Changing Sources of Competitive Advantage - Operational Measures: Time T, Inventory I
Changing Sources of Competitive Advantage - Operational Measures: Time T, Inventory I
Changing Sources of Competitive Advantage - Operational Measures: Time T, Inventory I
S. Chopra/Process Flows
Quality (1980s)
Quality is free.
Flow time
Throughput
Inventory
Process Cost
Quality
S. Chopra/Process Flows
Increase price
Increase throughput
Costs
Material
+
Labor
+
Energy
+
Overhead
3.
4.
Reduce costs
Improve quality
Capital
invested
PP&E
+
Inventory
+
Other
5.
6.
Revenues
Profit
Economic
value added
(EVA)
Opportunity
cost
x
Weighted average
cost of capital
Price
x
Quantity
Reduce time
Operational metrics
Financial metrics
S. Chopra/Process Flows
...
... ...
Flow rate/Throughput R
[units]
[units/hr]
... ...
S. Chopra/Process Flows
250.0
175.8
47.2
4.0
5.6
2.1
234.7
15.3
7.0
8.3
31.0
2.1
37.2
0.83
0.21
S. Chopra/Process Flows
2.1
3.0
27.9
50.6
4.1
87.7
2.1
15.3
50.1
6.7
74.2
25.0
49.2
Investments
Prepaid expenses and other deferred charges
Other assets
TOTAL
ASSETS
S. Chopra/Process Flows
4.1
1.9
4.0
146.9
9
6.5
15.1
8.6
10.6
9.8
50.6
50.1
60.2
40.2
25.3
175.8
S. Chopra/Process Flows
10
$50.1/yr
$6.5
Raw Materials
(roofs)
$40.2/yr
$25.3/yr
$110.3/yr
$15.1
Fabrication
(roofs)
$8.6
$10.6
Assembly
$175.8/yr
$9.8
$175.8/yr
Finished Goods
$40.2/yr
S. Chopra/Process Flows
11
Throughput R
$/Year
$/Week
Inventory I ($)
Flow Time T =
I/R (weeks)
Raw
Materials
Fabrication
Purchased
Parts
Assembly
Finished
Goods
50.1
0.96
6.5
6.75
110.3
2.12
15.1
7.12
40.2
0.77
8.6
11.12
175.8
3.38
10.6
3.14
175.8
3.38
9.8
2.90
S. Chopra/Process Flows
12
Flow rate R
($/week)
5.0
3.38
Accounts
Assembly
Receivable
2.12
Fabrication
0.96
0.77
Purchased Parts
11.12
Finished
Goods
Raw Materials
6.75
7.12
S. Chopra/Process Flows
3.14
2.90
5.80
Flow Time T
(weeks)
13
5000
Inventory
4000
Nokia
Ericsson
Motorola
3000
2000
1000
0
0
Quarter
S. Chopra/Process Flows
14
S. Chopra/Process Flows
15
Ship
Receiving
30%
Repairs
70%
Status 24
Customer
15%
Status 41
Pre-Config
Parts
places
order
Receives
from
Supplier
Status 32
Ship
Config
Status 20
S. Chopra/Process
Flows
Repairs
Status 42
16
Throughput 1,000
(units/week)
Receiving
Status
24
Status 41 Status 42
Status 20
1,000
700
300 +
105 =
405
405
405
405
405
1,000
Inventory
(units)
8,000
500
1,500
1,000
500
405
500+405
= 905
500
2,000
Flow Time
(weeks)
8.0
0.5
2.14
2.47
1.23
2.23
1.23
S. Chopra/Process Flows
17
S. Chopra/Process Flows
18
Throughput 1,400
(units/week)
Receiving
Status
24
Status 41 Status 42
Status 20
1,400
980
567
567
567
567
567
1,400
Inventory
(units)
8,000
700
2,100
1,400
700
567
1,267
700
2,800
Flow Time
(weeks)
5.7
0.5
2.14
2.47
1.23
2.23
1.23
S. Chopra/Process Flows
19
S. Chopra/Process Flows
20
Status
24
Status
40
Parts
Status 20
Throughput
(units/week)
600
600
420
243
243
243
243
243
600
Inventory
(units)
4,800
300
900
600
300
243
543
300
1,200
Flow Time
(weeks)
0.5
2.14
2.47
1.23
2.23
1.23
S. Chopra/Process Flows
21
S. Chopra/Process Flows
22
Learning Objectives
Basic Process Analysis
Process Measures: time, inventory, and throughput
What is an improvement?
Link financial measures to operational ones
Good operational measures are leading indicators of financial
performance
S. Chopra/Process Flows
23