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C YCLE TIME REDUCTION The Little Known Law IDENTIFY A PROCESS’S KEY COMPONENTS TO REDUCE

CYCLE TIME REDUCTION

The Little Known Law

IDENTIFY A PROCESS’S KEY COMPONENTS TO REDUCE CYCLE TIME AND SAVE MONEY.

By Robert Gerst, Converge Consulting Group Inc.

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I n physics, laws are a fundamental part of understanding how systems oper- ate. E = mc 2 is probably the most famous example. From these three sim- ple letters, physicists have been able to improve their understanding of

how the universe works and make predictions about how things will behave under differing circumstances. It’s pretty powerful stuff. Such laws also exist in the field of operations management. One stands out, and managers should become much more familiar with it. It is called Little’s Law and is named after the man who first mathematically proved it, John D.C. Little, former professor and chair of management science for the Massachusetts Institute of Technology’s Sloan School of Management. 1 Little’s Law can be thought of as the master of cycle time because it defines the critical relationships that dictate how long it will take, on average, to com- plete the work tasks in any process. For example, it can determine how long it takes to complete a manufactured good, process a customer order, serve a patient in an emergency room or complete a construction project. And time, especially cycle time, is money. By establishing the critical relations driving cycle time, Little provided the key to understanding process efficiency.

A Look at the Law

Little’s Law states, “The average number of customers in a system over some interval is equal to their average arrival rate, multiplied by their average time in the system.” 2 This can be represented as WIP = TH x CT, where:

TH = throughput (arrival rate). This is the velocity or speed of production and is calculated by determining how many items are produced and dividing it by the length of time it took to produce them. It can, of course, be computed from Little’s Law as TH = WIP/CT.

CT = cycle time (average time in the system). This is the time it takes to complete the production cycle or the average time it takes to produce one unit. Generally, determining cycle time requires either direct meas- urement or can be computed from Little’s Law as CT = WIP/TH.

WIP = work in process (average number of units or customers in a sys- tem). This is the number of items currently in production or being serv- iced in some way. This figure must be measured (counted) directly or can be computed from Little’s Law. Little’s Law is now a fundamental part of queuing theory and has found broad application in the design of computing systems, customer service func- tions and logistics. But it has much broader application. Even if you have never heard of Little’s Law, it may already be changing the way you think about operations and production because organizations pursu- ing lean production methods are pursuing an improvement strategy based on the reality of the law. Lean assumes Little’s Law works.

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A Production Example

So what are the law’s implications for managers? Considering a typical production situation of accept- ing new orders into a production process, let’s assume we are running a process in which throughput (TH), the number of units we produce, equals 25 units per day. Our work in process (WIP), the number of units in various stages of production, remains relatively con- stant at 100. Given these conditions, our cycle time, the average time it takes to complete one unit, would be four days (CT = WIP/TH, CT = 100/25, CT = 4). This means we can accommodate new orders of 25 units each day and the system will remain balanced. But suppose we receive an order for 60 units, 35 more than the standard order of 25. The WIP would increase from 100 units to 135, and because TH would remain constant at 25 units per day, CT would imme- diately increase from four days per unit to 5.4 days per unit. The increase in orders (normally a good thing), immediately causes a decrease in production efficien- cy (a bad thing). This is one of the strange but accu- rate implications of Little’s Law: Significant levels of new orders cause production efficiency to decrease. Adding to the confusion is the fact that delivery promises made to customers at the time the orders are taken are typically based on historical cycle times. In this case, the cycle time is four days, but the very act of taking these new orders has increased the cycle time by 35%, making it impossible to meet the delivery times promised. Beyond the obvious results of missed delivery dates and cancelled orders, these new orders may increase interdepartmental squabbling. Marketing blames slow operations for the missed deliveries, and operations blames marketing for overpromising on delivery dates to make sales. Both are victims of Little’s Law. If your organization is confronted with sources of friction such as this, you may want to conduct some operations research to evaluate the extent to which Little’s Law is at work in your organization. Chances are you’ll find it is—with a vengeance.

Implications for Project Management

Little’s Law applies to problems in project manage- ment in the same way, but instead of producing units, we are now concerned with completing projects. For example, an IT department may take on addi- tional projects for client departments (increasing WIP) without realizing it immediately causes the project

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realizing it immediately causes the project SIX SIGMA The Little Known Law completion time (CT) for

The Little Known Law

completion time (CT) for all projects to increase. This may explain why so many IT projects take longer than expected. New projects added to the department’s list of active projects immediately cause the time it takes to complete each individual project to increase. The same holds true for construction firms taking on new or significantly larger projects or companies increasing the number or scope of change initiatives, such as those brought about by Six Sigma. In these cases, increasing the number of projects (WIP) would immediately yield a decline in performance in the form of increased cycle time. This causes a general slowdown in the delivery of all projects as resources become spread too thin and pro- duction or operational bottlenecks emerge, resulting in a failure to meet delivery times, declining opera- tional performance, overall project failures and can- cellations.

Little’s Law Is Everywhere

Little’s Law applies to any system, not just manufac- turing or project management applications. Once you become familiar with it, you will begin to look at every- thing just a little differently. For example, a social services agency may run a suc- cessful counseling program that lasts five weeks (CT). At any time there are approximately 50 people enrolled (WIP) in the program, which means the pro- gram is graduating about 10 people per week (TH). This then, is the maximum number of new clients the agency can accept each week if it is to keep its pro- gram intact. If it decided to take on 15 clients in a spe- cific week, the cycle time would increase to five-and-a- half weeks. Schedules would immediately become problematic and the quality of the program would decline for those enrolled. This explains, at least in part, how so many successful programs become the victims of their own success. Here is another favorite example of mine. Consider the new wave of million dollar enterprisewide accounting and information processing systems some organizations are purchasing today. The general man- agement consensus is that these new systems will make for faster, improved decision making by making avail- able more information of better quality. Well, maybe. An argument can be made that such systems also increase the amount of information (WIP) added to the decision making process. With this increase in WIP, the time it takes to make decisions (CT) will increase. By making more information available for

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The Little Known Law processing, these new systems will ensure decision making takes longer, and

The Little Known Law

processing, these new systems will ensure decision making takes longer, and the quality of decisions made will decline. 3 Other examples abound. What are the implications of increasing classroom size in public schools, the impact of growth on corporate resource departments such as human resources and finance or the impact of adding additional product lines or pricing schemes on order processing? Plugging the numbers into Little’s Law often yields interesting and surprising results.

The Law Is the Law

Most organizations and managers are unaware of Little’s Law, and those that are aware of it tend not to believe it. The implications are, at times, just too coun- terintuitive. But the law is the law, and Little’s Law is one you ignore at significant potential cost. An increase in work, be it in the form of new or big- ger projects, orders or customers, will tend to increase

cycle time for all items currently in the system, causing a decline in system performance across the board assuming throughput stays con-

stant. You cannot escape it. To improve cycle time, only two options are available:

1. Increase throughput. This may re- quire process improvement or a signifi- cant investment to increase the scale of the system to better handle the increase of WIP. This is fine when considering longer-term system capacity. It is imprac- tical, however, when addressing relative- ly short-term variations in demand.

2. Reduce WIP. Only this option can be used to effectively address these short- term demand variations. Reducing WIP may require some counterintuitive actions, such as temporarily pulling projects or orders out of the workflow and setting them aside. With the result- ing decline in WIP, cycle time drops and the remaining projects get done better and faster, so much so that projects orig- inally pulled out of the workflow can then be reinserted and completed on or before the original target date. In other words, by stopping work on a project, it gets done faster. Now that is counterin- tuitive! If you don’t believe it, consider this example from Boeing concerning the production of the C-17 Globemaster. 4 In the early years, production of the C-17 was fraught with problems. There were quality issues, significant cost overruns and aircraft were constantly delivered late to the customer, in this case, the U.S. Air Force. Figure 1 shows the delivery times rela- tive to the schedule for every C-17 deliv- ered to the Air Force from 1992 through

How Long Does It Take?

It is surprising how many people, including man- agers, executives and others involved in perform- ance or process improvement initiatives, confuse throughput (TH) with cycle time (CT). How many times have we heard someone ask, “How long does it take us to process a customer’s order, serve a customer, move components from inventory to a manufacturing station, process a payment or com- plete a task?” Any process owner should know the answers to these common, essential questions as they all demand a response in terms of CT. However, the answer provided is often a variation of TH. This occurs when the answer is calculated by taking TH (say 100 units a day) and dividing by the available time (eight hours in a day) to provide an answer of 12.5 units per hour or one unit every 21 minutes (100 units divided by eight hours). This answer gives the impression it takes 21 min- utes to produce an item from start to finish, but this isn’t the CT at all. It’s takt time or the inverse of TH. In fact, given the data presented, we have no idea what the CT is. To find the CT we would have to physically time units from the time they entered the production cycle to when they left the production cycle. Or we could use Little’s Law. To do so, we would just need to know the level of work in process (WIP). If the WIP was 800 units, the cycle time would be eight days (CT = WIP/TH, CT = 800 units/100 units per day, CT = eight days). This is a far cry from 21 minutes.

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2000. The negative numbers in 1992 and 1993 indi- cate late deliveries (slow cycle times). The improve- ments in 1993 and early 1994 gave program managers at Boeing some hope. They thought they were making progress and deliveries would soon be on schedule. But when it became apparent plane 12 was going to be significantly behind schedule, Don Kozlowski, gen- eral manager of the C-17 program, realized that to have any hope of meeting the delivery schedule, things were going to have to be done differently. What he did was revolutionary. He temporarily took air- planes out of the workflow (reducing WIP) so the cycle times improved. In other words, Kozlowski reduced the time it took to assemble a C-17 by stop- ping work on selected C-17s in production. At the time, aircraft moved through various stations on the assembly line with a specific set of tasks con- ducted at each station. Keeping the aircraft moving through the stations was paramount. Even if all the

Figure 1. Delivery Time Relative to Schedule

if all the Figure 1. Delivery Time Relative to Schedule The Little Known Law tasks at

The Little Known Law

tasks at one station were not completed, aircraft were moved to the next station where personnel played catch-up in assembly. Boeing believed it had to keep the planes moving to meet the schedule. What Kozlowski did was make quality king by dethroning the schedule as the critical driver of pro- duction. He decided no plane would move forward in the production cycle until all tasks associated with that station were completed and completed well. This meant there were times when an assembly team had nothing to do while it waited for the station ahead to complete its tasks. These planes in waiting were essen- tially taken out of the workflow (temporarily reducing WIP) while work progressed on the plane holding up production. Once the plane holding up production was capable of moving ahead to the next station, all planes in the workflow moved forward and work on them proceeded. The success of this approach is evident in Figure 1.

1992 1993 1994 1995 1996 1997 1998 1999 2000 180 150 120 90 60 30
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That’s it, hold the aircraft.
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<=
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Delivery relative to commitments
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The Little Known Law S OME COMFORT CAN BE TAKEN IN THE FACT THAT ,

The Little Known Law

SOME COMFORT CAN BE TAKEN IN THE FACT THAT, IF YOU OR YOUR

ORGANIZATION IS PURSUING LEAN METHODS, YOU ARE ALREADY TAKING

ADVANTAGE OF LITTLES LAW.

While plane 12 was late, the plane behind it, number 13, was delivered to the Air Force slightly ahead of schedule, and the program has never looked back since. Cycle time to budget subsequently skyrocketed, as did quality, with C-17s being delivered to the Air Force in advance of schedule by as much as 170 days. By stopping work on aircraft in production, Kozlowski and his eventual replacement, David Spong, assured they were completed not only better, but faster. Neither Kozlowski nor Spong thought of Little’s Law when they made the decisions they did. But aware of it or not, both took advantage of its fundamental principles.

Taking Advantage of Little’s Law

So how can you take advantage of Little’s Law? 1. Accept it. Managers who are aware of Little’s Law tend not to believe it. Like the law of gravity, how- ever, Little’s Law is not influenced by whether you believe in it. You can refuse to accept it and watch your production efficiency fall like a stone. Or, you can accept it, using it to balance system capacity with new arrivals and thereby maximize the short-term efficiency of the system.

2. Determine cycle time. Unfortunately, cycle time is often difficult to measure. With Little’s Law, how- ever, you don’t need to measure cycle time directly. If you know how many units (orders, people and projects) are in the system (WIP) and how many of these are completed during some specified time period (TH), cycle time (CT) can easily be com- puted. Little’s Law provides an easy and accurate way of answering the question, how long does it take? (See sidebar “How Long Does It Take?” p. 20)

Little’s Law and Lean

Many organizations today are pursuing improve- ment strategies based on lean methods or lean think- ing. Few realize, however, that lean methods are con- structed on the foundation of Little’s Law. That may be

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why so much of lean thinking is also counterintuitive. Traditional management thinking argues for large production volumes to gain economies of scale. To do so, companies produce large volumes of parts that are later assembled in large volumes into finished prod- ucts. The economics of this is obvious—make lots of a specific item, and you can make it cheaply. It’s not so obvious to those familiar with Little’s Law, however. Lean thinking argues that these traditional management practices also yield large levels of WIP. With the increasing WIP comes increasing cycle times and falling levels of system performance and efficien- cy. This means large production volumes look eco- nomical only when measuring the relatively narrow cost of production for each individual part. When looking at the larger system, including the cost associ- ated with holding inventories, the total cost of pro- duction tends to rise with large production volumes. That is why lean thinking pursues methods such as single piece flow, pull systems, kanban, takt time pro- duction targets and complexity reduction. These approaches are all designed to produce low levels of WIP and, in keeping with Little’s Law, improve cycle times.

Seeking Further Opportunities for Improvement

Some comfort can be taken in the fact that, if you or your organization is pursuing lean methods, you are already taking advantage of Little’s Law. Knowing what is behind many of the lean methods makes it eas- ier to see new opportunities for applying lean con- cepts. A good place to start looking for these oppor- tunities is wherever there is some form of system that must respond to changes in input volume, such as arrival rates, new order rates or new projects. Some years ago, I was contracted to assist some process improvement teams in their attempt to enhance the efficiency of a large scale natural gas pro- cessing plant in southern Alberta. This included help- ing teams properly analyze and interpret plant data using statistical process control. A major issue for this plant concerned the number

of shut-ins. A shut-in occurs when the gas being pro- duced is of insufficient quality and is denied access to the outgoing pipeline distribution network, thus being “shut-in” the plant. Without the usual outlet and with the gas having to go somewhere, the plant is forced to flare the gas—a nice way of saying they burn it. Thus, thousands of dollars worth of production lit- erally goes up in smoke. In reviewing a few basic control charts, one process improvement team noticed shut-ins occurred shortly after any sudden increase in the volume of raw, unprocessed gas flowing into the plant. These increas- es in input volumes were driven by customer demand. When sufficient new orders for gas came in, field staff were directed to open the taps of field wells that led to the plant. This increase in volume would then drive the plant to a shut-in position even when the change was well within the plant’s operating capacity. It wasn’t the volume of input gas that was creating the problem, it was the short-term variation in input. We quickly recognized this as just another dimen- sion of Little’s Law. Even though some of the assump- tions of Little’s Law were arguably violated in this case, the system represented by the gas plant was still oper- ating in accordance with the law’s fundamentals. Specifically, a change in input volume (short-term vari- ation) slowed the processing cycle and drove efficiency down to a point where the plant was essentially crash- ing. The solution was simple: Limit the amount of new input gas that could be turned on within a 24 hour period. A simple protocol reflecting the new rules was developed that day and communicated to field staff. Plant shut-ins fell from several a year to zero.

Other Systems

What other systems might benefit from considera- tion of Little’s Law? Here are a few questions to get those creative juices flowing:

• What is the impact on hospital or medical system efficiency given changes in arrival or referral rates? To what degree are cycle times within a hospital or emergency department impacted by differences in arrival rates? What are the implications for medical service design? In the context of Little’s Law, many of the initiatives designed to improve hospital effi- ciency seem destined to do just the opposite.

• How are engineering and construction compa-

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• H ow are engineering and construction compa- SIX SIGMA The Little Known Law nies impacted

The Little Known Law

nies impacted by a sudden increase in the num- ber or scope of construction projects? Little’s Law infers estimation processes based on individual project costs would not be able to assess the impact of having multiple projects in process. Thus, the ability to effectively estimate required project resources should decline with the increas- ing scale or number of projects in process.

What is the impact of a company’s sales ordering processes on its ability to deliver the products or services sold? Do its scheduling or ordering sys- tems specifically take Little’s Law into considera- tion? If not, the company is likely sacrificing pro- duction efficiency and customer satisfaction. Little’s Law was originally formulated to address sys- tem performance in the context of customer service— specifically the ability of a system to serve a customer given changes in arrival rates. However, the law can be applied to any production system that is dependent on input volume, including patient scheduling, gas plant operations, project management, call center manage- ment, and manufacturing and production planning. Clearly, Little’s Law deserves even wider recognition and application. Managers and those concerned with efficient operations should heed the law’s inescapable constraints.

REFERENCES AND NOTES

1. John D.C. Little, “A Proof for the Queuing Formula: L = λ W,”

Operations Research, Vol. 9, No. 3, 1961, pp. 383-387.

2. Ibid.

3. The full process of management decision making is considerably more

complex than I have described here, and in that context, enterprisewide sys- tems may yield considerable advantages over older systems. My point is that such systems present the real opportunity of yielding precisely the opposite results of what they are designed to do, and these possibilities are rarely identified.

4. I am grateful to David Spong, president of Boeing Military Aerospace

Support, for giving me permission to use this example from Boeing’s C-17

program.

permission to use this example from Boeing’s C-17 program. WHAT DO YOU THINK OF THIS ARTICLE?

WHAT DO YOU THINK OF THIS ARTICLE? Please share

your comments and thoughts with the editor by e-mailing

godfrey@asq.org.

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