Definition of Key Operational Terms
Process - An act of transforming some input into an output by adding value to the input. There are many transformation types, for example, physical, chemical, location, entertainment, educational. Inventory A storage point where items are stored, awaiting further processing or sale. No transformation occurs while a product is in inventory; otherwise it would be a process. (Note; the one unintended transformation that may occur is deterioration of the product.) There are three types of inventories: raw materials, work in process, and finished goods. Queue - A storage point where people wait for further processing in a service operation. This is analogous to an inventory. Flow or Routing The series of process steps an item goes through during its transformation process in an operation. Run Time - The time to "run" or transform one item for some process stage. Set Up Time The time needed to set up a work station to process some items. For example, tools may have to be aligned for a particular operation and the work area or equipment may need to be cleaned before and after use. Process Time or Activity Time - The time to process one unit for some process stage. This includes both run time and a portion of the set up time. For example, if 10 items are run through a work station (before the work station is set up for another operation), then one tenth (10%) of the total set up time would be added to the run time to derive the process time for one item. Capacity The amount of output a process stage is capable of producing. Capacity will be determined by the process stage's cycle time. The operating unit overall has a capacity as well. This is determined by the bottleneck resource.
Cycle Time - The rate at which items are completed for some process stage. If there is only one work station for a process stage, then process time equals cycle time. If there are more than one work stations for a process stage, then cycle time equals the process time divided by the number of work stations. Each process stage has a cycle time, and the operating unit overall has a cycle time. That is, the operating unit has a rate of output, which is established by the bottleneck resource. Note that in many companies, cycle time is used for the definition of throughput time listed below. Be clear on what is meant! Bottlenecks A bottleneck resource is the resource that constrains or limits the output of the overall operating unit. In a line flow process design, the bottleneck is the process stage with the highest cycle time. In a job shop or batch process design, the bottleneck can be more difficult to identify. Certain pieces of equipment and/or specific people may be used at multiple process stages. The equipment or the people may be the constraining resource. Balance Balance refers to the evenness of work load across work stations. For example, if a line flow operating unit has a bottleneck resource which creates significant idle times for the other work stations, then we would say that the operation had poor balance. If there is little idle time, then the operation is well balanced. Unit of Analysis - The terms in which the analysis is done. Choosing the right unit of analysis is not a simple issue. Line flows can be analyzed by examining cycle times. When an operation produces multiple products that have different routings and process times, e.g., in job shops and batch operations, the terms of analysis becomes more complex. Here the amount of input resources needed to produce the typical set of outputs may be the best terms for analysis. E.g., how many hours of capacity of various resources are required to create, say, a week's worth of products. Capacity Utilization The percent of a resource's capacity that is utilized by the demand placed upon the operation. Note that we normally would think that higher is better, yet in a service operation, this must be tempered by the level of customer service that results. Demand - The amount of product from an operation that is being requested by its customers. Note: demand can exceed capacity if not all demand is met. Sometimes identifying relevant demand is a many challenge to one's analysis.
Peaks and Surges Demand is seldom stable over time. Demand will peak along one or more parameters: time of day, day of week, week of month, season, etc. Time Standards Estimates of the time typically required to perform some activity or process. There are multiple methods of developing time standards. These are used as benchmarks against which to measure an operation's performance. Throughput Time - The time for an item to pass through the entire transformation process in an operation. This includes wait time and the time to transport a product between work stations. Throughput time is most important in service organizations since people do not like to wait. Manufacturing Lead Time Manufacturing Lead Time (MLT) is the time for an operation to fulfill an order (once the operation starts producing the product, that is, we exclude the time to administer the order). This is similar to Throughput time. MLT can be calculated through the following. Batch Size * #Batches in the Process * Cycle Time for the Overall Process Note that this is an estimate. Think through what the equation is telling you and you'll see why it can give this estimate. In the Waterbeds East example, Batch Size = 10, # Batches in the Process = 6 (one at each process step), and Cycle Time = 20 min (the bottleneck) The fundamental concept is that every batch (thus every item) has to pass through the bottleneck operation. Thus, throughput time will increase if any of the following increases (with the inverse obviously being true). The batch size The number of batches in the operating unit The bottleneck cycle time So, the keys are the total number of items in the whole operating unit and the length of the bottleneck. Think of this. Compare: An operating unit with 2 process stages each with 10 batches An operating unit with 10 process states each with 2 batches. If the bottleneck time for the unit is the same and batch size is the same, the throughput time should be approximately the same. Please note the differences among Idle Time, Down Time, and Wait Time! Idle Time - Time when a resource not being used because there is no product to be transformed.
Down Time - Time when a machine is not being used because the equipment needs repair. Wait Time - Time when the item being transformed is waiting for the next transformation step. I.e., time spent in some form of a storage point. Efficiency vs. Effectiveness I like to draw a distinction between efficiency and effectiveness. Efficiency is doing things right, i.e., using the fewest resources to produce a given output. Effectiveness is doing the right things, i.e., delivering a product-service bundle that leads to long term competitive advantage.
Quality Terms
Yield - The percentage of output from a process that passes inspection as good output. The yield rate will usually include the percentage good that have undergone rework. Note: Yield Rate + Scrap Rate = 100%. First Pass Yield - The percentage of output from a process that passes inspection as good output prior to any rework. It is the product of the yields from individual process areas. Scrap Rate - The percentage of output from a process that fails inspection and cannot be reworked. Learning Something hopefully none of us stop doing (which is why I use articles from business periodicals). In organizations, learning is important to improved efficiencies and to producing products that meet market demands in the long term. There are two forms of learning: individual learning and organizational learning. Learning curves depict the rate of learning that historically has been observed in an plant. the Learning curve percent describes the rate of improvement in a product's cost structure for each successive doubling of cumulative output from an operational plant.
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Process - An act of transforming some input into an output by adding value to the input. There are many transformation types, for example, physical, chemical, location, entertainment, educational. Inventory A storage point where items are stored, awaiting further processing or sale. No transformation occurs while a product is in inventory; otherwise it would be a process. (Note; the one unintended transformation that may occur is deterioration of the product.) There are three types of inventories: raw materials, work in process, and finished goods. Queue - A storage point where people wait for further processing in a service operation. This is analogous to an inventory. Flow or Routing The series of process steps an item goes through during its transformation process in an operation. Run Time - The time to "run" or transform one item for some process stage. Set Up Time The time needed to set up a work station to process some items. For example, tools may have to be aligned for a particular operation and the work area or equipment may need to be cleaned before and after use. Process Time or Activity Time - The time to process one unit for some process stage. This includes both run time and a portion of the set up time. For example, if 10 items are run through a work station (before the work station is set up for another operation), then one tenth (10%) of the total set up time would be added to the run time to derive the process time for one item. Capacity The amount of output a process stage is capable of producing. Capacity will be determined by the process stage's cycle time. The operating unit overall has a capacity as well. This is determined by the bottleneck resource.
Cycle Time - The rate at which items are completed for some process stage. If there is only one work station for a process stage, then process time equals cycle time. If there are more than one work stations for a process stage, then cycle time equals the process time divided by the number of work stations. Each process stage has a cycle time, and the operating unit overall has a cycle time. That is, the operating unit has a rate of output, which is established by the bottleneck resource. Note that in many companies, cycle time is used for the definition of throughput time listed below. Be clear on what is meant! Bottlenecks A bottleneck resource is the resource that constrains or limits the output of the overall operating unit. In a line flow process design, the bottleneck is the process stage with the highest cycle time. In a job shop or batch process design, the bottleneck can be more difficult to identify. Certain pieces of equipment and/or specific people may be used at multiple process stages. The equipment or the people may be the constraining resource. Balance Balance refers to the evenness of work load across work stations. For example, if a line flow operating unit has a bottleneck resource which creates significant idle times for the other work stations, then we would say that the operation had poor balance. If there is little idle time, then the operation is well balanced. Unit of Analysis - The terms in which the analysis is done. Choosing the right unit of analysis is not a simple issue. Line flows can be analyzed by examining cycle times. When an operation produces multiple products that have different routings and process times, e.g., in job shops and batch operations, the terms of analysis becomes more complex. Here the amount of input resources needed to produce the typical set of outputs may be the best terms for analysis. E.g., how many hours of capacity of various resources are required to create, say, a week's worth of products. Capacity Utilization The percent of a resource's capacity that is utilized by the demand placed upon the operation. Note that we normally would think that higher is better, yet in a service operation, this must be tempered by the level of customer service that results. Demand - The amount of product from an operation that is being requested by its customers. Note: demand can exceed capacity if not all demand is met. Sometimes identifying relevant demand is a many challenge to one's analysis.
Peaks and Surges Demand is seldom stable over time. Demand will peak along one or more parameters: time of day, day of week, week of month, season, etc. Time Standards Estimates of the time typically required to perform some activity or process. There are multiple methods of developing time standards. These are used as benchmarks against which to measure an operation's performance. Throughput Time - The time for an item to pass through the entire transformation process in an operation. This includes wait time and the time to transport a product between work stations. Throughput time is most important in service organizations since people do not like to wait. Manufacturing Lead Time Manufacturing Lead Time (MLT) is the time for an operation to fulfill an order (once the operation starts producing the product, that is, we exclude the time to administer the order). This is similar to Throughput time. MLT can be calculated through the following. Batch Size * #Batches in the Process * Cycle Time for the Overall Process Note that this is an estimate. Think through what the equation is telling you and you'll see why it can give this estimate. In the Waterbeds East example, Batch Size = 10, # Batches in the Process = 6 (one at each process step), and Cycle Time = 20 min (the bottleneck) The fundamental concept is that every batch (thus every item) has to pass through the bottleneck operation. Thus, throughput time will increase if any of the following increases (with the inverse obviously being true). The batch size The number of batches in the operating unit The bottleneck cycle time So, the keys are the total number of items in the whole operating unit and the length of the bottleneck. Think of this. Compare: An operating unit with 2 process stages each with 10 batches An operating unit with 10 process states each with 2 batches. If the bottleneck time for the unit is the same and batch size is the same, the throughput time should be approximately the same. Please note the differences among Idle Time, Down Time, and Wait Time! Idle Time - Time when a resource not being used because there is no product to be transformed.
Down Time - Time when a machine is not being used because the equipment needs repair. Wait Time - Time when the item being transformed is waiting for the next transformation step. I.e., time spent in some form of a storage point. Efficiency vs. Effectiveness I like to draw a distinction between efficiency and effectiveness. Efficiency is doing things right, i.e., using the fewest resources to produce a given output. Effectiveness is doing the right things, i.e., delivering a product-service bundle that leads to long term competitive advantage.
Quality Terms
Yield - The percentage of output from a process that passes inspection as good output. The yield rate will usually include the percentage good that have undergone rework. Note: Yield Rate + Scrap Rate = 100%. First Pass Yield - The percentage of output from a process that passes inspection as good output prior to any rework. It is the product of the yields from individual process areas. Scrap Rate - The percentage of output from a process that fails inspection and cannot be reworked. Learning Something hopefully none of us stop doing (which is why I use articles from business periodicals). In organizations, learning is important to improved efficiencies and to producing products that meet market demands in the long term. There are two forms of learning: individual learning and organizational learning. Learning curves depict the rate of learning that historically has been observed in an plant. the Learning curve percent describes the rate of improvement in a product's cost structure for each successive doubling of cumulative output from an operational plant.
doc_400495479.doc