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Changing Sources of Competitive Advantage Targeting Improvement: Operational Measures - Time T, Inventory I, Throughput rate R
Link through Littles Law Link to Financial Measures Targeting improvement: CRU Computer Rentals
How can operations help a company compete? The changing sources of competitive advantage
Low Cost & Scale Economies (< 1960s) You can have any color you want as long as it is black Focused Factories (mid 1960s) Flexible Factories and Product variety (1970s) A car for every taste and purse.
Quality (1980s) Quality is free. Time (late 1980s-1990s) We love your product but where is it? Dont sell what you produce. produce what sells.
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Profit
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5. 6.
Reduce time
Operational metrics
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Financial metrics
S. Chopra/Operations/Process Analysis & Apps
Relating operational measures (flow time T, throughput R & inventory I) with Littles Law
Inventory I Flow rate/Throughput R
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... ...
[units]
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[units/hr]
Material Flow: Wendys processes an average of 5,000 lb. of hamburgers per week. The typical inventory of raw meat is 2,500 lb. What is the average hamburgers cycle time and Wendys turnover?
250.0
175.8 47.2 4.0 5.6 2.1 234.7 15.3 7.0 8.3 31.0 2.1 37.2 0.83 0.21
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2.1 15.3 50.1 6.7 74.2 25.0 49.2 4.1 1.9 4.0 146.9
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Targeting Improvement
$50.1/yr
$6.5
Raw Materials (roofs)
$15.1
Fabrication (roofs)
$110.3/yr
$10.6
Assembly
$175.8/yr
$9.8
$175.8/yr
$40.2/yr
$8.6
Purchased Parts (bases)
Finished Goods
$40.2/yr
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Raw Materials Throughput R $/Year $/Week Inventory I ($) Flow Time T = I/R (weeks) 50.1 0.96 6.5 6.75
Fabrication
Assembly
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Targeting Improvement
Flow rate R ($/week)
5.0
3.38
Accounts
Assembly
Receivabl e
Finished Goods
Purchased Parts
11.12
Raw Materials
6.75
7.12
3.14
2.90
5.80
5000
4000
Inventory
3000
2000
1000
0 0 1 2 3 4 5 6 7 8 9
Quarter
S. Chopra/Operations/Process Analysis & Apps 14
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Link financial and operational measures Good operational measures are leading indicators of financial performance
Using Littles law for process flow analysis Targeting areas and performance measures for improvement
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Operations Management:
Changing Sources of Competitive Advantage Operational Measures: Time T, Inventory I, Throughput rate R
Link through Littles Law Link to Financial Measures Targeting Improvement: CRU Computer Rentals
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(Theoretical) Capacity of a Resource Bottleneck Resource (Theoretical) Capacity of the Process Capacity Utilization of a Resource/Process =
throughput [units/hr] capacity [units/hr]
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Minimum
sale price =
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Process Capacity
Resource x
NCX-10
Furnaces
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#of units.
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15
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Deep Dish
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Resource
Jean
Jean
Jean
Jacq+ Oven
Oven
Jacq
Jacq
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Process measures:
Flow time manage critical activities Capacity manage bottleneck resources
Shifting bottleneck
Bottleneck affected by product mix, batch size and other factors Product profitability based on $ per unit time on bottleneck
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