Process Flow Analysis

• Flow unit
• Flow time
• Unit load
o Single type of flow units
o Multiple types of flow units
• Capacity rate
o Of a resource
o Of a process
• Bottleneck
o Characteristics
o How to increase the capacity rate of a bottleneck or a process
o Be aware of bottleneck shift
• Throughput (flow) rate = min{input rate, capacity rate}
• Cycle time
• Utilization = Throughput rate / Capacity rate
• Implied utilization = Input rate / Capacity rate
• Process flow diagram
o Linear flow chart
o Gantt chart
o Swim-lane flowchart
• Inventory build-up diagram & Average inventory
o Continuous model:
▪ Instantaneous input rate, output rate, and inventory accumulation rate;
▪ Average inventory = Area under the inventory curve / Length of time
interval
o Discrete model: Average inventory = Average height of the bars
• Little’s Law: I = R · T (inventory = throughput rate * flow time)
• Ways to organize work
o Flow shop
o Job shop
o Product-process matrix

Variability in Processes

• Probability review
o Discrete random variable:
▪ Probability mass function
▪ Cumulative distribution function (CDF)
▪ Example: face of a dice
o Continuous random variable:
▪ Probability density function (PDF),
▪ Cumulative distribution function (CDF), 𝑃{𝑋 ≤ 𝑥}
 ▪ Example: exponential distribution (𝑃{𝑋 ≤ 𝑥} = 1 − 𝑒 −𝜆𝑥 )
o Expectation (mean) of random variable X, 𝐸(𝑋)
o Standard deviation, 𝜎(𝑋)
o Coefficient of variation (CV) = 𝜎(𝑋)/𝐸(𝑋)
▪ For exponential distribution, CV = 1
• Types of variability
• Impact of variability
o Without buffer
o With buffer
• OM triangle: Capacity, inventory, and information (or variability)
• Single-server queuing system notation
o Input (arrival) rate λ
o Average inter-arrival time 𝐸(𝑎) = 1/𝜆
o Service (capacity) rate μ
o Average service time 𝐸(𝑠) = 1/𝜇 (also denoted by 𝑇𝑠 )
o Utilization 𝜌 = 𝜆/𝜇
o Types of queues (G/G/1, M/M/1, M/D/1, D/M/1, etc.)
• Average inventory at the server, 𝐼𝑠 = 𝜆/𝜇 = 𝜌
• Average inventory in the buffer (average queue length), 𝐼𝑞
𝜌2 (𝐶𝑎 )2 +(𝐶𝑠 )2
o G/G/1 queue: 𝐼𝑞 = 1−𝜌 ∙ (P-K formula)
2
▪ 𝐶𝑎 : CV of inter-arrival time, 𝜎(𝑎)/𝐸(𝑎)
▪ 𝐶𝑠 : CV of service time, 𝜎(𝑠)/𝐸(𝑠)
𝜌2
o M/M/1 queue: 𝐼𝑞 = 1−𝜌
1 𝜌2
o M/D/1 (or D/M/1) queue: 𝐼𝑞 =
2 1−𝜌
• Other system performance measures
o Average inventory in process, 𝐼 = 𝐼𝑞 + 𝐼𝑠
o Average waiting time in queue, 𝑇𝑞 = 𝐼𝑞 /𝜆
o Average service time, 𝑇𝑠 = 𝐼𝑠 /𝜆 = 1/𝜇
o Average flow time in process, 𝑇 = 𝑇𝑞 + 𝑇𝑠 = 𝐼/𝜆
• Impact of utilization (𝜌) on queue length (𝐼𝑞 ) and waiting time (𝑇𝑞 )
• Multi-server queuing system
o Input (arrival) rate: λ
o Service (capacity) rate of each server: μ
o Number of servers: c
o Utilization: 𝜌 = 𝜆/(𝑐𝜇)
o Average inventory in the service station, 𝐼𝑠 = 𝜆/𝜇 = 𝑐𝜌
𝜌 √2(𝑐+1) (𝐶𝑎 )2 +(𝐶𝑠 )2
o Average inventory in the buffer (G/G/c queue): 𝐼𝑞 ≈ ∙
1−𝜌 2
𝜌 √2(𝑐+1)
o Average inventory in the buffer (M/M/c queue): 𝐼𝑞 ≈ 1−𝜌
 Variability in Processes – Multi-server Queues

• Queuing system notation

o Number of servers c
o Input (arrival) rate λ
o Service (capacity) rate per server μ
o Utilization 𝜌 = 𝜆/(𝑐𝜇)
o Types of queues (G/G/c, M/M/c, etc.)
• Average inventory in the buffer (average queue length), 𝐼𝑞
𝜌 √2(𝑐+1) (𝐶𝑎 )2 +(𝐶𝑠 )2
o G/G/c queue: 𝐼𝑞 ≈ ∙ (P-K formula)
1−𝜌 2
▪ 𝐶𝑎 : coefficient of variation of the inter-arrival time
▪ 𝐶𝑠 : coefficient of variation of the service time (per server)
𝜌 √2(𝑐+1)
o M/M/c queue: 𝐼𝑞 ≈
1−𝜌
• Average inventory at the server, 𝐼𝑠 = 𝑐𝜌 = 𝜆/𝜇
• Average waiting time in queue, 𝑇𝑞 = 𝐼𝑞 /𝜆 (Little’s Law)
• Average service time, 𝑇𝑠 = 𝐼𝑠 /𝜆 = 1/𝜇 (Little’s Law)

Project Management

• Definition
• Visual Representation
o Gantt chart
o Critical path (or network) diagram
• Critical Path
o Definition
o How to find a critical path
• Crashing
o Shorten the duration of a project by incurring extra costs
o How to do it in the minimum cost way (step by step)

Forecasting

• Qualitative and Quantitative Methods

• Simple Moving Average
𝐴 +⋯+𝐴
o For a fixed “window size” n: 𝐹𝑡 = 𝑡−1 𝑛 𝑡−𝑛
o Trade-off between larger 𝑛 and smaller 𝑛
• Simple Exponential Smoothing:
o For a fixed “damping factor” 𝛼:
𝐹𝑡 = 𝐹𝑡−1 + 𝛼 ∙ (𝐴𝑡−1 − 𝐹𝑡−1 ), or, 𝐹𝑡 = 𝛼 ∙ 𝐴𝑡−1 + (1 − 𝛼) ∙ 𝐹𝑡−1
o Trade-off between larger 𝛼 and smaller 𝛼
 |𝐹1 −𝐴1 |+|𝐹2 −𝐴2|+⋯+|𝐹𝑛 −𝐴𝑛 |
• Mean Absolute Deviation: 𝑀𝐴𝐷 = 𝑛

Inventory Management

• Inventory
o Importance
o Types of inventory
• EOQ Model
o Basic assumptions
▪ Repeated ordering
▪ Constant and known demand rate
o Basic trade-off: ordering costs vs. holding costs
2𝑆𝐷
o Optimal order quantity (every time): 𝑄 = √ 𝐻
▪ D: annual demand rate
▪ S: order/setup cost
▪ H: annual holding cost, 𝐻 = 𝑖 ∙ 𝐶
𝑄 𝐷
o Total cost: 𝑇𝐶(𝑄) = 2 𝐻 + 𝑄 𝑆
• Newsvendor Model
o Basic assumptions
▪ One-time ordering (or repeated ordering with no inventory carryover)
▪ Random demand
o Basic trade-off: excess inventory (overage) vs. stockout (underage)
𝑐𝑢
o Optimal order quantity: finding 𝑆 ∗ such that 𝑃(𝐷 ≤ 𝑆 ∗ ) = 𝑐 +𝑐
𝑜 𝑢
Distribution for demand D is known; 𝑃(𝐷 ≤ 𝑆 ∗ ) represents the overage
▪
(or no-stockout) probability
▪ 𝑐𝑜 : overage unit cost
▪ 𝑐𝑢 : underage unit cost
o When the demand D is normally distributed:
▪ 𝜇: mean demand
▪ 𝜎: standard deviation of demand
𝑐𝑢
▪ From 𝑐 +𝑐 (probability) to z-score (under the standard normal
𝑜 𝑢
distribution), using NORMSINV(p) or the standard normal distribution
table
▪ Optimal order quantity 𝑆 ∗ = 𝜇 + 𝑧 ∙ 𝜎
• Continuous Review Model (Fixed-Order-Quantity Model)
o Basic assumptions
▪ Repeated ordering; Can order at any time
▪ Existence of lead time
▪ Random demand rate
2𝑆𝐷
o Order quantity each time: 𝑄 = √ (from the EOQ model)
𝐻
o Service level (no-stockout probability), typically 95%, 98%, etc.
o When demand rate is normally distributed, reorder point 𝑅𝑂𝑃 = 𝐷 ∙ 𝐿 + 𝑧 ∙ 𝜎𝐿
 ▪ D: average demand rate per time unit (day, week, year, etc.)
▪ L: lead time, in number of time units
▪ 𝑧 ∙ 𝜎𝐿 : “safety stock”
▪ z: z-score corresponding to the service level (z=1.64 for 95% service level;
2.05 for 98%; etc.)
▪ 𝜎𝐿 : standard deviation of demand during lead time, 𝜎𝐿 = 𝜎 ∙ √𝐿
▪ 𝜎: standard deviation of demand per time unit
• Periodic Review Model (Fixed-Time-Period Model)
o Basic assumptions
▪ Repeated ordering; Can order only at fixed time points
▪ Existence of lead time
▪ Random demand rate
o Crucial time periods
▪ L: lead time (also denoted by LT)
▪ T: review period (or review cycle)
▪ EP: exposure period, 𝐸𝑃 = 𝐿 + 𝑇
o Optimal order quantity
▪ Target inventory level = 𝐸𝑃 ∙ 𝐷 + 𝑧 ∙ 𝜎𝐸𝑃
• 𝜎𝐸𝑃 : standard deviation of demand during exposure period, 𝜎𝐸𝑃 =
𝜎 ∙ √𝐿 + 𝑇
• z: z-score corresponding to the service level
▪ Order quantity at a particular review point
= target inventory level – current inventory (at that review point)
• Comparing average pipeline inventory, average cycle stock, and average safety stock
under continuous review and periodic review models

Supply Chain Management

• Definition
• Challenges
• Bullwhip effect
• Remedies
• Trends