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MODULE 3
06 Hours
Facility, Capacity, Location and Layout: Manufacturing facility planning, Long range capacity planning, Facility location and Facility layout (Problems in Facility Location, Layout and Capacity Planning)
Facility Planning
Long range capacity planning, Facility location Facility layout
CHAPTER
McGraw-Hill/Irwin
Operations Management, Eighth Edition, by William J. Stevenson Copyright 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 9
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.
Capacity Utilization
Capacity used
rate of output actually achieved capacity for which the process was designed
Volume
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 plants capacity utilization rate? Answer:
Capacity utilization rate = Capacity used . Best operating level
Capacity Focus
The concept of the focused factory holds that production facilities work best when they focus on a fairly limited set of production objectives. Plants Within Plants (PWP) (from Skinner)
Capacity Flexibility
Flexible plants
Flexible processes
Flexible workers
Capacity Planning
Frequency of Capacity Additions
Forecast sales within each individual product line. Calculate equipment and labor requirements to meet the forecasts. Project equipment and labor availability over the planning horizon.
Requirements
A manufacturer produces two lines of mustard, FancyFine and Generic line. Each is sold in small and family-size plastic bottles. The following table shows forecast demand for the next four years.
Year: FancyFine Small (000s) Family (000s) Generic Small (000s) Family (000s) 1 50 35 100 80 2 60 50 110 90 3 80 70 120 100 4 100 90 140 110
Three 100,000 units-per-year machines are available for small-bottle production. Two operators required per machine.
Two 120,000 units-per-year machines are available for family-sized-bottle production. Three operators required per machine.
19
Question: What are the Year 1 values for capacity, machine, and labor?
1 150 115
2 170 140
3 200 170
4 240 200 6 6
Small Mach. Cap. 300,000 Labor Family-size Mach. Cap. 240,000 Labor 150,000/300,000=50% At 1 machine for 100,000, it takes 1.5 machines for 150,000 Small Percent capacity used 50.00% Machine requirement 1.50 Labor requirement 3.00 At 2 operators for Family-size 100,000, it takes 3 Percent capacity used 47.92% operators for 150,000 Machine requirement 0.96 Labor requirement 2.88
20
Question: What are the values for columns 2, 3 and 4 in the table below?
Year: Small (000s) Family (000s) Small Family-size Small Percent capacity used Machine requirement Labor requirement Family-size Percent capacity used Machine requirement Labor requirement
4 240 200 6 6
50.00% 56.67% 1.50 1.70 3.00 3.40 47.92% 58.33% 0.96 1.17 2.88 3.50
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 .10, .50, and .40.
A B C
0.5 Medium 50 25 40
Example of a Decision Tree Problem: Step 1. We start by drawing the three decisions
A B C
Example of Decision Tree Problem: Step 2. Add our possible states of nature, probabilities, and payoffs
High demand (.4) Medium demand (.5) Low demand (.1)
A B C
Example of Decision Tree Problem: Step 3. Determine the expected value of each decision
High demand (.4) Medium demand (.5)
$62k
A
EVA=.4(90)+.5(50)+.1(10)=$62k
$62k
A B C
$80.5k
$46k
Alternative B generates the greatest expected profit, so our choice is B or to construct a new facility.
Location
Volatility of Demand
From 70% to 100% of service capacity, what do you think happens to service quality?
Capacity Planning
Capacity is the upper limit or ceiling on the load that an operating unit can handle. The basic questions in capacity handling are:
1. Impacts ability to meet future demands 2. Affects operating costs 3. Major determinant of initial costs 4. Involves long-term commitment 5. Affects competitiveness 6. Affects ease of management 7. Globalization adds complexity 8. Impacts long range planning
Capacity
Design capacity
maximum output rate or service capacity an operation, process, or facility is designed for Design capacity minus allowances such as personal time, maintenance, and scrap rate of output actually achieved--cannot exceed effective capacity.
Effective capacity
Actual output
Effective capacity
Actual output
Utilization =
Design capacity
Both measures expressed as percentages
Efficiency/Utilization Example
Design capacity = 50 trucks/day Effective capacity = 40 trucks/day Actual output = 36 units/day
Actual output
Efficiency =
90% Effective capacity
Utilization =
72%
36 units/day 50 units/day =
Facilities Product and service factors Process factors Human factors Operational factors Supply chain factors External factors
Strategy Formulation
Capacity strategy for long-term demand Demand patterns Growth rate and variability Facilities
Cost of building and operating
Technological changes
Rate and direction of technology changes
Make or Buy
1.Available capacity 2.Expertise 3.Quality considerations 4.Nature of demand 5.Cost 6.Risk
1.Design flexibility into systems 2.Take stage of life cycle into account 3.Take a big picture approach to capacity changes 4.Prepare to deal with capacity chunks 5.Attempt to smooth out capacity requirements 6.Identify the optimal operating level
Economies of Scale
Economies of scale
If the output rate is less than the optimal level, increasing output rate results in decreasing average unit costs
Diseconomies of scale
If the output rate is more than the optimal level, increasing the output rate results in increasing average unit costs
Figure 5.3
Evaluating Alternatives
Average cost per unit
Minimum cost
Rate of output
Figure 5.4
Evaluating Alternatives
Minimum cost & optimal operating rate are functions of size of production unit. Average cost per unit
Small
plant
Medium plant
Large plant
Output rate
Figure 5.5a
Cost-Volume Relationships
Amount ($)
Figure 5.5b
Cost-Volume Relationships
Amount ($)
Q (volume in units)
Figure 5.5c
Cost-Volume Relationships
Amount ($) 0
3 machines
TC
TC
2 1
1.One product is involved 2.Everything produced can be sold 3.Variable cost per unit is the same regardless of volume 4.Fixed costs do not change with volume 5.Revenue per unit constant with volume 6.Revenue per unit exceeds variable cost per unit
Financial Analysis
Cash Flow - the difference between cash received from sales and other sources, and cash outflow for labor, material, overhead, and taxes. Present Value - the sum, in current value, of all future cash flows of an investment proposal.
Product
#1 #2 #3
CHAPTER
McGraw-Hill/Irwin
Operations Management, Eighth Edition, by William J. Stevenson Copyright 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
Growth
Depletion of Resources
Long term commitment/costs Impact on investments, revenues, and operations Supply chains
Profit potential No single location may be better than others Identify several locations from which to choose Expand existing facilities Add new facilities
Objectives
Options
Community Considerations
Site-related Factors
Regional Factors
Location of raw materials Location of markets Labor factors Climate and taxes
Community Considerations
Quality of life Services Attitudes Taxes Environmental regulations Utilities Developer support
Customer access/parking
Trends in Locations
Foreign producers locating in U.S.
Table 8.3
Foreign Government a. Policies on foreign ownership of production facilities Local Content Import restrictions Currency restrictions Environmental regulations Local product standards b. Stability issues Living circumstances for foreign workers / dependents Religious holidays/traditions Possible buy locally sentiment
Resources
Level of training and education of workers Work practices Possible regulations limiting number of foreign employees Language differences Availability and quality of raw materials, energy, transportation
Evaluating Locations
Cost-Profit-Volume Analysis
Determine fixed and variable costs Plot total costs Determine lowest total costs
Example 1: Solution
Fixed Costs A B C D $250,000 100,000 150,000 200,000 Variable Costs $11(10,000) 30(10,000) 20(10,000) 35(10,000) Total Costs $360,000 400,000 350,000 550,000
Example 1: Solution
$(000) 800 700 600 500 400 300 200 100 0 0 D B C A
A Superior C Superior B Superior
10
12
14
16
Evaluating Locations
Transportation Model
Decision based on movement costs of raw materials or finished goods Decision based on quantitative and qualitative inputs Decision based on minimum distribution costs
Factor Rating
CHAPTER
Facility Layout
McGraw-Hill/Irwin
Operations Management, Eighth Edition, by William J. Stevenson Copyright 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
Facilities Layout
Layout: the configuration of departments, work centers, and equipment, with particular emphasis on movement of work (customers or materials) through the system
Accidents
The introduction of new products or services
Safety hazards
Layout that uses standardized processing operations to achieve smooth, rapid, highvolume flow Layout that can handle varied processing requirements Layout in which the product or project remains stationary, and workers, materials, and equipment are moved as needed
Process layout
Figure 6.4
Product Layout
Station 1 Material and/or labor
Station 2
Material and/or labor
Station 3
Material and/or labor
Station 4
Finished item
Figure 6.6
In
6
Out
10
Figure 6.7
Process Layout
Process Layout (functional)
Dept. A Dept. B Dept. C Dept. D Dept. E Dept. F
Product Layout
Product Layout (sequential)
Work Station 1
Work Station 2
Work Station 3
Cellular Layouts
Cellular Production
Layout in which machines are grouped into a cell that can process items that have similar processing requirements The grouping into part families of items with similar design or manufacturing characteristics
Group Technology
Table 6.3
Functional
many longer few
Cellular
shorter
Travel paths
Job waiting times Throughput time Amount of work in process Supervision difficulty Scheduling complexity Equipment utilization
variable
greater higher higher higher higher lower
fixed
shorter lower lower lower lower higher
Cycle Time
Cycle time is the maximum time allowed at each workstation to complete its set of tasks on a unit.
Figure 6.10
Precedence Diagram
Precedence diagram: Tool used in line balancing to display elemental tasks and sequence requirements
0.1 min. 1.0 min.
a c
0.7 min.
b d
0.5 min.
e
0.2 min.
Use a cycle time of 1.0 minute Assign tasks in order of the most number of followers
Example 1 Solution
Time Workstatio Remainin n g
1 1.0 0.9 0.2
2
3
1.0
1.0 0.5 0.3
b
d e -
b
d e -
0.0
0.5 0.3
0.0
0.3 0.5
Positional weight is the sum of each tasks time and the times of all following tasks.
Example 2
0.2 0.2 0.3
a
0.8
b
0.6
f
1.0
g
0.4
h
0.3
Solution to Example 2
Station 1 Station 2 Station 3 Station 4
a
c
e f d
Parallel Workstations
1 min. 30/hr. 1 min. 30/hr. 2 min. 30/hr. 1 min. 30/hr.
Bottleneck
30/hr. 1 min.
60/hr. 1 min. 30/hr.
1 min.
30/hr. 1 min. 30/hr.
1 min.
60/hr.
Parallel Workstations
170
10 0
Authors note:
The following three slides are not in the 8e, but I like to use them for alternate examples.
Process Layout
Milling
Assembly & Test Grinding
Drilling
Plating
Functional Layout
222 444
Mill
222
Drill
1111 2222
Grind
3333
111 333
111 333
Assembly
111
Lathes
Heat treat
Gear cutting
111 444
Lathe
Mill
Drill
222222222
Mill
Drill
3333333333
Lathe Mill
Heat treat
Drill
Grind - 3333
44444444444444
Mill
Flexible Manufacturing
Location/Criteria
Process Overview