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OPS - Wharton Business School - Coggle Diagram
OPS - Wharton Business School
Introduction
Four Dimensions of Operational Performance - Imp for defining business strategy & performance measurement
Cost
Efficiency
Quality
Product Quality - How Good?
Process Quality - As good as promised?
Variety
Customer Heterogenity
Time
Responsiveness to demand
Tradeoffs & Efficient Frontier
Industries can't concentrate on all 4 dimensions. Hence, they need to focus on the relevant dimensions aligned with their business strategy
Efficient frontier curves help to analyze the tradeoffs in the similar industry segment to understand the competitive advantage
Productivity
Quality
Process Analysis
Flow rate, Inventory & Flow time
Flow unit
- Customer or product
Flow rate / throughput
- No. of flow units going through the process per unit of time - min(demand rate, process capacity)
Flow time
- time it takes the flow unit to go from beginning to end of the process
Inventory
- the no. of flow units in the process at the given moment in time
Finding the Bottleneck
Processing time
- how long does the worker spend on the task?
Capacity
- n / processing time
Bottleneck
- Process step with the lowest capacity
Process Capacity
- Capacity of the bottleneck
Utilization
- Flow rate / Capacity
Labour Costs & Labour Utilization
(Excel Sheet)
Little's Law
Inventory (I) = Flow Rate (R) * Flow Time (T)
Deals with Averages - Perfect at aggregate level & misleading at micro level
Inventory Turn
Inventory Turn
= COGS / Inventory
Inventory Turnover
= 1 / Inventory Turn
Per unit inventory costs
= Annual inventory costs / Inventory Turn
Make to Order vs Make to Stock - Drivers of Inventory
Variability
- affects the flow rate drastically.
Buffer or suffer
The company fails to buffer will suffer
Five Reasons for Inventory
Pipeline Inventory
- Minimum inventory needed because flow time > 0. (I = R * T)
Seasonal Inventory
- Driven by seasonal variation in demand and constant capacity
Cycle Inventory
- Economies of scale in production (purchasing drinks)
Safety Inventory
- Buffer against demand
Decoupling Inventory / Buffer
- Buffers between several internal steps
Dealing with multiple flow units
(Study in PPT)
Approach 1 - Adding Up Demand Streams
Approach 2 - A Generic Flow Unit or Minute of Work
Implied Utilization
- Demand / Capacity