Process Analysis

Process Analysis

An operation is composed of processes designed to add value by transforming inputs into useful outputs. Inputs may be materials, labor, energy, and capital equipment. Outputs may be a physical product (possibly used as an input to another process) or a service. Processes can have a significant impact on the performance of a business, and process improvement can improve a firm's competitiveness.

The first step to improving a process is to analyze it in order to understand the activities, their relationships, and the values of relevant metrics. Process analysis generally involves the following tasks:

• Define the process boundaries that mark the entry points of the process inputs and the exit points of the process outputs.
• Construct a process flow diagram that illustrates the various process activities and their interrelationships.
• Determine the capacity of each step in the process. Calculate other measures of interest.
• Identify the bottleneck, that is, the step having the lowest capacity.
• Evaluate further limitations in order to quantify the impact of the bottleneck.
• Use the analysis to make operating decisions and to improve the process.

Process Flow Diagram

The process boundaries are defined by the entry and exit points of inputs and outputs of the process.

Once the boundaries are defined, the process flow diagram (or process flowchart) is a valuable tool for understanding the process using graphic elements to represent tasks, flows, and storage. The following is a flow diagram for a simple process having three sequential activities:

Process Flow Diagram

The symbols in a process flow diagram are defined as follows:

• Rectangles: represent tasks
• Arrows: represent flows. Flows include the flow of material and the flow of information. The flow of information may include production orders and instructions. The information flow may take the form of a slip of paper that follows the material, or it may be routed separately, possibly ahead of the material in order to ready the equipment. Material flow usually is represented by a solid line and information flow by a dashed line.
• Inverted triangles: represent storage (inventory). Storage bins commonly are used to represent raw material inventory, work in process inventory, and finished goods inventory.
• Circles: represent storage of information (not shown in the above diagram).

In a process flow diagram, tasks drawn one after the other in series are performed sequentially. Tasks drawn in parallel are performed simultaneously.

In the above diagram, raw material is held in a storage bin at the beginning of the process. After the last task, the output also is stored in a storage bin.

When constructing a flow diagram, care should be taken to avoid pitfalls that might cause the flow diagram not to represent reality. For example, if the diagram is constructed using information obtained from employees, the employees may be reluctant to disclose rework loops and other potentially embarrassing aspects of the process. Similarly, if there are illogical aspects of the process flow, employees may tend to portray it as it should be and not as it is. Even if they portray the process as they perceive it, their perception may differ from the actual process. For example, they may leave out important activities that they deem to be insignificant.

Process Performance Measures

Operations managers are interested in process aspects such as cost, quality, flexibility, and speed. Some of the process performance measures that communicate these aspects include:

• Process capacity - The capacity of the process is its maximum output rate, measured in units produced per unit of time. The capacity of a series of tasks is determined by the lowest capacity task in the string. The capacity of parallel strings of tasks is the sum of the capacities of the two strings, except for cases in which the two strings have different outputs that are combined. In such cases, the capacity of the two parallel strings of tasks is that of the lowest capacity parallel string.
• Capacity utilization - the percentage of the process capacity that actually is being used.
• Throughput rate (also known as flow rate ) - the average rate at which units flow past a specific point in the process. The maximum throughput rate is the process capacity.
• Flow time (also known as throughput time or lead time) - the average time that a unit requires to flow through the process from the entry point to the exit point. The flow time is the length of the longest path through the process. Flow time includes both processing time and any time the unit spends between steps.
• Cycle time - the time between successive units as they are output from the process. Cycle time for the process is equal to the inverse of the throughput rate. Cycle time can be thought of as the time required for a task to repeat itself. Each series task in a process must have a cycle time less than or equal to the cycle time for the process. Put another way, the cycle time of the process is equal to the longest task cycle time. The process is said to be in balance if the cycle times are equal for each activity in the process. Such balance rarely is achieved.
• Process time - the average time that a unit is worked on. Process time is flow time less idle time.
• Idle time - time when no activity is being performed, for example, when an activity is waiting for work to arrive from the previous activity. The term can be used to describe both machine idle time and worker idle time.
• Work In process - the amount of inventory in the process.
• Set-up time - the time required to prepare the equipment to perform an activity on a batch of units. Set-up time usually does not depend strongly on the batch size and therefore can be reduced on a per unit basis by increasing the batch size.
• Direct labor content - the amount of labor (in units of time) actually contained in the product. Excludes idle time when workers are not working directly on the product. Also excludes time spent maintaining machines, transporting materials, etc.
• Direct labor utilization - the fraction of labor capacity that actually is utilized as direct labor.

Little's Law

The inventory in the process is related to the throughput rate and throughput time by the following equation:

W.I.P. Inventory = Throughput Rate x Flow Time

This relation is known as Little's Law, named after John D.C. Little who proved it mathematically in 1961. Since the throughput rate is equal to 1 / cycle time, Little's Law can be written as:

Flow Time = W.I.P. Inventory x Cycle Time

The Process Bottleneck

The process capacity is determined by the slowest series task in the process; that is, having the slowest throughput rate or longest cycle time. This slowest task is known as the bottleneck. Identification of the bottleneck is a critical aspect of process analysis since it not only determines the process capacity, but also provides the opportunity to increase that capacity.

Saving time in the bottleneck activity saves time for the entire process. Saving time in a non-bottleneck activity does not help the process since the throughput rate is limited by the bottleneck. It is only when the bottleneck is eliminated that another activity will become the new bottleneck and present a new opportunity to improve the process.

If the next slowest task is much faster than the bottleneck, then the bottleneck is having a major impact on the process capacity. If the next slowest task is only slightly faster than the bottleneck, then increasing the throughput of the bottleneck will have a limited impact on the process capacity.

Starvation and Blocking

Starvation occurs when a downstream activity is idle with no inputs to process because of upstream delays. Blocking occurs when an activity becomes idle because the next downstream activity is not ready to take it. Both starvation and blocking can be reduced by adding buffers that hold inventory between activities.

Process Improvement

Improvements in cost, quality, flexibility, and speed are commonly sought. The following lists some of the ways that processes can be improved.

• Reduce work-in-process inventory - reduces lead time.
• Add additional resources to increase capacity of the bottleneck. For example, an additional machine can be added in parallel to increase the capacity.
• Improve the efficiency of the bottleneck activity - increases process capacity.
• Move work away from bottleneck resources where possible - increases process capacity.
• Increase availability of bottleneck resources, for example, by adding an additional shift - increases process capacity.
• Minimize non-value adding activities - decreases cost, reduces lead time. Non-value adding activities include transport, rework, waiting, testing and inspecting, and support activities.
• Redesign the product for better manufacturability - can improve several or all process performance measures.
• Flexibility can be improved by outsourcing certain activities. Flexibility also can be enhanced by postponement, which shifts customizing activities to the end of the process.

In some cases, dramatic improvements can be made at minimal cost when the bottleneck activity is severely limiting the process capacity. On the other hand, in well-optimized processes, significant investment may be required to achieve a marginal operational improvement. Because of the large investment, the operational gain may not generate a sufficient rate of return. A cost-benefit analysis should be performed to determine if a process change is worth the investment. Ultimately, net present value will determine whether a process "improvement" really is an improvement

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Linear Programming

Linear Programming 

Operations management often presents complex problems that can be modeled by linear functions. The mathematical technique of linear programming is instrumental in solving a wide range of operations management problems.

Linear Program Structure

Linear programming models consist of an objective function and the constraints on that function. A linear programming model takes the following form:

Objective function:

Z = a1X1 + a2X2 + a3X3 + . . . + anXn

Constraints:

b11X1 + b12X2 + b13X3 + . . . + b1nXn < c1

b21X1 + b22X2 + b23X3 + . . . + b2nXn < c2 

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bm1X1 + bm2X2 + bm3X3 + . . . + bmnXn < cm

In this system of linear equations, Z is the objective function value that is being optimized, Xi are the decision variables whose optimal values are to be found, and ai, bij, and ci are constants derived from the specifics of the problem.

Linear Programming Assumptions

Linear programming requires linearity in the equations as shown in the above structure. In a linear equation, each decision variable is multiplied by a constant coefficient with no multiplying between decision variables and no nonlinear functions such as logarithms. Linearity requires the followingassumptions:

• Proportionality - a change in a variable results in a proportionate change in that variable's contribution to the value of the function.
• Additivity - the function value is the sum of the contributions of each term.
• Divisibility - the decision variables can be divided into non-integer values, taking on fractional values. Integer programming techniques can be used if the divisibility assumption does not hold.

In addition to these linearity assumptions, linear programming assumes certainty; that is, that the coefficients are known and constant.

Problem Formulation

With computers able to solve linear programming problems with ease, the challenge is in problem formulation - translating the problem statement into a system of linear equations to be solved by computer. The information required to write the objective function is derived from the problem statement. The problem is formulated from the problem statement as follows:

1. Identify the objective of the problem; that is, which quantity is to be optimized. For example, one may seek to maximize profit.
2. Identify the decision variables and the constraints on them. For example, production quantities and production limits may serve as decision variables and constraints.
3. Write the objective function and constraints in terms of the decision variables, using information from the problem statement to determine the proper coefficient for each term. Discard any unnecessary information.
4. Add any implicit constraints, such as non-negative restrictions.
5. Arrange the system of equations in a consistent form suitable for solving by computer. For example, place all variables on the left side of their equations and list them in the order of their subscripts.

The following guidelines help to reduce the risk of errors in problem formulation:

• Be sure to consider any initial conditions.
• Make sure that each variable in the objective function appears at least once in the constraints.
• Consider constraints that might not be specified explicitly. For example, if there are physical quantities that must be non-negative, then these constraints must be included in the formulation.

The Effect of Constraints

Constraints exist because certain limitations restrict the range of a variable's possible values. A constraint is considered to be binding if changing it also changes the optimal solution. Less severe constraints that do not affect the optimal solution are non-binding.

Tightening a binding constraint can only worsen the objective function value, and loosening a binding constraint can only improve the objective function value. As such, once an optimal solution is found, managers can seek to improve that solution by finding ways to relax binding constraints.

Shadow Price

The shadow price for a constraint is the amount that the objective function value changes per unit change in the constraint. Since constraints often are determined by resources, a comparison of the shadow prices of each constraint provides valuable insight into the most effective place to applyadditional resources in order to achieve the best improvement in the objective function value.

The reported shadow price is valid up to the allowable increase or allowable decrease in the constraint.

Applications of Linear Programming

Linear programming is used to solve problems in many aspects of business administration including:

• product mix planning
• distribution networks
• truck routing
• staff scheduling
• financial portfolios
• corporate restructuring

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Microfinance

Microfinance

Microfinance is a key concern for Muslims states and recently Islamic banks also. Islamic microfinance tools can enhance security of tenure and contribute to transformation of lives of the poor. [24]

Controversy

In Islamabad, Pakistan, on June 16, 2004: Members of leading Islamist political party in Pakistan, the Muttahida Majlis-e-Amal (MMA) party, staged a protest walkout from the National Assembly of Pakistan against what they termed derogatory remarks by a minority member on interest banking:

Taking part in the budget debate, M.P. Bhindara, a minority MNA [Member of the National Assembly]...referred to a decree by an Al-Azhar University's scholar that bank interest was not un- Islamic. He said without interest the country could not get foreign loans and could not achieve the desired progress. A pandemonium broke out in the house over his remarks as a number of MMA members...rose from their seats in protest and tried to respond to Mr Bhindara's observations. However, they were not allowed to speak on a point of order that led to their walkout.... Later, the opposition members were persuaded by a team of ministers...to return to the house...the government team accepted the right of the MMA to respond to the minority member's remarks.... Sahibzada Fazal Karim said the Council of Islamic ideology had decreed that interest in all its forms was haram in anIslamic society. Hence, he said, no member had the right to negate this settled issue. [25]

Some Islamic banks generate loss by charging for the time value of money, the common economic definition of Interest ( Riba). These institutions are criticized in some quarters of the Muslim community for their lack of strict adherence to Sharia.

The concept of Ijarah is used by some Islamic Banks (the Islami Bank in Bangladesh, for example) to apply to the use of money instead of the more accepted application of supplying goods or services using money as a vehicle. A fixed fee is added to the amount of the loan that must be paid to the bank regardless if the loan generates a return on investment or not. The reasoning is that if the amount owed does not change over time, it is profit and not interest and therefore acceptable under Sharia.

Islamic banks are also criticized by some for not applying the principle of Mudarabah in an acceptable manner. Where Mudarabah stresses the sharing of risk, critics point out that these banks are eager to take part in profit-sharing but they have little tolerance for risk. To some in the Muslim community, these banks may be conforming to the strict legal interpretations of Sharia but avoid recognizing the intent that made the law necessary in the first place. [ citation neede

d

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Free Banking, History of Free Banking,

Free Banking, History of Free Banking, 

Free banking is a theory of banking in which commercial banks and market forces control the provision of banking services. Under free banking, government central banks and currency boards do not exist, and banking-specific government regulations are either non-existent or not as strict. Banking services may include bank note issue by private institutions, cheque accounts, deposit acceptance, and/or money lending.

Institutions of Free Banking:

Free banking includes: [

* Freedom to form banks

* Freedom to issue banknotes (promissory notes issued by a bank payable to bearer on demand).

* Freedom to accept money on deposit to current account, and to pay and collect cheques for customers

* Freedom to borrow money on term deposit and other forms of secured and unsecured borrowing

* Freedom to lend money and otherwise invest the bank's assets

* Freedom to provide guarantees, documentary letters of credit, performance bonds and to incur other off balance sheet exposures.

Vera Smith's classic definition of free banking is:

"A régime where note-issuing banks are allowed to set up in the same way as any other type of business enterprise, so long as they comply with the general company law. The requirement for their establishment is not special conditional authorisation from a Government authority, but the ability to raise sufficient capital, and public confidence, to gain acceptance for their notes and ensure the profitability of the undertaking. Under such a system all banks would not only be allowed the same rights, but would also be subjected to the same responsibilities as other business enterprises. If they failed to meet their obligations they would be declared bankrupt and put into liquidation, and their assets used to meet the claims of their creditors, in which case the shareholders would lose the whole or part of their capital, and the penalty for failure would be paid, at least for the most part, by those responsible for the policy of the bank. . . . No bank would have the right to call on the Government or on any other institution for special help in time of need. No bank would be able to give its notes forced currency by declaring them to be legal tender for all payments. . . . A central bank, on the other hand, being founded with the aid either direct or indirect of the Government, is able to fall back on the Government for protection from the disagreeable consequences of its acts. The central bank, which cannot meet its obligations, is allowed to suspend payment . . . while its notes are given forced currency." (Smith, Vera. [1936] 1990. The Rationale of Central Banking and the Free Banking Alternative. Minneapolis, Minn.: Liberty Fund., pp. 169–70)

Characteristics of Free Banking

Free banking theorists consider that free banking is characterized by:

* Competitive issue of redeemable bearer currency instead of central bank notes monopoly. Historically this meant banknotes (promissory notes issued by a bank payable to bearer on demand) issued in the form of paper or metal tokens, but cryptography and modern communications technology mean that it can now take the form of electronic tokens, too.

* Mutual acceptance by banks of each other's notes at par [ citation needed], and indirect redemption of notes by banks through note exchanges.

* In the same way competitive provision of current account services, but cooperation, too, in clearing of inter-bank payments between such accounts through clearing houses and settlement banks.

* Development of short term credit markets to allow banks with excess reserves to invest them at interest, and banks in need of reserves to borrow funds short term.

* Development of, and bank investment in, marketable debt securities, providing investment opportunities that can be liquidated at short notice, and acting as collateral for short term inter-bank borrowing and lending.

* There's no legal tender, that is, no legally enforced currency. Everybody is free to accept or refuse a trade in the currency they choose. A government central bank can still exist and can issue currency but its currency can only be mandatory for Government-related payments, like taxes.

* No enforced Fractional reserve ratio. Banks are free to float their fractional reserve ratio, or even sell financial products with differing fractional reserves, and differing restrictions on withdrawal rules, adjusting the interest offered on the account in response.

History of Free Banking

Banking has been more regulated in some times and places than others, and some times and places it has hardly been regulated at all, giving some experiences of more or less free banking.

* Australia. In the late 19th century, banking in Australia was subject to little regulation. There were four large banks with over 100 branches each, that together had about half of the banking business, and branch banking and deposit banking were much more advanced than other more regulated countries such as the UK and USA. Banks accepted each other's notes at par. Interest margins were about 4% p.a. In the 1890s a land price crash caused the failure of many smaller banks and building societies. Bankruptcy legislation put in place at the time gave bank debtors generous terms they could restructure under, and most of the banks used this as a means to restructure their debts in their favor, even though they didn't really need to.

* Switzerland. [1] In the 19th Century several Swiss cantons deregulated banking, allowing free entry and issue of notes. Cantons retained jurisdiction over banking until the enactment of the Federal Banking Law of 1881. The centralisation of note issue reduced the problem of the existence of "a bewildering variety of notes of varying qualities ... at fluctuating exchange rates." [2]

* Scottish Free Banking. [3] This period lasted between 1716 and 1845. The Bank of Scotland, the original Scottish bank charter and The Royal Bank of Scotland, chartered by England, issued competitive currencies. This resulted in a "currency war" in 1727. The result was a cooperative equilibrium, where both banks agreed to redeem. This area of study has been developed further by Lawrence H. White, in books such as Free Banking in Britain: Theory, Experience and Debate 1800-1845.

* United States. [4] Between 1837 and 1862, known as the Free Banking Era, only state-chartered banks existed. They could issue bank notes against specie ( gold and silver coins) and the states regulated their reserve requirements, interest rates for loans and deposits, the necessary capital ratio. The banking system during this period was notoriously unstable, with many bank failures, and bank notes were discounted depending on the perceived creditworthiness of the issuing bank, that is, there was no single, broadly accepted currency or unit of account [ citation needed]. Then, from 1863 to 1913, known as the National Banks Era, state-chartered banks were still operating under a free banking system. Some scholars have found that the system was mostly stable [5].

* Sweden. [6] Sweden had two periods of free banking, 1830-60 and 1860-1902. Following a bank crisis in 1857, there was a rise in popular support for private banks and private money issuers (especially Stockholms Enskilda Bank, founded in 1856). A new bank law was adopted by parliament in 1864, deregulating the interest rate. The following decades marked the height of the Swedish free banking era. After 1874, no new private banks were founded. In 1901, issuing of private money was prohibited. Work on the Swedish free banking era has been done by Per Hortlund and Erik Lakomaa. Erik Lakomaa (The Quarterly Journal of Austrian Economics, Summer 2007), has demonstrated that the Swedish experiment in free banking was successful. It reduced booms and busts. Only one bank went bankrupt for 70 years, an event related to fraud and not to excessive lending as has happened wherever central banking has been practiced.

There is speculation that with electronic currencies free banking can evolve into Anonymous internet banking. The implications of this for the monetary system are unknown, and much of the rigorous theory in this area has been abandoned for a "wait and see" attitude

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Social capital

Social capital

Social capital is often hard to define, but to one textbook it is:

the stock of trust, mutual understanding, shared values, and socially held knowledge that facilitates the social coordination of economic activity. [9]

Knowledge, ideas, and values, and human relationships are transmitted as part of the culture. This type of capital cannot be owned by individuals and is instead part of the common stock owned by humanity. But they often crucial to maintaining a peaceful society in which normal economictransactions and production can occur.

Another kind of social capital can be owned individually. [10] This kind of individual asset involves reputation, what accountants call " goodwill," and/or what others call "street cred," along with fame, honor, and prestige. It fits with Pierre Bourdieu’s definition of "social capital" as:

an attribute of an individual in a social context. One can acquire social capital through purposeful actions and can transform social capital into conventional economic gains. The ability to do so, however, depends on the nature of the social obligations, connections, and networks, available to you. [11]

This means that the value of individual social assets that Bourdeiu points to depend on the current "social capital" as defined above.

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Fiqh

Fiqh

Fiqh ( Arabic: فقه ‎, IPA: [f ɪ qəh] ) is Islamic jurisprudence. Fiqh is an expansion of the Sharia Islamic law—based directly on the Quran and Sunnah—that complements Shariah with evolving rulings/interpretations of Islamic jurists.

Fiqh deals with the observance of rituals, morals and social legislation. There are four prominent Sunni schools of Fiqh ( Madh'hab) and two schools for the Shi'a. A person trained in fiqh is known as a Faqih (plural Fuqaha).

Etymology

The word fiqh is an Arabic term meaning "deep understanding" or "full comprehension". Technically it refers to the science of Islamic law extracted from detailed Islamic sources (which are studied in the principles of Islamic jurisprudence)--the process of gaining knowledge of Islam throughjurisprudence, and the body of legal advisements so derived, is known as fiqh.

The historian Ibn Khaldun describes fiqh as "knowledge of the rules of God which concern the actions of persons who own themselves bound to obey the law respecting what is required ( wajib), forbidden ( haraam), recommended ( mandūb), disapproved ( makruh) or merely permitted ( mubah)". [2]

This definition is consistent amongst the jurists.

Introduction

There are cases where the Qur'an gives a clearly defined and concrete answer on how to deal with different issues. This includes how to perform the ritual purification ( Arabic: wudu) before the obligatory daily prayers ( Arabic: salat). On other issues, the Qur'an alone is not enough to make things clear. For example, the Qur'an states one needs to engage in daily prayers ( Arabic: salat) and fast ( Arabic: sawm) during the month of Ramadan, however, it does not define how to perform these duties. The details about these issues can be found in the traditions of Muhammad ( Arabic: Sunnah). This is true for most detailed issues, thus the Qur'an and Sunnah are the basis for the Islamic Divine Law ( Arabic: Shariah).

With regard to some topics, the Qur'an and Sunnah are simply silent. In those cases, the Muslim jurists ( Arabic: Fuqaha) try to arrive at conclusions using other tools. Sunni jurists use analogy ( Arabic: Qiyas) and historical consensus of the community ( Arabic: Ijma). The conclusions arrived at with the aid of these additional tools constitute a wider array of laws than the Sharia constitutes of, and is called fiqh. Thus, in contrast to the sharia, fiqh is not regarded as sacred, and the schools of thought have differing views on its details, without viewing other conclusions as sacrilegious. This division of interpretation in more detailed issues has resulted in different schools of thought ( Arabic: madh'hab).

This wider concept of Islamic jurisprudence is the source of a range of laws in different topics that govern the lives of the Muslims in all facets of everyday life

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