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.
So, inventory, the number of flow units in
the system.
Flow rate, the number of flow units going
through the system per unit of time.
And flow time, the amount of time it takes
a flow unit to go from the beginning of
the process to the end.
I said at the beginning of this session
that those are the most important
performance measures in any operations.
But why?
Who cares about inventory?
Now, let me give you some reasons to care
about inventory.
In the US economy alone, in a typical
year, we have about $one trillion of
inventory, and that is just the
manufacturing sector because this is
accounting inventory.
Now , we notice that IS and Operations
professor define inventory somewhat
carefully and somewhat differently from an
accountant.
For me, a customer waiting for service in
a hospital is inventory.
You will not look at the balance sheet of
the hospital, and see the patients there
listed as an asset.
For me, these people are inventory.
Inventory happens whenever hear of
mismatches between supply and demand.
Now, my colleagues in the Economics
Department, they kind of like to ignore
the supply-demand mismatches.
They take comfort in the notion of markets
and that prices will adjust that once we
have a mismatch between supply and demand.
However, if you are sick and you're
sitting in an emergency department, prices
will not solve the problem.
If you are hungry and waiting for your
lunch, this is not a matter of prices.
For this reason, I argued that
understanding inventory, flow rate and
flow time are indeed the most important
issues not just what we do in operations
but what we do in management in general.
So, keep those three measures in mind.
When next time you go through a process,
be it as a tourist, as a person going for
lunch, or when you've a chance to a
factory, and always look for the three
things flow rate, inventory, and flow
time.