1. LSM733-PRODUCTION OPERATIONS MANAGEMENT By: OSMAN BIN SAIF LECTURE 12 1

2.  Global Company Profile: FedEx  The Strategic Importance of Location Summary of last Session 2

3.  Factors That Affect Location Decisions  Labor Productivity  Exchange Rates and Currency Risks  Costs  Political Risk, Values, and Culture  Proximity to Markets  Proximity to Suppliers  Proximity to Competitors (Clustering) Summary of last Session (Contd.) 3

4.  Methods of Evaluating Location Alternatives  The Factor-Rating Method  Locational Break-Even Analysis  Center-of-Gravity Method  Transportation Model Summary of last Session (Contd.) 4

5.  Service Location Strategy  How Hotel Chains Select Sites  The Call Center Industry  Geographic Information Systems Summary of last Session Contd.) 5

6. Agenda for this Session  Innovation at Macdonald’s – Case  Strategic Importance of Layout Decision  Objectives in Layout design  Higher Utilization  Improved Flow  Improved Employee  Improved Customer / Client  Flexibility 6

7. Agenda for this Session (Contd.)  Types of Layout I.Office layout II.Retail layout III.Warehouse layout IV.Fixed-position layout V.Process-oriented layout VI.Work-cell layout 7

8. Chapter : Layout Decision 8

9. Innovations at McDonald’s  Indoor seating (1950s)  Drive-through window (1970s)  Adding breakfast to the menu (1980s)  Adding play areas (late 1980s)  Redesign of the kitchens (1990s)  Self-service kiosk (2004)  Now three separate dining sections 9

10. Innovations at McDonald’s  Indoor seating (1950s)  Drive-through window (1970s)  Adding breakfast to the menu (1980s)  Adding play areas (late 1980s)  Redesign of the kitchens (1990s)  Self-service kiosk (2004)  Now three separate dining sections Six out of the seven are layout decisions! 10

11. 30,000 McDonald’s outlets around the world are redesigned to have three separate dining areas: – The "linger" zone with comfortable armchairs and Wi-Fi connections for young adults who want to socialize and hang out. – The "grab and go" zone with tall counters and bar stools for customers who eat alone with plasma TVs. – The "flexible" zone with comfortable and casual setting for families and large groups. Facility layout is a source of competitive advantage 11

12. Strategic Importance of Layout Decisions Developing an effective and efficient layout that will meet the firm’s competitive requirements will contribute a lot to the profitabilitity of the firm 12

13. Objectives in Layout Design  Higher utilization of space, equipment, and people  Improved flow of information, materials, or people  Improved employee morale and safer working conditions  Improved customer/client interaction  Flexibility (to be changed later) 13

14. A good Layout Requires Determining the Following  Material handling equipment (manual hand trucks, conveyors, cranes, AGVs)  Capacity and space requirements  Environment and aesthetics (windows, height and walls of the offices to facilitate air flow, to reduce noise etc.)  Flows of information (open offices versus dividers)  Cost of moving material between work areas 14

15. Types of Layout 1.Office layout 2.Retail layout 3.Warehouse layout 4.Fixed-position layout 5.Process-oriented layout 6.Work-cell layout 7.Product-oriented layout 15

16. 1. Office Layout  Grouping of workers, their equipment, and spaces to provide comfort, safety, and movement of information  Movement of information is main distinction  Typically in state of flux due to frequent technological changes 16

17. Relationship Chart: A tool to use in Office Layout Decisions Figure 9.1 17

18. 2. Retail Layout Retail layouts (as are found in stores, banks, and restaurants) are based on the idea that sales and profitability vary directly with customer exposure to products  Objective is to maximize profitability per square foot of floor space by exposing the customers to as many products as possible  Sales and profitability vary directly with customer exposure 18

19. Some Strategic Decisions in Supermarket Layout 1.High-draw items like dairy products, meat, etc. are located around the periphery of the store 2.For high-impulse and high-margin items prominent locations are used. 3.Mission of the store is conveyed through careful positioning of lead-off department. For instance, positioning the bakery department upon entering the store. 19

20. Store Layout Figure 9.2 20

21. Retail Slotting  Due to the limited shelf space and increasing number of new products, manufacturers pay fees to retailers to get the retailers to display (slot) their product.  Retailers can demand up to $25000 to provide shelf space for a new product.  Small companies complain about unfair competition.  Wal-Mart is one of the few major retailers that does not demand slotting fees. 21

22. Retail Store Shelf Space, Planogram (computer generated, plan for displaying merchandise, on the shelves of a supermarket)  Computerized tool for shelf-space management  Generated from store’s scanner data on sales  Often supplied by manufacturer 5 facings Shampoo Conditioner Shampoo Conditioner 2 ft. 22

23. Service Space The physical surroundings in which a service takes place, and how they affect customers and employees 1.Ambient conditions 1.Ambient conditions - background characteristics such as lighting, sound, smell, and temperature 2.Spatial layout and functionality 2.Spatial layout and functionality - which involve customer circulation path planning, aisle characteristics, and product grouping 3.Signs, symbols, and artifacts 3.Signs, symbols, and artifacts - characteristics of building design that carry social significance 23

24. 3. Warehousing and Storage Layouts  Objective is to optimize trade-offs between handling costs and costs associated with warehouse space  Maximize the total “cube” of the warehouse – utilize its full volume while maintaining low material handling costs  Minimize damage and spoilage 24

25. Warehousing and Storage Layouts  Automated Storage and Retrieval Systems (ASRSs) can significantly improve warehouse productivity.  Random stocking: Typically requires automatic identification systems (AISs) and effective information systems. Allows more efficient use of space  Dedicated Stocking 25

26. Cross-Docking  Materials are moved directly from receiving to shipping and are not placed in storage in the warehouse  Requires tight scheduling and accurate shipments, bar code or RFID identification used for advanced shipment notification as materials are unloaded 26

27. Customizing  Value-added activities performed at the warehouse (warehouse assembly jobs are common nowadays)  Enable low cost and rapid response strategies  Assembly of components  Loading software  Repairs  Customized labeling and packaging 27

28. Shipping and receiving docks Office Customization Conveyor Storage racks Staging Warehouse Layout Traditional Layout 28

29. Warehouse Layout Cross-Docking Layout Shipping and receiving docks Office Shipping and receiving docks 29

30. 4. Fixed-Position Layout  Product remains in one place, workers and equipment come to site  Preferred where the size of the job is bulky and heavy. Example of such type of layout is locomotives, ships, wagon building, aircraft manufacturing, etc.  Complicating factors  Limited space at site  Different materials required at different stages of the project  Volume of materials needed is dynamic 30

31. 5. Process-Oriented Layout  Similar machines and equipment are grouped together  Flexible and capable of handling a wide variety of products or services  Scheduling can be difficult and setup, material handling, and labor costs can be high 31

32. Surgery Radiology ER triage room ER BedsPharmacy Emergency room admissions Billing/exit Laboratories Process-Oriented Layout Patient A - broken leg Patient B -erratic heart pacemaker Figure 9.3 32

33. Manufacturing Process Layout L L L L L L L L L L M M M M D D D D D D D D G G G G G G A AA Receiving and Shipping Assembly Painting Department Lathe Department Milling Department Drilling Department Grinding Department P P 33

34. Process-Oriented Layout  Arrange work centers so as to minimize the costs of material handling  Basic cost elements are  Number of loads (or people) moving between centers  Distance loads (or people) move between centers 34

35. Process-Oriented Layout Minimize cost = ∑ ∑ X ij C ij n i = 1 n j = 1 wheren=total number of work centers or departments i, j=individual departments X ij =number of loads moved from department i to department j C ij =cost to move a load between department i and department j 35

36. Process Layout Example 1.Construct a “from-to matrix” 2.Determine the space requirements 3.Develop an initial schematic diagram 4.Determine the cost of this layout 5.Try to improve the layout 6.Prepare a detailed plan Arrange six departments in a factory to minimize the material handling costs. Each department is 20 x 20 feet and the building is 60 feet long and 40 feet wide. 36

37. Area 1Area 2Area 3 Area 4Area 5Area 6 60’ 40’ Process Layout Example ReceivingShippingTesting DepartmentDepartmentDepartment (4)(5)(6) Figure 9.5 AssemblyPaintingMachine Shop DepartmentDepartmentDepartment (1)(2)(3) 37

38. DepartmentAssemblyPaintingMachineReceivingShippingTesting (1)(2)Shop (3)(4)(5)(6) Assembly (1) Painting (2) Machine Shop (3) Receiving (4) Shipping (5) Testing (6) Number of loads per week 501000020 3050100 200100 500 0 Process Layout Example Figure 9.4 38

39. Process Layout Example Interdepartmental Flow Graph Figure 9.6 100 50 20 50 20 10 100 30 Machine Shop (3) Testing (6) Shipping (5) Receiving (4) Assembly (1) Painting (2) 39

40. Process Layout Example The cost of moving one load between adjacent departments is estimated to be $1. Moving a load between nonadjecent departments costs $2. 40

41. Process Layout Example Cost =$50+$200+$40 (1 and 2)(1 and 3)(1 and 6) +$30+$50+$10 (2 and 3)(2 and 4)(2 and 5) +$40+$100+$50 (3 and 4)(3 and 6)(4 and 5) = $570 Cost = ∑ ∑ X ij C ij n i = 1 n j = 1 41

42. Process Layout Example Revised Interdepartmental Flow Graph Figure 9.7 30 50 20 50 10 20 50 100 Machine Shop (3) Testing (6) Shipping (5) Receiving (4) Painting (2) Assembly (1) 42

43. Process Layout Example Cost =$50+$100+$20 (1 and 2)(1 and 3)(1 and 6) +$60+$50+$10 (2 and 3)(2 and 4)(2 and 5) +$40+$100+$50 (3 and 4)(3 and 6)(4 and 5) = $480 Cost = ∑ ∑ X ij C ij n i = 1 n j = 1 43

44. Area 1Area 2Area 3 Area 4Area 5Area 6 60’ 40’ Process Layout Example ReceivingShippingTesting DepartmentDepartmentDepartment (4)(5)(6) Figure 9.8 Painting Assembly Machine Shop DepartmentDepartmentDepartment (2)(1)(3) 44

45. Computer Software  Graphical approach only works for small problems  Computer programs are available to solve bigger problems  CRAFT  ALDEP  CORELAP  Factory Flow 45

46. CRAFT Example Figure 9.9 TOTAL COST 20,100 EST. COST REDUCTION.00 ITERATION 0 (a) AAAABBAAAABBDDDDDDCCDDDDFFFFFDEEEEEDAAAABBAAAABBDDDDDDCCDDDDFFFFFDEEEEED TOTAL COST 14,390 EST. COST REDUCTION 70 ITERATION 3 (b) DDDDBBDDDDBBDDDEEECCDEEFAAAAAFAAAFFFDDDDBBDDDDBBDDDEEECCDEEFAAAAAFAAAFFF 46

47. Computer Software Three dimensional visualization software allows managers to view possible layouts and assess process, material handling, efficiency, and safety issues 47

48. 6. Work Cells  Reorganizes people and machines into groups to focus on single products or product groups (PART FAMILIES)  Group technology identifies products that have similar characteristics for particular cells  Similarity can be either in shape, size or in manufacturing process  Production Volume must justify cells  Cells can be reconfigured as designs or volume changes 48

49. Part families Part families with similarity in shape Part families with similarity in manufacturing process 49

50. Original Process Layout CABRaw materials Assembly 1 2 3 4 5 6 7 8 9 10 11 12 50

51. Part Routing Matrix Machines Parts123456789101112 Axxxxx Bxxxx Cxxx Dxxxxx Exxx Fxxx Gxxxx Hxxx Figure 5.8 51

52. Reordered Routing Matrix Machines Parts124810369571112 Axxxxx Dxxxxx Fxxx Cxxx Gxxxx Bxxxx Hxxx Exxx 52

53. Revised Cellular Layout 3 6 9 Assembly 12 4 810 5 7 11 12 A B C Raw materials Cell 1 Cell 2 Cell 3 53

54. Summary of this Session  Innovation at Macdonald’s – Case  Strategic Importance of Layout Decision  Objectives in Layout design  Higher Utilization  Improved Flow  Improved Employee  Improved Customer / Client  Flexibility 54

55. Summary of this Session (Contd.)  Types of Layout I.Office layout II.Retail layout III.Warehouse layout IV.Fixed-position layout V.Process-oriented layout VI.Work-cell layout 55

56. THANK YOU 56