?Source: Graves and LittlePractice Problem
Inventory turns/inventory costsInventory turnsWorking with physical units is not necessarily the best method for obtaining an aggregate measure of inventory.Therefore inventory is often measured in some monetary unit, for example, $5 mill ion worth of inventory.Inventory turns: How often a company is able to turn over its inventory.
Cost of Goods sold: 25,263 mill $/yearInventory: 2,003 mill $Cost of Goods sold: 20,000 mill $/yearInventory: 391 mill $Inventory TurnsInventory TurnsComputed as:
Based on Littles lawCareful to use COGS, not revenues
Inventory turns=Inventory Cost Calculation
Compute per unit inventory costs as: Per unit Inventory costs=
Example:
Annual inventory costs=30% Inventory turns=6 Per unit Inventory costs=
Source: Gaur, Fisher, RamanInventory Turns in Retailing and Its Link to Inventory Costs
Practice problem
Read handout 4