MGT3303 Michel Leseure Facility Decisions Learning objectives: –To discuss facility location decisions –To discuss capacity planning –To discuss factory layout problems Reading: Chapter 5 and its supplement

MGT3303 Michel Leseure Location Problems Where should a facility be located: –Given a range of qualitative and quantitative decision variables

MGT3303 Michel Leseure Qualitative Location Factors Local Infrastructure –Institutional (e.g., reliable electrical power grid) –Transportational (e.g., railway systems) Worker Education and Skills –Education and skills of local workers. Product Content Requirements –The minimum percentage of product that must be produced in a country in order for the product to be sold in that country. Political/Economic Stability

MGT3303 Michel Leseure Quantitative Location Factors Labor Costs –Labor costs vary dramatically, depending on location. Cheap labor often lacks needed education and skills. Distribution Costs –Distance and the time required to deliver products can offset lower location costs. Facility Costs –Special economic zones (SEZ) Duty-free areas established to attract foreign investment in the form of manufacturing facilities

MGT3303 Michel Leseure Quantitative Location Factors Exchange Rates –Variations in rates can have a significant effect on sales and profits. Tax Rates –Taxes vary considerably between countries and within countries. –All forms of taxes should be considered (property, payroll, inventory, and investment taxes).

MGT3303 Michel Leseure Geographic Information Systems (GIS) –Computer tool that assesses alternative locations for operations. –Provides a “bird’s eye view” of a particular region of interest.

MGT3303 Michel Leseure Evaluating Potential Locations Factor Rating System 1.Identify the specific criteria or factors to be considered. 2.Assign a weight to each factor. 3.Select a common scale for rating each factor. 4.Rate each potential location on each of the factors. 5.Multiply each factor’s score by its weight. 6.Sum the weighted scores and select the location with the highest score.

MGT3303 Michel Leseure Factor-Rating System Example

MGT3303 Michel Leseure Evaluating Potential Locations Center of Gravity Method –Used to determine the optimal location of a facility based on minimizing the transportation costs between where the goods are produced and where they are sold or redistributed. –Locate each existing operation on an X and Y coordinate grid map. –Calculate X coordinate of center of gravity –Calculate Y coordinate of center of gravity

MGT3303 Michel Leseure Center of Gravity Formulas C x =X coordinate of the center of gravity C y =Y coordinate of the center of gravity d ix =X coordinate of the ith location d iy =Y coordinate of the ith location V i =Volume of goods transported to the ith location

MGT3303 Michel Leseure Example Question: What is the best location for a new Z-Mobile warehouse/temporary storage facility considering only distances and quantities sold per month? Several automobile showrooms are located according to the following grid which represents coordinate locations for each showroom X Y A (100,200) D (250,580) Q (790,900) (0,0)

MGT3303 Michel Leseure Example You then compute the new coordinates using the formulas: You then take the coordinates and place them on the map: X Y A (100,200) D (250,580) Q (790,900) (0,0) Z Z New location of facility Z about (443,627)

MGT3303 Michel Leseure Capacity Planning Establishes the overall level of productive resources for a firm Usually results in a capital investment decision – long term focus These decisions are usually irreversible! Given: a sales forecast a risk profile (aggressive, risk-averse, etc.)

MGT3303 Michel Leseure Measuring Capacity Objective is to measure a level of activity Several possible measures, based either on staff or plant/equipment –An hospital would measure capacity according to its number of beds or overall capacity different units for emergency room (staff) –A building contractor would measure a project in terms of staff –Precision machinist: Machine hours per month

MGT3303 Michel Leseure Measuring Capacity It is important to differentiate: –Planned capacity: the theoretical capacity of a system given some allowances –Actual capacity: the actual demand of the usage of resources, under- or over-capacity – Efficiency: the degree to which production is as efficient as planned

MGT3303 Michel Leseure Example A precision machinist has a theoretical capacity of 15,000 hours. In a given month, 16,000 hours were sold. 3,000 hours were subcontracted. This case: –is an example of under-capacity –is an example of 100% utilisation –the efficiency is 87% (13,000/15,000)

MGT3303 Michel Leseure Capacity Planning: Decision objectives Decisions objectives are: –Anticipate growth or wait? –Forecast the end of a growth period –Avoid overcapacity (unit cost consequence!) –What should be done in the case of over- capacity? Size of operations unitTiming of capacity

MGT3303 Michel Leseure Best Operating Levels With Economies & Diseconomies Of Scale

MGT3303 Michel Leseure Timing of capacity Units Capacity Time Demand Units Capacity Time Demand Capacity Time Demand Units Incremental expansion Demand Capacity lead strategy Capacity lag strategy Average capacity strategy One-step expansion

MGT3303 Michel Leseure Layout Decisions How should machines, workers, departments, etc. be arranged? Several generic options

MGT3303 Michel Leseure Types of Layout

MGT3303 Michel Leseure Process or Functional Layout Job and batch systems are based on functional layouts –machines, processes and equipment of the same type are grouped together in the same department or area

MGT3303 Michel Leseure Product Layout High volume production systems use product layouts –machines, equipment and workplaces are arranged according to the order in which operations need to be carried out to produce a complete component, product or sub ‑ assembly (lines, flow systems)

MGT3303 Michel Leseure Flexible Line Layouts

MGT3303 Michel Leseure Design Methods – Process Layouts

MGT3303 Michel Leseure Design Methods – Process Layouts

MGT3303 Michel Leseure Design Methods – Process Layouts Total cost: $2,223 ($1 for adjacent departments - $1 for each travel-through)

MGT3303 Michel Leseure Improvement: 3-5 Permutation *Only interdepartmental flow with effect on cost is depicted. Total cost: $1,878 (= $2,223 – )

MGT3303 Michel Leseure Assembly Line Balancing Means the design of the layout of an efficient assembly line –Product Layout –Also called flowlines, as product flows through workstations –Is also a pre-schedule of operations Labour resources and physical facilities Material inputs Finished products

MGT3303 Michel Leseure Problem Statement Tasks to be allocated to work stations Flow of material Work stations Objective: To find the best allocation of tasks which will produce the desired output while maximising efficiency and achieving good 'balance'

MGT3303 Michel Leseure Line Balancing The main objective of line design will be to maximise line efficiency (or minimise total work station idle time) At the same time any idle time should be spread as evenly as possible among the work stations, ie the line should be 'balanced' Cycle time Station work content Idle time

MGT3303 Michel Leseure Procedure Summarise precedence data in a table Draw a precedence diagram Compute the desired cycle time Compute the theoretical number of workstations Assign tasks to workstation (heuristics) Draw layout and compute efficiency

MGT3303 Michel Leseure Example Cold Sheffield Ltd needs 5 tasks to assemble its product. It has 1200 minutes of assembly workforce time available per day and it needs to produce 100 units per day. Precedence relationships between the task are: TasksTimePredecessors A4 (mn)None B5A C2B D10A E3C,D Design a balanced assembly line.

MGT3303 Michel Leseure Draw a Precedence Diagram A B 4 5 C 2 D 10 E 3

MGT3303 Michel Leseure Cycle Time Computation Target output: 100 units/day Target cycle time: –The number of minutes to complete work at one workstation –A measure of the frequency with which products roll off the assembly line Available work time: 1200 minutes per day production time available desired output C = C = = 12 minutes / units

MGT3303 Michel Leseure Theoretical Number of Workstations Sum of elementary tasks time Cycle Time Theoretical number of workstations = = 24 / 12 = 2

MGT3303 Michel Leseure Task Assignment A B 4 5 C 2 D 10 E 3 Workstation 1 (11 minutes)

MGT3303 Michel Leseure Task Assignment A B 4 5 C 2 D 10 E 3 Workstation 1 (11 minutes) Workstation 2 (10 minutes) Workstation 3 (3 minutes) (Alternative AB and CD)

MGT3303 Michel Leseure Summary of Solution Workstation 1 (ABC)- 11 mn Efficiency of line = 24 / 3 * 12 = 24/36 = 66.7% (sum of tasks time divided by number of workstations times cycle time) Workstation 2 (D)- 10 mn Workstation 3 (E)-3 mn Linear layout

MGT3303 Michel Leseure Low Efficiency Although with 2 workstations, there would be enough time to complete all tasks (24 mn), the tasks cannot be combined in a linear layout in 2 workstations! Try alternative forms of layouts –U-shaped layouts –Gives the option to combine non sequential tasks

MGT3303 Michel Leseure U-Shape Layout Solution Workstation 1 A,B Workstation 2 C,D E 12 mn Line is perfectly balanced – 100% efficiency

MGT3303 Michel Leseure Class Exercise Problem 5-1, p. 190 Problem 5-11, p. 192

MGT3303 Michel Leseure Suggested Homework Solved Problems p. 188 Problem 5-2 p. 191 Problem 5-12 p. 192 Problems S5-1, S5-2, p. 210