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between any two units coming off of that activity right.

It's taking the processing time and

adjusting it for multiple units being made from that activity.

So it's computed as take the processing time,

divide that by either the number of full time equivalents if there

are multiple people working on that task, you are talking about.

Dividing it by the number of people that are working on that task or

it could be that there are multiple units being produced together from that task.

It's a machine that processes a certain number of units together, so

you put all the raw material in it and then it processes multiple units and

then they come out of that activity.

So that would be also, place where you would adjust for cycle time.

Now all these things become more clear rather than focusing on the definitions

when we focus on actual examples.

So here let's start taking look at the examples.

So let's think about an activity which has a multiple stations or

multiple employees, so you have a manual activity here.

And the example that I've used here is packing a ceramic vase with two

parallel stations.

Right, so there are two people who are doing the same task.

We put two people to do the same task and they're doing this in parallel,

they're doing it independently.

But we basically have capacity of two people,

working on this task they're doing essentially the same thing.

Each employee takes four minutes to pack one unit, so

what is the processing time of this activity.

It is essentially four minutes.

Four minutes is the time that it takes for one of them to package one unit.

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The cycle time is adjusting this processing time for

the fact that there are two people working here,

there are two units that are going to come off of this activity every four minutes.

So every four minutes you're going to get two units which means the cycle time is

two minutes.

Now, remember the distinction between these two concepts, processing time and

cycle time, processing time is the actual time that it takes to get something done.

Cycle time is a theoretical average based on multiple units being done.

So if I were to go this activity and say here's a unit,

you need to package this in two minutes, they are not going to be able to do it.

It still takes four minutes but we say it's a cycle time of two minutes based

on the fact that we're getting two units in every four minutes.

Let's take another example to make this even more clear when we're talking about

multiple units being processed at the same time.

So here's a machine activity such as firing

the ceramic vases with one kiln that can fire 40 vases at a time.

So it's making 40 units at a time, the time required to do this is 30 minutes.

So just by definition that is going to be our processing time.

So the processing time is going to be 30 minutes,

the time that's taken to complete the activity.

Now the cycle time is going to be based on the fact that 40 units come out in 30

minutes.

So it's going to be 30 minutes divided by 40 units and

that gives us 0.75 minutes or 45 seconds.

So every 45 seconds theoretically speaking, I can give you a unit.

I can never give you a unit in 45 seconds but

what I can do is every 30 minutes I can give you 40 units from this activity.

So that's the idea of taking processing time and adjusting it for

the number of units that are being made in parallel in order to get the cycle time.

Now why are we calculating cycle time?

And again, this will become clear when we start looking at the value stream map and

how we'll use this in terms of assessing the performance of the value stream map.

So just keep these calculations in mind as we go forward toward doing

the value stream map or doing the calculation for the values stream map.

A few other things about the idea of processing time, cycle time,

is the concept of set up time, change over time.

So what do we mean by set up time or change over time?

Change over time is basically you're making a particular kind of unit,

you want to change from that to make another kind of unit.

It's the time that's needed to be spend between making the end of the last unit

of the previous type and when you start making the first unit of the next type.

So that's the time being spent between those two types of products.

It's generally not affected by the batch size.

So it's a, sort of, a fixed cost that you're paying for doing the change over.

What do I mean by fixed cost?

It's not affected by how many units you made off the previous type and

how many units you are going to make off the next type.

It's a fixed cost, If it's going to take you

three hours to make a changeover from a particular type of product to another.

It's three hours, regardless of whether you make 100 units before or

you make 1,000 units before of one type, and similarly with after.

Now although It is not being affected by batch size, it does affect batch size.

So what are we saying here?

We're saying that if you have a large set up time, if you have a large change

over time It will force you, it will get you to think about larger batch sizes.

If I have a three hour change over versus having an eight hour change over.

If I have an eight hour change over, I'd like to do a larger batch of product

one before I switch over to product two, simply because I want to take the eight

hours and spread it over a larger quantity.

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As opposed to if it had a three hour change-over,

I'm going to say I'm okay with doing a little bit of a smaller batch size.

And if you reduce the batch size even more,

then I'd be willing to do a smaller batch sizes.

If I were to reduce the setup time even more,

I'd be willing to do smaller batch sizes.

So the idea is that if I can reduce setup time, if I can reduce change-over time,

then I can do smaller batch sizes.

The idea of economies of skill trying to use up whatever

investment I have, whatever fixed cost and putting into the change over cost and

spreading it across many units, is the idea of economies of scale.

Now, what we can say about set up time and change over time is what would be ideal,

we can say that ideal change over time would be zero, right?

If I could have a completely flexible process and change over from making one

product to the other, that would be great because that would be a time of zero.

Because essentially setup time takes away from capacity from that activity,

takes away from capacity from the process.

So I would like to take you down to a zero.

Now if you think about Toyota,

they focus on reducing change over time to a great extent.

They have an acronym for quick changeovers and it's called SMED,

single minute exchange of dies, and they're talking about changing large

dies in less than a minute from making one product to the other.

And that gives them tremendous flexibility and

that's why it's an important concept for them to think about reducing set up time.

Now, how do we incorporate this idea into calculations.

Now, I'm going to show you how to incorporate this idea if you wanted to

incorporate it into your calculations.

But what you'll see later on is or

we will not really use the set up time in calculations, but just to have for

the point of completion, how would you account for set up time?

So here's an example, machine activity such as firing ceramic vases,

the same activity we looked at earlier, with one kiln that can fire 40 vases at

a time but now we're talking about a setup time of ten minutes between batches.

So, we make something, we have to change over and

it could be simply having to clean the kiln or do something of that sort or that

you have only one fixture that you can use for putting all the 40 vases in there.

So that's something that you have to stop, do unload all the vases from

the previous fixture, put it on the new fixture, put it on the same fixture and

then put it in the kiln and that's taking you ten minutes.

So it's whatever is taking you ten minutes between two different batches of that

product that you're making.

So 30 minute of time to actually get the baking done,

the firing done and then ten minutes of change over time.

That's what we're talking about here.

So we can say that the effective processing time is 30 plus ten.

We can say that it's 40 minutes, It's 40 minutes for

a batch of 40 vases to be done.

So, now, the cycle time is going to be 40 divide by 40, or, 1 minute.

So what have essentially done?

We've taken the ten minutes and

spread that across the whole batch of 40 units that we're making.

Now if you think about it,

how much you spread it is going to be affected by batch size.

It's also going to be affected by when you do have change overs and when you don't.

So the reason we don't use this concept when we talk about value stream mapping,

or when we start getting into calculations of value stream mapping, is because this

is something that you cannot really account in for any constant way.

It is going to be something that's going to vary, depending on the batch size, and

depending on how many change overs you have,

in the period that you're studying the value stream.

But that aside, you know how to do this calculation if you need to incorporate

it and when you get to value stream mapping in this session,

you'll see that we're not really including it in the calculations, all right.

Now, one more concept before we get to actually doing some calculations

on the value stream map example is the concept of implied utilization.

Now what do we mean by implied utilization?

Now if you might remember from other lessons,

that the idea of utilization is time required divided by time available, right?

That's a simple idea,

time required divided by time available is the idea of utilization.

And when we say implied utilization, we're simply saying it's the time

that is going to be required based on the demand, right?

So it's whatever the demand is, what is the time that's going to be required,

divided by time that's going to be available, that we expect to be available.

So we put the word implied because it says the expected utilization,

the implied utilization could be greater than a 100%.

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We can get a number from this calculation that's greater than a 100%.

What would that be saying?

That would be saying that we simply don't have enough capacity to

serve this customer.

So it's the actual demand divided by expected, the hours that we have expected,

minutes that we have of the resource and we find that that's not going to be

enough, that would be indicated by a greater than 100% number.

Now that's your calculation of capacity utilization based

on using time required divided by time available.

But what you will also see when we get to the value stream map is

that capacity utilization can also be measured,

can also be calculated rather based on a comparison of cycle time and takt time.

So, capacity utilization can also be expressed as

the ratio of cycle time to takt time.

And we'll see this when we get to the value stream map.

So you're seeing a lot of build up to the actual case of the value stream map but

rest assured we are going to see that very soon, all right.

Inventory, and what do we mean by inventory?

We basically mean any units that are sitting, waiting for the next task.

That are sitting, waiting between two different tasks.

So inventory is a number of units that are sitting between two tasks, and

when we talk about total inventory in the value stream.

We simply mean all of the inventory that is sitting between tasks as well as

that is being worked on in the tasks.

So we are including everything that maybe in process in an activity

as well as all of the units that are waiting between the activities.

And although we'll be looking at a manufacturer kind of value stream map,

you can imagine inventory to be people waiting in a process.

This could be a fast food restaurant, the people waiting in the process.

The people waiting between tasks in a process and

the people who are actually at the register or waiting for

their food to be delivered or at the soda machine where they're getting their soda.

Those all are also considered inventory when your thinking about this.

So it's the sum of the units at different stages, In various levels of completion

between the stages and that are in the actual activity itself.

It's measured in units of units of whatever flow units you're talking about.

So it could be people, it could be it could be cars,

It could be bottles of water, whatever is the product you're talking about.

Now what you'll see happening in the value stream is that we will take the idea

of inventory in units and also convert it into the idea of inventory in time.

So how many days worth of demand does this inventory represent?

How many months worth of demand does this Inventory represent and

we will take that in to account when we're talking about it in

the value stream map that we will look at in a few slides.

All right, total lead time and what do we mean by total lead time?

So total lead time is the time that it takes for

raw material that's entering the system to get converted in to finished goods.

So if I were to start a stopwatch from when the raw material came from

the supplier and stop the stopwatch when the product became

finished goods that is going to the customer.

Now when it got loaded on that truck to go to the customer,

that would be my total lead time.

So that's the concept of it.

How would you calculate it?

You would calculate it based on summing, adding up all the times that you find

within the value stream within the process.

So the time that raw material comes in sets from the supplier to time that it

waits to get loaded onto a machine to actually being worked on in the machine,

to waiting for the next step.

So on and so forth, until it's finished goods sitting in the finished good

warehouse, and before it goes to the customer.

That would be the total lead time.

You would measure it in units of time.

It would be number of days or minutes or weeks or

whatever units you would be using.

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So, let's take all this information, I've given you quite a bit of build up for

the value stream map.

So finally we're getting the point where we're going to take this mini case

called Atlantic Corporation that I made up.

It's a very simple kind of case and it's meant to give you an idea of some of

the things, some of the calculations that you would do in a value stream map,

and then also give you an idea of how you would interpret what you find.

So you can think of this as being a current state map for

the situation that we're going to see.

Now you do have the case in a different format, but you also have the case,

entire case given to you on this slide deck as two different slides.

So, you will able to read it off, of from here or

you can refer to it from the case that you can download.

Also what I would suggest is getting a pencil and paper and working through

the calculations because that's the best way to learn through these calculations.

And then also a calculator would help in order to make these calculations or you

can refer to Excel on the computer or just use your computer to do the calculations.