Capacity Planning and Facility Location

Data Tech Inc

UKM Universiti

Case background

Establishment

Started by Jeff Styles in his two-car garage Business function : transferring hard copy of documents, such as invoices, bills, or mailing list, onto CDs

First customers: two large corporations

Small garage operation turned into a major business

Operations function

First, unpacking and sorting mails received ( usually 10,000 to 30,000 pieces of mail per day are received) Next, scanning item to transfer content to disk Then, making accuracy check to ensure information is transferred correctly Finally, packaging disks and documents and sending back to the costumers

The need for capacity and relocation

Signing to additional customers Ensuring the smoothly operation without any bottlenecks Turning into a major business

Data Tech needs to move to a larger facility that could accommodate the larger size of business

Three potential locations

Most important factors considering relocation
Proximity to the postal service Closeness to the airport

Three Potential Locations:

Two locations are larger than needs One location would meet current capacity needs but would not immediately be expanded

Q 1 Part a
Help Jeff Decide whether he should give greater priority
to a smaller facility with possibility for expansion, or move into a large facility immediately.

Decision Tree
Decision

Large Facility High Demand Low Demand High Demand

Small Facility Low Demand

1,000,000

600,000

800,000

500,000

500,000

Probability
The probability of high demand: 0.70 The probability of low demand: 0.30

Expected Value of Decision 1

Decision 1: A smaller facility with possibility of
expansion

EV of potential for expansion

=(0.3*$500,000)+(0.7*$800,000) =$710,000

Expected Value of Decision 2

Decision 2: Move into a large facility immediately EV of excessing capacity
=(0.3*$600,000)+(0.7*$1,000,000) =$880,000

Large Facility or Small?

EV of excessing capacity is greater than EV of potential
for expansion as

$880,000 > $710,000.

Large Facility

Q 1 Part b
Choose weights for the two capacity factors based on
your findings.

Data Tech Inc. Information

Factor Factor Weight Factor score at each location #1 #2 #3

Proximity to Airport
Proximity to postal service Facility with excess capacity Facility with potential for future expansion Close to business community

20
30 ? ? 10

3
4 4 0 5

4
2 5 1 4

4
5 0 5 4

Pleasant environment

10
100

Missing Data
Total Expected Profit :
= 880,000+710,000 = $1,590,000
Facility with excess capacity Facility with potential for future expansion

= 30 * (880,000 / 1,590,000) = 16.6 = 30 * (710,000 / 1,590,000) = 13.4

Factor Weight for Facility with Excess Capacity should be more than weight for Facility with potential for future expansion

Question 2
Once you have selected the factors for the two capacity
alternatives, use factor rating to select a new location for Data Tech.

Factor Score at Each Location Weighted Score at each location

Factor Factor Weight Factor score at each location #1 #2 #3 Weighted Scores #1 #2 #3

Proximity to Airport Proximity to postal service Facility with excess capacity Facility with potential for future expansion Close to business community Pleasant environment

20 30 16.6 13.4 10 10 100

3 4 4 0 5 3

4 2 5 1 4 4

4 5 0 5 4 4

60 120 66.4 0

80 60 83 13.4

80 150 0 67

50 40 40 30 40 40 326.4 316.4 377

Finding: best new location for Data Tech Inc is the location with the highest weighted score, and that is location #3 with a weighted score of 377.

Question 3
How would your factor analysis be different if you had
selected a different capacity alternative?

Decision Tree and Expected Value

Decision

Large Facility $880,000

Small Facility $710,000

High Demand

Low Demand

High Demand

Low Demand

1,000,000

600,000

800,000

500,000

500,000

EV (Excess capacity) = 0.30($600,000) EV (Potential for expansion) = + 0.70($1,000,000) $800,000 + $150,000 = = $880,000 $950,000

EV =0.3*$500000= 150,000

Factor Weight
Factor weight for excess capacity
= ($880,000 / 1,830,000) * 30 = 14.4

Factor Weight for potential for expansion

= ($950,000 / 1,830,000) * 30 = 15.6

Factor Score at Each Location Weighted Score at each location

Factor Proximity to Airport Proximity to postal service Facility with excess capacity Facility with potential for future expansion Close to business community Pleasant environment Factor Weight 20 30 14.4 Factor score at each location #1 #2 #3 3 4 4 4 2 5 4 5 0 Weighted Scores #1 60 120 57.6 #2 80 60 72 #3 80 150 0

15.6
10 10 100

0
5 3

1
4 4

5
4 4

15.6

78

50 40 40 30 40 40 317.6 307.6 388

Finding: Location #3 scores even more highly at 388.