Capacity Planning and Facility Location Chapter 9 Pages ,

Operations and Operations Strategy Designing an Operations System Managing an Operations System Done We are here Overview of Management 326

Designing an Operations System Project management: A design tool Product design Process design Quality system Lean systems Capacity planning Facility location Facility layout Work design Done We are here Done

Capacity Planning Capacity is the maximum output rate of a production or service facility Capacity planning is the process of establishing the output rate that may be needed 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 There is no one best way to measure capacity Output measures like kegs per day are easier to understand With multiple products, inputs measures work better

Capacity Information Needed 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 See also: pages , class notes

Importance of Location Decisions Long-term decisions Difficult to reverse Affect fixed & variable costs Transportation cost for goods As much as 25% of product price Other costs: Taxes, wages, rent etc. Objective: Maximize benefit of location to firm

Location Strategies Services vs. Manufacturing Service/Retail/Professional Revenue Focus oVolume/revenue oDrawing area, purchasing power oCompetition; advertising/pricing oPhysical quality oParking/access; security/ lighting; appearance/image oCost determinants oRent oManagement caliber oOperations policies (hours, wage rates) Goods-Producing Location Cost Focus  Tangible costs oTransportation cost of raw materials oShipment cost of finished goods oEnergy and utility cost; labor; raw material; taxes, etc. oIntangible and future costs oAttitude toward union oQuality of life oEducation expenditures by state oQuality of state and local government

Location Decision Sequence Country © 1995 Corel Corp. Region/Community © 1995 Corel Corp. Site © 1995 Corel Corp.

Factors Affecting Country Government rules, attitudes, political risk, incentives Culture & economy Market location Labor availability, attitudes, productivity, and cost Availability of supplies, communications, energy © 1995 Corel Corp.

Region Location Decisions Corporate desires Attractiveness of region (culture, taxes, climate, etc.) Labor, availability, costs, attitudes towards unions Costs and availability of utilities Environmental regulations of state and town Government incentives Proximity to raw materials & customers Land/construction costs © 1995 Corel Corp.

Factors Affecting Site Site size and cost Air, rail, highway, and waterway systems Zoning restrictions Nearness of services/supplies needed Environmental impact issues © 1995 Corel Corp.

Location Decision Example BMW decided to build its first major manufacturing plant outside Germany in Greer, South Carolina. © 1995 Corel Corp.

BMW: Country Decision Factors Market location U.S. is world’s largest luxury car market Growing (baby boomers) Labor Lower manufacturing labor costs $17/hr. (U.S.) vs. $27 (Germany) Higher labor productivity 11 holidays (U.S.) vs. 31 (Germany) Other Lower shipping cost ($2,500/car less) New plant & equipment would increase productivity (lower cost/car $2, )

BMW: Region and Community Decision Factors Labor Lower wages in South Carolina (SC) Government incentives $135 million in state & local tax breaks Free-trade zone from airport to plant No duties on imported components or on exported cars State employment security service screened applications Greenville Technical College trained workers