8. Explain the cost-volume analysis in capacity planning.

A: Technique useful in evaluating capacity alternatives from an economic

standpoint:

Cost-volume analysis:

It focuses on relationships between cost, revenue and volume of output.

Estimates the income under different operating conditions. Requires the
identification of all costs related to the production of a given product.

Cost-volume analysis is used in several different areas of POM and QM

especially capacity planning and location analysis. Breakeven and
cost/volume analysis are included in nearly every POM textbook.
Cost/volume analysis is used to find the point of indifference between two
options based on fixed and variable costs. A breakeven point is computed in
terms of units or dollars. Breakeven is simply a special case of cost/volume
analysis where there is one fixed cost, one variable cost and revenue per
unit.

In cost-volume analysis we compare two or more options to determine what

option is least costly at any volume. The costs consist of two types - fixed
costs and variable costs but there may be several individual costs which
comprise the fixed costs or the variable costs In the example below we are
indicating that there are 5 different individual costs and two options

Data

Cost Type. Each type of cost must be identified as either a fixed cost or a
variable cost. The default is that the first cost in the list is fixed and that all
other costs are variable. These values can be changed by using the usual
dropdown box.

Costs. The specific cost for each option gets listed in the two columns in the
table.

Volume. If a volume analysis is desired then enter the volume at which this
analysis should be performed. The volume analysis will compute the total
cost (revenue) at the chosen volume. If the volume is 0 then no volume
analysis will be performed other than for the breakeven point.

The assumptions are:

• One product is involved.

• Everything produced can be sold
 • The variable cost per unit is the same regardless of the volume.
• Fixed costs do not change with volume changes, or they are step
changes.

The revenue per unit is the same regardless of volume.

Cost-Volume Symbols
FC = Fixed Cost
VC = Variable cost per unit
TC = Total Cost
TR = Total Revenue
R = Revenue per unit
Q = Quantity or volume of output
QBEP = Break-Even Quantity
SP = Specified Profit

Cost-Volume Formulas

TC = FC + (VC x Q)

TR = R x Q

P = TR – TC

P = (R X Q) – [FC + (VC X Q)]

Volume = (SP + FC)/( R – VC)

QBEP = FC/( R – VC)

Cost-Volume Relationships
9. Explain the decision tree tool with example & state it’s advantages &
disadvantages.

A: A decision tree is a decision support tool that uses a tree-like graph or

model of decisions and their possible consequences, including chance event
outcomes, resource costs, and utility. It is one way to display an algorithm.
Decision trees are commonly used in operations research, specifically in
decision analysis, to help identify a strategy most likely to reach a goal.
Another use of decision trees is as a descriptive means for calculating
conditional probabilities. When the decisions or consequences are modelled
by computational verb, then we call the decision tree a computational verb

decision tree.

Advantages:

• Useful for operational decision making.

 • Enables effective use of back data.
• Use of probability allows flexibility.
• Scientific/objective analysis to decision making
• Encourages clear thinking and planning

Disadvantages:

• Reliant on the accuracy of the data used.

• Requires qualitative input to give complete picture.
• Probabilities only estimated.
• Real time data problems

Look what happens however if the probabilities change. If the firm is

unsure of the potential for growth, it might estimate it at 50:50. In this
case the outcomes will be:

Economic growth rises: 0.5 x £300,000 = £150,000

Economic growth declines: 0.5 x -£500,000 = -£250,000

In this instance, the net benefit is -£100,000 – the decision looks less
favourable!

Decision trees provide an effective method of decision making because they:

• Clearly lay out the problem so that all options can be challenged.
• Allow us to analyze the possible consequences of a decision fully.
• Provide a framework to quantify the values of outcomes and the
probabilities of achieving them.
 • Help us to make the best decisions on the basis of existing information
and best guesses.
• As with all decision making methods, decision tree analysis should be
used in conjunction with common sense - decision trees are just one
important part of your decision making tool kit.

10. Explain the different types of facility layouts.

A: Facility Layout
A typical manufacturing plant has anumber of diverse activities interacting
with each other. Thus, raw materials arrive at a shipping dock, they are
unpacked and checked in a quality control area, they may then be processed
through several processing areas, and finally the finished product again
passes through the shipping dock. In addition to areas specifically related to
production, there must be dressing rooms, lunch rooms, and restrooms for
employees; offices for supervision, design, and production control; and space
for inventory and aisles. In fact, a plant may be viewed as a large number of
finite geometric areas arranged on the floor space of the building. The
problem of arranging these areas in an effective manner is the facility layout
problem.
Clearly, the layout problem has relevance in many areas of facility and
equipment design, from the layout of the rooms in a home to the layout of
chips on an electronic circuit board. Although the facility layout problem may
arise in many contexts, in this section we assume we are dealing with a plant
manufacturing products for sale.

Types of Layouts
There are several alternative layout types that are appropriate for different
product mixes and production volumes. Determination of the layout type is a
major design decision because it impacts on so many other aspects of the
production system.

Job Shop Layout

In the Job Shop Layout, machines are grouped according to function into
machine centers. Orders for individual products are routed through the
various machine centers to obtain the required processing. This layout may
be appropriate when there are many different products, each with a low
volume of production. Machines are general purpose, within their general
function area, so that a wide variety of products can be handled. Because
the expense of automation may be too great to be justified by the low
volume, the machines in this arrangement will probably be at a relatively low
level of automation. Workers will be highly skilled.
Production scheduling is difficult with this type of arrangement because the
level and type of work is highly variable. This results in large amounts of
work-in-process, long product lead times, and high levels of management
interaction. Typically there is a high degree of product movement required
by the long and variable routes of individual products through the system.
The costs for setting up machines to produce the various products will be
high because of the variety of different products and small lot sizes.
The arrangement can adapt readily to changes in product volume and design
because of its inherent flexibility.

Assembly Line or Flow Shop Layout

Here the product (or products) follows a fixed path through the production
resources. The resources are arranged to minimize the material movement
required. This type of layout is typical for an assembly line where a single
product, or a few very similar products, passes through the line in a
continuous fashion. Because of the high volume of production, the machines
on the line can be designed with a high level of fixed automation, with very
little manual labor. Direct labor will be much less than for the job shop, but
there will be high costs for maintenance. Setup costs and work-inprogress
will be low for this arrangement.
The line, in general, is not flexible to product or volume changes. It is very
sensitive to failures that cause the entire line to shut down.
The arrangement is also appropriate for a flow shop that may have a number
of products that all pass through the machine centers in the same order. In
this case, the machines implementing the system may or may not be
automated depending on the product mix and volume, but one would expect
a higher level of automation than for the job shop.

Group Technology Layout

The product mix appropriate for this arrangement is similar to that of the job
shop. Products are grouped into classes that have some similarity with
respect to processing. A manufacturing cell is designed for each group
consisting of machines particularly adapted to the processing required. The
figure shows the cells as collections of dissimilar machines. Because the
range of products manufactured by each cell is less than that for the job
shop, the machines and workers can be more specialized.
Typically, the workers in a cell are given more of the responsibility for
production scheduling of a product class. This, together with the start-to-
finish nature of the processing, results in more interesting jobs for the
workers. The group technology arrangement requires less setup time and
cost than the job shop because of the greater specialization of function. It is
compatible
with the just-in-time concept of manufacture, so prevalent today, because of
the smaller lot sizes made possible by the low setup costs.
Often the level of automation with group technology is low, indicating the
dependence of the concept on the skill of the labor force. Many companies
have, however, introduced highly automated flexible manufacturing cells
into the system. Because the cell has a smaller range of products than the
entire plant, it is easier to design the automation to handle the set of
products in a group.
The group technology approach is more sensitive to changes in product mix
and volume than the job shop, again because of the specialization
introduced because of the manufacturing cell approach. When a product
requires processing in more than one cell, problems similar to those of the
job shop are introduced.

Fixed Location Layout

For tasks on large objects such as the manufacture of an electrical
generator, the construction of a building, or the repair of a large airplane, the
machines implementing the operation must come to the product, rather than
the product moving to the achines. Here the question is more often the
scheduling of operations rather than the layout of machines.

11. What are the criteria for a good layout?

A: Small business owners need to consider many operational factors when

building or renovating a facility for maximum layout effectiveness. These
criteria include the following:

• Ease of future expansion or change—Facilities should be designed so

that they can be easily expanded or adjusted to meet changing
production needs. "Although redesigning a facility is a major, expensive
undertaking not to be done lightly, there is always the possibility that a
redesign will be necessary," said Weiss and Gershon in their book
Production and Operations Management. "Therefore, any design should
be flexible…. Flexible manufacturing systems most often are highly
automated facilities having intermediate-volume production of a variety
of products. Their goal is to minimize changeover or setup times for
producing the different products while still achieving close to assembly
line (single-product) production rates."
• Flow of movement—The facility design should reflect a recognition of
the importance of smooth process flow. In the case of factory facilities,
the editors of How to Run a Small Business state that "ideally, the plan
will show the raw materials entering your plant at one end and the
finished product emerging at the other. The flow need not be a straight
line. Parallel flows, U-shaped patterns, or even a zig-zag that ends up
with the finished product back at the shipping and receiving bays can be
functional. However, backtracking is to be avoided in whatever pattern
is chosen. When parts and materials move against or across the overall
flow, personnel and paperwork become confused, parts become lost,
and the attainment of coordination becomes complicated."
• Materials handling—Small business owners should make certain that
the facility layout makes it possible to handle materials (products,
equipment, containers, etc.) in an orderly, efficient—and preferably
simple—manner.
• Output needs—The facility should be laid out in a way that is conducive
to helping the business meet its production needs.
• Space utilization—This aspect of facility design includes everything
from making sure that traffic lanes are wide enough to making certain
that inventory storage warehouses or rooms utilize as much vertical
space as possible.
• Shipping and receiving—The J. K. Lasser Institute counseled small
business owners to leave ample room for this aspect of operations.
"While space does tend to fill itself up, receiving and shipping rarely get
enough space for the work to be done effectively," it said in How to Run
a Small Business.
• Ease of communication and support—Facilities should be laid out so
that communication within various areas of the business and
interactions with vendors and customers can be done in an easy and
effective manner. Similarly, support areas should be stationed in areas
that help them to serve operating areas.
• Impact on employee morale and job satisfaction—Since countless
studies have indicated that employee morale has a major impact on
productivity, Weiss and Gershon counsel owners and managers to heed
this factor when pondering facility design alternatives: "Some ways
layout design can increase morale are obvious, such as providing for
light-colored walls, windows, space. Other ways are less obvious and not
directly related to the production process. Some examples are including
a cafeteria or even a gymnasium in the facility design. Again, though,
there are costs to be traded off. That is, does the increase in morale due
to a cafeteria increase productivity to the extent that the increased
productivity covers the cost of building and staffing the cafeteria."
• Promotional value—If the business commonly receives visitors in the
form of customers, vendors, investors, etc., the small business owner
may want to make sure that the facility layout is an attractive one that
further burnishes the company's reputation. Design factors that can
influence the degree of attractiveness of a facility include not only the
 design of the production area itself, but the impact that it has on, for
instance, ease of fulfilling maintenance/cleaning tasks.
• Safety—The facility layout should enable the business to effectively
operate in accordance with Occupational Safety and Health
Administration guidelines and other legal restrictions.

"Facility layout must be considered very carefully because we do not want to

constantly redesign the facility," summarized Weiss and Gershon. "Some of
the goals in designing the facility are to ensure a minimum amount of
materials handling, to avoid bottlenecks, to minimize machine interference,
to ensure high employee morale and safety, and to ensure flexibility.
Essentially, there are two distinct types of layout. Product layout is
synonymous with assembly line and is oriented toward the products that are
being made. Process layout is oriented around the processes that are used to
make the products. Generally, product layout is applicable for high-volume
repetitive operations, while process layout is applicable for low-volume
custom-made goods."

12. Explain the Load Distance Model for layout study.

A:

13. Explain the concept of Line Balancing.

A: Line and work cell balancing is an effective tool to improve the throughput
of assembly lines and work cells while reducing manpower requirements and
costs. Assembly Line Balancing, or simply Line Balancing (LB), is the problem
of assigning operations to workstations along an assembly line, in such a
way that the assignment be optimal in some sense. Ever since Henry Ford’s
introduction of assembly lines, LB has been an optimization problem of
significant industrial importance: the efficiency difference between an
optimal and a sub-optimal assignment can yield economies (or waste)
reaching millions of dollars per year.

LB is a classic Operations Research (OR) optimization problem, having been

tackled by OR over several decades. Many algorithms have been proposed
for the problem. Yet despite the practical importance of the problem, and the
OR efforts that have been made to tackle it, little commercially available
software is available to help industry in optimizing their lines. In fact,
according to a recent survey by Becker and Scholl (2004), there appear to be
currently just two commercially available packages featuring both a state of
the art optimization algorithm and a user-friendly interface for data
management. Furthermore, one of those packages appears to handle only
the “clean” formulation of the problem (Simple Assembly Line Balancing
Problem, or SALBP), which leaves only one package available for industries
such as automotive. This situation appears to be paradoxical, or at least
unexpected: given the huge economies LB can generate, one would expect
several software packages vying to grab a part of those economies.

It appears that the gap between the available OR results and their
dissemination in today’s industry, is probably due to a misalignment
between the academic LB problem addressed by most of the OR approaches,
and the actual problem being faced by the industry. LB is a difficult
optimization problem (even its simplest forms are NP-hard – see Garey and
Johnson, 1979), so the approach taken by OR has typically been to simplify
it, in order to bring it to a level of complexity amenable to OR tools. While
this is a perfectly valid approach in general, in the particular case of LB it led
to some definitions of the problem that ignore many aspects of the real-
world problem. Unfortunately, many of the aspects that have been left out in
the OR approach are in fact crucial to industries such as automotive, in the
sense that any solution ignoring (violating) those aspects becomes unusable
in the industry.

In the sequel, we first briefly recall classic OR definitions of LB, and then
review how the actual line balancing problem faced by the industry differs
from them, and why a solution to the classic OR problem may be unusable in
some industries. Thus, we used line balancing technique to achieve:

1. the minimization of the number of workstations;

2. the minimization of cycle time;
3. the maximization of workload smoothness;
4. The maximization of work relatedness.

14. Explain concept of Assignment Model in operations research used for

layout study with an example.

A: