Facility Decisions Learning objectives To discuss facility location

Facility Decisions • Learning objectives: – To discuss facility location decisions – To discuss capacity planning – To discuss factory layout problems • Reading: Chapter 5 and its supplement MGT 3303 Michel Leseure

Location Problems • Where should a facility be located: – Given a range of qualitative and quantitative decision variables MGT 3303 Michel Leseure

Qualitative Location Factors • Local Infrastructure – Institutional (e. g. , reliable electrical power grid) – Transportational (e. g. , railway systems) • Worker Education and Skills – Education and skills of local workers. • Product Content Requirements – The minimum percentage of product that must be produced in a country in order for the product to be sold in that country. • Political/Economic Stability MGT 3303 Michel Leseure

Quantitative Location Factors • Labor Costs – Labor costs vary dramatically, depending on location. Cheap labor often lacks needed education and skills. • Distribution Costs – Distance and the time required to deliver products can offset lower location costs. • Facility Costs – Special economic zones (SEZ) • Duty-free areas established to attract foreign investment in the form of manufacturing facilities MGT 3303 Michel Leseure

Quantitative Location Factors • Exchange Rates – Variations in rates can have a significant effect on sales and profits. • Tax Rates – Taxes vary considerably between countries and within countries. – All forms of taxes should be considered (property, payroll, inventory, and investment taxes). MGT 3303 Michel Leseure

Geographic Information Systems (GIS) – Computer tool that assesses alternative locations for operations. – Provides a “bird’s eye view” of a particular region of interest. MGT 3303 Michel Leseure

Evaluating Potential Locations • Factor Rating System 1. Identify the specific criteria or factors to be considered. 2. Assign a weight to each factor. 3. Select a common scale for rating each factor. 4. Rate each potential location on each of the factors. 5. Multiply each factor’s score by its weight. 6. Sum the weighted scores and select the location with the highest score. MGT 3303 Michel Leseure

Factor-Rating System Example MGT 3303 Michel Leseure

Evaluating Potential Locations • Center of Gravity Method – Used to determine the optimal location of a facility based on minimizing the transportation costs between where the goods are produced and where they are sold or redistributed. – Locate each existing operation on an X and Y coordinate grid map. – Calculate X coordinate of center of gravity – Calculate Y coordinate of center of gravity MGT 3303 Michel Leseure

Center of Gravity Formulas Cx = X coordinate of the center of gravity Cy = Y coordinate of the center of gravity dix = X coordinate of the ith location diy = Y coordinate of the ith location Vi = Volume of goods transported to the ith location MGT 3303 Michel Leseure

Example Several automobile showrooms are located according to the following grid which represents coordinate locations for each showroom Y Q (790, 900) D (250, 580) A (100, 200) (0, 0) X Question: What is the best location for a new Z-Mobile warehouse/temporary storage facility considering only distances and quantities sold per month? MGT 3303 Michel Leseure

Example You then compute the new coordinates using the formulas: You then take the coordinates and place them on the map: Y New location of facility Z about (443, 627) Q (790, 900) D Z (250, 580) A (100, 200) (0, 0) X MGT 3303 Michel Leseure

Capacity Planning • Establishes the overall level of productive resources for a firm • Usually results in a capital investment decision – long term focus • These decisions are usually irreversible! • Given: • a sales forecast • a risk profile (aggressive, risk-averse, etc. ) MGT 3303 Michel Leseure

Measuring Capacity • Objective is to measure a level of activity • Several possible measures, based either on staff or plant/equipment – An hospital would measure capacity according to its number of beds or overall capacity • different units for emergency room (staff) – A building contractor would measure a project in terms of staff – Precision machinist: Machine hours per month MGT 3303 Michel Leseure

Measuring Capacity • It is important to differentiate: – Planned capacity: • theoretical capacity of a system given some allowances – Actual capacity: • the actual demand of the usage of resources, under- or over-capacity – Efficiency: • the degree to which production is as efficient as planned MGT 3303 Michel Leseure

Example • A precision machinist has a theoretical capacity of 15, 000 hours. In a given month, 16, 000 hours were sold. 3, 000 hours were subcontracted. • This case: – is an example of under-capacity – is an example of 100% utilisation – the efficiency is 87% (13, 000/15, 000) MGT 3303 Michel Leseure

Capacity Planning: Decision objectives • Decisions objectives are: – Anticipate growth or wait? – Forecast the end of a growth period – Avoid overcapacity (unit cost consequence!) – What should be done in the case of overcapacity? Size of operations unit Timing of capacity MGT 3303 Michel Leseure

Best Operating Levels With Economies & Diseconomies Of Scale MGT 3303 Michel Leseure

Timing of capacity Units Capacity lag strategy Units Capacity lead strategy Capacity Demand Time Units Capacity One-step expansion Average capacity strategy Demand Incremental expansion Demand Time MGT 3303 Michel Leseure

Layout Decisions • How should machines, workers, departments, etc. be arranged? • Several generic options MGT 3303 Michel Leseure

Types of Layout MGT 3303 Michel Leseure

Process or Functional Layout • Job and batch systems are based on functional layouts – machines, processes and equipment of the same type are grouped together in the same department or area MGT 3303 Michel Leseure

Product Layout • High volume production systems use product layouts – machines, equipment and workplaces are arranged according to the order in which operations need to be carried out to produce a complete component, product or sub‑assembly (lines, flow systems) MGT 3303 Michel Leseure

Flexible Line Layouts MGT 3303 Michel Leseure

Design Methods – Process Layouts MGT 3303 Michel Leseure

Design Methods – Process Layouts Total cost: $2, 223 ($1 for adjacent departments - $1 for each travel-through) MGT 3303 Michel Leseure

Improvement: 3 -5 Permutation *Only interdepartmental flow with effect on cost is depicted. Total cost: $1, 878 (= $2, 223 – 230 + 50 - 165) MGT 3303 Michel Leseure

Assembly Line Balancing • Means the design of the layout of an efficient assembly line – Product Layout – Also called flowlines, as product flows through workstations – Is also a pre-schedule of operations Labour resources and physical facilities Finished products Material inputs MGT 3303 Michel Leseure

Problem Statement Tasks to be allocated to work stations Work stations Flow of material Objective: To find the best allocation of tasks which will produce the desired output while maximising efficiency and achieving good 'balance' MGT 3303 Michel Leseure

Line Balancing • • The main objective of line design will be to maximise line efficiency (or minimise total work station idle time) At the same time any idle time should be spread as evenly as possible among the work stations, ie the line should be 'balanced' Idle time Cycle time Station work content MGT 3303 Michel Leseure

Procedure • • Summarise precedence data in a table Draw a precedence diagram Compute the desired cycle time Compute theoretical number of workstations • Assign tasks to workstation (heuristics) • Draw layout and compute efficiency MGT 3303 Michel Leseure

Example • Cold Sheffield Ltd needs 5 tasks to assemble its product. It has 1200 minutes of assembly workforce time available per day and it needs to produce 100 units per day. Precedence relationships between the task are: • Tasks Time Predecessors • A 4 (mn) None • B 5 A • C 2 B • D 10 A • E 3 C, D • Design a balanced assembly line. MGT 3303 Michel Leseure

Draw a Precedence Diagram 4 A 5 2 B C 10 D 3 E MGT 3303 Michel Leseure

Cycle Time Computation • Target output: 100 units/day • Target cycle time: – The number of minutes to complete work at one workstation – A measure of the frequency with which products roll off the assembly line • Available work time: 1200 minutes per day C= production time available desired output C= 1200 = 12 minutes / units 100 MGT 3303 Michel Leseure

Theoretical Number of Workstations Theoretical number of workstations = Sum of elementary tasks time Cycle Time = 24 / 12 = 2 MGT 3303 Michel Leseure

Task Assignment 4 5 A B 2 Workstation 1 (11 minutes) C 10 D 3 E MGT 3303 Michel Leseure

Task Assignment 4 5 A B 2 Workstation 1 (11 minutes) C 10 D 3 E Workstation 2 (10 minutes) (Alternative AB and CD) Workstation 3 (3 minutes) MGT 3303 Michel Leseure

Summary of Solution Linear layout Workstation 1 (ABC)- 11 mn Workstation 2 (D)- 10 mn Workstation 3 (E)-3 mn Efficiency of line = 24 / 3 * 12 = 24/36 = 66. 7% (sum of tasks time divided by number of workstations times cycle time) MGT 3303 Michel Leseure

Low Efficiency • Although with 2 workstations, there would be enough time to complete all tasks (24 mn), the tasks cannot be combined in a linear layout in 2 workstations! • Try alternative forms of layouts – U-shaped layouts – Gives the option to combine non sequential tasks MGT 3303 Michel Leseure