Operations Management on Retail Banking
An operation is composed of processes designed to add value by transforming inputs into useful outputs. Inputs may be materials, labor, energy, and capital equipment. Outputs may be a physical product (possibly used as an input to another process) or a service. Processes can have a significant impact on the performance of a business, and process improvement can improve a firm’s competitiveness.
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The first step to improving a process is to analyze it in order to understand the activities, their relationships, and the values of relevant metrics. Process analysis generally involves the following tasks: q Define the process boundaries that mark the entry points of the process inputs and the exit points of the process outputs. Construct a process flow diagram that illustrates the various process activities and their interrelationships. Determine the capacity of each step in the process. Calculate other measures of interest. Identify the bottleneck, that is, the step having the lowest capacity.
Evaluate further limitations in order to quantify the impact of the bottleneck. Use the analysis to make operating decisions and to improve the process. q q q q q Process Flow Diagram The process boundaries are defined by the entry and exit points of inputs and outputs of the process. Once the boundaries are defined, the process flow diagram (or process flowchart) is a valuable tool for understanding the process using graphic elements to represent tasks, flows, and storage. The following is a flow diagram for a simple process having three sequential activities:
Process Flow Diagram http://www. netmba. com/operations/process/analysis/ (1 of 5)03/12/2011 12:10:39 PM Business Process Analysis The symbols in a process flow diagram are defined as follows: q Rectangles: represent tasks Arrows: represent flows. Flows include the flow of material and the flow of information. The flow of information may include production orders and instructions. The information flow may take the form of a slip of paper that follows the material, or it may be routed separately, possibly ahead of the material in order to ready the equipment.
Material flow usually is represented by a solid line and information flow by a dashed line. Inverted triangles: represent storage (inventory). Storage bins commonly are used to represent raw material inventory, work in process inventory, and finished goods inventory. Circles: represent storage of information (not shown in the above diagram). q q q In a process flow diagram, tasks drawn one after the other in series are performed sequentially. Tasks drawn in parallel are performed simultaneously. In the above diagram, raw material is held in a storage bin at the beginning of the process.
After the last task, the output also is stored in a storage bin. When constructing a flow diagram, care should be taken to avoid pitfalls that might cause the flow diagram not to represent reality. For example, if the diagram is constructed using information obtained from employees, the employees may be reluctant to disclose rework loops and other potentially embarrassing aspects of the process. Similarly, if there are illogical aspects of the process flow, employees may tend to portray it as it should be and not as it is.
Even if they portray the process as they perceive it, their perception may differ from the actual process. For example, they may leave out important activities that they deem to be insignificant. Process Performance Measures Operations managers are interested in process aspects such as cost, quality, flexibility, and speed. Some of the process performance measures that communicate these aspects include: q Process capacity – The capacity of the process is its maximum output rate, measured in units produced per unit of time. The capacity of a series of tasks is determined by the lowest capacity task in the string.
The capacity of parallel strings of tasks is the sum of the capacities of the two strings, except for cases in which the two strings have different outputs that are combined. In such cases, the capacity of the two parallel strings of tasks is that of the lowest capacity parallel string. Capacity utilization – the percentage of the process capacity that actually is being used. Throughput rate (also known as flow rate ) – the average rate at which units flow past a specific point in the process. The maximum throughput rate is the process capacity. Flow time (also known as throughput time or lead time) – the average time that q q http://www. netmba. com/operations/process/analysis/ (2 of 5)03/12/2011 12:10:39 PM Business Process Analysis a unit requires to flow through the process from the entry point to the exit point. The flow time is the length of the longest path through the process. Flow time includes both processing time and any time the unit spends between steps. q Cycle time – the time between successive units as they are output from the process. Cycle time for the process is equal to the inverse of the throughput rate. Cycle time can be thought of as the time required for a task to repeat itself.
Each series task in a process must have a cycle time less than or equal to the cycle time for the process. Put another way, the cycle time of the process is equal to the longest task cycle time. The process is said to be in balance if the cycle times are equal for each activity in the process. Such balance rarely is achieved. Process time – the average time that a unit is worked on. Process time is flow time less idle time. Idle time – time when no activity is being performed, for example, when an activity is waiting for work to arrive from the previous activity. The term can be used to describe both machine idle time and worker idle time.
Work In process – the amount of inventory in the process. Set-up time – the time required to prepare the equipment to perform an activity on a batch of units. Set-up time usually does not depend strongly on the batch size and therefore can be reduced on a per unit basis by increasing the batch size. Direct labor content – the amount of labor (in units of time) actually contained in the product. Excludes idle time when workers are not working directly on the product. Also excludes time spent maintaining machines, transporting materials, etc. Direct labor utilization – the fraction of labor capacity that actually is utilized as direct labor. q q q q q Little’s Law The inventory in the process is related to the throughput rate and throughput time by the following equation: W. I. P. Inventory = Throughput Rate x Flow Time This relation is known as Little’s Law, named after John D. C. Little who proved it mathematically in 1961. Since the throughput rate is equal to 1 / cycle time, Little’s Law can be written as: Flow Time = W. I. P. Inventory x Cycle Time The Process Bottleneck The process capacity is determined by the slowest series task in the process; that is, having the slowest throughput rate or longest cycle time.
This slowest task is known as the bottleneck. Identification of the bottleneck is a critical aspect of process http://www. netmba. com/operations/process/analysis/ (3 of 5)03/12/2011 12:10:39 PM Business Process Analysis analysis since it not only determines the process capacity, but also provides the opportunity to increase that capacity. Saving time in the bottleneck activity saves time for the entire process. Saving time in a non-bottleneck activity does not help the process since the throughput rate is limited by the bottleneck.
It is only when the bottleneck is eliminated that another activity will become the new bottleneck and present a new opportunity to improve the process. If the next slowest task is much faster than the bottleneck, then the bottleneck is having a major impact on the process capacity. If the next slowest task is only slightly faster than the bottleneck, then increasing the throughput of the bottleneck will have a limited impact on the process capacity. Starvation and Blocking Starvation occurs when a downstream activity is idle with no inputs to process because of upstream delays.
Blocking occurs when an activity becomes idle because the next downstream activity is not ready to take it. Both starvation and blocking can be reduced by adding buffers that hold inventory between activities. Process Improvement Improvements in cost, quality, flexibility, and speed are commonly sought. The following lists some of the ways that processes can be improved. q Reduce work-in-process inventory – reduces lead time. Add additional resources to increase capacity of the bottleneck. For example, an additional machine can be added in parallel to increase the capacity.
Improve the efficiency of the bottleneck activity – increases process capacity. Move work away from bottleneck resources where possible – increases process capacity. Increase availability of bottleneck resources, for example, by adding an additional shift – increases process capacity. Minimize non-value adding activities – decreases cost, reduces lead time. Nonvalue adding activities include transport, rework, waiting, testing and inspecting, and support activities. Redesign the product for better manufacturability – can improve several or all process performance measures.