Location Planning Capacity Planning and Layout Planning Module IV

Facility Location Planning: Decision Factors Low Construction Cost Land Availability At low Cost Proximity To Subcontractor Availability Of Skilled Labour Residential Facility Proximity To Market Proximity To Raw Materials Availability Of Power Connectivity With Air/Rail & Road Supportive Govt. Policies Socio- Economic Environment Facility Location Planning

Offensive in competitor’s home country Power & prestige Synergy Economies of scale Exploitation of firm specific advantages Incentives Low costs Additional resources Regulations International competition International customers Trade barriers International Facility Location Planning Factors in International Location Planning

Location Decision Relevant Factors

Location Planning Methods One Supply Point – Multiple Demand Centers – Location factor rating – Centre of Gravity Method – Load Distance Method Multiple Supply Points – Multiple Demand Centers – Transportation Model

Location Factor Rating Method Steps Identify and list down all the relevant factors for the location decision Establish the relative importance of each factor in the final decision Rate the performance of each demand location using a rating mechanism Compute a total score for each location based on its performance against each factor and rank them in the decreasing order of the score

Example A manufacturer of garments is actively considering five alternative locations for setting up its factory. The locations vary in terms of the advantages that it provides to the firm. Hence the firm requires a method of identifying the most appropriate location. Based on a survey of its senior executives the firm has arrived at six factors to be considered for final site selection. The ratings of each factor on a scale of 1 to 100 provide this information. Further, based some detailed analysis of both the qualitative and quantitative data available for each of the location, the rating for the locations against each factor has also been arrived at (on a scale of 0 to 100). Using this information obtain a ranking of the alternative locations.

Example Factor Ratings Rating of each locations against the factors

Solution to Example Overall rating for location 3 = 60* * * * * *0.20 = Overall rating for location 5 = 55* * * * * *0.20 = 56.15

Plant Location Methodology: Transportation Method of Linear Programming Transportation method of linear programming seeks to minimize costs of shipping n units to m destinations or its seeks to maximize profit of shipping n units to m destinations 11-10

Plant Location Methodology: Centroid Method The centroid method is used for locating single facilities that considers existing facilities, the distances between them, and the volumes of goods to be shipped between them This methodology involves formulas used to compute the coordinates of the two- dimensional point that meets the distance and volume criteria stated above 11-11

Plant Location Methodology: Example of Centroid Method Question: What is the best location for a new Z-Automobile Warehouse/Temporary storage facility considering only distances and quantities sold per month? Centroid method example – 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) 11-12

Plant Location Methodology: Centroid Method Formulas Where: C x = X coordinate of centroid C y = X coordinate of centroid d ix = X coordinate of the ith location d iy = Y coordinate of the ith location V i = volume of goods moved to or from ith location 11-13

Plant Location Methodology: Example of Centroid Method (Continued): Determining Existing Facility Coordinates To begin, you must identify the existing facilities on a two- dimensional plane or grid and determine their coordinates. X Y A (100,200) D (250,580) Q (790,900) (0,0) You must also have the volume information on the business activity at the existing facilities

Plant Location Methodology: Example of Centroid Method (Continued): Determining the Coordinates of the New Facility X Y A (100,200) D (250,580) Q (790,900) (0,0) You then compute the new coordinates using the formulas: Z Z New location of facility Z about (443,627) You then take the coordinates and place them on the map: 11-15

Load Distance Method Enables a location planner to evaluate two or more potential candidates for locating a proposed facility vis-à-vis the demand (or supply) points Provides an objective measure of total load- distance for each candidate

Example Coordinates of existing Demand Centers ( A-B-C-D) and corresponding volume of Demands are given on table on Left Based on an initial survey of possible sites, the manufacturer identified four locations for Supply Centers ( ). Coordinates are given on table in right. What is the best location for the proposed new facility?

Multiple Supply & Demand Points Grid Map Distance in Kilometres A (125,550), 200 B (350,400), 450 C (450,125), 175 D (700,300), (300,500) 2 (200,500) 3 (500,350) 4 (400,200) Candidate for proposed facility Existing Demand (or supply) point

Solution to Example Load Wi

Multi-facility location problem Transportation Model Locating distribution centers for nation-wide distribution of products is one typical example belonging to this category Decisions variables in a multiple location – multiple candidate problem – Identifying k out of n candidates for locating facilities – Which of the demand points will be served by each of these locations and to what extent the problem is one of managing network flows of satisfying a set demand points using a combination of supply points The transportation model is ideally suited for solving this combinatorial optimisation problem

Multiple facilities location problem Transportation table (Example 7.4.) Problem Solution using Vogal’s Approximation Method (VAM)

Capacity Planning Capacity can be defined as the ability to hold, receive, store, or accommodate Strategic capacity planning is an approach for determining the overall capacity level of capital intensive resources, including facilities, equipment, and overall labor force size 5-22

Capacity Utilization Where Capacity used – rate of output actually achieved Best operating level – capacity for which the process was designed 5-23

Best Operating Level Example: Engineers design engines and assembly lines to operate at an ideal or “best operating level” to maximize output and minimize ware Underutilization Best Operating Level Average unit cost of output Volume Overutilization 5-24

Example of Capacity Utilization During one week of production, a plant produced 83 units of a product. Its historic highest or best utilization recorded was 120 units per week. What is this plant’s capacity utilization rate?  Answer: Capacity utilization rate = Capacity used Best operating level = 83/120 =0.69 or 69%  Answer: Capacity utilization rate = Capacity used Best operating level = 83/120 =0.69 or 69% 5-25

Economies & Diseconomies of Scale 100-unit plant 200-unit plant 300-unit plant 400-unit plant Volume Average unit cost of output Economies of Scale and the Learning Curve working Diseconomies of Scale start working 5-26

Capacity Flexibility Flexible plants Flexible processes Flexible workers 5-27

Strategies For Capacity Augmentation Add New Capacity Debottleneck existing Capacity Locate External Sources of Capacity 5-28

Example of a Decision Tree Problem A glass factory specializing in crystal is experiencing a substantial backlog, and the firm's management is considering three courses of action: A) Arrange for subcontracting B) Construct new facilities C) Do nothing (no change) The correct choice depends largely upon demand, which may be low, medium, or high. By consensus, management estimates the respective demand probabilities as 0.1, 0.5, and 0.4. A glass factory specializing in crystal is experiencing a substantial backlog, and the firm's management is considering three courses of action: A) Arrange for subcontracting B) Construct new facilities C) Do nothing (no change) The correct choice depends largely upon demand, which may be low, medium, or high. By consensus, management estimates the respective demand probabilities as 0.1, 0.5, and

Example of a Decision Tree Problem (Continued): Step 1. We start by drawing the three decisions A B C 5-30

Example of a Decision Tree Problem (Continued): The Payoff Table The management also estimates the profits when choosing from the three alternatives (A, B, and C) under the differing probable levels of demand. These profits, in thousands of dollars are presented in the table below: 5-31

Example of Decision Tree Problem (Continued): Step 2. Add our possible states of nature, probabilities, and payoffs A B C High demand (0.4) Medium demand (0.5) Low demand (0.1) $90k $50k $10k High demand (0.4) Medium demand (0.5) Low demand (0.1) $200k $25k -$120k High demand (0.4) Medium demand (0.5) Low demand (0.1) $60k $40k $20k 5-32

Example of Decision Tree Problem (Continued): Step 3. Determine the expected value of each decision High demand (0.4) Medium demand (0.5) Low demand (0.1) A A $90k $50k $10k EV A =0.4(90)+0.5(50)+0.1(10)=$62k $62k 5-33

Example of Decision Tree Problem (Continued): Step 4. Make decision High demand (0.4) Medium demand (0.5) Low demand (0.1) High demand (0.4) Medium demand (0.5) Low demand (0.1) A B C High demand (0.4) Medium demand (0.5) Low demand (0.1) $90k $50k $10k $200k $25k -$120k $60k $40k $20k $62k $80.5k $46k Alternative B generates the greatest expected profit, so our choice is B or to construct a new facility 5-34

Facility Layout Facility Layout means planning for: Location of machines Workstations Utilities Restrooms Offices Warehouses

Facility Layout Planning Criteria for Manufacturing operations layout:  Flexibility for Products’ volume  Products variety & future expansion  Eliminating unproductive materials-handling  Ease for Plant Operations & Maintenance  Safety, Health & Environment considerations  Fulfillment of Other Statutory requirements

Layout Planning for Service operations Criteria for layout design:  Customer comfort & convenience  Aesthetics & Appeal value  Attractive display of merchandise  Classification & Clustering  Stock Rotation for shelf life  Adequate passage for movement  Unobstructed visual communication

Layout Planning for Warehouse operations Criteria for layout design:  Place for Loading & Unloading operations  Storage according to Classification Codes  Consideration for physical size, shape and weight of materials under storage  Consideration for shelf life & preservation  Adequate passage for materials movement  Centralized workstation for warehouse keeper

Layout Planning for Office operations Criteria layout design:  Inline with existing organization structure  Aesthetics & Appeal value  Elimination of unproductive movement of personnel including visitors  Privacy of workstations, records & documents  Reception, Meeting Place & Pantry

Facility Layout Planning Criteria for Office operations layout:  Inline with existing organization structure  Aesthetics & Appeal value  Elimination of unproductive movement of personnel including visitors  Privacy of workstations, records & documents  Reception, Meeting Place & Pantry

Load-Distance Analysis in Process Layouts Load means number of operations carried out at the work station. Sequence of Processing means pre-designed process flow for carrying out operations Distance refers to physical distance of movement from one work station to another in the process chain Load – Distance means the quantum of work associated with each sequential operation carried out on the load In short Load X Distance = Load Distance

Sequential Distance Calculation X = 60 Y = 60 Z = 50 Layout Option AProductSequenceSequential Distance

Sequential Distance Calculation X = 90 Y =90 Z = 80 Layout Option BProductSequenceSequential Distance

Load-Distance Calculation X = 60 Y =60 Z = 50 Layout Option AProductLoad Distance X X 60 =60,000 Y X 60 =180,000 Z X 50 50,000 Total Load Distance =290,000

Load-Distance Calculation X = 90 Y =90 Z = 80 Layout Option BProductLoad Load Distance X x 90 = 90,000 Y X 90 =270,000 Z X 80 80,000 Total Load Distance =440,000

Sequential Distance Calculation Layout Option A Layout Option B Load Distance: 290,000 Load Distance: 440,000

Closeness Rating Closeness Rating Technique is an effective tool in Service Layout Planning Layout of work stations is designed on the basis of desirable Closeness ( Nearness ) of a set of functions associated with the operation. Closeness is prioritized or rated according to the necessity & importance as follows: Closenes s Rating Importance 1Absolutely Necessary 2.Highly Important 3.Important 4.Slightly Important 5.Unimportant 6.Undesirable

D1 D2 D3 D4 D5 D6 D7 D8 D9

Closeness Logic Rating 1: Most Important D1 = D9 D9 = D8 D8 = D4 D4 = D3 D4 = D1 Rating 2: Important D1 – D2 D5 – D7 D7- D9 Rating 6: Least Important D2 # D3 D2 # D8 D5 # D6 D4 # D9 Rating5: Unimportant D6 / D7 D2 / D4 D6 / D8 D4 / D7 D3 / D7 D2 / D7 D1 / D8

Proposed Layout D3 D7 D4D8 D9 D6 D1 D2D5

Closeness Rating Closeness Rating Technique is an effective tool in Service Layout Planning Layout of work stations is designed on the basis of desirable Closeness ( Nearness ) of a set of functions associated with the operation. Closeness is prioritized or rated according to the necessity & importance as follows: Closenes s Rating Importance 1Absolutely Necessary 2.Highly Important 3.Important 4.Slightly Important 5.Unimportant 6.Undesirable for Office operations

Layout of a Hospital D3 D7 D4D8 D9 D6 D1 D2D5 Emergency Lab Pharmacy X-Ray Indoor Billing OPD OT Admin

Closeness Logic Rating 1: Most Important D1 = D9 D9 = D8 D8 = D4 D4 = D3 D4 = D1 Rating 2: Important D1 – D2 D5 – D7 D7- D9 Rating 6: Least Important D2 # D3 D2 # D8 D5 # D6 D4 # D9 Rating5: Unimportant D6 / D7 D2 / D4 D6 / D8 D4 / D7 D3 / D7 D2 / D7 D1 / D8

D1 D2 D3 D4 D5 D6 D7 D8 D9

Proposed Layout D3 D7 D4D8 D9 D6 D1 D2D5

Facility Layout Defined Facility layout can be defined as the process by which the placement of departments, workgroups within departments, workstations, machines, and stock-holding points within a facility are determined This process requires the following inputs: – Specification of objectives of the system in terms of output and flexibility – Estimation of product or service demand on the system – Processing requirements in terms of number of operations and amount of flow between departments and work centers – Space requirements for the elements in the layout – Space availability within the facility itself 7A-56

Basic Production Layout Formats Workcenter (also called job-shop or functional layout) Assembly Line (also called flow-shop layout) Manufacturing cell Layout Project Layout 7A-57

Process Layout: Interdepartmental Flow Given – The flow (number of moves) to and from all departments – The cost of moving from one department to another – The existing or planned physical layout of the plant Determine – The “best” locations for each department, where best means maximizing flow, which minimizing costs 7A-58

Process Layout: Systematic Layout Planning Numerical flow of items between workcenters – Can be impractical to obtain – Does not account for the qualitative factors that may be crucial to the placement decision Systematic Layout Planning – Accounts for the importance of having each department located next to every other department – Is also guided by trial and error Switching workcenters then checking the results of the “closeness” score 7A-59

Example of Systematic Layout Planning: Reasons for Closeness Code Reason Type of customer Ease of supervision Common personnel Contact necessary Share same price Psychology 7A-60

Example of Systematic Layout Planning: Importance of Closeness Value A E I O U X Closeness Line code Numerical weights Absolutely necessary Especially important Important Ordinary closeness OK Unimportant Undesirable A-61

Example of Systematic Layout Planning: Relating Reasons and Importance From 1. Credit department 2. Toy department 3. Wine department 4. Camera department 5. Candy department 6 I -- U 4 A U U 1 I 1,6 A -- U 1 X 1 X To Area (sq. ft.) Closeness rating Reason for rating Note here that the (1) Credit Dept. and (2) Toy Dept. are given a high rating of 6. Letter Number Note here that the (2) Toy Dept. and the (5) Candy Dept. are given a high rating of 6. 7A-62

Example of Systematic Layout Planning: Initial Relationship Diagram U U E A I The number of lines here represent paths required to be taken in transactions between the departments. The more lines, the more the interaction between departments. Note here again, Depts. (1) and (2) are linked together, and Depts. (2) and (5) are linked together by multiple lines or required transactions. 7A-63

Example of Systematic Layout Planning: Initial and Final Layouts Initial Layout Ignoring space and building constraints ft 20 ft Final Layout Adjusted by square footage and building size Note in the Final Layout that Depts. (1) and (5) are not both placed directly next to Dept. (2). 7A-64

Station 1 Minutes per Unit 6 Station 2 7 Station 3 3 Assembly Lines Balancing Concepts Question: Suppose you load work into the three work stations below such that each will take the corresponding number of minutes as shown. What is the cycle time of this line? Answer: The cycle time of the line is always determined by the work station taking the longest time. In this problem, the cycle time of the line is 7 minutes. There is also going to be idle time at the other two work stations. 7A-65

Example of Line Balancing You’ve just been assigned the job a setting up an electric fan assembly line with the following tasks: 7A-66

Example of Line Balancing: Structuring the Precedence Diagram Task Predecessors ANone A BABA B CNone C DA, C D Task Predecessors EDED E FEFE F GBGB G HE, G H 7A-67

Example of Line Balancing: Precedence Diagram A C B DEF G H Question: Which process step defines the maximum rate of production? Answer: Task C is the cycle time of the line and therefore, the maximum rate of production. 7A-68

Example of Line Balancing: The Bottleneck 7A-69

Example of Line Balancing: Determine Cycle Time Question: Suppose we want to assemble 100 fans per day. What would our cycle time have to be? Answer: 7A-70

Example of Line Balancing: Determine Theoretical Minimum Number of Workstations Question: What is the theoretical minimum number of workstations for this problem? Answer: 7A-71

Example of Line Balancing: Rules To Follow for Loading Workstations Assign tasks to station 1, then 2, etc. in sequence. Keep assigning to a workstation ensuring that precedence is maintained and total work is less than or equal to the cycle time. Use the following rules to select tasks for assignment. Primary: Assign tasks in order of the largest number of following tasks Secondary (tie-breaking): Assign tasks in order of the longest operating time 7A-72

A C B DEF G H Station 1Station 2Station 3 TaskFollowersTime (Mins) A62 C43.25 D31.2 B2 1 E20.5 F11 G11 H01.4 7A-73

A C B DEF G H Station 1Station 2Station 3 A (4.2-2=2.2) TaskFollowersTime (Mins) A62 C43.25 D31.2 B2 1 E20.5 F11 G11 H01.4 7A-74

A C B DEF G H A (4.2-2=2.2) B (2.2-1=1.2) TaskFollowersTime (Mins) A62 C43.25 D31.2 B2 1 E20.5 F11 G11 H01.4 Station 1Station 2Station 3 7A-75

A C B DEF G H A (4.2-2=2.2) B (2.2-1=1.2) G (1.2-1=.2) Idle=.2 TaskFollowersTime (Mins) A62 C43.25 D31.2 B2 1 E20.5 F11 G11 H01.4 Station 1Station 2Station 3 7A-76

A C B DEF G H C ( )=.95 TaskFollowersTime (Mins) A62 C43.25 D31.2 B2 1 E20.5 F11 G11 H01.4 A (4.2-2=2.2) B (2.2-1=1.2) G (1.2-1=.2) Idle=.2 Station 1Station 2Station 3 7A-77

C ( )=.95 Idle =.95 A C B DEF G H TaskFollowersTime (Mins) A62 C43.25 D31.2 B2 1 E20.5 F11 G11 H01.4 A (4.2-2=2.2) B (2.2-1=1.2) G (1.2-1=.2) Idle=.2 Station 1Station 2 Station 3 7A-78

C ( )=.95 Idle =.95 A C B DEF G H D ( )=3 TaskFollowersTime (Mins) A62 C43.25 D31.2 B2 1 E20.5 F11 G11 H01.4 A (4.2-2=2.2) B (2.2-1=1.2) G (1.2-1=.2) Idle=.2 Station 1Station 2Station 3 7A-79

A C B DEF G H C ( )=.95 Idle =.95 D ( )=3 E (3-.5)=2.5 TaskFollowersTime (Mins) A62 C43.25 D31.2 B2 1 E20.5 F11 G11 H01.4 A (4.2-2=2.2) B (2.2-1=1.2) G (1.2-1=.2) Idle=.2 Station 1Station 2Station 3 7A-80

A C B DEF G H C ( )=.95 Idle =.95 D ( )=3 E (3-.5)=2.5 F (2.5-1)=1.5 TaskFollowersTime (Mins) A62 C43.25 D31.2 B2 1 E20.5 F11 G11 H01.4 A (4.2-2=2.2) B (2.2-1=1.2) G (1.2-1=.2) Idle=.2 Station 1 Station 2 Station 3 7A-81

A C B DEF G H C ( )=.95 Idle =.95 D ( )=3 E (3-.5)=2.5 F (2.5-1)=1.5 H ( )=.1 Idle =.1 TaskFollowersTime (Mins) A62 C43.25 D31.2 B2 1 E20.5 F11 G11 H01.4 A (4.2-2=2.2) B (2.2-1=1.2) G (1.2-1=.2) Idle=.2 Station 1Station 2Station 3 Which station is the bottleneck? What is the effective cycle time? 7A-82

Example of Line Balancing: Determine the Efficiency of the Assembly Line 7A-83

Manufacturing Cell: Benefits 1. Better human relations 2. Improved operator expertise 3. Less in-process inventory and material handling 4. Faster production setup 7A-84

Manufacturing Cell: Transition from Process Layout 1. Grouping parts into families that follow a common sequence of steps 2. Identifying dominant flow patterns of parts families as a basis for location or relocation of processes 3. Physically grouping machines and processes into cells 7A-85

Project Layout Question: What are our primary considerations for a project layout? Answer: Arranging materials and equipment concentrically around the production point in their order of use. 7A-86

Retail Service Layout Goal--maximize net profit per square foot of floor space Servicescapes – Ambient Conditions – Spatial Layout and Functionality – Signs, Symbols, and Artifacts 7A-87