Production and Operations Management

Module 3: Facility, capacity, location and layout

Forecasting
• Estimating future demand for products and service

Need for forecasting

– New facility planning
– Production planning
– Work force scheduling
– Material planning
– Financial planning
Types of Forecasts
• Long range ( years)
– Factory capacity, new product development,
• Intermediate range ( months)
– Purchasing, inventory management
• Short range( weeks)
– Cash out flow, production planning, labour planning

Forecasting methods
• Quantities methods
– Based on previous data
– Appropriate for shot period
• Qualitative methods
– Based on judgment of experts
– Long periods in future
• Demand patterns
– Constant
– Linear
– Seasonal

Models for forecasting:

• Simple moving average ( SMS)
• Weighted moving average( WMA)
• Exponential smoothening model ( ESM)
• Regression analysis (identifying the variables and developing a model for
forecasting)
• Delphi Method ( taking views of experts from inside and outside the organisation)
• Field expectation method
• Customer expectation method

SMS example : If the demand for a product was 100, 120, 120 for the months of Jan,
Feb. and March, fore cast for April would be ( 100+120+120)/ 3 = 113.33 rounded off
to 114.
WMA example : demand forecast for above example with weightage of 4, 2, 1 for
previous months would be ( 100 x 1 + 120 x 2 + 120 X 4 ) / 7 = 117.44 rounded off to
118

ESM example
Formula: smoothened forecast = forecast + smoothening factor ( Actual demand last
period-forecasted demand for last period)

Example : a company fore casts a demand of 400 units every month but would like to
smoothen forecast based on previous month actual demand by factor 0.25. if the demand
for April was 375 what is the forecast for May?

Forecasted demand = 400 + 0.25 X ( 375-400) = 400- 6.25 =393.75 rounded off to 394

Plant Location ( Facility Location)

Consists of identifying location:
1. Within the country or outside
a. Political stability
b. Exchange rates
c. Closeness to consumption
d. Human resources and skills

2. Selection of the region

a. Availability of Raw materials
b. Nearness to market
c. Availability of power
d. Transport facilities
e. Climate
f. Governmental policy
g. Competition between regions

3. Selection of locality
a. Availability of labour
b. Amenities for workers
c. Existence of competitors
d. Finance facilities
e. Local taxes

4. Selection of the exact site.

a. Topography, size
b. Disposal of wastes
c. Land cost
Location Models
1. Factor Rating method
2. Point rating method
3. Break even analysis
4. Quantitative factor analysis

Factor rating method

Factor Factor Location rating Location rating X Factor

rating rating
Location Location Location A Location B
A B
Tax advantage 4 8 6 32 24
Closeness to Customer 3 2 3 6 9
Closeness to suppliers 5 8 10 40 50
Factor 4
Factor n
Total X Y

Point rating method

Factor Max. points Location A Location B

Availability of Fuel 300 200 150
Water supply 200 200 200
Topography 200 150 175
Other factors

Total X Y

Break even analysis

1. Determine all relevant costs
2. Categorize as fixed cost and variable cost
3. Total cost=fixed cost + variable cost X quantity produced
4. Compare total cost for all locations and determine the most suitable location

A graph can also be drawn which helps analysis over different production outputs
 A
Total B
cost C

Quantity

Problem :A firm is considering 4 alternate locations for a new plant annual interest on
capital is 10%. Determine the best location for an output of 1, 20, 000 units
Data Rs A B C D
Labour cost/unit 0.75 1.10 0.80 0.90
Plant construction cost 46 lakhs 39 lakhs 40 lakhs 48 lakhs
Material and 0.43 0.60 0.40 0.55
equipment cost per
unit
Electricity charges per 30, 000 26, 000 30,000 28,000
year
Water charges per year 7,000 6,000 7,000 7,000
Transportation cost per 0.02 0.10 0.10 0.05
unit
Taxes per year 33,000 28,000 63,000 35,000
Qualitative Factor analysis method

Factors Assigned Score for locations Weighted scores

Weight A B C A B C
Production 0.35 50 40 60 17.5 14.0 21.0
cost
Raw 0.25 70 80 80 17.5 20.0 20.0
material
supply
Labour 0.20 60 70 60 12.0 14.0 12.0
Availability
Cost of 0.05 80 70 40 4.0 3.5 2.0
living
Environment 0.05 50 60 70 2.5 3.0 3.5

Markets 0.10 70 90 80 7.0 9.0 8.0

Total 1.00 60.5 63.5 66.5

Manufacturing Facility planning

Basic input for manufacturing capacity planning is the long range forecast for demand for
products and services

Deals with:
1. Identification of production and operating equipments
2. Space and building requirements
3. Raw material requirements and Sources
4. Storage quantities and facilities
5. Inspection facilities
6. Maintenance facilities
7. Material handling equipments ( eg. conveyors, cranes)
8. Administrative areas ( eg. purchase, personnel)
9. Canteen, conveniences
10. Other requirements of the plant based on product produced, environmental
requirements, power requirements, storage of hazardous materials
Manufacturing planning may be :

• Long range planning is normally for 3 to 10 years

• Medium range planning normally for 1 to 3 years
• Short range planning is normally for 3 months to 1 year

Plant Layout ( Facility Layout)

Plant layout deals with locations for:

1. Production machinery
2. Location of stores ( Raw materials, WIP, Finished goods)
3. Inspection facilities ( Receiving, In- process and Final inspection)
4. Tool rooms
5. Maintenance requirements
6. Material handling equipments ( eg. conveyors, cranes)
7. Administrative areas ( eg. purchase, personnel)
8. Canteen, conveniences
9. Other requirements of the plant based on product produced, environmental
requirements, power requirements, storage of hazardous materials.

Since the plant layout is not frequently changed because of economic reasons and long
production stoppages, utmost attention has to be paid for layout design. However layout
may be changed based on changes in product design , change in production methods or
towards expansion.

Some of the objectives of a good layout:

1. Provide required production capacity
2. Reduce material handling costs
3. Provides for free movement of materials and people
4. Reduce hazards and hence safety and health of personnel
5. Utilization of available space efficiently and effectively
6. Enhancement of employee morale
7. Flexible to handle variations in volume and product variations
8. Supervision to be easy
9. Easy maintenance on equipments
10. High utilization of equipment
11. Enhanced productivity

Major factors influencing the layout are:

1. Materials- solid or liquid, light or heavy
2. Product- normally product moves from work station to work station. When
product is very large, machinery and men are moved to product
 3. Worker-whether stationery or moving. On conveyor belt operations worker is
stationery and belt stops for prearranged time at every work station
4. Machinery- depends on the type of manufacturing operations, size of product,
volume of product. Manual, semi automatic, automatic

Principles of layout ( Importance of Layout)

1. Minimum travel-Materials and men should travel the shortest distance. Heavier
materials are to travel the least. Typically 30% of the production cost is because
of material handling
2. Minimum production delays: materials should spend minimum time as possible
in the facility. operations to flow in a sequential order. Back tracking for
operations on the same machine to be eliminated . bottle necks to be avoided
3. Usage of space- every meter of space to be effectively utilized. Land costs are
high. Maintenance costs are also high.
4. Early detection of Quality problems: Continuous flow, Inspection points
5. Better production control.: Less chasing work. Visual control. Few control
points.
6. Improved utilization of labour: workers time to be used effectively.
7. Compactness- all functional areas are fully integrated and act as a well knit
facility
8. Safety- hazards to be as less as possible. Work place to be ergonomic for
productivity
9. Flexibility- slight variations in volume or change in product features should not
affect the productivity of the layout
10. Maximum return Investment- fixed capital cost to be as low as possible and
Investments to be fully utilized
Some types of Layout
1. Process layout ( job shop layout, functional layout)
2. Product layout ( flow line layout, line processing layout)
3. Cellular manufacturing ( CM) or Group Technology layout
4. Combined layout

1.Process layout

Turning
Grinders Packing
machines

Milling Drilling
machines machines Assembly
Features

1. Different sizes of machines are grouped

2. Distance between grouped machines are made as short as possible
3. Groups are arranged such that there is no back tracking
4. Convenient Inspection
5. Convenience of supervision
6. Many types of products can be manufactured
7. Low volume of production
8. Many inspection points are required

Advantages
1. Machines are general purpose and hence reduced investment
2. Flexibility in production
3. Better supervision
4. Capacity expansion is easy
5. Better utilization of men and machines
6. Break downs can be easily handled

Disadvantages
1. Movement of material is difficult. Mechanization not easily possible.
2. Requires more floor space
3. Production control is difficult
4. Distance traveled is more
5. Accumulation of WIP ( work- in -progress)

2. Product Layout

Features
1. Individual machines are arranged as per sequence of operations
2. No back track at all. Flow is continuous.
3. All operations eg production, inspection, assembly is include in a line
4. One or two standard products can be produced
5. Large volume of production
6. Minimum inspection required
 Individual machines

Assembly line
Testing Packing

Advantages
1. Mechanization is possible thus reducing martial handling costs
2. Production bottle necks are avoided
3. Better production control
4. Less floor space required for production
5. WIP is very minimum
6. Early detection of mistakes
7. Very high Through put time

Disadvantages
1. Inflexible
2. Layout is expensive
3. Expansion is difficult
4. Breakdown or rejections in a line or machine stops the entire production

Comparison of product and process layout

# Characteristics Product Process

layout layout
1 Mechanisation of material handling •
2 Reduced bottle necks •
3 Minimum Manufacturing time ( trough put time) •
4 Minimum work in progress •
5 Better production control •
6 Early detection of bad workmanship •
7 Better performance measurement of workers •
8 Reduced investment in machines •
9 Flexibility in production •
10 Scope for expansion •
11 Easier handling of breakdowns •
12 Better utilization of workers and equipment •
13 Specialisation in supervision •

3. Cellular manufacturing

Features
This bring the advantages of product layout to identified products in a process layout
facility.
Some Machines are grouped into cells to manufacture a group of products with similar
characteristics and process flow ( family of products) . Cells could exist in a
manufacturing facility along with process layout for other products
Machines can be laid out in ‘U’,’L’ and Straight line to suit the material flow and overall
layout of the facility
Advantages
1. Lower WIP
2. Reduced material handling
3. Shorter throughput times
4. Simplified production planning
5. Improved visual control
6. Less time for setup because of few tool changes
7. Lower cost of production
8. Sorter delivery
9. Improved Quality due to early detection of problems
Disadvantages
Reduced flexibility
Less machine utilization
Additional machines may be required to create cells

In a cellular manufacturing setup advantages heavily overweigh the disadvantages

4. Combined layout

Forging Gear cutting Heat Gear

presses mcs treatment Grinding mcs
Furnaces

Features
o Machines are grouped as process layout.
o Products are processed on identified machines to maintain flow.
o Used when batch processing like heat treatment is necessary.
o Used when costly machines are involved and duplication for pure product
layout is not economical.

Apart from location of production machines, a layout has to integrate the

following facilities:
• Receiving and dispatch areas- space, material handling equipments,
• Storage areas- space , Safety, Material handling equipments
• Maintenance areas- storage of spares, area for repairs
• Inspection areas- inspection equipments, Space
• Employee facilities- Quarters, , rest rooms, change rooms
• Others – diesel generating sets, treatment plants, Laboratories, tool rooms

Design and Selection of layout depends on :

Material handling cost- using material handling equipments , keeping the distances
shorter, keeping sequential processing activities in adjacent areas
Worker effectiveness- good communication, well placed supporting areas, ergonomics

Methods for Selection of layout

Travel Chart method

The solution may be trial and error. Principle is most active departments should be close
together or adjacent.

Problem
A manufacturing concern has 4 departments and number of moves between departments
is as follows.
From To
A B C D
A - 2 - 2
B 2 - 4 -
C - 3 - 1
D 2 - 1 -

Step1 ; locate most active departments ( compute no. of links)

Department A B C D
No. of links 4 4 4 4

Step2: try to locate the most active departments at the centre

All are important here.
 2
A B

2
2 2 4 3
1
D C
1
Step3 : ensure there are no non adjacent movements. Enter no. of moves in the chart

Load –Distance analysis

Problem : A company wants to add a new wing to its manufacturing shop which layout is
better.
1 2 4 5 6
Lay out A

3 7

2 5 6
Layout B 3

1 4 7

Distances are as below;

Between Departments Distances between departments
Layout A Layout B
1-2 24 50
1-3 24 30
1-4 38 48
2-3 44 20
2-4 30 72
3-4 44 52
4-5 50 40
5-6 50 44
5-7 50 60
6-7 40 40

Products produced , Batches produced per year and sequence of processing;

Products Processing sequence Batches of products

produced per year
P1 1-2-3-4-5-6-7 1400
P2 1-2-4-5-6-7 200
P3 1-3-4-5-6-7 1200
P4 1-3-4-5-7 300
P5 1-4-5-6-7 200

Solution;
Step 1: calculate distance traveled for each batch of products for each layout

Product Sequence Distance moved

Layout A Layout B
P1 1-2-3-4-5-6-7 24 + 44 + 44 + 50 + 50 + 40 50 + 20+ 52+ 40+ 44+ 40
=252 =246
P2 1-2-4-5-6-7 24 + 30 + 50 + 50 + 40 50 + 72+ 40 + 44 + 40
=194 =246
P3 1-3-4-5-6-7 24 + 44 + 50 + 50 + 40 30+52 +40 + 44 + 40
=208 =206

P4 1-3-4-5-7 24 + 44 + 50 + 50 30 + 52 + 40 + 60
=168 =182

P5 1-4-5-6-7 38+ 50 + 50 + 40 48 + 40+ 44+ 40

=178 =172

Step 2 : compute total distance moved per year

Product Batches Distance Product Total distance =Batches

per year per batch per year x Distance per
batch
Layout A Layout B Layout A Layout B
P1 1400 252 246 3, 52, 500 3, 44, 400
P2 200 194 246 38, 800 49, 200
P3 1200 208 206 2, 49, 600 2, 47, 200
P4 300 168 182 50, 400 54, 600
P5 200 178 172 35, 600 34, 400

total 7, 26, 900 7, 29, 800

Layout A is better. The material movement is lower.