Transcript 3. Process Flow Measures Process Flow Analysis The Little’s Law The main source for preparing these slides is Managing Business Process Flow Anupindi, Chopra, Deshmoukh,

3. Process Flow Measures
Process Flow Analysis
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The Little’s Law
The main source for preparing these slides is
Managing Business Process Flow
Anupindi, Chopra, Deshmoukh, Van Mieghem, and Zemel
Ardavan Asef-Vaziri
June/2011
Process Flow Analysis-Basics 1
3. Process Flow Measures
Five Elements of the Process View
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Information
structure
Process
Management
Network of
Activities and Buffers
Inputs
Flow units
(customers, data,
material, cash, etc.)
Outputs
Goods
Services
Labor & Capital
Resources
Ardavan Asef-Vaziri
June/2011
Process Flow Analysis-Basics 2
3. Process Flow Measures
How target improvement?
Identify and Monitor Operational Performance Measures
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Ardavan Asef-Vaziri
June/2011
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3. Process Flow Measures
Flow Time, Flow Rate, and Inventory
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Flow Time: The time required by a flow unit to move through all the
processes from entry to exit.
 It is not the same for all flow units
 different types of flow units
 variability in the flow time of a flow unit
 Average flow time of a process is the average flow time of all flow
units.
Flow Rate: The number of flow units passing a specific point (entry,
exit or any intermediate point) in the process per unit of time.
 It changes over time
 variability in the flow rate
 seasonality (e.g. tax season for a CPA)
 Average flow rate in a stable process  Throughput
Inventory: The number of flow units within the boundaries of the
process at any time.
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June/2011
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3. Process Flow Measures
The Essence of Process Flow
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
Customer Value Proposition
Customer

expectations
Customer satisfaction


Process competencies
Financial performance

Inventory
 Essence of process flow 
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June/2011
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3. Process Flow Measures
A Stable Process
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In a Stable Process
 Average inflow rate is the same as average outflow rate.
 Throughput (R) is the average flow rate
 Ideally, R should be equal to the customer demand.
Is the Security Checkpoint a stable Process?
Average inflow rate
is 600 passengers/hr,
or 10 passengers/min
Scanner can handle 12
passengers per minute
It can handle inflow
Can we have 9 instead of 12?
If we have 20 instead of 12, could we still have people waiting in the line?
 Average outflow capacity (process capacity) must be greater than average
inflow rate, while average inventory is not zero.
Ardavan Asef-Vaziri
June/2011
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3. Process Flow Measures
The Little’s Law
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Inventory I
...
...
[units]
...
Flow rate/Throughput R
[units/hr]
...
...
Flow Time T [hrs]
There is a relationship between R, T, and I.
Throughput x Flow Time = Inventory
RT=I
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June/2011
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3. Process Flow Measures
Little’s Law: Examples
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In Vancouver Airport:
Average waiting line length = I = 17.5 passengers
Throughput or R = 600/60 = 10 passengers/minute
Compute the flow time at
Flow time T  RT=I  T= I/R
T= 17.5 /10 = 1.75 minutes / passenger (on average).
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3. Process Flow Measures
Little’s Law: Examples
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I=2000 garage doors, with no inventory buildup (i.e. stable process;
always on average we have 2000)
R=1000 garage doors/week. Each garage door costs $3,300 to
produce.
What is the Average Flow Time for $1?
We can translate volumes into $
I = 2,000(3,300) = $6,600,000 tied up in inventory (average).
R = 1,000(3,300) = $3,300,000/week.
I=RT  T=I/R
T = 6,600,000/3,300,000 = 2 weeks.
Ardavan Asef-Vaziri
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3. Process Flow Measures
Little’s Law applied to different process flow examples
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Monetary Flow. For the new euro introduction in 2002, Wim
Duisenberg had to decide how many new Euro coins to stamp by
2002. Euroland’s central banks’ cash-in-coins handling was
estimated at €300 billion per year. The average cash-in-coins
holding time by consumers and businesses was estimated at 2
months. How many Euro coins were to be made?
Customer Flow. Taco Bell processes on average 1,500 customers
per day (15 hours). On average there are 75 customers in the
restaurant (waiting to place the order, waiting for the order to
arrive, eating etc.). How long does an average customer spend at
Taco Bell and what is the average customer turnover?
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3. Process Flow Measures
Little’s Law applied to different process flow examples
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Job Flow. The Travelers Insurance Company processes 10,000
claims per year. The average processing time is 3 weeks. Assuming
50 weeks in a year, what is the average number of claims “in
process”.
Material Flow. Wendy’s 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 hamburger’s cycle time and Wendy’s turnover?
Cash Flow. Motorola sells $300 million worth of cellular equipment
per year. The average accounts receivable in the cellular group is
$45 million. What is the average billing to collection process cycle
time?
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June/2011
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3. Process Flow Measures
Little’s Law: Cash Flow
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Steel Company: Processes $400M of iron ore per year. The cost of
processing the ore is $200M per year.
The average inventory is $100M.
How long does a dollar spend in the process?
 The flow unit is a cost dollar.
 The process is the steel manufacturing operations
 The value of the inventory includes both ore and processing cost. I =
$100M/year
 A Total of $400M + $200M = $600M flows through the process each year.
Throughput R = $600M/year
Average flow time T = I/R = 100/600 = 1/6 year = 2 months
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June/2011
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3. Process Flow Measures
Little’s Law: inventory Turns
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Question: A general manager at Baxter states that her inventory
turns three times a year (Cost of Goods Sold is three times of
average inventory). She also states that everything that Baxter
buys gets processed and leaves the docks within six weeks. Are
these statements consistent?
Of the 3 operational measures of performance, inventory,
throughput and average flow time – a process manager only
needs to focus on 2 measures, as they directly determine the
third measure via Little’s Law. Measuring which one is
cheaper?
For a given level of throughput in any process, the only way to
reduce flow time is to reduce inventory and vice versa.
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