B7801: Operations Management

27 March 1998 - Agenda

•Mass Customization
•National Cranberry Cooperative
•Capacity Management
•Queue and customer management
 Why is capacity management important?
1) Driver of Financial Performance

PROFIT ASSET
ROA = MARGIN x TURNOVER

•direct labor •facility utilization

•overhead costs •equipment utilization increasing
•productivity •inventory turnover

2) Driver of Operating Performance Capacity Utilization

delivery performance
• fill rate
• lead time decreasing
service levels
• wait times
• availability
 Matching demand and capacity
# units/hr. poor service / lost revenue

excess assets
and costs

capacity

demand

time

How do firms match capacity to demand?

 Key steps in capacity planning
STEP 1: Forecast demand
– forecast quantities
– forecast methods
– understanding errors and uncertainties
STEP 2: Assess the options for meeting demand
– capacity increases/decreases
– capacity allocation
– inventory
– demand management
STEP 3: Construct and evaluate the plans
– planning methodology
– evaluation/robustness
• scenario analysis
• simulation
What is demand for our
product/service like?
What are its main characteristics?
How accurately can we predict it?
What options do we have available
to meet demand?
What constraints do we face?
What is the relationship between
capacity and service levels?
What is our cost structure?
How do we go about developing a
plan?
What is the effect of forecast
uncertainty on plan performance?
 A hierarchy of time scales
facility expansion
hiring/firing
Long Term technology investments
(1-10 yrs.) make/buy

capacity allocation
Medium Term hiring/firing
(3 mon. - 1 yr.) overtime
inventory build-up

detailed prod. scheduling

Short Term staff scheduling
(hourly, daily,wkly) detailed allocation
An example: National Cranberry Cooperative
• Forecasting demand
– peak season same as previous year
– no increase in total volume
– increase to 70% wet
• Assessing options to meet demand
– do nothing
– overtime
– capacity expansion (bins, dryers)
• Constructing and evaluating a plan
– methodology (trial and error, incremental analysis)
– process flow analysis to determine cost/performance
• overtime cost
• truck backup
– evaluation/robustness
• average cost/benefit estimates
• worst-case performance (peak day) (also remember McDonald’s,BK!!)
• simulation
• Time scales (med: add dryer, short: overtime on demand)
 Forecasting
• What to forecast
– level of aggregation
• one location vs. region Aggregate where possible, but
• individual product vs. product family keep enough detail to make your
planning decisions.
• daily, weekly or monthly
– trade-off: detail vs. forecast accuracy
• Forecast methodology
– subjective methods (Delphi method) If data is available and product or
– time series (exponential smoothing) service is mature, use data
intensive methods; otherwise,
– causal methods (regression) resort to subjective methods.
• Forecast errors
– point estimate = “best guess”
Try to quantify forecast errors as
– magnitude of error well as point estimates. Factor
• MAD (mean absolute deviation) forecast uncertainty into your
• MSD (mean square deviation) plans.

– distribution of errors
Ex: Aggregate planning in an ice tea bottling plant
• demand forecast next 9 months:
27, 20, 36, 45, 78, 97, 118, 121, 82 (x10,000 units (12-oz.))
• 20 workers required
• capacity is 3,000 units/hour
• wages:
– $15/hr regular time
– $16/hr second shift (8 hr shifts)
– $20/hr overtime
• hiring/firing
– 16 hrs. of training @ $15/hr.
– 80 hrs. severance pay @ $16/hr.
• 500,000 unit warehouse. Extra storage is $1/month per 100 units.
• unit revenue = $0.40, unit cost (material) = $0.20
• $2M working capital line of credit (18% per year). Current balance is $1M.
 Strategy 1: Chase demand
(production = demand)
x10,000 units/month Monthly Demand/Production

140

120

100

80

60

40

20
Jan Feb Mar April May June July Aug Sept

Demand Prod
 Chase strategy financials
J an Feb Ma r April Ma y J une J uly Aug Sept
Uni ts
Dem and (x 10,000 uni ts) 2 7.00 2 0.00 3 6.00 4 5.00 7 8.00 9 7.00 1 18 .0 0 1 21 .0 0 8 2.00
Sale s (x 10,000 uni ts) 2 7.00 2 0.00 3 6.00 4 5.00 7 8.00 9 7.00 1 18 .0 0 1 21 .0 0 8 2.00
Rev . (Ca sh In) (x $10,000 ) 1 0.80 8 .0 0 1 4.40 1 8.00 3 1.20 3 8.80 4 7.20 4 8.40 3 2.80
Labor Hrs. Av a il
Std (x 100 hrs) 3 2.00 3 2.00 3 2.00 3 2.00 3 2.00 3 2.00 3 2.00 3 2.00 3 2.00
2 nd Sh irt (x 100 hrs) 0 .0 0 0 .0 0 0 .0 0 0 .0 0 3 2.00 3 2.00 3 2.00 3 2.00 3 2.00
OT (x 100 hrs) 1 6.00 1 6.00 1 6.00 1 6.00 1 6.00 1 6.00 1 6.00 1 6.00 1 6.00
Produc tion Plan
Prod . Ou tp ut (x 10,000 uni ts) 2 4.00 2 4.00 3 6.00 4 8.00 7 2.00 9 6.00 1 20 .0 0 1 20 .0 0 8 4.00
New Hire s 0 0 0 20 0 0 0 0 0
No. Fi red 0 0 0 0 0 0 0 0 20
Reg . Ho urs (x 100 hrs) 1 6.00 1 6.00 2 4.00 3 2.00 3 2.00 3 2.00 3 2.00 3 2.00 3 2.00
2 nd Sh ift Hrs (x 100 hrs) 0 .0 0 0 .0 0 0 .0 0 0 .0 0 1 6.00 3 2.00 3 2.00 3 2.00 2 4.00
OT Ho urs (x 100 hrs) 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 1 6.00 1 6.00 0 .0 0
Ext. WH (x 10,000 uni ts) 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0
Inv e ntory
Start (x 10,000 uni ts) 2 0.00 1 7.00 2 1.00 2 1.00 2 4.00 1 8.00 1 7.00 1 9.00 1 8.00
End (x 10,000 uni ts) 1 7.00 2 1.00 2 1.00 2 4.00 1 8.00 1 7.00 1 9.00 1 8.00 2 0.00
Units in WH (x 10,000 uni ts)
Co. (x 10,000 uni ts) 1 7.00 2 1.00 2 1.00 2 4.00 1 8.00 1 7.00 1 9.00 1 8.00 2 0.00
Extern (x 10,000 uni ts) 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0
Cas h Out
Opera tions
Ma teri al s (x $10,000 ) 4 .8 0 4 .8 0 7 .2 0 9 .6 0 1 4.40 1 9.20 2 4.00 2 4.00 1 6.80
Std La bo r (x $10,000 ) 2 .4 0 2 .4 0 3 .6 0 4 .8 0 4 .8 0 4 .8 0 4 .8 0 4 .8 0 4 .8 0
2 nd Sh ift La bo r (x $10,000 ) 0 .0 0 0 .0 0 0 .0 0 0 .0 0 2 .5 6 5 .1 2 5 .1 2 5 .1 2 3 .8 4
OT La bo r (x $10,000 ) 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 3 .2 0 3 .2 0 0 .0 0
Hi ri n g Cost (x $10,000 ) 0 .0 0 0 .0 0 0 .0 0 0 .4 8 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0
Firi ng Co st (x $10,000 ) 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 2 .5 6
Ext. WH (x $10,000 ) 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0
Plant Financing Cos ts
Fin . Co st (pre v. m on .) (x $10,000 ) 1 .5 0 1 .4 7 1 .4 8 1 .4 5 1 .4 2 1 .3 0 1 .1 8 1 .0 4 0 .8 9
Total Ca sh Out (x $10,000 ) 8 .7 0 8 .6 7 1 2.28 1 6.33 2 3.18 3 0.42 3 8.30 3 8.16 2 8.89
Cas h Bala nc e (x $10,000 ) -97 .90 -98 .57 -96 .45 -94 .77 -86 .76 -78 .38 -69 .47 -59 .23 -55 .32

Total Pla n Rev . (x $10,000 ) $ 24 9.60 1 00 .0 0%

Total Ope r. Cst (x $10,000 ) $ 19 3.20 7 7.40 %
Total Fin. Cst. (x $10,000 ) $ 11 .7 2 4 .7 0%
Plant Earnings (x $10,000 ) $ 44 .6 8 1 7.90 %
 Strategy 2: Level production
x10,000 units/month Monthly Demand/Production

140

120

100

80

60

40

20
Jan Feb Mar April May June July Aug Sept

Demand Prod
 Level strategy financials J an Feb Ma r April Ma y J une J uly Aug Sept
Uni ts
Dem and (x 10,000 uni ts) 2 7.00 2 0.00 3 6.00 4 5.00 7 8.00 9 7.00 1 18 .0 0 1 21 .0 0 8 2.00
Sale s (x 10,000 uni ts) 2 7.00 2 0.00 3 6.00 4 5.00 7 8.00 9 7.00 1 18 .0 0 1 21 .0 0 8 2.00
Rev . (Ca sh In) (x $10,000 ) 1 0.80 8 .0 0 1 4.40 1 8.00 3 1.20 3 8.80 4 7.20 4 8.40 3 2.80
Labor Hrs. Av a il
Std (x 100 hrs) 3 2.00 3 2.00 3 2.00 3 2.00 3 2.00 3 2.00 3 2.00 3 2.00 3 2.00
2 nd Sh irt (x 100 hrs) 0 .0 0 1 6.00 1 6.00 1 6.00 1 6.00 1 6.00 1 6.00 1 6.00 1 6.00
OT (x 100 hrs) 1 6.00 1 6.00 1 6.00 1 6.00 1 6.00 1 6.00 1 6.00 1 6.00 1 6.00
Produc tion Plan
Prod . Ou tp ut (x 10,000 uni ts) 6 9.33 6 9.33 6 9.33 6 9.33 6 9.33 6 9.33 6 9.33 6 9.33 6 9.33
New Hire s 10 0 0 0 0 0 0 0 0
No. Fi red 0 0 0 0 0 0 0 0 0
Reg . Ho urs (x 100 hrs) 3 2.00 3 2.00 3 2.00 3 2.00 3 2.00 3 2.00 3 2.00 3 2.00 3 2.00
2 nd Sh ift Hrs (x 100 hrs) 0 .0 0 1 4.22 1 4.22 1 4.22 1 4.22 1 4.22 1 4.22 1 4.22 1 4.22
OT Ho urs (x 100 hrs) 1 4.22 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0
Ext. WH (x 10,000 uni ts) 1 2.33 6 1.67 9 5.00 1 19 .3 3 1 10 .6 7 8 3.00 3 4.33 0 .0 0 0 .0 0
Inv e ntory
Start (x 10,000 uni ts) 2 0.00 6 2.33 1 11 .6 7 1 45 .0 0 1 69 .3 3 1 60 .6 7 1 33 .0 0 8 4.33 3 2.66
End (x 10,000 uni ts) 6 2.33 1 11 .6 7 1 45 .0 0 1 69 .3 3 1 60 .6 7 1 33 .0 0 8 4.33 3 2.66 2 0.00
Units in WH (x 10,000 uni ts)
Co. (x 10,000 uni ts) 5 0.00 5 0.00 5 0.00 5 0.00 5 0.00 5 0.00 5 0.00 3 2.66 2 0.00
Extern (x 10,000 uni ts) 1 2.33 6 1.67 9 5.00 1 19 .3 3 1 10 .6 7 8 3.00 3 4.33 0 .0 0 0 .0 0
Cas h Out
Opera tions
Ma teri al s (x $10,000 ) 1 3.87 1 3.87 1 3.87 1 3.87 1 3.87 1 3.87 1 3.87 1 3.87 1 3.87
Std La bo r (x $10,000 ) 4 .8 0 4 .8 0 4 .8 0 4 .8 0 4 .8 0 4 .8 0 4 .8 0 4 .8 0 4 .8 0
2 nd Sh ift La bo r (x $10,000 ) 0 .0 0 2 .2 8 2 .2 8 2 .2 8 2 .2 8 2 .2 8 2 .2 8 2 .2 8 2 .2 8
OT La bo r (x $10,000 ) 2 .8 4 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0
Hi ri n g Cost (x $10,000 ) 0 .2 4 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0
Firi ng Co st (x $10,000 ) 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0
Ext. WH (x $10,000 ) 0 .1 2 0 .6 2 0 .9 5 1 .1 9 1 .1 1 0 .8 3 0 .3 4 0 .0 0 0 .0 0
Plant Financing Cos ts
Fin . Co st (pre v. m on .) (x $10,000 ) 1 .5 0 1 .6 9 1 .9 2 2 .0 6 2 .1 5 2 .0 5 1 .8 2 1 .4 6 1 .0 7
Total Ca sh Out (x $10,000 ) 2 3.37 2 3.25 2 3.81 2 4.19 2 4.20 2 3.82 2 3.11 2 2.40 2 2.01
Cas h Bala nc e (x $10,000 ) -11 2.5 7 -12 7.8 2 -13 7.2 3 -14 3.4 3 -13 6.4 3 -12 1.4 4 -97 .35 -71 .35 -60 .57

Total Pla n Rev . (x $10,000 ) $ 24 9.60 1 00 .0 0%

Total Ope r. Cst (x $10,000 ) $ 19 4.45 7 7.91 %
Total Fin. Cst. (x $10,000 ) $ 15 .7 1 6 .3 0%
Plant Earnings (x $10,000 ) $ 39 .4 3 1 5.80 %
 Strategy 3: Mixed
x10,000 units/month Monthly Demand/Production

140

120

100

80

60

40

20
Jan Feb Mar April May June July Aug Sept

Demand Prod
 Mixed strategy financials
J an Feb Ma r April Ma y J une J uly Aug Sept
Uni ts
Dem and (x 10,000 uni ts) 2 7.00 2 0.00 3 6.00 4 5.00 7 8.00 9 7.00 1 18 .0 0 1 21 .0 0 8 2.00
Sale s (x 10,000 uni ts) 2 7.00 2 0.00 3 6.00 4 5.00 7 8.00 9 7.00 1 18 .0 0 1 21 .0 0 8 2.00
Rev . (Ca sh In) (x $10,000 ) 1 0.80 8 .0 0 1 4.40 1 8.00 3 1.20 3 8.80 4 7.20 4 8.40 3 2.80
Labor Hrs. Av a il
Std (x 100 hrs) 3 2.00 3 2.00 3 2.00 3 2.00 3 2.00 3 2.00 3 2.00 3 2.00 3 2.00
2 nd Sh irt (x 100 hrs) 0 .0 0 0 .0 0 0 .0 0 0 .0 0 3 2.00 3 2.00 3 2.00 3 2.00 3 2.00
OT (x 100 hrs) 1 6.00 1 6.00 1 6.00 1 6.00 1 6.00 1 6.00 1 6.00 1 6.00 1 6.00
Produc tion Plan
Prod . Ou tp ut (x 10,000 uni ts) 2 4.00 2 4.00 4 8.00 4 8.00 9 6.00 9 6.00 9 6.00 9 6.00 9 6.00
New Hire s 0 0 0 20 0 0 0 0 0
No. Fi red 0 0 0 0 0 0 0 0 20
Reg . Ho urs (x 100 hrs) 1 6.00 1 6.00 3 2.00 3 2.00 3 2.00 3 2.00 3 2.00 3 2.00 3 2.00
2 nd Sh ift Hrs (x 100 hrs) 0 .0 0 0 .0 0 0 .0 0 0 .0 0 3 2.00 3 2.00 3 2.00 3 2.00 3 2.00
OT Ho urs (x 100 hrs) 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0
Ext. WH (x 10,000 uni ts) 0 .0 0 0 .0 0 0 .0 0 0 .0 0 4 .0 0 3 .0 0 0 .0 0 0 .0 0 0 .0 0
Inv e ntory
Start (x 10,000 uni ts) 2 0.00 1 7.00 2 1.00 3 3.00 3 6.00 5 4.00 5 3.00 3 1.00 6 .0 0
End (x 10,000 uni ts) 1 7.00 2 1.00 3 3.00 3 6.00 5 4.00 5 3.00 3 1.00 6 .0 0 2 0.00
Units in WH (x 10,000 uni ts)
Co. (x 10,000 uni ts) 1 7.00 2 1.00 3 3.00 3 6.00 5 0.00 5 0.00 3 1.00 6 .0 0 2 0.00
Extern (x 10,000 uni ts) 0 .0 0 0 .0 0 0 .0 0 0 .0 0 4 .0 0 3 .0 0 0 .0 0 0 .0 0 0 .0 0
Cas h Out
Opera tions
Ma teri al s (x $10,000 ) 4 .8 0 4 .8 0 9 .6 0 9 .6 0 1 9.20 1 9.20 1 9.20 1 9.20 1 9.20
Std La bo r (x $10,000 ) 2 .4 0 2 .4 0 4 .8 0 4 .8 0 4 .8 0 4 .8 0 4 .8 0 4 .8 0 4 .8 0
2 nd Sh ift La bo r (x $10,000 ) 0 .0 0 0 .0 0 0 .0 0 0 .0 0 5 .1 2 5 .1 2 5 .1 2 5 .1 2 5 .1 2
OT La bo r (x $10,000 ) 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0
Hi ri n g Cost (x $10,000 ) 0 .0 0 0 .0 0 0 .0 0 0 .4 8 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0
Firi ng Co st (x $10,000 ) 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 0 2 .5 6
Ext. WH (x $10,000 ) 0 .0 0 0 .0 0 0 .0 0 0 .0 0 0 .0 4 0 .0 3 0 .0 0 0 .0 0 0 .0 0
Plant Financing Cos ts
Fin . Co st (pre v. m on .) (x $10,000 ) 1 .5 0 1 .4 7 1 .4 8 1 .5 0 1 .4 8 1 .4 7 1 .3 5 1 .0 9 0 .8 2
Total Ca sh Out (x $10,000 ) 8 .7 0 8 .6 7 1 5.88 1 6.38 3 0.64 3 0.62 3 0.47 3 0.21 3 2.50
Cas h Bala nc e (x $10,000 ) -97 .90 -98 .57 -10 0.0 5 -98 .43 -97 .86 -89 .68 -72 .95 -54 .76 -54 .46

Total Pla n Rev . (x $10,000 ) $ 24 9.60 1 00 .0 0%

Total Ope r. Cst (x $10,000 ) $ 19 1.91 7 6.89 %
Total Fin. Cst. (x $10,000 ) $ 12 .1 5 4 .8 7%
Plant Earnings (x $10,000 ) $ 45 .5 4 1 8.24 %
 Components of the Queuing Phenomenon

Servicing System
Servers

Customer Waiting Line

Arrivals Exit
Some Service Generalizations

1. Everyone is an expert on services.

2. Services are idiosyncratic.

3. Quality of work is not quality of service.

4. High-contact services are experienced, whereas goods

are consumed.

5. We cannot inventory services (capacity becomes

dominant issue)
Capacity Management in Services

• You cannot store service

output

• If you cannot store output,

you store the demand
 Strategic Service Vision

• Who is our customer?

• How do we differentiate our service in
the market?
• What is our service package and the
focus?
• What are the actual processes,
systems, people, technology and
leadership?
 Service-System Design Matrix

Degree of customer/server contact

High none some much Low

Face-to-face
total
customization
Face-to-face
Sales loose specs Production
Opportunity Face-to-face Efficiency
tight specs
Phone
Contact
On-site
technology
Mail contact

Low High
Three Contrasting Service Designs

• The production line approach

• The self-service approach

• The personal attention approach

Some Performance Measures

• Average time spent waiting in queue

• Average time in system
• Average length of queue
• Average number of customers in
system
• Probability that a customer waits
before service begins
• Server utilization
 Strategies for effective capacity management

• Maximize process flexibility

– mix flexibility
– volume flexibility
• Standardize the product/service reduce variety
– risk pooling
– reduced forecast error
• Centralize operations
– risk pooling
– reduced forecast error
• Reduce lead time
– reduced forecast error
– minimize overshooting/undershooting demand
Some Service Generalizations
1. Everyone is an expert on services.

2. Services are idiosyncratic.

3. Quality of work is not quality of

service.
Some Service Generalizations
4. High-contact services are experienced, whereas
goods are consumed.
5. Effective management of services requires an
understanding of marketing and personnel, as
well as operations.
6. Services often take the form of cycles of
encounters involving face-to-face, phone,
electromechanical, and/or mail interactions
Characteristics of a Well-
Designed Service System
1. Each element of the service system is consistent
with the operating focus of the firm.

2. It is user-friendly.

3. It is robust.

4. It is structured so that consistent performance by

its people and systems is easily maintained
Characteristics of a Well-
Designed Service System
5. It provides effective links between the
back office and the front office so that
nothing falls between the cracks.

6. It manages the evidence of service quality

in such a way that customers see the value
of the service provided.

7. It is cost-effective
 Components of the Queuing
Phenomenon
Servers

Customer Waiting Line

Arrivals Exit
 Customers arrivals to a bank
• Average customers per minute = 10
• Average service time = 30 seconds

– HOW MANY TELLERS ARE NEEDED?

Case I: No variability
Case II: Variability in arrival process
Case III: Variability in arrival & service processes
 How many tellers?: Variability in both arrival
and service processes

# Tellers Avg. Delay Utilization

6 17.6 0.833
7 4.9 0.714
8 1.7 0.625
9 0.6 0.556
Methods for reducing impact of
variability
• Demand
– better forecasting
– pricing
– appointment systems
• Process
– standardization
– training
– automation
– self-service
– variable staffing
– use of inventory
Tools for capacity planning in
service systems
• Queueing models
– fast
– little data needed
• Simulation
– can handle complexity
• Linear programming
– to allocate capacity over multiple facilities or multiple
locations
– scheduling and other constraints can be readily
incorporated
 Line Structures
Single
Multiphase
Phase
One-person
Single Channel Car wash
barber shop

Bank tellers’ Hospital

Multichannel windows admissions
 Degree of Patience

No Way! No Way!

BALK RENEG
Key facts needed for a model
• Average number of customer arrivals
per unit of time

• Average service time per customer

• The number of servers

Assumptions in our models
• FCFS
• Events occur one at a time
• We are interested in long run avg performance
• Unlimited storage
• Utilization < 100%
• No predictable variation
• Unpredictable variation
– arrivals - Poisson processes
– service - exponential distributed processing times
Operating Focus
• Customer treatment

• Speed and convenience of service delivery

• Variety of services

• Quality of tangibles

• Unique skills
 Service-System Design Matrix
Degree of customer/server contact
Buffered Permeable Reactive
High core (none) system (some) system (much) Low
Face-to-face
total
customization
Face-to-face
Sales loose specs
Production
Opportunity Face-to-face Efficiency
tight specs
Phone
Contact
On-site
technology
Mail contact

Low High
Three Contrasting Service
Designs
• The production line approach

• The self-service approach

• The personal attention approach

 Example: Model 1
Drive-up window at a fast food restaurant.
Customers arrive at the rate of 25 per hour.
The employee can serve one customer every two minutes.
Assume Poisson arrival and exponential service rates.

A) What is the average utilization of the employee?

B) What is the average number of customers in line?
C) What is the average number of customers in the system?
D) What is the average waiting time in line?
E) What is the average waiting time in the system?
Example: CVS
Manager is considering two ways of using
cashiers: ( Assume customers arrive randomly
at a rate of 15 per hour)
• 1 fast clerk -- serves at an average of 2
minutes per customer
or
• 2 moderate clerks -- each serves at an
average of 4 minutes per customer
Some Performance Measures
• Average time spent waiting in queue
• Average time in system
• Average length of queue
• Average number of customers in system
• Probability that a customer waits before
service begins
• Server utilization
 Example: Model 1
A) What is the average utilization of the employee?

 = 25 cust / hr
1 customer
 = = 30 cust / hr
2 mins (1hr / 60 mins)

 25 cust / hr
 = = = .8333
 30 cust / hr
 Example: Model 1
B) What is the average number of customers in line?
2 (25) 2
Lq = = = 4.167
 (  -  ) 30(30 - 25)

C) What is the average number of customers in the system?

 25
Ls = = =5
 -  (30 - 25)

13
 Example: Model 1
D) What is the average waiting time in line?

 25
Wq = = = .1667hrs = 10 mins
( - ) 30(30 - 25)

E) What is the average waiting time in the system?

1 1
Ws = = = .2 hrs = 12 mins
 -  30 - 25

14
m m s.xls M/M/s Q ueueing Form ula Spreadsheet

In p u ts : D e fin itio n s o f te r m s :
lam bda 25 lam bda = arrival rate
mu 30 m u = service rate
s = num ber of servers
Lq = average num ber in the queue
Ls = average num ber in the system
Wq = average wait in the queue
Ws = average wait in the system
P(0) = probability of zero custom ers in the system
P(delay) = probability that an arriving custom er has to wait

O u tp u ts :
s Lq Ls Wq Ws P (0 ) P (d e la y )U tiliz a tio n

1 4.1667 5.0000 0.1667 0.2000 0.1667 0.8333 0.8333

Example: CVS
Manager is considering two ways of using
cashiers: ( Assume customers arrive randomly
at a rate of 15 per hour)
• 1 fast clerk -- serves at an average of 2
minutes per customer
or
• 2 moderate clerks -- each serves at an
average of 4 minutes per customer
m m s .x ls M /M /s Q u e u e in g F o r m u la S p r e a d s h e e t

In p u ts : D e fin itio n s o f te r m s :
la m b d a 15 la m b d a = a r r iv a l r a te
mu 30 mu = s e r v ic e r a te
s = n u m b e r o f s e rv e rs
Lq = a v e r a g e n u m b e r in th e q u e u e
Ls = a v e r a g e n u m b e r in th e s y s te m
W q = a v e r a g e w a it in th e q u e u e
W s = a v e r a g e w a it in th e s y s te m
P ( 0 ) = p r o b a b ility o f z e r o c u s to m e r s in th e s y s te m
P ( d e la y ) = p r o b a b ility th a t a n a r r iv in g c u s to m e r h a s to w a it

O u tp u ts :
s Lq Ls Wq Ws P (0 ) P ( d e l a y )U t i l i z a t i o n
0
1 0 .5 0 0 0 1 .0 0 0 0 0 .0 3 3 3 0 .0 6 6 7 0 .5 0 0 0 0 .5 0 0 0 0 .5 0 0 0
2 0 .0 3 3 3 0 .5 3 3 3 0 .0 0 2 2 0 .0 3 5 6 0 .6 0 0 0 0 .1 0 0 0 0 .2 5 0 0
m m s .x ls M /M /s Q u e u e in g F o r m u la S p r e a d s h e e t

In p u ts : D e fin itio n s o f te r m s :
la m b d a 15 la m b d a = a r r iv a l r a te
mu 15 m u = s e r v ic e r a te
s = n u m b e r o f s e rv e rs
Lq = a v e r a g e n u m b e r in th e q u e u e
Ls = a v e r a g e n u m b e r in th e s y s te m
Wq = a v e r a g e w a it in th e q u e u e
Ws = a v e r a g e w a it in th e s y s te m
P ( 0 ) = p r o b a b ility o f z e r o c u s to m e r s in th e s y s te
P ( d e la y ) = p r o b a b ility th a t a n a r r iv in g c u s to m e r h

O u tp u ts :
s Lq Ls Wq Ws P (0 ) P ( d e l a y )U t i l i z a t i o n
0
1 in f in ity in f in ity in f in ity in f in ity 0 .0 0 0 0 1 .0 0 0 0 1 .0 0 0 0
2 0 .3 3 3 3 1 .3 3 3 3 0 .0 2 2 2 0 .0 8 8 9 0 .3 3 3 3 0 .3 3 3 3 0 .5 0 0 0
3 0 .0 4 5 5 1 .0 4 5 5 0 .0 0 3 0 0 .0 6 9 7 0 .3 6 3 6 0 .0 9 0 9 0 .3 3 3 3
m m s .x ls M /M /s Q u e u e in g F o r m u la S p r e a d s h e e t

In p u ts : D e fin itio n s o f te r m s :
la m b d a 7 .5 la m b d a = a r r iv a l r a te
mu 15 m u = s e r v ic e r a te
s = n u m b e r o f s e rv e rs
Lq = a v e r a g e n u m b e r in th e q u e u e
Ls = a v e r a g e n u m b e r in th e s y s te m
Wq = a v e r a g e w a it in th e q u e u e
Ws = a v e r a g e w a it in th e s y s te m
P ( 0 ) = p r o b a b ility o f z e r o c u s to m e r s in th e s y s te m
P ( d e la y ) = p r o b a b ility th a t a n a r r iv in g c u s to m e r h a s to w

O u tp u ts :
s Lq Ls Wq Ws P (0 ) P ( d e l a y )U t i l i z a t i o n
0
1 0 .5 0 0 0 1 .0 0 0 0 0 .0 6 6 7 0 .1 3 3 3 0 .5 0 0 0 0 .5 0 0 0 0 .5 0 0 0
2 0 .0 3 3 3 0 .5 3 3 3 0 .0 0 4 4 0 .0 7 1 1 0 .6 0 0 0 0 .1 0 0 0 0 .2 5 0 0
3 0 .0 0 3 0 0 .5 0 3 0 0 .0 0 0 4 0 .0 6 7 1 0 .6 0 6 1 0 .0 1 5 2 0 .1 6 6 7
 M/M/s Queue with Priority

s servers, one line, priority (high or low)

Poisson arrivals, high priority arrival rate = 1, low priority arrival rate = 2
Exponential service time, service rate at each server = 

Performance measures (high and low):

utilization,
probability of delay
average number of customers in system ===> On-line queueing spreadsheets
average throughput time
average queue length
average waiting time
 M/M/s-Priority Queueing Spreadsheet

m m s _ p rio rit y . x ls M / M / s P rio rit y Q u e u e in g F o rm u la S p re a d s h e e t

I n p u ts: D e fi n i ti o n s o f te r m s:
la m b d a H IG H 0 .1 6 6 6 7 la m b d a H IG H = a rriva l ra t e o f h ig h p rio rit y c la s s
la m b d a L O W 0 .1 6 6 6 7 la m b d a L O W = a rriva l ra t e o f lo w p rio rit y c la s s
mu 0 .2 5 mu = s e rvic e ra t e (a s s u m e d t h e s a m e fo r b o t h H IG H a n d L O W )
s = n u m b e r o f s e rve rs
Lq = a ve ra g e n u m b e r in t h e q u e u e
Ls = a ve ra g e n u m b e r in t h e s y s t e m
Wq = a ve ra g e w a it in t h e q u e u e
Ws = a ve ra g e w a it in t h e s y s t e m
P (0 ) = p ro b a b ilit y o f z e ro c u s t o m e rs in t h e s y s t e m

H i g h P r i o r i ty L o w P r i o r i ty B o th C l a sse s
O u tp u ts:
s Lq Ls Wq Ws U ti l i z a ti o n Lq Ls Wq Ws U ti l i z a ti o n P (0 ) P (d e l a y ) T o ta l U ti l .
0
1 in fin it y in fin it y in fin it y in fin it y 0 . 6 6 6 7 in fin it y in fin it y in fin it y in fin it y 0.6667 0.0000 1.0000 1.0000
2 0.2667 0.9333 1.6000 5.6000 0.3333 0.8000 1.4667 4.8000 8.8000 0.3333 0.2000 0.5333 0.6667
3 0.0517 0.7183 0.3099 4.3099 0.2222 0.0930 0.7596 0.5579 4.5579 0.2222 0.2542 0.1808 0.4444
4 0.0104 0.6770 0.0621 4.0621 0.1667 0.0155 0.6822 0.0932 4.0932 0.1667 0.2621 0.0518 0.3333
5 0.0019 0.6686 0.0116 4.0116 0.1333 0.0026 0.6693 0.0159 4.0159 0.1333 0.2634 0.0126 0.2667
6 0.0003 0.6670 0.0020 4.0020 0.1111 0.0004 0.6671 0.0025 4.0025 0.1111 0.2636 0.0026 0.2222
7 0.0001 0.6667 0.0003 4.0003 0.0952 0.0001 0.6667 0.0004 4.0004 0.0952 0.2636 0.0005 0.1905
8 0.0000 0.6667 0.0000 4.0000 0.0833 0.0000 0.6667 0.0001 4.0001 0.0833 0.2636 0.0001 0.1667
9 0.0000 0.6667 0.0000 4.0000 0.0741 0.0000 0.6667 0.0000 4.0000 0.0741 0.2636 0.0000 0.1481
10 0.0000 0.6667 0.0000 4.0000 0.0667 0.0000 0.6667 0.0000 4.0000 0.0667 0.2636 0.0000 0.1333
Suggestions for Managing
Queues
• Do not overlook the effects of perceptions
management.
• Determine the acceptable waiting time for
your customers.
• Install distractions that entertain and
physically involve the customer.
• Get customers out of line.
• Only make people conscious of time if they
grossly overestimate waiting times
Perceptions of waiting times
• Unoccupied delays feel longer than
occupied delays
• Pre-process delays feel longer than in-
process delays
• Anxious delays feel longer than relaxed
delays
• Unacknowledged delays feel longer than
acknowledged delays
• Waiting alone vs. waiting with others
Suggestions for Managing
Queues
• Modify customer arrival behavior.
• Keep resources not serving customers out
of sight.
• Segment customers by personality types.
• Adopt a long-term perspective.
• Never underestimate the power of a
friendly server
What did we learn?