Cycle Time and Utilization

In order to improve my on-time delivery of service, do I add resources to my process, or do I try to improve my process cycle time?  The first consideration is that increasing resources increases your cost of operation. Improving cycle time does not. Another way to look at this is to compare your process cycle time with percent utilization of resources.

There is a relationship between variability in cycle time and percent utilization of resources. The source of this variation can be found in quality, rework, employee issues, etc. When variation is high, the percent utilization of resources reflects that variability and can impact on-time delivery, cost, and knowing how to allocate capacity (hiring, capital equipment, etc.).

An example of how this relationship works is displayed in the graph below. As the percent utilization of your capacity increases, task cycle time also increases.  The increase in cycle time is relatively flat at first, but eventually, the curve becomes steep.

The two curves in the graph above represent a 3 sigma level process (high variation) and a 5 sigma level process (low variation).  If a customer’s time to delivery requires process cycle time to be less than 4000 seconds, the 3 sigma curve fails to meet that criterion at about 65% of resource utilization. The 5 sigma curve, on the other hand stays capable of meeting the criterion all the way up to 100% of resource utilization.

A business with a high variability in cycle time will have to add capability much sooner (lower utilization). This is not good for bottom line costs. This clearly demonstrates why lowering the standard deviation in cycle time of the process becomes important.

An additional take away from this chart is that as cycle time or utilization increases, so does the probability of failing to meet on-time delivery targets.  Again, the lower standard deviation (higher sigma level) process has the lowest probability of failing to meet on-time delivery requirements at any utilization percentage.

What this means is that is better to focus first on cycle time in order to improve on-time delivery, as opposed to simply adding resources to a bad process. This is where Six Sigma comes in. A six Sigma process improvement team will address the root causes of variation in the process; thereby improving the utilization of existing resources. This is akin to giving your car a tune up to improve its fuel economy.