# Operations Management - California State University, Northridge

Operations Management Session 4: Kristine Cookies Case Last Class in Process Analysis Module What did we learn? Throughput rate Capacity Whats the difference between capacity and throughput rate? Bottleneck resource Utilization rate Throughput time WIP Littles Law: Throughput Time = (Average) WIP / Throughput Rate Session 4 Operations Management 2

Today Team Presentations Lecture (Kristens cookies and additional comments on capacity management) Session 4 Operations Management 3 Team Presentations Session 4 Operations Management 4 What is it all about? Process Characteristics Capacity of a System How much can you process in a week/day? Response Time How quickly can you meet demand? Session 4

Operations Management 5 Process Flow What are the inputs? What are the outputs? What are the activities? Session 4 Operations Management 6 Process Flow Chart YOU YOU MIXER TRAY ROOMIE OVEN OVEN TRAY TRAY MIX

LOAD TRAY SET OVEN ROOMIE TRAY ROOMIE TRAY DOUGH Session 4 BAKE Operations Management COOL PACK PAY 7 Activity 8

12 16 20 Resource 4 Operations Management 24 28 32 36 Time 8 Activity PAY PACK COOL BAKE

SET OVEN LOAD Time MIX Resource 4 8 12 16 20 24 26 28 32 36 You Oven Tray Operations Management RM 9

Kristine Cookies and Measures What is the Throughput time? From the moment an order arrives till it is finished, it takes 26 min. Can the throughput time be reduced? Session 4 Operations Management 10 Activity PAY PACK COOL BAKE SET OVEN LOAD Time MIX Resource

4 8 12 16 20 24 26 28 32 36 You Oven Tray Operations Management RM 11 Activity PAY PACK COOL BAKE

SET OVEN LOAD Time MIX Resource 4 8 12 16 20 24 26 28 32 36 You Oven Tray Operations Management RM 12

Kristine Cookies and Measures What is the capacity of the system? What is the slowest resource? (Assume that the we have enough trays.) Session 4 Operations Management 13 Activity PAY PACK COOL BAKE SET OVEN LOAD Time MIX Resource 4 8

12 16 20 24 26 28 32 10 36 You Oven Tray Operations Management RM 14 Bottleneck Analysis It is clear that the bottleneck is the Oven It is the only resource that once we start producing is not idle. It is the slowest resource: One dozen every 10 min.

Session 4 Operations Management 15 Capacity It seems that if they have enough trays they can produce a dozen of cookies every 10 min. 1.2 cookies per min. In 4 hours (240 min) you can finish 22 trays: 240 26 = 214 214 / 10 = 21.4 or 21 trays. Given the bottleneck is the oven, to maximize capacity we must ensure that the oven runs continuously: once every 10 min. Session 4 Operations Management

16 Process Flow Chart Order Size (Dozens): 1 Dozens YOU YOU MIXER TRAY ROOMIE OVEN TRAY MIX LOAD TRAY SET OVEN ROOMIE OVEN TRAY TRAY ROOMIE TRAY

DOUGH TIME: 6 2 BAKE COOL 1 9 MIXER: 6 minutes 5 PACK 2 PAY 1 TOTAL TIME YOU:

6 + 2= 8 minutes ROOMIE: 1 + 2 +1 = 4 minutes OVEN: Session 4 TRAY: 19 minutes 1+ 9 = 10 minutes Operations Management 17 Process Flow Chart Order Size (Dozens): 1 Dozen YOU YOU MIXER TRAY ROOMIE OVEN TRAY MIX LOAD TRAY

SET OVEN ROOMIE OVEN TRAY TRAY ROOMIE TRAY DOUGH TIME: 6 2 TOTAL TIME YOU: 6 + 2= 8 minutes 1 COOL 9 5

PACK 2 PAY 1 Dozens / Day = 22 MIXER: ROOMIE: 1 + 2 +1 = 4 minutes OVEN: Session 4 BAKE 6 minutes TRAY: 19/2 minutes 1+ 9 = 10 minutes Operations Management 18 Process Flow Chart Order Size: 2 Dozens YOU YOU

MIXER TRAY ROOMIE OVEN TRAY MIX LOAD TRAY SET OVEN ROOMIE OVEN TRAY TRAY ROOMIE TRAY DOUGH TIME: 6 4

2 BAKE COOL 18 10 PACK 4 PAY 1 TOTAL TIME YOU: 6 + 2= 8 minutes MIXER: ROOMIE: 1 + 2 +1 = 4 minutes OVEN: Session 4 6 minutes TRAY:

2+ 18 = 20 minutes Operations Management 19 Activity PAY PACK COOL BAKE SET OVEN LOAD MIX Time 4 8 12 16 20 24 26

28 32 36 10 Resource You Oven Tray 1 Tray 2 Operations Management RM 20 RM How many dozen per day? 60 minutes x 4 = 240 available minutes each evening 240-36=204 available minutes after the first two dozen is finished 204/20=10.2 two dozens finished in the remaining 204 minutes 2x11=22 dozens per day Does it make sense to give a discount for an order size of two dozen? Session 4

Operations Management 21 Capacity Investment Should we invest in a second Oven? Session 4 Operations Management 22 Activity Two Ovens. Order Size: 1 dozen PAY PACK COOL BAKE SET OVEN LOAD MIX Time 4

8 12 16 20 24 26 28 32 36 8 Resource You You Oven Tray Operations Management RM RM 23 Bottleneck Analysis Who is the bottleneck now?

The entrepreneur Why did the bottleneck shift? Could the numbers (as opposed to the graph) indicate were the bottleneck is? Now should we give a discount for ordering 2 dozen? Session 4 Operations Management 24 Bottleneck Analysis Your capacity: 1 dozen cookies / 8 minutes = 0.125 dozen cookies per minute (or 1 dozen cookies every 8 minutes) Oven capacity: 1 dozen cookies / 10 minutes 2 ovens x .1 dozen cookies per minute = 0.2 dozen cookies per minute (or 1 dozen cookies every 5 minutes) Mixer:

1/6=0.167 dozen cookies per minute Roommate =0.25 dozen cookies per minute What is the slowest resource? Note: same calculation as made in the previous class in Burgers example. Session 4 Operations Management 25 Dozens per day with two ovens 240-26=214 minutes for the first dozen 214/8=26.75 dozens in the next 214 minutes 27 dozen per day with two ovens. Session 4 Operations Management 26 Economic Analysis Having two ovens increase the capacity from 60/10=6 dozens per hour to 60/8=7.5 dozens per hour.

What is the value of the additional oven? (27-22)*300*Profit per dozen = New capacity # of selling days Old capacity Additional profit = \$1,500*profit per dozen Session 4 Operations Management 27 Economic Analysis Example Suppose we sell each dozen cookies for \$1.50 per dozen. Assume there is no cost on your time. The profit per dozen is then \$1.50-\$0.60\$0.10=\$0.80. Therefore, the additional profit after being open 300 days is: 5x300x\$0.80=\$1200. We are willing to buy another oven if it costs less than \$1200 and we have enough demand so that it will be in use. Session 4 Operations Management 28 Activity

Two Ovens Order Size: 2 Dozens PAY PACK COOL BAKE SET OVEN LOAD MIX Time 4 Resource You 8 12 16 20 24 26 28 32

36 You Oven Tray Operations Management RM 29 Process Flow Chart OVENS = 2 and Order size =2 Dozen YOU YOU MIXER TRAY ROOMIE OVEN TRAY MIX LOAD TRAY SET OVEN

ROOMIE OVEN TRAY TRAY ROOMIE TRAY DOUGH TIME: 6 TOTAL TIME YOU: 6+4 = 10 ROOMIE: Session 4 4 2 BAKE COOL

18 10 PACK 4 PAY 2 Dozens / Day = 44 doz / day MIXER: TRAY: OVEN: (18 +2) /2 = 10 Operations Management 30 Summary Tools & Techniques Identification of Bottleneck System Capacity

Throughput Time Concepts Bottleneck & Capacity depend of product mix In high variety systems bottlenecks shift Session 4 Operations Management 31

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