How to Use Little’s Law in Your Business
We all know that dynamite comes in small packages. And Little’s Law is proof of this.
This small but mighty theorem is designed to help businesses take control of their operations and use the results of a mathematical formula to improve them. Little’s Law is used by everyone from the smallest start-up to the biggest government enterprise, and it’s also a building block of the Kanban methodology.
If you’re looking for explosive ways to improve and enhance your operations, increase your output, reduce waste, and scale your business, Little’s Law is the answer. We’re going to explain what this formula is, how it works, and how you can apply it to improve your chances of ongoing success.
Boom! Let’s get started.
What Is Little’s Law?
In a nutshell, Little’s Law is a formula that can assess the efficiency of a queuing system. It’s an incredibly useful tool for any business or organization that has customers, visitors or users who queue. The formula can be applied to the business as a whole, to individual premises, and even to individual tellers or cashiers in a store or branch.
The law was named after Dr. John CD Little, who created the proof for the formula. Dr. Little is a former professor at the Massachusetts Institute of Technology (MIT) where he specialized in operations research. He originally developed the law in 1954, but only published the proof for the theorem in 1961.
One of the factors that make Little’s Law so useful is the fact that the formula is completely scalable. It’s easily applied to the smallest café, with only one queue all the way through to massive retail chains with stores across the country. You can also apply it to businesses that don’t have customers queuing to improve the workflow and overall operations. However, before we dive into that, let’s look at the actual formula.
The Mathematical Equation
When expressed mathematically, the formula for Little’s Law is: L = λW
The equation looks very simple with only three variables, but it can do a lot. The variables represent:
- L — the average number of customers
- λ — the customer’s arrival rate
- W — the average amount of time customers spend at the business
Let’s look at an example of how this would work.
In a wedding dress boutique, you have 5 customers coming in, with each customer trying on dresses for 2 hours. Therefore, λ = 5 and W = 2, and L = 5×2 = 10. This means that you have 10 customers in your boutique at any given time.
With this information, you know how much floor space you require for your boutique, how many dressing rooms are needed, and how many assistants you need on hand to work with those customers. The results of the formula help you plan for current scenarios and for the future when you expand your customer base and operations.
How Does Little’s Law Apply to Your Business?
Little’s Law doesn’t just apply to retail businesses and places where customers queue, like banks. So many businesses can apply the law to their operations in different ways. The most common applications are in:
1. System capacity
In manufacturing, the equation gets changed up a bit in terminology. To work out capacity and output, L becomes Work in Progress (WIP), λ becomes production output or throughput, and W becomes lead time.
With these values, you can see how much your business can output in a day. Thereafter, you can work out the lead time on the production of new items or new projects.
Understanding the capacity for production in your business can help you to forecast income, revenue, expenses, and other necessary budgeting requirements. You can also plan for quiet times and busier times, as well as plan your supply orders appropriately.
Going back to the wedding dress boutique example, we can now look at the wedding dressmakers. Lead time (W) is usually the figure that a business will want to calculate. The dressmakers need to be able to let the boutique know how many dresses they can expect and when. To work out lead time, they will divide WIP by output.
The dressmaker has seamstresses working on 10 dresses at a time and they complete 5 dresses every day. This means the equation will look like this: 10 / 5 = 2 days to produce one dress.
2. Project management
Little’s Law is the foundation of a number of project management systems utilized in a wide range of industries. Kanban, Agile and Lean Manufacturing all use the equation as the basis of their system. All project management focuses on ensuring the business isn’t overwhelmed by work. It also ensures that resources get assigned to tasks depending on the priority of completion. It’s much the same as how the formula is used in calculating system capacity.
8 Helpful Tips for Easy Project Progress Monitoring
Project progress monitoring allows you to identify performance problems early on, address them promptly and attain…
How to Improve Your Business Using Little’s Law
Once you have the numbers worked out in your equation, you can start playing with the equation to see how you can improve operations in your business.
When you make changes like the ones below, be sure to go back to the equation and see if you’ve made enough of a difference to your bottom line.
1. Reduce the work in progress
If you want to improve the way your business operates and allow you to bring in more revenue, the first place you need to look is at your WIP. The longer it takes for your business to manufacture your product, the harder it is to make a profit. Obviously, not every business is about high output. However, it’s still important to try and balance output and quality to get the right level of income.
2. Look for waste in the processes
Any waste in the processes within your business is going to cut into your profits. It can be a case of not having an up-to-date online portfolio that causes customer confusion, using outdated equipment, having employees who aren’t up to speed, or bottlenecks in the workflow. It’s important to analyze your business critically and see what you can improve, smooth out, or completely change.
3. Improve the exit rate
Finally, look at how your products are exiting the manufacturing process and how you can speed this up. One of the easiest ways to do this is to get the right technology in place to automate and streamline as much of the process as possible.
Since the end goal is to make money for your business, it’s important to ensure that you have the right technology for your needs and that you aren’t spending too much money on it. You want to be able to recoup your expenses here fairly quickly.
Ready to Try Little’s Law?
It’s clear. Applying Little’s Law can lead to big changes in your business.
From the smallest store to manufacturers with a global presence, this formula offers insight into operational improvements that every business benefits from. And who doesn’t want to save time, reduce costs, maximize productivity and improve their bottom lines?