Planning Production Activity Preview Planning Manufacturing Facilities Quantitative

Planning Production Activity Preview Planning Manufacturing Facilities Quantitative Tools in Production Planning and Control Flexible Manufacturing Systems Assoc. Prof. Dr. B. G. Çetiner

Planning Production Activity Planning Manufacturing Facilities Plant Location: 7 Basic Steps in locating and building every new plant 1. Establish the need for a new plant 2. Determine best geographical area based on needs 3. Establish the requirements 4. Screen many communities 5. Pinpoint few communities for detailed study 6. Select the best location 7. Build the plant Assoc. Prof. Dr. B. G. Çetiner

Planning Production Activity Planning Manufacturing Facilities Plant Location Some of the factors affecting choice of region * Transportation (highway, rail, air, water) * Labor (supply, skill level, local wages, and attitudes) * Geographical location (raw materials, customers etc) * Utilities (supply and cost of water, electricity etc) * Business Climate (taxes, pollution controls, community) * Comfortableness (Climate, educational facilities etc) * Plant Sites (land cost etc) Assoc. Prof. Dr. B. G. Çetiner

Planning Production Activity Planning Manufacturing Facilities Plant Location Most important factors for plant location will vary with industry * For producing the bricks, plant has to be close to raw material * Aluminum production needs cheap electricity * High-technology electronic firms have tended to cluster together with technical professionals and educational institutions * Clothing manufacturers look for lower labor-cost areas Assoc. Prof. Dr. B. G. Çetiner

Planning Production Activity Planning Manufacturing Facilities Plant Design Nature of plant and its arrangement on the site Multistory plants: Conserve land area, permit use of gravity flow, and cheaper to heat Singlestory plants: More flexible, permit lighter foundations. Assoc. Prof. Dr. B. G. Çetiner

Planning Production Activity Planning Manufacturing Facilities Plant Layout Try to achieve most effective arrangement of physical facilities and personnel for making a product. Product Layout: Machines and personnel are arranged along the production line so minimum travel is obtained between processing steps Process Layout: All machines or activity of a particular type are located together. Useful for job-shop environment Assoc. Prof. Dr. B. G. Çetiner

Planning Production Activity Planning Manufacturing Facilities Plant Layout Try to achieve most effective arrangement of physical facilities and personnel for making a product. Fixed-position Layout: Product remains stationary. (for example; shipbuilding or mass construction) Group Technology: A set of products requiring similar processing equipment is identified, and a small group of the machines needed to make this set of similar products is placed together. Assoc. Prof. Dr. B. G. Çetiner

Planning Production Activity Plant Layout Product A 2 3 Planning Milling Grinding 4 5 Drill Inspection Press Product B I II Drill Press Turning III IV Shipping Receiving 1 V Milling Painting Inspection Assoc. Prof. Dr. B. G. Çetiner

Planning Production Activity Product A Product B Plant Layout Planning Grinding Receiving 1 3 Shipping Turning II Painting 2 IV III Milling 4 I Drill Press V 5 Inspection Assoc. Prof. Dr. B. G. Çetiner

Planning Production Activity Quantitative Tools in Production Planning Economic Order Quantity (EOQ) to Inventory Break-Even Charts Learning Curves Assoc. Prof. Dr. B. G. Çetiner

Planning Production Activity Quantitative Tools in Production Planning Inventory Level Production Problem Assoc. Prof. Dr. B. G. Çetiner

Planning Production Activity Quantitative Tools in Production Planning Economic Order Quantity (EOQ) to Inventory Consider an inventory item for which annual requirement is R units. Storing each unit of the item in inventory will cost I dollars per year. Each batch involves a setup cost of S dollars. EOQ= Assoc. Prof. Dr. B. G. Çetiner

Planning Production Activity Quantitative Tools in Production Planning Economic Order Quantity (EOQ) to Inventory a) If it costs $2 per unit to store an item for one year, $40 setup cost every time you produce a lot, and you use 1000 units per year, how many lots of what size should be produced each year b) What is the answer if setup cost is reduced to $10? a) EOQ= b) EOQ= EOQ is decreased (more flexible) Assoc. Prof. Dr. B. G. Çetiner

Planning Production Activity Quantitative Tools in Production Planning Economic Order Quantity (EOQ) to Inventory Cost (Dollars) Q is batch quantity Annual Total Cost ry o t en st v In Co l ua ing n An old H Annual Ordering Cost Order Quantity (Q) Assoc. Prof. Dr. B. G. Çetiner

Planning Production Activity Quantitative Tools in Production Planning Problem with Economic Order Quantity Why does the setup cost have to be so high? It doesn’t need to be. Solution is a) designing dies and tools to switch to new batch b) including simple cards (kanban) in each small lot Assoc. Prof. Dr. B. G. Çetiner

Planning Production Activity Quantitative Tools in Production Planning Break-Even Charts Break-even analysis divides costs into fixed and variable components to estimate the production levels for profitable operation. Assoc. Prof. Dr. B. G. Çetiner

Planning Production Activity Quantitative Tools in Production Planning Break-Even Charts A plant may produce and sell U units of product up to a capacity of 2000 units. Fixed costs F 1 of $100, 000 must be paid in any case. The selling price is assumed a constant S=$250, regardless of volume, so that total revenue R=Ux. S. The unit variable cost V 1 is assumed to be constant $150. Each unit sold makes a contribution C 1 of C 1=S-V 1=$250 -$150=$100 The break-even point BE 1 is the production level U where total costs TC equals to total revenue R: R=Ux. S=TC 1=F 1+Ux. V 1 BE 1=U= F 1 S-V 1 = $100, 000 $250 -$150 =1000 units Assoc. Prof. Dr. B. G. Çetiner

Planning Production Activity Quantitative Tools in Production Planning Break-Even Charts BE 1=U= F 1 $100, 000 = S-V 1 $250 -$150 500 400 l a t o T 300 BE Point 200 100 v e R e u n e =1000 units it f o Pr t os C l Tota 1 TC s s o L 400 800 1200 Units Sold (U) 1600 2000 Production Capacity Thousands of dollars R=Ux. S=TC 1=F 1+Ux. V 1

Planning Production Activity Quantitative Tools in Production Planning Break-Even Charts (Automation) 500 400 l a t o v e R T 300 BE Point 200 e u n e it f o Pr t os C l Tota 1 TC 100 400 800 1200 Units Sold (U) 1600 Production Capacity Thousands of dollars More efficient production F 1=$180, 000 and V 2=$100 BE 2=1200 2000 BE After Automation

Planning Production Activity Quantitative Tools in Production Planning Break-Even Charts (Automation) Total Cost Before=F 1+Ux. V 1=$100, 000+2000 x 150=$400, 000 Total Cost in Automation=F 2+Ux. V 2=$180, 000+2000 x 100=$380, 000 Total Revenue=Ux. S=2000 x 250=$500, 000 Maximum Profit Before=Total Revenue-Total Cost=$500, 000 -$400, 000 $100, 000 Maximum Profit in Automation=Total Revenue-Total Cost =$500, 000 -$380, 000 $120, 000 In case of using maximum capacity, it is better to automate in this example Assoc. Prof. Dr. B. G. Çetiner

Labor hours per unit Y Planning Production Activity Quantitative Tools in Production Planning Learning Curves With Learning Curve Rate %90 If the first unit takes 1000 labor hours Second will take 900, Fourth will take 810, Eight will take 729 1000 500 300 1 10 1000 Number of units produced n Assoc. Prof. Dr. B. G. Çetiner