Customer Flow: Taco Bell serves on average 1,500 customers per day (15 hours). On average there are 75 customers in the restaurant (waiting to place the order, waiting for the order to arrive, eating, etc.). How long does an average customer spend at Taco Bell and what is the average customer turnover?
R=1,500 customers/day I=75 customers T=I/R=(75 cus/1,500 cus/day)x(15 hrs/day)x(60min/hr)=45 minutes Customer turnover=1/T=(1/45 min)x(60 min/hr)x(15 hrs/day)=20 times per day
Job Flow: The Travelers Insurance Company processes 10,000 claims per year. The average processing time is 3 weeks. Assuming 50 weeks in a year, what is the average number of claims “in process”? R=10,000 claims/yr T=(3 weeks)/(50 weeks/yr)=3/50 yr I=RT=(10,000 claims/yr)×(3/50 yr)=600 claims
Material Flow: McDonalds’s holds raw hamburger meat an average of three days before its cooked and sold to customers. The typical inventory of raw meat is 2,500 lb. What is the average amount of hamburger McDonald’s goes through in a week and what is the takt time of processing hamburger in a 15-hour day? R=I/T, R=?, T =3 days=3/7weeks, I=2500lbs, R=2500lbs/ 3/7weeks R=5,833lbs/week, Takt =1/R 1/5833 lbs/week x 7days/week x 15hr/day x 60min/hour = 1.08min/lb – means none of the processes can take more than 1.08min
Monetary Flow: For the new Euro introduction in 2002, Wim Duisenberg had to decide how many new Euro coins to stamp by 2002. Euroland’s central banks’ cash-in-coins handling was estimated at €300 billion per year.
The average cash-in-coins holding time by consumers and businesses was estimated at 2 months. How many Euro coins were to be made? R=300 B/yr T=(2 months)/(12 months/yr)=1/6 yr I=RT=(300 B/yr)x(1/6 yr)=€50 B
Cash Flow (Accounts Receivable): A wholesaler sells $300 million worth of clothes and accessories to retailers per year. The average accounts receivable is $45 million. What is the average billing to collection process cycle time? T=I/R=($45 M/$300 M/yr)x(52 wks/yr)=7.8 weeks
A general manager at Baxter states that her inventory turns three times a year. She also states that everything that Baxter buys gets processed and leaves the docks within six weeks. Are these statements consistent? No, because if the flow time is 6 weeks, then inventory turns should be 1/T=(1/6 wks)x(52 wks/yr)=8.7 turns/year.
Average Inventory = 20, Throughput = 20 per hour,
Average flow time = 20 / 20 = 1 hour
Average Inventory = 5, Throughput = 20 per hour,
Average flow time = 5 / 20 = 0.25 hour,
Average Inventory = 10, Throughput = 5 per hour(25%of20),
Average flow time = 10 /5 = 2 hours
Average time spent by people admitted = 1 + 0.25 + 2 = 3.25 hours
Routine: Average inventory = 10, Throughput = 15 per hour (75%of20),, Average flow time = 10/15 = 0.6667 hour
Average time spent by routine care patients = 1 + 0.25 + 0.6667 = 1.9167 hours Average time in ER for all patients = 0.25(3.25) + 0.75(1.9167) = 2.25 hours OR
2. In this case we have: Average Inventory = 20 + 5 + 10 + 10 = 45, Throughput = 20 per hour, Average flow time = 45 / 20 = 2.25 hours.
Inventory turns can be calculated using financial statements by dividing COGS (R) by average inventory value (I), linking flow time (an operational measure) to financial measures.
With a decrease in total assets (such as inventory, accounts receivable, and plant & equipment), return on assets (ROA) improves.
Flow Time = Inv/COGSInv Turns= COGS/Inv
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