BASC 500: Process Fundamentals

BASC 500: Process Fundamentals Impact of Variability on Processes: Queuing

Session 4: Session 5: Session 6: Session 1: Session 2: Session 3: Course Overview and Introduction to Processes Benihana Case Process Analysis
Process Mapping Capacity Analysis Utilization and utilization profiles Inventory Build-up Littles Law

Kristens Cookie Case Shouldice Case Impact of Variability on Processes

Summary of Classes So Far

Learning Objectives

Introduction to operations management and processes Process mapping Process analysis

Capacity Planning Inventory build-up Little s Law

Variability and process analysis

What is variability? What impact does variability have on processes? How can we quantify the impact of variability on processes? How can we manage variability in processes?

Opening Question 1: Benihana

Opening Question 2: Call Center

Annual operating cost of a new restaurant: $500,000 (fixed labor, overheads) Has 40 seats (dining) Each customer dines for an hour. Open for 5 hours (only dinner: 5 pm 10 pm)
Earliest entry at 5 pm, latest entry at 9 pm.

You are opening a new call center. Estimates

1000 calls per day on an average Each call takes 5 minutes on an average Each employee works for 500 minutes (approx. 8 hours) every day.

Open 300 days a year Demand estimate (based on market surveys):

72,000 estimated, planned customer-visits per year Estimated gross margin ($ sales material cost) per customervisit = $10

What is the optimal number of employees to have?

Should this new restaurant be opened?

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Call Centers at L.L. Bean

Operations Management (OM) Triangle

Capacity

$580M in annual sales (1988) About 65% of sales through two telemarketing centers in Maine During certain periods, 80% of calls dialed received a busy signal Customers getting through had to wait on average 10 minutes for an available agent In 1988, L.L. Bean conservatively estimated that it lost $10 million of profit

Inventory

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Variability reduction or better information

Zara? Ambulance services? McDonald s? Flow shops in general? Job shops? Other examples?

Example of operations at Zara

OM Triangle: Implications
If you have a lot of excess capacity, you can deal with randomness in the process with less inventory or delay If you do not have adequate capacity, you will have high inventory or let demand go unmet. If you can smooth demand through improved forecasting (good information), you can meet it with less inventory and capacity

Reference
Ferdows, Kasra, et al. (2004). Rapid-Fire Fulfillment. Harvard Business Review, November 2004, Vol. 82 Issue 11, p.104

Zara has excess capacity Can react to peak or unexpected demand faster than rivals

ATM Example

Quantifying variability

Consider an ATM (single) where customers arrive at the rate of 15 customers per hour on an average at peak time. Each customer takes 2 minutes on an average to use the ATM. What measures do we care about? How can you compute these measures?

So far, we have focused on qualitative effect of variability:

Without buffer, input may get lost, throughput can decrease With buffer, queue may build up, flow time may increase

But
How long is the queue on average? How long does a customer have to wait?

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Tools to analyze effect of variability on processes

Queuing Theory

Simulation models Simple formulas and insights from queuing theory

Arrivals Queue Servers

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A Single Server Process

Process Attributes (Data)

= long-run average input rate 1/ = (average) customer inter-arrival time = long-run average processing rate of a single server 1/ = average processing time by one server A single phase service system is stable whenever < K = buffer capacity (for now let K = ) c = number of servers in the resource pool (for now let c = 1) Note: we are focusing on long-run averages, ignoring the predictable variability that may be occurring in the short run. In reality, we should be concerned with both types of variability.
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Server Buffer

Process Boundary

A queue forms in a buffer

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What are we trying to quantify?

Iq
buffer
Waiting time

Service Process Characteristics and Performance Measures

System characteristics
Utilization = Traffic Intensity =
In a stable system, = /, < 100%

I Is
ATM
Throughput rate =

Safety Capacity = -

Performance Measures
Average waiting time (in queue) = Tq Average queue length = Iq Average time spent at the server = Ts Average number of customers being served = Is Average flow time (in process) = T = Tq + Ts Average number of customers in the process = I = Iq + Is

Service time

Tq

Ts

Little's Law holds (Iq = Tq, Is = Ts, and I = T)

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Little's Law holds (Iq = Tq, Is = Ts, and I = T)

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Quiz
Arrival rate (average input rate) persons/min Service rate (average capacity rate) persons/min Average throughput persons/min

Single-Server Queuing Model

Arrival rate (average input rate) persons/min Assumption: Service rate (average capacity rate) persons/min Average throughput persons/min

buffer
Assumption:

Server

buffer

Server

Average number of persons in system: I

Iq

Is

Time

Inter-arrival times: a1 a2

a3

a4

a5

a6

a7

Average number of persons in queue

Average number of persons in service

On average, 1 person arrives every E{a} minutes. Thus, = 1 / E{a} Service times:
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Question: Is = ? (Please express Is in term of and .)

s1

s2

s3

s4

s5

s6

s7

Time

On average, 1 person can be served every E{s} minutes. Thus, = 1 / E{s}

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The queue length formula: Pollaczek-Khinchin (PK) formula

PK Formula and OM Triangle

Iq
C2 + C2 2 s a 1 2

Iq

2 C2 + C2 s a 1 2

Input rate Input rate [Variability ] Capacity rate Capacity rate Input rate

= for special cases in general

Iq = average queue length (excl. the one in service) = (long run) average utilization = average throughput / average capacity = / Ca = coefficient of variation of inter-arrival time = {a}/E{a} Cs = coefficient of variation of service times = {s}/E{s}
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Capacity

Inventory

Information
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Impact of utilization ( = /)
Impact on queue length (inventory) Impact on waiting time (flow time) By Little s Law:

Technical lingo

The type of queue we studied is called a G/G/1 queue

First G: The arrival process is general Second G: The service process is general Last 1: There is only one server

Iq

C2 + C2 2 s a 1 2

Tq = I q /

Queue length or waiting time

A special arrival process: Poisson arrival

Inter-arrival times are exponentially distributed (Use M)

A special service process: Exponential service

Service times are exponentially distributed (Use M)

0%

100%

Utilization

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Exponential distribution: Coefficient of variation (CV) = 1

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An important insight

Exercise
Consider an ATM (single) where customers arrive at the rate of 15 customers per hour on an average at peak time. Each customer takes 2 minutes on an average to use the ATM. Under the assumptions of the M/M/1 model, calculate:

Maximizing utilization is a good idea in a process with no variability It is a VERY BAD idea in a process with variability!
What is the correct utilization for a resource when variability is present?
It dependson the amount of variability, the sensitivity to delay, etc.

The utilization of the ATM The average waiting time of a customer The average number of waiting customers

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Which type of queue do you prefer?

Type 1 Type 2

Multi-Server Queuing Model (G/G/c)

Arrival rate (average input rate) persons/min Average throughput persons/min

buffer
Assumption: c

Servers

c = number of servers = / c

Service rate (per server) (average capacity rate) persons/min

Both scenarios have the same arrival processes and the same service capacities. In which scenario, the customers wait shorter? In which scenario, the queue is shorter?

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Customers only forms one queue The first customer in the queue will be served by the next empty server Quiz: Is = ?
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P-K Formula for Multi-Server Queue

Multiple-server queue and pooling

Independent Resources
2x(c=1)
Waiting Time Tq
70.00 60.00 50.00 40.00 30.00 20.00

Iq

2(c +1) C 2 + C 2 s a 1 2

= / c

c=1

Holding , Ca, Cs constant, if the number of server c increases, Iq decreases.

Type 1 Type 2

c=2 c=5 c=10

60% 65% 70% 75% 80% 85% 90% 95%

Pooled Resources
(c=2)

10.00 0.00

Utilization u

C2 + C2 2 2 2 C2 + C2 s s a a 1 2 1 2 Risk pooling reduces queue length dramatically. 3

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Implications: + balanced utilization + Shorter waiting time (pooled safety capacity) - Change-overs / set-ups

Exercise

How to manage variability?

Choose appropriate buffer Build adequate inventory; and/or Build adequate capacity; and/or Reduce variability (e.g., risk pooling)

Consider an unmanned facility with 2 ATMs. Recently there have been complaints that the waiting times for the ATMs are very high. Since it is difficult to obtain data on waiting times directly, a manager decides to use snapshots from the cameras.
She takes 100 snapshots at randomly selected times and finds that on an average there are 5 customers waiting in this facility. She believes that this is an accurate estimate of the average number of waiting customers. She also knows that the average arrival rate of customers is 12 per hour. Assume exponential inter-arrival times. Service times are constant for all customers.

Can you help her find the average waiting time of customers?
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How to reduce variability?

Cost

l Tota

in ing l wait

e co

st

Variability is bad information Reduce variability by improving information About input (demand)
Better forecasting Better scheduling

Ser

co vice

st

Waiting time cost

(could be hard to determine)

Number of servers

About process
Reduce process variability Better quality

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Risk Pooling or Demand Aggregation

Some quick service restaurants pool drive through ordering

Independent demand streams impose greater variability when compared to a pooled demand stream Approach: Adding independent random variables Example Applications:
Component commonality in product design Portfolio effects in finance Safety stock
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The person saying Can I take your order? may be hundreds (or even thousands) of miles away Pooling the order taking process can improve time-in-queue while requiring less labor. It has been shown that queue length at the drive through influences demand people dont stop if the queue is long. However, this system incurs additional communication and software costs.

Mass customization as risk pooling

Examples:
Benetton makes undyed sweaters, dyes them once hot colors are evident HP Europe makes PCs without power supplies or manuals, makes these country-specific additions once country-demand is evident Warehouses can help achieve geographic delayed differentiation Selling paint at a home improvement store Other examples?
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Summary

Recommended Readings
Fisher, Marshall L., et al. (1994). Making Supply Meet Demand in an Uncertain World. Harvard Business Review, May/June 1994, Vol. 72 Issue 3, p.83. Barbaro, Michael (2007). A long line for a shorter wait at the supermarket. New York Times, June 23, 2007.

In systems with variability, averages do not tell the whole story Unpredictable variability can cause loss of throughput rate Inventory buffers or increased capacity may be needed to deal with variability In variable systems, inventory and flow time increase nonlinearly with utilization (see the PK formula) The impact of variability (on inventory and flow time) can be quantified using the PK formula, Little s Law, and assumptions about the probability distributions of variability Risk pooling reduces queue length and waiting time

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