Facilities

Objectives of Facility Layout Eliminate waste or redundant movement Facilitate the entry, exit, and placement of material, products, or people Incorporate safety and security measures Promote product and service quality Encourage proper maintenance activities Provide a visual control of operations or activities Provide flexibility to adapt to changing conditions Increase capacity

Objectives of Facility Layout Minimize material handling costs Utilize space efficiently Utilize labor efficiently Eliminate bottlenecks Facilitate communication and interaction between workers, between workers and their supervisors, or between workers and customers Reduce manufacturing cycle time or customer service time

Basic Types of Layouts Process Layout Product Layout Machines grouped by process they perform Product Layout Linear arrangement of workstations to produce a specific product Fixed Position Layout Used in projects where the product cannot be moved

Manufacturing Process Layout D G A Receiving and Shipping Assembly Painting Department Lathe Department Milling Department Drilling Department Grinding P

A Product Layout In Out

Fixed-Position Layouts Typical of projects Equipment, workers, materials, other resources brought to the site Highly skilled labor Often low fixed Typically high variable costs

Block Diagramming Create load summary chart Calculate composite (two way) movements Develop trial layouts minimizing number of nonadjacent loads

Relationship Diagramming (Murther’s Grid) Used when quantitative data is not available Muther’s grid displays preferences Denote location preferences with weighted lines

Relationship Diagramming Example Production Offices Stockroom Shipping and receiving Locker room Toolroom

Relationship Diagramming Example A Absolutely necessary E Especially important I Important O Okay U Unimportant X Undesirable A O X U E I Production Offices Stockroom Shipping and receiving Locker room Toolroom

Relationship Diagramming Example 1 Absolutely necessary 2 Especially important 3 Important 4 Okay 5 Unimportant 6 Undesirable 1 4 6 5 2 3 Production Offices Stockroom Shipping and receiving Locker room Toolroom

Service Layouts Usually process layouts due to customers needs Minimize flow of customers or paperwork Retailing tries to maximize customer exposure to products Computer programs consider shelf space, demand, profitability Layouts must be aesthetically pleasing

Designing Product Layouts Product layouts or assembly lines Develop precedence diagram of tasks Jobs divided into work elements Assign work elements to workstations Try to balance the amount work of each workstation

Line Balancing Precedence diagram Conflict with TOC Cycle time Network showing order of tasks and restrictions (constraints) on their performance Conflict with TOC Cycle time Maximum time product spends at any one workstation

Hybrid Layouts Cellular layouts Flexible manufacturing systems Group machines into machining cells Flexible manufacturing systems Automated machining & material handling systems Mixed-model assembly lines Produce variety of models on one line

Cellular Layouts Identify families of parts with similar flow paths Group machines into cells based on part families Arrange cells so material movement is minimized Locate large shared machines at point of use

Advantages Of Cellular Layouts Reduced material handling and transit time Reduced setup time Reduced work-in-process inventory Better use of human resources Easier to control - visibility Easier to automate

Disadvantages Of Cellular Layouts Inadequate part families Poorly balanced cells Expanded training and scheduling of workers Increased capital investment

Mixed Model Assembly Lines Produce multiple models in any order on one assembly line Harley, Opel Issues in mixed model lines Line balancing U-shaped line Flexible workforce Model sequencing

Facility Location Models

Types Of Facilities Auto plants, steel mills, chemical plants Heavy manufacturing Auto plants, steel mills, chemical plants Light/Hi Tech industry Small components mfg, assembly Warehouse & distribution centers Retail & service

Factors in Heavy Manufacturing Location Construction costs Land costs Raw material and finished goods shipment modes Proximity to raw materials Utilities Labor availability

Factors in Light Industry Location Construction costs Land costs Easily accessible geographic region Education & training capabilities

Factors in Warehouse Location Transportation costs Proximity to markets (Customers)

Warehouse Size Considerations Customer service level layout # of products (Stock Keeping Units - SKUs) customer base size of products racks/shelving demand variability MHE requirements/aisle size regulations - CAL OSHA - earthquake; safety; fire

Factors in Retail Location Proximity to customers Ease of customer entry and exit Location is everything

Global Location Factors Government stability Government regulations Political and economic systems Economic stability and growth Exchange rates Culture Climate Export import regulations, duties and tariffs Raw material availability Number and proximity of suppliers Transportation and distribution system Labor cost and education Available technology Commercial travel Technical expertise Cross-border trade regulations Group trade agreements

Regional Location Factors Community government Local business regulations Government services Business climate Community services Taxes Availability of sites Financial Services Community inducements Proximity of suppliers Education system

Site Location Factors Customer base Construction/ leasing cost Land cost Site size Transportation Utilities Zoning restrictions Traffic Safety/security Competition Area business climate Income level

Location Incentives Tax credits Wal-Mart in Wyandotte Relaxed government regulation Job training Infrastructure improvement Money

Center-of-Gravity Technique Locate facility at center of geographic area Based on weight and distance traveled Establish grid-map of area Identify coordinates and weights shipped for each location

Capacity and Aggregate Planning

Capacity Outputs: Examples

The goal of capacity planning decisions The capacity of the firm to produce the service or good The processes for providing the service or making the good The layout or arrangement of the work space The design of work processes to enhance productivity

Capacity The max output that an organization be capable of producing Measure a single facility: Design vs. Effective capacity Capacity Utilization: design vs. efficient utilization For systems have more than one facility and flows of product System capacity and bottleneck Improve system capacity

Determinants of Effective Capacity Facilities Human considerations Adding people Increasing employee motivation Operations Improving operating rate of a machine Improving quality of raw materials and components External forces Safety regulations

Capacity Utilization Measures how much of the available capacity is actually being used: Always <=1(percentage of usage) Higher the better Denominator: If effective capacity used: efficient utilization If design capacity used: design utilization

Aggregate Planning The process of planning the quantity and timing of output over the intermediate range (3-18 months) by adjusting production rate, employment, inventory Master Production Schedule: formalizes the production plan and translates it into specific end item requirements over the short to intermediate horizon

Capacity Planning The process of determining the amount of capacity required to produce in the future. May be at the aggregate or product line level Master Production Schedule - anticipated build schedule Time horizon must exceed lead times for materials

Capacity Planning Look at lead times, queue times, set up times, run times, wait times, move times Resource availability Material and capacity - should be in synch driven by dispatch list - listing of manufacturing orders in priority sequence - ties to layout planning load profiles - capacity of each section

the capacity decisions: When to add capacity How much capacity to add Where to add capacity What type of capacity to add When to reduce capacity

Capacity Planning Rough Cut Capacity Planning - process of converting the master production schedule into requirements for key resources capacity requirements plan - time-phased display of present and future capacity required on all resources based on planned and released orders

Capacity Planning Capacity Requirements Planning (CRP) - process of determining in detail the amount of labor and machine resources required to meet production plan RCCP may indicate sufficient capacity but the CRP may indicate insufficient capacity during specific time periods

Theory of Constraints Every system has a bottle neck capacity of the system is constrained by the capacity of the bottle neck increasing capacity at other than bottle neck operations does not increase the overall capacity of the system

Theory of Constraints What needs to be changed What to change to How to make the change happen

Theory of Constraints Identify the constraint Subordinate Inertia Walk the process again inertia of change can create new bottle necks

Capacity Planning Establishes overall level of productive resources Affects lead time responsiveness, cost & competitiveness Determines when and how much to increase capacity

Capacity Expansion Volume & certainty of anticipated demand Strategic objectives for growth Costs of expansion & operation Incremental or one-step expansion

Sales and Operations Planning (S&OP) Brings together all plans for business performed at least once a month Internal and external

Adjusting Capacity to Meet Demand Producing at a constant rate and using inventory to absorb fluctuations in demand (level production) Hiring and firing workers to match demand (chase demand) Maintaining resources for high demand levels Increase or decrease working hours (overtime and undertime) Subcontracting work to other firms Using part-time workers Providing the service or product at a later time period (backordering)

Demand Management Shift demand into other periods Incentives, sales promotions, advertising campaigns Offer product or services with countercyclical demand patterns Partnering with suppliers to reduce information distortion along the supply chain

Remedies for Underloads Acquire more work Pull work ahead that is scheduled for later time periods Reduce normal capacity

Remedies for Overloads Eliminate unnecessary requirements Reroute jobs to alternative machines or work centers Split lots between two or more machines Increase normal capacity Subcontract Increase the efficiency of the operation Push work back to later time periods Revise master schedule

Scheduling as part of the Planning Process

Scheduling Scheduling is the last step in the planning process? It is one of the most challenging areas of operations management. Scheduling presents many day-to-day problems for operations managers because of Changes in customer orders Equipment breakdowns Late deliveries from suppliers A myriad of other disruptions

Objectives in Scheduling Meet customer due dates Minimize job lateness Minimize response time Minimize completion time Minimize time in the system Minimize overtime Maximize machine or labor utilization Minimize idle time Minimize work-in-process inventory Efficiency

Sequencing Rules FCFS - first-come, first-served LCFS - last come, first served DDATE - earliest due date CUSTPR - highest customer priority SETUP - similar required setups SLACK - smallest slack CR - critical ratio SPT - shortest processing time LPT - longest processing time

Critical Ratio Rule CR considers both time and work remaining If CR > 1, job ahead of schedule If CR < 1, job behind schedule If CR = 1, job on schedule time remaining due date - today’s date work remaining remaining processing time Ties scheduling to Gantt Chart or PERT/CPM

Chapter 12 Inventory Management

Why is Inventory Important to Operations Management? The average manufacturing organization spends 53.2% of every sales dollar on raw materials, components, and maintenance repair parts Inventory Control – how many parts, pieces, components, raw materials and finished goods

Inventory Conflict Accounting – zero inventory Production – surplus inventory or “just in case” safety stocks Marketing – full warehouses of finished product Purchasing – caught in the middle trying to please 3 masters

Inventory Stock of items held to meet future demand Insurance against stock out Coverage for inefficiencies in systems Inventory management answers two questions How much to order When to order

Types of Inventory Raw materials Purchased parts and supplies In-process (partially completed) products Component parts Working capital Tools, machinery, and equipment Safety stock Just-in-case

Inventory Hides Problems Policies Inventory Accuracy Transportation Problems Training Poor Quality

Aggregate Inventory Management How much do we have now? How much do we want? What will be the output? What input must we get? Correctly answering the question about when to order is far more important than determining how much to order.

Inventory Costs Carrying Cost Cost of holding an item in inventory As high as 25-35% of value Insurance, maintenance, physical inventory, pilferage, obsolete, damaged, lost Ordering Cost Cost of replenishing inventory Shortage Cost Temporary or permanent loss of sales when demand cannot be met

ABC Classification System Demand volume and value of items vary Classify inventory into 3 categories, typically on the basis of the dollar value to the firm PERCENTAGE PERCENTAGE CLASS OF UNITS OF DOLLARS A 5 - 15 70 - 80 B 30 15 C 50 - 60 5 - 10

Why ABC? Inventory controls Security controls Monetary constraints Storage locations

Economic Order Quantity

Assumptions of Basic EOQ Model Demand is known with certainty and is constant over time No shortages are allowed Lead time for the receipt of orders is constant The order quantity is received all at once

No reason to use EOQ if: Customer specifies quantity Production run is not limited by equipment constraints Product shelf life is short Tool/die life limits production runs Raw material batches limit order quantity

EOQ Formula 2CoD Cc EOQ = Co = Ordering costs D= Annual Demand Cc = Carrying Costs Cost per order can increase if size of orders decreases Most companies have no idea of actual carrying costs

When to Order Reorder Point is the level of inventory at which a new order is placed R = dL where d = demand rate per period L = lead time

Forms of Reorder Points Fixed Variable Two Bin Card Judgmental Projected shortfall

Why Safety Stock Accurate Demand Forecast Length of Lead Time Size of order quantities Service level

Inventory Control Cyclic Inventory Annual Inventory Periodic Inventory Sensitive Item Inventory

Vendor-Managed Inventory Not a new concept – same process used by bread deliveries to stores for decades Reduces need for warehousing Increased speed, reduced errors, and improved service Onus is on the supplier to keep the shelves full or assembly lines running variation of JIT Proctor&Gamble - Wal-Mart DLA – moving from a manager of supplies to a manager of suppliers Direct Vendor Deliveries – loss of visibility

Inventory Management: Special Concerns Defining stock-keeping units (SKUs) Increase in number of SKUs – 15% over past 3 years Dead inventory Deals Substitute items Complementary items Informal arrangements outside the distribution channel Repair/replacement parts Reverse logistics