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Penulis : Dandy Bayu Bramasta
Editor : Sari Hardiyanto

5
Managing Process Flows

A central idea in process dynamics is the notion of stocks and flows. Stocks are accumulations that are
created due to the difference between the inflow to a process and its outflow. Everyone is familiar with
stocks and flows. The finished goods inventory of a manufacturing firm is the stock of products in its
warehouse. The number of people employed by a business also represents a stock—in this case, of
resources. The balance in a checking account is a third example of a form of stock. Stocks are altered by
inflows and outflows. For instance, a firm’s inventory increases with the flow of production and
decreases with the flow of shipments (and possibly other flows due to spoilage and shrinkage). The
workforce increases via a hiring rate and decreases via the rate of resignations, layoffs, and retirements.
The balance of a bank account increases with deposits and decreases with withdrawals (Sterman, 2000).
This chapter uses the notion of stocks and flows in the context of business processes. Three
operational variables typically are used to study processes in terms of their stocks and flows:
throughput, work-in-process (WIP), and cycle time (CT).* Also in this chapter, the relationship among
these operational variables will be examined with what is known as Little’s law. This chapter finishes
with an application of theory of constraints (TOC) to capacity analysis.

5.1 Business Processes and Flows

Any business process (i.e., manufacturing or service) can be characterized as a set of activities that
transform inputs into outputs (see Chapter 1). There are two main methods for processing inputs. The
first, discrete processing, is familiar to most people in manufacturing and service industries. It is the
production of goods (e.g., cars, computers, television sets, and so on) or services (e.g., a haircut, a meal,
a hotel night, and so on) that are sold in separate, identifiable units.
The second method is nondiscrete or continuous processing, where products are not distinct units and
typically involve liquids, powders, or gases. Examples include such products as gasoline,
pharmaceuticals, flour, and paint and such continuous processes as the production of textiles and the
generation of electricity. Note that ultimately, almost all products from a continuous process become
discrete at either the packing stage or the point of sale, as is the case with electrical power.
Most business processes are discrete, where a unit of flow being transformed is often referred to as a
flow unit or a job (see Section 1.1.2). Typical jobs consist of customers, orders, bills, or information.
Resources perform the transformation activities.
As defined in Chapter 1, resources may be capital assets (e.g., real estate, machinery, equipment, or
computer systems) or labor (i.e., the organization’s employees and their expertise).

*
CT also is called production lead time or lead time in manufacturing environments.

151
A job follows a certain routing within a process, determining the temporal order in which activities are
executed. Routing provides information about the activities to be performed, their sequence, the
resources needed, and the time standards. Routings are job-dependent in most business processes. In
general, a process (architecture) can be characterized in terms of its jobs, activities, resources, routings,
and information structure (see also Chapter 1, Section 1.1.2).

Example 5.1 (Davis et al., 2003)

Speedy Tax Services offers low-cost tax-preparation services in many locations throughout New England. In order
to expedite a client’s tax return efficiently, Speedy’s operations manager has established the following process.
Upon entering a tax-preparation location, each client is greeted by a receptionist who asks a series of short
questions to determine which type of tax service the client needs. This takes about 5 min. Clients are then referred
to either a professional tax specialist if their tax return is complicated or a tax-preparation associate if the return is
 relatively simple. The average time for a tax specialist to complete a return is 1 h, and the average time for an
associate to complete a return is 30 min. Typically, during the peak of the tax season, an office is staffed with six
specialists and three associates, and it is open for 10 h/day. After the tax returns have been completed, the clients
are directed to see a cashier (each location has two cashiers) to pay for having their tax return prepared. This takes
about 6 min/client to complete. During the peak of the tax season, an average of 100 clients/day come into a
location, 70% of which require the services of a tax specialist.
This example includes four resource types: receptionist, tax specialists, tax-preparation associates, and cashiers.
The jobs to be processed are clients seeking help with their tax returns. The routing depends on whether the tax
return is considered complicated. The routing also includes an estimate of the processing time at each activity.

As mentioned previously, the purpose of this chapter is to examine processes from a flow perspective.
Jobs will be used here as the generic term for “units of flow.” Jobs become process outflow after the
completion of the activities in their specified routing. In manufacturing processes, industrial engineers
are concerned with the flow of materials. In an order fulfillment process, the flow of orders is the main
focus. A process has the following three types of flows:

• Divergent flows refine or separate input into several outputs.

• Convergent flows bring several inputs together.
• Linear flows are the result of sequential steps.

One aspect of the process design is to determine the dominant flow in the process. For example, an
order fulfillment process can be designed to separate orders along product lines (or money value),
creating separate linear flows. As an alternative, the process may perform a number of initial activities in
sequence until the differences in the orders require branching, creating divergent flows.
In manufacturing, material flows have been given the following names based on the shape of the
dominant flow (Finch and Luebbe, 1995):

• V-Plant: A process dominated by divergent flows

• A-Plant: A process dominated by converging flows
• I-Plant: A process dominated by linear flows
• T-Plant: A hybrid process that yields a large number of end products in the last few stages

An important measure of flow dynamics is the flow rate, defined as “number of jobs per unit of time.”
Flow rates are not necessarily constant throughout a process over time. The notations Ri(t) and Ro(t) will
be used to represent the inflow rates and the outflow rates at a particular time t. More precisely, we
define the following:

R ti ( ) = rate of incoming jobs through all entry points into the process

Ro ( )t = rate of outgoing jobs through all exit points from the process
These definitions will be used to discuss key concepts that are the basis for modeling and managing
flows (Anupindi et al. 2006).
5.1.1 Throughput Rate
Inflow rates and outflow rates vary over time, as indicated by the time-dependent notation of Ri(t) and
Ro(t). Consider, for example, the inflow and outflow rates per time period t depicted in Figure 5.1.
The inflow rates during the first seven periods of time are larger than the outflow rates. However,
during the eighth period (i.e., t = 8), the outflow rate is 10 jobs per unit of time, and the inflow rate is
only 4. Using the notation, we have

Ri ( ) 8 = 4

Ro ( )8 = 10
If we add all the Ri(t) values and divide the sum by the number of time periods, we can calculate the
average inflow rate Ri. Similarly, we can obtain the average outflow rate, denoted by Ro. In a stable
process, Ri = Ro. Although the inflow and outflow rates of the
12

10 R o(t)

8
Jobs

6 R i (t)

0
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29

FIGURE 5.1
Inflow and outflow rates per time period.

process depicted in Figure 5.1 fluctuate considerably through time, the process can be considered stable
over the time horizon of 30 periods because Ri = Ro ≈ 5 jobs per unit of time.
Process stability, however, is defined in terms of an infinite time horizon. In other words, in a stable
process, the average inflow rate matches the average outflow rate as the number of periods tends to
infinity. Hence, when analyzing stable processes, it is not necessary to differentiate between the average
inflow rate and the average outflow rate, because both of them simply represent the average flow rate
through the process. The Greek letter λ (lambda) denotes the average flow rate or throughput rate of a
stable process:

λ= Ri = Ro

In queuing theory, λ typically denotes the average effective arrival rate to the system, that is, the
arrivals that eventually are served per unit of time (see Section 6.2). In general, λ is often referred to as
the process throughput (and is given in terms of jobs per unit of time).
5.1.2 Work-in-Process
If a snapshot of a process is taken at any given point in time, it is likely that a certain number of jobs
would be found within the confines of the process. These jobs have not reached any of the exit points of
the process, because the transformation that represents the completion of these jobs has not been
finished. As discussed in Section 4.2.2, the term work-in-process (WIP) originally was used to denote the
inventory within a manufacturing system that is no longer raw material, but also not a finished product.
All jobs within the process boundaries are considered WIP, regardless of whether they are being
processed or they are waiting to be processed. As discussed in Chapter 4, batching has significant impact
on the amount of WIP in the process. To take advantage of a particular process configuration, managers
often prefer to process a large number of jobs before changing the equipment to process something else
or before passing the items to the next processing step. Insurance claims, for example, are sometimes
processed in batches in the same way that orders from online retailers are frequently batched. When an
order arrives, the order is placed with a group of orders until the number of orders is considered
sufficient to warrant sending them all to the warehouse to be filled and shipped. The accumulation of
orders in some situations might increase the time that customers wait for a product because it might
increase the amount of time the order spends in the process. A trend in manufacturing has been to
reduce the batch sizes in order to become more responsive to a market where customers expect shorter
waiting times (see also Section 4.2.3). The just-in-time (JIT) manufacturing philosophy dictates that
production batches should be as small as possible in order to decrease the time each job spends in the
process. Thereby each job spends less time waiting for a batch to be completed before it is moved to the
next step. However, the key to implementing this philosophy is to reduce the time required to make
necessary changes to the equipment to process a different batch of jobs.
This time is known as setup or changeover time. When setup time is lengthy, large batches are
preferred because this implies fewer changeovers.
For instance, consider a bank that uses a machine to process checks, and suppose that the checks can
be wallet size or book size. If changing the setup of the machine from one size to the other requires a
considerable amount of time, then the manager in charge of the process might decide to run large
batches of each job type to minimize the number of changeovers. Companies have developed a variety
of strategies to reduce changeover time. Better design of processes and parts has resulted in greater
standardization of components, fewer components, and fewer changeovers. In addition, better
organization and training of workers have made changeovers easier and faster. Improved design of
equipment and fixtures also has made the reduction in changeover time possible (Finch and Luebbe,
1995).
For instance, one strategy that is commonly used to reduce setup time is to separate setup into
preparation and actual setup. The idea is to do as much as possible (during the preparation) while the
machine or process is still operating. Another strategy consists of moving the material closer to the
equipment and improving the material handling in general.
Because the inflow rate and the outflow rate vary over time, the WIP also fluctuates. We refer to the
WIP at time t as WIP(t). The up-and-down fluctuation of WIP(t) obeys the following rules:

• WIP(t) increases when Ri(t) > Ro(t). The increase rate is Ri(t) − Ro(t).

• WIP(t) decreases when Ri(t) < Ro(t). The decrease rate is Ro(t) − Ri(t).
 Figure 5.2 shows the WIP level as observed over a period of time. From the beginning of the
observation horizon to the time labeled as t1, the outflow rate is larger than the inflow rate; therefore,
the WIP is depleted at a rate that is the difference between the two flow rates. That is, the WIP
decreases at a rate of Ro(t) − Ri(t) during the beginning of the observation period until time t1. During the
time period from t1 to t2, the inflow rate is larger than the outflow rate; therefore, the WIP increases.
The WIP stays constant from time t2 to time t3, indicating that the inflow and the outflow rates are equal
during this period. In Figure 5.2, we consider that the inflow and outflow rates remain constant between
any two consecutive time periods (e.g., between t1 and t2 or t2 and t3). For some processes, these time
periods may be small. In the supermarket industry, for example, changes in the inflow and outflow rates
are monitored every 15 min. These data are transformed into valuable information to make operational
decisions, such as those related to labor scheduling.
The average WIP is also of interest. To calculate the average WIP when the periods of time are regular
(i.e., they are all of the same length), we add the number of jobs in the process during each period of
time and divide the sum by the number of periods in the observed time horizon. For instance, consider
an observation period of 1 h with four regular periods WIP (t)

R o(t)> R i (t) R o(t)= R i (t)

WIP

R o(t)< R i (t)

t1 t2 t3

FIGURE 5.2
WIP level over time.

of 15 min in which 3, 6, 5, and 2 jobs where in process during each of the observed periods, respectively.
The average WIP is given by

Average WIP = = 4 jobs

When the observation periods are irregular (i.e., they are not all of the same length), then the average
WIP calculation must account not only for the number of jobs in each period but also for the length of
the period. Suppose that the observation periods in our previous example were 10, 20, 20, and 10 min,
respectively. In other words, the WIP was 3 jobs for 10 min, 6 jobs for 20 min, 5 jobs for 20 min, and 2
jobs for 10 min. Then, the average WIP is calculated as follows:
 Average WIP = 3 ´ + ´ + ´ + ´10
20 5 20 210 = 4.5 jobs
10 + + +20
10
We will use WIP to denote the average (or expected) number of jobs in the process.* The dashed line
in Figure 5.2 represents the average WIP during the observed period.

5.1.3 Cycle Time

CT (also known as throughput time) is one of the most important measures of performance of a business
process. This value is frequently the main focus when comparing the performance of alternative process
designs. The CT is the time that it takes to complete an individual job from start to finish. In other words,
it is the time that it takes for a job to go from the entry point to the exit point of a process. This is the
time that a customer experiences. For example, the CT at a bank may be the time that elapses from the
instant a customer enters the facility until the same customer leaves. In an online ordering process, CT
may be the time elapsed from the time a customer places an order until the order is received at home.
Because jobs follow different routings in a process, the CT can be considerably different from job to job.
For example, some jobs might have a routing through a set of activities performed by resources with
large capacity and, therefore, would not have to wait to be processed, resulting in shorter CTs. On the
other hand, long CTs can be the result of jobs having to compete for scarce resources.
The CT of any given job is the difference between its departure time from the process and its arrival
time to the process. If a customer joins a queue in the post office at 7:43 AM and leaves at 7:59 AM, the
customer’s CT is 16 min. The average CT is the sum of the individual CTs associated with a set of jobs
divided by the total number of jobs. † The CT depends not only on the arrival rate of jobs in a given time
period but also on the routing and the availability of resources.
Because the CT is the total time a job spends in the process, the CT includes the time associated with
value-adding and non-value-adding activities. The CT typically includes

• Processing time
• Inspection time
• Transportation time

*
In queuing theory, which will be introduced in Chapter 6, L is used to denote the expected number of jobs in the process.
†
In queuing theory, the average CT is referred to as the expected time in the system and is denoted by W.

• Storage time
• Waiting time (planned and unplanned delay time)

Processing time is often related to value-adding activities. However, in many cases, the processing
time is only a small fraction of the CT. CT analysis is a valuable tool for identifying opportunities to
improve process performance. For example, if an insurance company finds out that it takes 100 days (on
average) to process a new commercial account and that the actual processing time is only about 2 days,
then there might be an opportunity for a significant process improvement with respect to CT.
5.1.4 Little’s Law
A fundamental relationship between throughput, WIP, and CT is known as Little’s law. J. D. C. Little
proposed a proof for this formula in connection with queuing theory (Little, 1961). The relationship,
which has been shown to hold for a wide class of queuing situations, is

WIP =l´ CT

The formula states that the average number of jobs in the process is proportional to the average time
that a job spends in the process, where the factor of proportionality is the average arrival rate. Little’s
law refers to the average (or expected) behavior of a process. The formula indicates that if two of the
three operational measures can be managed (i.e., their values are determined by conscious managerial
decisions), the value of the third measure is also completely determined. Three basic relationships can
be inferred from Little’s law:

1. WIP increases if the throughput rate or the CT increases.

2. The throughput rate increases if WIP increases or CT decreases.
3. CT increases if WIP increases or the throughput rate decreases.

These relationships must be interpreted carefully. For example, is it true that in an order fulfillment
process, more WIP inventory results in an increase of CT? Most people would argue that higher levels of
inventory (either of finished product or of WIP) should result in a shorter CT because the order can be
filled faster when the product is finished (or in the process to be finished) than when it has to be
produced from scratch. Is Little’s law contradicting common sense? The answer is no. A closer
examination of the order fulfillment process reveals that there are, in fact, two WIP inventories: one
associated with purchasing orders and the other with products. In this case, Little’s law applies only to
the WIP inventory of orders and not to the inventory of products. Now it is reasonable to state that if
the number of orders in the pipeline (i.e., the WIP inventory of orders) increases, the CT experienced by
the customer also increases.
Finally, some companies use a performance measure known as inventory turns or turnover ratio. If
WIP is the number of jobs in a process at any point in time, then the turnover ratio indicates how often
the WIP is replaced in its entirety by a new set of jobs. The turnover ratio is simply the reciprocal of the
CT; that is,

1
Turnover ratio =
CT
Example 5.2
An insurance company processes an average of 12,000 claims/year. Management has found that on average, at
any one time, 600 applications are at various stages of processing (e.g., waiting for additional information from the
customer, in transit from the branch office to the main office, waiting for an authorization, and so on). If it is
assumed that a year includes 50 working weeks, how many weeks (on the average) does processing a claim take?
 l= = 240 claims/week

WIP = 600 jobs

WIP =l´ CT

WIP 600
CT = = = 2.5 weeks l 240

Little’s law indicates that the average CT for this claim process is 2.5 weeks. Suppose management does not
consider this CT acceptable (because customers have been complaining that the company takes too long to
process their claims). What options does management have to reduce the CT to, say, 1 week? According to Little’s
law, in order to reduce the CT, either the WIP must be reduced or the throughput rate must be increased. A
process redesign project is conducted, and it is found that most claims experience long, unplanned delays (e.g.,
waiting for more information). The new process is able to minimize or eliminate most of the unplanned delays,
reducing the average WIP by half. The CT for the redesigned process is then

WIP 300
CT = = =1.25 weeks λ 240

5.2 Cycle Time and Capacity Analysis

In this section, the concepts of CT, throughput, and WIP inventory are used along with Little’s law to
analyze the capacity of processes. A process is still viewed as a set of activities that transforms inputs
into outputs. Jobs are routed through a process, and resources perform the activities. The routing of
jobs and the possibility of rework affect CT, and the amount of resources and their capabilities affect
process capacity.

5.2.1 Cycle Time Analysis

CT analysis refers to the task of calculating the average CT for an entire process or a process segment.
The CT calculation assumes that the time to complete each activity is available. The activity times are
average values and include waiting time (planned and unplanned delays). Flow diagrams are used to
analyze CTs, assuming that only one type of job is being processed. In the simplest case, a process may
consist of a sequence of activities with a single path from an entry point to an exit point. In this case, the
CT is simply the sum of the activity times. However, not all processes have such a trivial configuration.
Therefore, the CT analysis needs to be considered in the presence of rework, multiple paths, and parallel
activities.

5.2.1.1 Rework
An important consideration when analyzing CTs relates to the possibility of rework. Many processes use
control activities to monitor the quality of the work. These control activities (or inspection points) often
use specified criteria to allow a job to continue processing. That is, the inspection points act as an
accept/reject mechanism. The rejected jobs are sent back for further processing, affecting the average
CT and ultimately the capacity of the process (as will be discussed in the next section).

Example 5.3
Figure 5.3 shows the effect of rework on the average CT of a process segment. In this example, it is assumed that
each activity (i.e., receiving the request and filling out parts I and II of the order form) requires 10 min (as indicated
by the number between parentheses) and that the inspection (the decision symbol labeled “Errors?”) is done in 4
min on the average. The jobs are processed sequentially through the first three activities, and then the jobs are
inspected for errors. The inspection rejects an average of 25% of the jobs. Rejected jobs must be reworked through
the last two activities associated with filling in the information in the order form.
Without the rework, the CT of this process segment from the entry point (i.e., receiving the request) to the exit
point (out of the inspection activity) is 34 min, that is, the sum of the activity times and the inspection time.
Because 25% of the jobs are rejected and must be processed through the activities that fill out the order form as
well as being inspected once more, the CT increases by 6 min (24 × 0.25) to a total of 40 min on the average. In this
case, the assumption is that jobs are rejected only one time.

If it is assumed that the rejection percentage after the inspection in a rework loop is given by r and
that the sum of the times of activities within the loop (including inspection) is given by T, then the
following general formula can be used to calculate the CT from the entry point to the exit point of the
rework loop:

CT = +(1r)×T

Receive Fill out Part I Fill out Part II 0.75

Errors? Done
request of order form of order form (4) No
(10) (10) (10)

Yes

0.25

CT=10+1.25×(10+10+4)=40 min

FIGURE 5.3
CT calculation with a rework loop.

This formula assumes that the rework is done only once. That is, it assumes that the probability of an
error after the first rejection goes down to zero. If the probability of making an error after an inspection
remains the same, then the CT through the rework loop can be calculated as follows:

T
CT =
1- r
In Example 5.3, the average CT for the entire process would be calculated as follows, taking into
consideration that the probability of an error remains at 25% regardless of the number of times the job
has been inspected:
 CT = +10 = 42 min

5.2.1.2 Multiple Paths

In addition to rework, a process might include routings that create separate paths for jobs after specified
decision points. For example, a process might have a decision point that splits jobs into “fast track” and
“normal track.” In this case, a percentage must be given to indicate the fraction of jobs that follow each
path.

Example 5.4
Figure 5.4 shows a flowchart of the process for Speedy Tax Services described in Example 5.1. All clients are
received by the receptionist, after which a decision is made to send a fraction of the clients to a professional tax
specialist and the remaining clients to a tax-preparation associate. On the average, 70% of the clients have
complicated tax returns and need to work with a professional tax specialist. The remaining 30% of the clients have
simple tax returns and can be helped by tax-preparation associates. The numbers between parentheses associated
with each activity indicate the activity time (in minutes). With this information, the average CT associated with this
process can be calculated. In this case, the CT represents the average time that it takes for a client to complete his
or her tax return and pay for the service.
The CT calculation in Figure 5.4 represents the sum of the contribution of each activity time to the total. All
clients are received by a receptionist, so the contribution of this activity to the total CT is 5 min. Similarly, the
contribution of the last activity to the CT is 6 min, given that all clients must pay before leaving the facility. The
contribution of the other two activities in the process is weighted by the percentage of clients that are routed
through each of the two paths.

A general formula can be derived for a process with multiple paths. Assume that m paths originate
from a decision point. Also assume that the probability that a job follows path i is pi and that the sum of
activity times in path i is Ti. Then the average CT across all paths is given by

CT = p1 × + ×T1
T2 + + pm ×Tm

5.2.1.3 Parallel Activities

CT analysis also should contemplate routings in which activities are performed in parallel. For example, a
technician in a hospital can set up the x-ray machine for a particular type
 Complete
0.30 easy tax
Yes return
(30)

Receive Pay for

Easy
client services
return?
(5) (6)

Complete
0.70 complicated
tax return
No
(60)

CT=5+0.30×30+0.70×60+6=62 min

FIGURE 5.4
CT calculation with multiple paths.

of shot (as required by a physician), while the patient prepares (e.g., undresses). These two activities
occur in parallel, because it is not necessary for the technician to wait until the patient is ready before
starting to set up the x-ray machine. Because one of these activities will require less time, the other has
to wait for further processing. Typically, the patient will finish first and will wait to be called for the x-
ray. The contribution to the CT is then given by the maximum time from all the parallel activities.

Example 5.5
Figure 5.5 depicts a process with five activities. The first activity consists of opening an envelope and splitting its
contents into three different items: application, references, and credit history. Each of these items is processed in
parallel, and a decision is made regarding this request after the parallel activities have been completed. The
numbers between parentheses in Figure 5.5 are activity times in minutes.
The CT calculation in Figure 5.5 results in a total of 40 min for the process under consideration. This is the sum of
5 min for the first activity, 20 min for checking the credit history (which is the parallel activity with the longest
time), and 15 min for making a decision. Note that the flow diagram in Figure 5.5 has no decision point after the
first activity because all the jobs are split in the same way; that is, the routing of all the jobs is the same and
includes the parallel processing of the “checking” activities. Note also that these are considered inspection
activities, and therefore, the square is used to represent them in the flowchart in Figure 5.5.

The general formula for process segments with parallel activities is a simplification of the one
associated with multiple paths. Because there is no decision point when the jobs are split, it is not
necessary to account for probability values. It is assumed that Ti is the total time of the activities in path i
(after the split) and that the process splits into m parallel paths. Then the CT for the process segment
with parallel paths is given by

CT = max(T T1, 2,…,Tm)

 Check
application
(14)

Receive
application Check credit Make
and supporting history decision
documents (20) (15)
(5)

Check
references
(18)

CT=5+max(14, 20, 18)+15=40min

FIGURE 5.5
CT calculation with parallel activities.

Example 5.6
Before concluding this section, let us apply the aforementioned principles for CT analysis to a small process.
Assume that a process has been described and that the flow diagram in Figure 5.6 was drawn appropriately from
these descriptions. The numbers in parenthesis shown in Figure 5.6 are activity times in minutes. The process
consists of nine activities. A decision point is included after activity A because only 30% of the jobs are required to
go through activity B. A rework loop sends jobs back from the inspection point I to activity D. This loop assumes
that the reworked jobs are examined a second time and that they always pass the inspection; that is, jobs are
reworked only one time. The process has two parallel activities, F and G, before the last activity is performed.
The CT calculation that corresponds to the process in Figure 5.6 starts with the time for activity A. Next, the
contribution of 6 min (i.e., 0.3 20) from activity B is added. This is followed by the time of activity C (23 min) and
the contribution of the activities in the rework loop. Note that the times within the rework loop are added,
including the inspection time, and multiplied by 110%. This operation accounts for the 10% of jobs that are sent
back after inspection. Finally, the contribution of the parallel activities is calculated as the maximum time between
activity F and G, followed by the activity time for H. The average CT for this process is determined to be 92.5 min.

After calculating the CT of a process, the analyst should calculate what is known as the CT efficiency.
Assuming that all processing times are value-adding, the CT efficiency indicates the percentage of time,
from the actual CT, that is spent performing value-adding work. Mathematically, the CT efficiency is
expressed as follows:

CT efficiency = Process time

 CT
0.7

A C
(10) (23)
B
0.3 (20)

D
(10)

0.1 E
(20)
F
(9)

I H
(5) (2)

G
(13)

CT=10+0.3×20+23+1.1×(10+20+5)+max(9, 13)+2=92.5 min

FIGURE 5.6
Example of CT analysis.

Process time also is referred to as the theoretical CT because theoretically a job can be completed in
that time (i.e., if no waiting would occur). To calculate the process time, replace activity time with the
processing time (i.e., the activity time minus the waiting time). It should be recognized that the CT
efficiency calculated here is conceptually the same as the efficiency calculation in Chapter 4, which was
connected with line balancing.

Example 5.7
Table 5.1 shows the time values associated with the activities in Example 5.6. The time values are broken down
into processing time and waiting time. The activity time is the sum of these two values.
Using the processing times in Table 5.1 and the flow diagram in Figure 5.6, the process time (or theoretical CT)
can be calculated as follows:

Process time = +2 0 3. × + + × + +5
1 1. (3 4 4)+ max(2 4, )+ =2

The CT efficiency can now be found as follows:

CT efficiency = = 0 32.

This means that less than one-third of the actual CT is spent in processing, and the rest of the time is spent
waiting.

Redesign projects in several industries (e.g., insurance, hospitals, and banking) indicate that it is not
unusual to find CT efficiencies of less than 5%. This occurs, for example, in
 TABLE 5.1
Activity Times for Example 5.7
Processing Time (Min) Waiting Time (Min)Activity Time
Activity (Min)
A 2 8 10
B 5 15 20
C 8 15 23
D 3 7 10
E 4 16 20
Inspection 4 1 5
F 2 7 9
G 4 9 13
H 2 0 2
applications for a new insurance policy, where the process time is typically 7 min and the CT is normally
72 h.

5.2.2 Capacity Analysis

Capacity analysis complements the information obtained from a CT analysis when studying flows in a
process. Flowcharts are important also for analyzing capacity because the first step in the methodology
consists of estimating the number of jobs that flow through each activity. This step is necessary because
resources (or pools of resources) perform the activities in the process and their availability limits the
overall capacity. The number of jobs flowing through each activity is determined by the configuration of
the process, which may include, as in the case of the CT analysis, rework, multiple paths, and parallel
activities.

5.2.2.1 Rework
When a process or process segment has a rework loop, the number of jobs flowing through each activity
varies according to the rejection rate.

Example 5.8
Figure 5.7 depicts a process with a rework loop. Requests are processed through three activities and then
inspected for errors. Suppose 100 requests are received. Because an average of 25% of the requests are rejected,
the second and third activities, which are inside the rework loop, end up processing 125 jobs in the long run. This is
assuming that rejected requests always pass inspection the second time.

Next, a general formula is derived for calculating the number of jobs per activity in a rework loop.
Assume that n jobs enter the rework loop and that the probability of rejecting a job at the inspection
station is r. The number of jobs flowing through each activity in the loop, including the inspection
station, is given by the following equation:

Number of jobs = +(1r)× n

 100 requests 125 requests 125 requests 125 requests

0.75
Receive Fill out Part I Fill out Part II
Errors? Done
request of order form of order form
No

Yes

0.25

FIGURE 5.7
Number of requests flowing through each activity in a process with rework.

When the rejection rate stays the same regardless of the number of times that a job has been
reworked and inspected, then the number of jobs that are processed by activities inside the rework loop
is given by the following equation:

n
Number of jobs = 1−
r

According to this formula, the activities inside the rework loop in Example 5.8 (see Figure 5.7) process
133.33 requests on the average.

5.2.2.2 Multiple Paths

The job routings in a process may include decision points that create multiple paths. The flow through
each path varies according to the frequency with which each path is selected (as indicated in the
decision point).

Example 5.9
Figure 5.8 shows a flowchart of the process for Speedy Tax Services described in Example 5.1, which contains
multiple paths. Assume that 100 clients enter the process, and we want to calculate the number of clients that are
processed at each activity on the average.
Because 30% of the clients have simple tax returns, about 30 clients out of 100 are helped by tax-preparation
associates. On the average, the remaining 70 clients are helped by professional tax specialists. It is important to
note that all 100 clients must pay for the services rendered, so they are routed through the cashiers.

To derive a general formula for the number of jobs in each path, assume that the probability that a job
follows path i is pi. Also assume that n jobs enter the decision point. Then, the number of jobs in path i is
given by the following equation:

Number of jobs in path i = pi ´ n

5.2.2.3 Parallel Activities

When jobs split into parallel activities, the number of jobs flowing through each activity remains the
same as the number of jobs that enter the process (or process segment).