MMM1 OM s4 FacilityCapacityPlanning

Facility, Capacity, Planning - MMS I 1Prof N. Balasubramanian

Facility Layout

Airport Facilities, Airport Information, Inside Airport, Shop and eat at Airport - Delhi International Airport.htm

Indira Gandhi Delhi International Airport - Master Plan Development.htm

T3-International-Section-Map.pdf






















Facility Layout

• Types of Facilities

• Site Selection: Where to Locate

• Global Supply Chain Factors

• Location Analysis Techniques


Types of Facilities

• Heavy-manufacturing facilities

– large, require a lot of space, and are expensive

• Light-industry facilities

– smaller, cleaner plants and usually less costly

• Retail and service facilities

– smallest and least costly


Factors in Heavy Manufacturing Location

• Construction costs

• Land costs

• Raw material & finished goods shipment modes

• Proximity to raw materials

• Utilities

• Means of waste disposal

• Labor availability


Factors in Light Industry Location

• Land costs

• Transportation costs

• Proximity to markets

– depending on delivery requirements including frequency of delivery required by customer


Factors in Retail Location

• Proximity to customers

• Location is everything

• Transportation Infrastructure


Site Selection: Where to Locate

• Infrequent but important• being “in the right place at

the right time”

• Must consider other factors, especially financial considerations

• Location decisions made more often for service operations than manufacturing facilities

• Location criteria for service• access to customers

• Location criteria for manufacturing facility• nature of labor force

• labor costs

• proximity to suppliers and markets

• distribution and transportation costs

• energy availability and cost

• community infrastructure

• quality of life in community

• government regulations and taxes


Global Supply Chain Factors

• Government stability

• Government regulations

• Political & economic systems

• Economic stability & growth

• Exchange rates

• Culture

• Export/import regulations, duties & tariffs

• Raw material availability

• Climate

• Number & proximity of suppliers

• Transportation & distribution system

• Labor cost & education

• Available technology

• Commercial travel

• Technical expertise

• Cross-border trade regulations

• Group trade agreements


Regional and Community Location Factors

• Labor (availability, education, cost, and unions)

• Proximity of customers

• Number of customers

• Construction/leasing costs

• Land cost

• Modes and quality of transportation

• Transportation costs

• Community government Local business regulations

• Government services (e.g., Chamber of Commerce)


Regional and Community Location Factors

• Business climate

• Community services

• Incentive packages

• Government regulations

• Environmental regs.

• Raw material availability

• Commercial travel

• Climate

• Infrastructure (road & utilities)

• Quality of life

• Taxes

• Availability of sites

• Financial services

• Community inducements

• Proximity of suppliers

• Education system


Location Incentives

• Tax credits

• Relaxed government regulation

• Job training

• Infrastructure improvement

• Money


Geographic Information Systems (GIS)

• Computerized system for storing, managing, creating, analyzing, integrating, and digitally displaying geographic, i.e., spatial, data

• Specifically used for site selection

• Enables users to integrate large quantities of information about potential sites and analyze these data with many different, powerful analytical tools

• Uttar Pradesh (UP) Election Results 2012 Interactive Map, Constituency Winners, Party Positions -IBNLive.htm

Uttar Pradesh (UP) Election Results 2012 Interactive Map, Constituency Winners, Party Positions - IBNLive.htm







GIS Diagram


Location Analysis Techniques

• Location factor rating

• Break-even Analysis

• Center-of-gravity


Location Factor Rating

• Identify important factors

• Weight factors (0.00 - 1.00)

• Subjectively score each factor (0 - 100)

• Sum weighted scores



Labor pool and climate

Proximity to suppliers

Wage rates

Community environment

Proximity to customers

Shipping modes

Air service

LOCATION FACTOR

.30

.20

.15

.15

.10

.05

.05

WEIGHT

80

100

60

75

65

85

50

Site 1

65

91

95

80

90

92

65

Site 2

90

75

72

80

95

65

90

Site 3

SCORES (0 TO 100)

Weighted Score for “Labor pool and climate” for

Site 1 = (0.30)(80) = 24



24.00

20.00

9.00

11.25

6.50

4.25

2.50

77.50

Site 1

19.50

18.20

14.25

12.00

9.00

4.60

3.25

80.80

Site 2

27.00

15.00

10.80

12.00

9.50

3.25

4.50

82.05

Site 3

WEIGHTED SCORES

Site 3 has the

highest factor rating


Location Factor Rating With Excel


Location Factor Rating With OM Tools


Break-even (BE) Analysis for facility

Volume of production (units)

0 1000

Co

st/r

even

ue

(Rs)

Fixed Cost (FC)

Total Cost (TC)

Variable Cost (VC) at 1000 units

Total Revenue (TR)

Profit Region

VBE

Loss Region

TC=FC+VC* no of units


Center-of-Gravity Technique

• Locate facility at center of movement in

geographic area

• Based on weight and distance traveled;

establishes grid-map of area

• Identify coordinates and weights shipped for

each location


Grid-Map Coordinates

where,

x, y = coordinates of new facility at

center of gravity

xi, yi = coordinates of existing facility i

Wi = annual weight shipped from

facility i

n

Wi

i = 1

xiWi

i = 1

n

x = n

Wi

i = 1

yiWi

i = 1

n

y =

x1 x2 x3 x

y2

y

y1

y3

1 (x1, y1), W1

2 (x2, y2), W2

3 (x3, y3), W3



A B C D

x 200 100 250 500

y 200 500 600 300

W 75 105 135 60

y

700

500

600

400

300

200

100

0 x700500 600400300200100

A

B

C

D

(135)

(105)

(75)

(60)

Miles

Mile

s

A B C D

x 200 100 250 500

y 200 500 600 300

W 75 105 135 60

y

700

500

600

400

300

200

100

0 x700500 600400300200100

A

B

C

D

(135)

(105)

(75)

(60)

Miles

Mile

s



x = = = 238n

Wii = 1

xiWii = 1

n

n

Wii = 1

yiWii = 1

n

y = = = 444(200)(75) + (500)(105) + (600)(135) + (300)(60)

75 + 105 + 135 + 60

(200)(75) + (100)(105) + (250)(135) + (500)(60)

75 + 105 + 135 + 60



A B C D

x 200 100 250 500

y 200 500 600 300

W 75 105 135 60

y

700

500

600

400

300

200

100

0 x700500 600400300200100

A

B

C

D

(135)

(105)

(75)

(60)

Miles

Mile

s

A B C D

x 200 100 250 500

y 200 500 600 300

W 75 105 135 60

y

700

500

600

400

300

200

100

0 x700500 600400300200100

A

B

C

D

(135)

(105)

(75)

(60)

Miles

Mile

s

Center of gravity (238, 444)


Center-of-Gravity Technique with Excel


Break-even (BE) Analysis for facility

Kalinga Glassware is considering 3 locations for its new factory – Cuttack, Bhubaneswar and Ratanpur. The estimated fixed costs at the three locations are Rs 25M, Rs 17M and Rs 21M respectively. The variable costs are estimated to be Rs 1450/unit, Rs 1320/unit, Rs 1380/unit respectively. The factory will have annual production capacity of 25,000 units. However first the years it will run only at 80% efficiency.

Find the best location, which will have the lowest cost of production at end of the first year.


Capacity planning

• Capacity is the maximum output rate of a facility

• Capacity planning is the process of establishing the output rate that can be achieved at a facility:

– Capacity is usually purchased in “chunks”

– Strategic issues: how much and when to spend capital for additional facility & equipment

– Tactical issues: workforce & inventory levels, & day-to-day use of equipment


Measuring Capacity Examples

• Design capacity:

– Maximum output rate under ideal conditions

– A bakery can make 30 custom cakes per day when pushed at holiday time

• Effective capacity:

– Maximum output rate under normal (realistic) conditions

– On the average this bakery can make 20 custom cakes per day


Calculating Capacity Utilization

• Measures how much of the available capacity is actually being used:

– Measures effectiveness

– Use either effective or design capacity in denominator

Example of Computing Capacity Utilization:In the bakery example the design capacity is 30 custom cakes per day. Currently the bakery is producing 28 cakes per day. What is the bakery’s capacity utilization relative to both design and effective capacity?


Calculating Capacity Utilization

93%(100%)30

28(100%)

capacity design

output actual nUtilizatio

140%(100%)20

28(100%)

capacity effective

output actual nUtilizatio

design

effective

• The current utilization is only slightly below its design capacity and considerably above its effective capacity

• The bakery can only operate at this level for a short period of time


How Much Capacity Is Best?

• The Best Operating Level is the output that results in the lowest average unit cost

• Economies of Scale:– Where the cost per unit of output drops as volume of output

increases

– Spread the fixed costs of buildings & equipment over multiple units, allow bulk purchasing & handling of material

• Diseconomies of Scale:– Where the cost per unit rises as volume increases

– Often caused by congestion (overwhelming the process with too much work-in-process) and scheduling complexity


Best Operating Level and Size

• Alternative 1: Purchase one large facility, requiring one large

initial investment

• Alternative 2: Add capacity incrementally in smaller chunks as

needed


Other Capacity Considerations

• Focused factories:

– Small, specialized facilities with limited objectives

• Plant within a plant (PWP):

– Segmenting larger operations into smaller operating units with focused objectives

• Subcontractor networks:

– Outsource non-core items to free up capacity for what you do well


Making Capacity Planning Decisions

• The three-step procedure for making capacity planning

decisions is as follows:

– Step 1: Identify Capacity Requirements

– Step 2: Develop Capacity Alternatives

– Step 3: Evaluate Capacity Alternatives


Identifying capacity requirements

• Long-term capacity requirements based on future demand– Identifying future demand based on forecasting– Forecasting, at this level, relies on qualitative forecast

models• Executive opinion• Delphi method

– Forecast and capacity decision must included strategic implications

• Capacity cushions – Plan to underutilize capacity to provide flexibility


Evaluating Capacity Alternatives

• Capacity alternatives include

– Could do nothing,

– expand large now (may included capacity cushion), or

– expand small now with option to add later

• Many tools exist to assist in evaluating alternatives

• Most popular tool is Decision Trees

• Decision Trees analysis tool is:– a modeling tool for evaluating sequential decisions

which,

– identifies the alternatives at each point in time (decision points), estimate probable consequences of each decision (chance events) & the ultimate outcomes (e.g.: profit or loss)


Decision tree diagrams

• Diagramming technique which uses– Decision points – points in time when decisions are

made, squares called nodes

– Decision alternatives – branches of the tree off the decision nodes

– Chance events – events that could affect a decision, branches or arrows leaving circular chance nodes

– Outcomes – each possible alternative listed



• Decision trees developed by– Drawing from left to right

– Use squares to indicate decision points

– Use circles to indicate chance events

– Write the probability of each chance by the chance (sum of associated chances = 100%)

– Write each alternative outcome in the right margin

Example Using Decision Trees:

A restaurant owner has determined that she needs to expand her facility. The alternatives are to expand large now and risk smaller demand, or expand on a smaller scale now knowing that she might need to expand again in three years. Which alternative would be most attractive?



• The likelihood of demand being high is .70

• The likelihood of demand being low is .30

• Large expansion yields profits of $300K(high dem.) or $50k(low dem.)

• Small expansion yields profits of $80K if demand is low

• Small expansion followed by high demand and later expansion yield a profit of $200K at that point. No expansion at that point yields profit of $150K


Evaluating the Decision Tree

• Decision tree analysis utilizes expected value analysis (EVA)

• EVA is a weighted average of the chance events– Probability of occurrence * chance event outcome

• Refer to Figure 9-3– At decision point 2, choose to expand to maximize profits

($200,000 > $150,000)

– Calculate expected value of small expansion:• EVsmall = 0.30($80,000) + 0.70($200,000) = $164,000


Evaluating the Decision Tree

• Calculate expected value of large expansion:

– EVlarge = 0.30($50,000) + 0.70($300,000) = $225,000

• At decision point 1, compare alternatives & choose thelarge expansion to maximize the expected profit:

– $225,000 > $164,000

• Choose large expansion despite the fact that there is a 30% chance it’s the worst decision:

– Take the calculated risk!


Relook at Facility layout and Flow

Facility layout and flow are the most important within the general area design in operations management. This is because the way facilities are positioned relative to each other has an important effect on so many aspects of operations.

It affects the total distance travelled by materials, information or customers as they move through the operation. Generally, layouts try and minimize distance travelled.

Layout can affect quality. If materials or information or customers are continually being passed from one part of the operation to another there will be many points at which damage (or annoyance) can occur.

Layout will affect throughput time. The further the distance travelled, the longer it takes to get through the operation.

Layout can affect how much space is necessary for the operation. Space costs money. Consider a financial services operation in a high cost location such as Mumbai suburb.


Basic Layout types

Fixed position layoutUnusually, in a fixed position layout the resources travel to the product or customer rather than the other way round. Most movies are shot in a studio and on location. In both cases resources centre around a fixed position (the studio set or the location). This is because moving the actors, technicians, cameras etc. to the set or location is considerably easier than the other way round.Process layoutProcess layouts are sometimes called functional layouts because the transforming resources with the same, or similar, function are grouped together. ‘Products’ with different requirements move between the clusters of transforming resources in different ways. This makes this kind of layout particularly flexible. It can usually cope with a wide variety of different processing requirements. However, it is complex to manage with flows crossing each other and moving on irregular and intermittent paths.Cell layoutPrimarily this type of layout is an attempt to reduce the complexity of process layouts. It divides transforming resource up into small clusters which can be used to act upon different products or product groups. Within each cell layout can be almost identical to product layout (treated next).Product layoutHere the transforming resources are arranged for the convenience of product flow. It is the processing requirements of a particular product or service which dictates exactly where and in what order facilities are located. The classic image of the assembly line is typical of how we think of product layouts. In fact this type of layout is also common in many service industries, especially the ‘back office’ of services such as banks and insurance companies.


Case Study on Facility layout and Flow

Facilitylayout&flow-case.doc





Aggregate Planning

Rajasthan Saris is 100% EOU, 5000 M INR turnover company. Sales Agency in Zurich forecast plan on monthly basis. Forecast for Nov & Dec sales are 2000 saris and 3000 saris respectively. Agency forecasts during the last week of a month for next month. E.g. end of Oct, forecast for Nov.

Worker produces 100 saris for a month. There are 25 workers in the factory.Salary is INR 4000/worker.

Any new worker to be hired will cost INR 500/new worker.

Any worker laid off for the month will be paid 20% of monthly salary. Worker is laid off or recruited by month.

Inventory carrying cost is INR 10/sari/month.

Prepare the aggregate production plan for the company.


Aggregate Planning

Seasonal Variation industries like Power, Fuel, Travel, Fire, Hotel.

How to predict demand in terms of quantity and time ?

Long Range Plan Intermediate Plan Short Range Plan

2 – 10 years 2 or 3 to 12-18 months (General levels)

Daily / Weekly (Detailed Plans)

Long-term capacity •Employment •Machine loading

Location •Output •Job assignments

Layout •Finished-goods inventories •Job sequencing

Product design •Subcontracting •Production Lot Size

Work System design

•Backorders •Order Quantities

•Work schedules


The Role of the Aggregate Plan


Types of Aggregate Plans

• Level Aggregate Plans

– Maintains a constant workforce

– Sets capacity to accommodate average demand

– Often used for make-to-stock products like appliances

– Disadvantage- builds inventory and/or uses back orders

• Chase Aggregate Plans

– Produces exactly what is needed each period

– Sets labor/equipment capacity to satisfy period demands

– Disadvantage- constantly changing short term capacity


Level Plan Example

• Level production rate= 28,000 units/7 periods= 4000 units

• Level workforce= (4000 units x .64 std.)/160 = 16 people


Chase Plan Example

• Chase hires and fires staff to exactly meet each periods demand• Period 1 = (500 units x .64 std.)/160 = 2 people, need to fire 16 people


Types of Aggregate Plans (Cont.)

• Hybrid Aggregate Plans

– Uses a combination of options

– Options should be limited to facilitate execution

– May use a level workforce with overtime & temps

– May allow inventory buildup and some backordering

– May use short term sourcing


Aggregate Planning Options

• Demand based options

– Reactive: uses finished goods inventories and

backorders for fluctuations

– Proactive: shifts the demand patterns to minimize fluctuations e.g. early bird dinner prices at a restaurant

• Capacity based options

– Changes output capacity to meet demand

– Uses overtime, under time, subcontracting, hiring, firing, and part-timers – cost and operational implications


Aggregate Planning for Services

• Most services cannot be inventoried

• Demand for services is difficult to predict

• Capacity is also difficult to predict

• Service capacity must be provided at the appropriate place and time

• Labor is usually the most constraining resource for services


Aggregate Planning Bottom Line

• The Aggregate plan must balance several perspectives

• Costs are important but so are:

– Customer service

– Operational effectiveness

– Workforce morale

• A successful AP considers each of these factors


Master Production Scheduling

• Master production schedule (MPS) is the anticipated build schedule

• MPS is often stated in produce or service specifications rather than dollars

• MPS is often built, managed, reviewed and maintained by the master scheduler


Role of the MPS v/s AP

• Aggregate plan:

– Specifies the resources available (e.g.: regular workforce, overtime, subcontracting, allowable inventory levels & shortages)

• Master production schedule:

– Specifies the number & when to produce each end item (the anticipated build schedule)

– Disaggregates the aggregate plan


Aggregate Planning Across the Organization

• Aggregate planning, MPS, and rough-cut capacity affection functional areas throughout the organization– Accounting is affected because aggregate plan details

the resources needed by operations

– Marketing as the aggregate plan supports the marketing plan

– Information systems maintains the databases that support demand forecasts and other such information


Aggregate Plan example

Company “Adventure Creations” makes several models of skateboards (skbd). Company wants to prepare aggregate plan that will cover SIX periods. They have following collated information:

Period 1 2 3 4 5 6 Total

Forecast 200 200 300 400 500 200 1800

Regular Overtime Subcontract Inventory Backorders

Rs 100 / skbd Rs 150/skbd Rs 300/skbd Rs 50 /skbd/period on avg Inventory

Rs 250/skbd/period

They want to evaluate a plan that calls for a steady rate of regular-time output, mainly using inventory to absorb the uneven demand but allowing some backlog. In the beginning the inventory is 0 on hand for the first period. The last period should end with zero inventory. There are 15 workers, each can produce 20 skbd/period. Assume a level output rate of 300 units of skbd per period with regular time. (i.e1800/6=300).

Prepare an aggregate plan and determine its cost using the above information.

Documents

MMM1 OM s4 FacilityCapacityPlanning