BizOps: Getting Started With Process Analysis

In the last post, we discussed operational trade-offs and the efficient frontier. This time, we'll start defining basic terms used in process analysis. These definitions shall be used in future posts.

In business operations, a process (roughly) refers to a repeatable sequence of stages. And the item that goes through (or flows through) the stages is called a flow unit.

Lisa's Example

Let's say Lisa runs a resume improvement service with the following process:

PROCESS STAGE	TIME TAKEN
1. She reviews each submitted resume and take preliminary notes.	(6 minutes)
2. She calls the candidate to learn more about his strengths. (More notes.)	(12 minutes)
3. She carefully edits the resume, using her notes.	(15 minutes)
4. She proofreads her work and sends the edit resume to the candidate.	(3 minutes)

Basic Definitions

In Lisa's example, each resume is a flow unit. Let us now introduce some new definitions.

Flow rate: The number of flow units completing the process per unit time. In Lisa's example, this would be the number of edited resumes produced per hour. (Flow rate is also known as throughput.)

Flow time: The time taken by a flow unit to complete the process, from start to finish. In Lisa's example, this would be the number of minutes spent minutes spent on producing an edited resume, i.e. 6 + 12 + 15 + 3 = 36 minutes.

Inventory: The number of flow units that are currently inside the process. In Lisa's example, this would be the number of unfinished resumes, i.e. resumes that Lisa hasn't yet fully edited/proofread.

Aside:
Note that the above definition of inventory not quite the same as the definition of inventory with respect to Accounting. Unfinished resumes are inventory? In the Business Operations sense, yes. But if you consider a sales process, say the sale of cars; then each car would be a flow unit and inventory would be the number of unsold cars. Here, inventory matches its Accounting definition.

Processing time: Time taken to complete a particular stage or task. In the above table, the 'TIME TAKEN' column indicates the processing time for each stage.

Capacity: The number of flow units that can complete a stage per unit time. For example, Lisa spends 12 minutes on the phone-call stage. Thus, in one hour (60 minutes), she can complete calls for 5 resumes. If she hires an assistant that is as efficient as her, stage capacity would double from 5 resumes/hr to 10 resumes/hr.

Finding The Bottleneck

With respect to Lisa's example, let's write-out the capacity for each stage.

PROCESS STAGE	PROCESSING TIME	STAGE CAPACITY
1. Preliminary review	6 minutes (= 0.10 hours)	10 resumes/hour
2. Phone call	12 minutes (= 0.20 hours)	5 resumes/hour
3. Actual editing	15 minutes (= 0.25 hours)	4 resumes/hour
4. Proofread & send	3 minutes (= 0.05 hours)	20 resumes/hour

As you can see, the actual editing stage takes the longest time and the lowest capacity.

Because Lisa can only actually edit 4 resumes per hour, on an hourly basis, at most 4 resumes can complete the process. Even though she can proofread 20 resumes per hour, on the whole, she can only produce edited 4 resumes per hour.

Time for two more quick definitions:

Bottleneck: The stage with the lowest capacity (assuming each flow unit goes though every stage.)

Process capacity: The capacity of the bottleneck.

The bottleneck pulls down the overall process capacity. Improving the capacity of a non-bottleneck stage would have no impact on the overall process capacity. To improve overall process capacity, we must first find the bottleneck stage; and then improve its capacity.

In the next post, we'll talk about Little's Law and consider an alternative way to look at inventory.

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Published by Sumukh Barve on 23 Mar 2018.