Case Study – HIGHTEC, INC

Completed By:

Richard Vinhais
Stephanie McCathron
Jeffrey Schaefer
Case Overview:

Hightec was founded 6 years ago by Glenn Moore. It is a manufacturer of

transducers, which convert gas or liquid pressure into an electrical signal. It can
also convert weight or force into an electrical signal using their device. A typical
customer order is for only 3 to 10 units. Since the formation of the company it
has experienced a steady increase of approximately 30% annually. This has
required the need for additional staff, as well as, new machinery. The growing
needs of the company have now begun to present a major operational problem.

Currently, the firm rents a 12,000 square foot, L shaped building, housing four
basic sections: an office area, engineering area, machine shop, and an
assemblers area. The company employs 80 staff members, which is comprised
of machinists, engineers, assemblers, secretaries and salespeople. It has also
recently hired additional workers for the office. In the early years of the
organization, the facility size was adequate for the staff and production levels.
However, with the increase in sales, the size of the facility has become
problematic to a flourishing work environment.

Below is a detailed list of issues that have arisen as a result of the space
limations:

Specific Hightec, Inc. problems:

• Delayed the purchase of a numerical control machine and a more efficient
testing machine.
• Machine shop is overcrowded and machines not in constant use are
moved into the inventory storage area.
• More machines are being operated on second and third shifts than would
normally be justified.
• Productivity is falling and quality is slipping.
• Approximately 10 percent of the workforce’s time is spent moving
materials to and from the inventory storage area, where inventory at all
stages of production is kept.
• Supply room is considered chaotic, which makes finding wanted parts
difficult and results in considerable time wasted during searching.
• Approximately 1,000 square feet of storage space must be rented outside
the plant.
• Forced to forgo bidding on several attractive contracts due to lack of
capacity.
• One salesperson is particularly disgruntled because of lost commission.
• Several office workers have complained about cramped work quarters and
lack of privacy.
• The quality of employee space leaves an unfavorable impression on
prospective customers who visit the plant.
• In order to make room for new employee desks, a sentimental plant was
discarded.
The Options:

1. Renew the rental contract on the current facility for another five years and
rent portable units to ease the cramped conditions.
*Note: Option discarded within the case study because it is inadequate for a growing
problem. No additional analysis was completed on this option.

2. Purchase land and build a new 19,000 square foot facility. The most
attractive site would cost $100,000 for land, and the construction cost is
$40/sq. ft. The cost of capital is about 15 percent.

3. Renew the rental contract on the current building for another five years
and rent an adjacent 7,000 square foot building only 30 feet from the
current one. The rental cost of both buildings would be $2,800 per month.
This choice would necessitate building a $15,000 corridor connecting the
buildings. However, Moore estimates the relocation costs (such as for
moving and installing the machines and the loss of regular time capacity)
to be $20,000 less than with the second alternative.

Other key points of the case:

• Regardless of the chosen option the existing layout must be improved.

• Current layout suffers most in terms of materials handling costs and
departmental coordination.
• Both new layouts provide 19,000 square feet. This is projected to be
sufficient for the next five years.
• The closeness matrix emphasizes materials handling and
communication patterns.
• Need a more attractive work environment for the engineering and
materials-management staff to keep and attract creative talent.
• Adjacent building is quite drab.
 Available Space for Option 2: (585 sq. ft per block)

Available Space for Option 3: (585 sq. ft per block)

Closeness Ratings:
TABLE 7.4
CLOSENESS MATRIX
Area
Closeness Rating Between Departments
Needed
Departments 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 (blocks*)
1 Administrative office ---- 1 6 5 6 5 3 3 3 3 4 5 3 3
2 Conference room ---- 1
Engineering and materials
3 mgt. ---- 4 3 6 5 5 4 5 5 3 2
4 Production manager ---- 6 6 6 6 6 4 4 5 3 6 1
5 Lunch room ---- 2
6 Computer ---- 6 3 4 1
7 Inventory storage ---- 6 3 3 3 3 2
8 Machine shop ---- 6 4 3 4 6
9 Assembly area ---- 6 6 4 4 6 7
10 Cleaning ---- 3 3 1
11 Welding ---- 3 1
12 Electronic ---- 5 1
13 Sales and accounting ---- 3 2
14 Shipping and receiving ---- 1
15 Load test ---- 1
*Each block represents approximately 585 square feet. Total: 32
**Red blocks indicate highest closeness ratings
Analytical approach:

Our recommendation is based on the limited information provided in the case

study. Our goal in this analysis is to provide a breakdown of all viable
possibilities by illustrating the pros and cons of all options. The case does not
directly state whether the financial considerations or the aesthetic issues are the
most important factors in the overall decision process. However, it does state
that there is a 15% cost of capital for the new building and several mentions are
made about the customers and employees negative feelings about the current
space.

We began our analysis by identifying the specific problems stated and applying
them to the possible options. From there we analyzed the financials to
understand which option was more cost effective. Due to the vagueness and
lack of hard financial information in the case some assumptions had to be made.
We made a concerted effort to fill those gaps with valid estimates.

After the financial analysis, we started the process of laying-out departments and
costing each layout. Beginning with option 2, we created a matrix containing
each of the department combinations as seen in Chart 1 & 3. We then sorted
and color-coded the combinations by closeness factor to denote the most critical
relationships (Charts 2 & 4). Beginning with the most important relationships an
initial layout was made. From the initial layout we calculated the distances
between each of the combinations and listed them in the matrix.
*Note: We opted to use the rectilinear approach in calculating the distances
between the departments because we felt walls or dividers would make the
Euclidian algorithm inaccurate.

Finally, we calculated the weighted distance score for each combination by

multiplying the closeness factor by the distance. The total weighted distance
score for each layout allows comparison of each possible layout; the lower the
score, the higher the efficiency.

To assist in optimizing the layout we created a table to summarize each

department and its most critical relationships, see charts 5 & 6. Using the data in
chart 2 and chart 5 we made changes to the layout in an attempt to lower the
weighted distances. After several iterations we felt the layout was sufficient
given the large number of variables in the equation.

The same approach was applied to create an optimal layout for option 3.
Options 2 and 3 Overview:

Options two and three will both provide sufficient space to meet Hightech’s
current growth requirements. However, even with the additional space the
existing building’s shape still presents significant challenges in optimal layout
of the departments.

Both options meet the following needs:

• Additional space for the machine shop and assembly
o Prevents moving machines in and out of storage
o Allows purchase of new machines with automation
• Increased space for inventory and storage
o Eliminating outside storage
• Additional office space
o Alleviates cramped office conditions
• Production manager can be centrally located to monitor production

OPTION 2
Overview:

Option 2 is more or less a fresh start in that the company will have a blank
canvas that can be completely restructured in order to create the most
optimal layout. This 19,000 square foot layout allows for a much improved
layout that addresses many of the current problems.

Benefits:

• Much more attractive work environment which should impress potential

customers that may visit the facility.
• Provides additional privacy and more comfortable work quarters for
employees.
• Departmental coordination will be improved with new layout that has
been developed according to closeness rating.
• Site layout should be more than sufficient for the next five years.
• Additional space will allow for the purchase of a numerical control
machine and a more effective testing machine.
• The 10% bottleneck of moving materials to and from the inventory
storage area will be addressed as the locations have been
reengineered to be adjacent to all stages of production.
• The increased capacity will allow Hightec to take on additional
contracts.
• Increased capacity for new hires.
Concerns:

• Cost of construction
• Cost of moving
• Loss of regular-time work capacity to facilitate moving

Financials:
Unit Cost Unit Count Total Cost
Land $100,000.00 1 $100,000.00
Construction Cost $40.00 19,000 $760,000.00
Relocation Costs $- 0 $-

Total: $860,000.00

Weighted Distance (Option2):

Below is a breakdown on the high level overview of the closeness rating in Figure
1.0. It contains two charts. Chart 1 contains a listing of department pairs along
with closeness rating, distance and a total Weight distance score. Chart 2 is the
same chart but is sorted by the highest closeness factors. We used this chart to
approach our layout effort.

Weighted distance total = 481

Chart 1 Chart 2
Weighted-Distance Score

Weighted-Distance Score
Closeness Factor

Closeness Factor
Department Pair

Department Pair
Distance (d)

Distance (d)

1,2 1 1 1 1,3 6 1 6
1,3 6 1 6 1,6 6 3 18
1,4 5 4 20 3,8 6 1 6
1,6 6 3 18 4,6 6 1 6
1,7 5 2 10 4,7 6 1 6
1,8 3 2 6 4,8 6 2 12
1,9 3 4 12 4,9 6 1 6
1,10 3 4 12 4,10 6 2 12
1,11 3 5 15 4,15 6 2 12
1,12 4 2 8 6,7 6 1 6
1,13 5 1 5 7,8 6 1 6
1,14 3 2 6 8,9 6 1 6
 3,4 4 3 12 9,10 6 1 6
3,7 3 2 6 9,11 6 1 6
3,8 6 1 6 9,15 6 1 6
3,9 5 4 20 1,4 5 4 20
3,10 5 5 25 1,7 5 2 10
3,11 4 4 16 1,13 5 1 5
3,12 5 1 5 3,9 5 4 20
3,13 5 2 10 3,10 5 5 25
3,15 3 5 15 3,12 5 1 5
4,6 6 1 6 3,13 5 2 10
4,7 6 1 6 4,13 5 3 15
4,8 6 2 12 12,13 5 1 5
4,9 6 1 6 1,12 4 2 8
4,10 6 2 12 3,4 4 3 12
4,11 4 1 4 3,11 4 4 16
4,12 4 2 8 4,11 4 1 4
4,13 5 3 15 4,12 4 2 8
4,14 3 3 9 6,13 4 2 8
4,15 6 2 12 8,11 4 3 12
6,7 6 1 6 8,15 4 4 16
6,12 3 3 9 9,12 4 3 12
6,13 4 2 8 9,14 4 2 8
7,8 6 1 6 1,8 3 2 6
7,9 3 2 6 1,9 3 4 12
7,10 3 2 6 1,10 3 4 12
7,11 3 2 6 1,11 3 5 15
7,12 3 1 3 1,14 3 2 6
8,9 6 1 6 3,7 3 2 6
8,11 4 3 12 3,15 3 5 15
8,12 3 1 3 4,14 3 3 9
8,15 4 4 16 6,12 3 3 9
9,10 6 1 6 7,9 3 2 6
9,11 6 1 6 7,10 3 2 6
9,12 4 3 12 7,11 3 2 6
9,14 4 2 8 7,12 3 1 3
9,15 6 1 6 8,12 3 1 3
10,11 3 1 3 10,11 3 1 3
10,12 3 4 12 10,12 3 4 12
11,12 3 3 9 11,12 3 3 9
12,13 5 1 5 13,14 3 1 3
13,14 3 1 3 1,2 1 1 1
TOTAL = 481 TOTAL = 481
Department Matrix: (Chart 5)

# Department Blocks Largest Second Third

1 Administrative Office 3 3,6 4,7,13 12
2 Conference Room 1
3 Engineering and Materials Mgt. 2 8 9,10,12,13 11
4 Production Manager 1 6,7,8,9,10,15 13 11,12
5 Lunch Room 2
6 Computer 1 7 13
7 Inventory Storage 2 8
8 Machine Shop 6 9 11,15
9 Assembly Area 7 10,11,15 12,14
10 Cleaning 1
11 Welding 1
12 Electronic 1 13
13 Sales and Acounting 2
14 Shipping and Receiving 1
15 Load Test 1

Proposed Layout:

Shipping Conf.
Accounting

Lunch Rm.
Assembly Load Test
Sales &

Recv'ing Room

Cleaning Computer Offices

Assembly

Inventory

Welding Prod. Mgr. Electr. Engr. & Mat.

Assembly Machine Shop

PROS / VERSUS CONS:

• Qualitative Pro’s
o New building, not “drab”
o Easy access to inventory and storage from all business aspects
o Easy access to the computer from production, inventory and
sales/accounting.
o Engineering/Materials management is located close to the
machine shop and several other key departments
o Machine shop not located near cleaning room
• Qualitative Con’s
o Loss of production time to accommodate move
o Cost
OPTION 3

Overview:

Option 3 presents several new challenges in that is not a new facility and
contains an L shaped area that can not be utilized as space. It will end up
containing the same 19,000 square feet as Option 2, but has a substantial higher
weighted average which indicates a decreased efficiency of handling /
communication between departments.

Benefits:

• Provides additional privacy and more comfortable work quarters for

employees. Not necessarily a more attractive work environment as the
extension according to Moore is “quite drab”.
• Departmental coordination will be improved with new layout that has
been developed according to closeness rating.
• Site layout should be more then sufficient for the next five years.
• Additional space will allow the purchase of a numerical control
machine and a more effective testing machine.
• The 10% bottleneck of moving materials to and from the inventory
storage area will be addressed as the locations have been
reengineered to be adjacent to all stages of production.
• The increased capacity will allow Hightec to take on additional
contracts.
• Increased capacity for new hires.

Concerns:

• Cost of constructing connecting corridor

• Cost of moving machines to adjacent facility
• Loss of regular-time work capacity to facilitate moving
• Constraints of the L-shaped layout
• Additional facility is considered ‘drab’
• Workers split among two buildings

Financials:
Unit Cost Unit Count Total Cost
Rental Cost $2,800.00 60 $168,000.00
Corridor Construction $15,000.00 1 $ 15,000.00
Moving Costs $- 0 $-

Total: $183,000.00
Weighted Distance (Option 3):

Below is a breakdown on the high level overview of the closeness rating in Figure
1.0. It contains two charts. Chart 3 contains a listing of department pairs along
with closeness rating, distance and a total Weight distance score. Chart 4 is the
same chart but is sorted by the highest closeness factors. We used this chart to
approach our layout effort. It’s apparent that the weighted average for Option 3
is much higher then Option 2 as it contains the issue of an L shaped block in
between departments which adds the complexity of the layout.

Weighted distance total = 676

Chart 3 Chart 4
Weighted-Distance Score

Weighted-Distance Score
Closeness Factor

Closeness Factor
Department Pair

Department Pair
Distance (d)

Distance (d)
1,2 1 1 1 1,3 6 1 6
1,3 6 1 6 1,6 6 5 30
1,4 5 6 30 3,8 6 5 30
1,6 6 5 30 4,6 6 1 6
1,7 5 3 15 4,7 6 2 12
1,8 3 7 21 4,8 6 1 6
1,9 3 6 18 4,9 6 2 12
1,10 3 4 12 4,10 6 2 12
1,11 3 7 21 4,15 6 1 6
1,12 4 3 12 6,7 6 1 6
1,13 5 1 5 7,8 6 3 18
1,14 3 4 12 8,9 6 1 6
3,4 4 4 16 9,10 6 4 24
3,7 3 2 6 9,11 6 1 6
3,8 6 5 30 9,15 6 1 6
3,9 5 5 25 1,4 5 6 30
3,10 5 2 10 1,7 5 3 15
3,11 4 5 20 1,13 5 1 5
3,12 5 1 5 3,9 5 5 25
3,13 5 1 5 3,10 5 2 10
3,15 3 4 12 3,12 5 1 5
4,6 6 1 6 3,13 5 1 5
4,7 6 2 12 4,13 5 5 25
4,8 6 1 6 12,13 5 1 5
4,9 6 2 12 1,12 4 3 12
4,10 6 2 12 3,4 4 4 16
4,11 4 1 4 3,11 4 5 20
4,12 4 5 20 4,11 4 1 4
4,13 5 5 25 4,12 4 5 20
4,14 3 6 18 6,13 4 4 16
4,15 6 1 6 8,11 4 2 8
6,7 6 1 6 8,15 4 2 8
6,12 3 4 12 9,12 4 5 20
6,13 4 4 16 9,14 4 6 24
7,8 6 3 18 1,8 3 7 21
7,9 3 2 6 1,9 3 6 18
7,10 3 1 3 1,10 3 4 12
7,11 3 3 9 1,11 3 7 21
7,12 3 4 12 1,14 3 4 12
8,9 6 1 6 3,7 3 2 6
8,11 4 2 8 3,15 3 4 12
8,12 3 4 12 4,14 3 6 18
8,15 4 2 8 6,12 3 4 12
9,10 6 4 24 7,9 3 2 6
9,11 6 1 6 7,10 3 1 3
9,12 4 5 20 7,11 3 3 9
9,14 4 6 24 7,12 3 4 12
9,15 6 1 6 8,12 3 4 12
10,11 3 3 9 10,11 3 3 9
10,12 3 3 9 10,12 3 3 9
11,12 3 6 18 11,12 3 6 18
12,13 5 1 5 13,14 3 2 6
13,14 3 2 6 1,2 1 1 1
TOTAL = 676 TOTAL = 676

Department Matrix: (Chart 6)

# Department Blocks Largest Second Third
1 Administrative Office 3 3,6 4,7,13 12
2 Conference Room 1
3 Engineering and Materials Mgt. 2 8 9,10,12,13 11
4 Production Manager 1 6,7,8,9,10,15 13 11,12
5 Lunch Room 2
6 Computer 1 7 13
7 Inventory Storage 2 8
8 Machine Shop 6 9 11,15
9 Assembly Area 7 10,11,15 12,14
10 Cleaning 1
11 Welding 1
12 Electronic 1 13
13 Sales and Acounting 2
14 Shipping and Receiving 1
15 Load Test 1
Proposed Layout:

Shipping
Lunch Room Machine Shop
Recv'ing

Conf. Accounting
Electr.
Room Sales &

Assembly
Cleaning Computer Prod. Mgr. Welding
Engr. &
Materials
Administrative
Inventory Load Test
Offices

PROS / VERSUS CONS:

• Qualitative Pro’s
o Offices are isolated from the manufacturing area
o Production Manager centrally located to production activities
o Machine shop not located near cleaning room

• Qualitative Con’s
o Inventory is not as centrally placed
o Engineering/Material Management is far from the machine shop
o Administrative offices are far from the computer
o Administrative offices and Engineering & Materials are located
in drab building
o Production Manager isolated from other office staff
o Shipping and receiving is far from assembly and inventory

Recommendations and Conclusions:

After completing this analysis, we have been able to come up with the (2) distinct
recommendations. The factors involved in these recommendations are based
upon the up front financial impacts and the long term operational benefits of the
layout designs.

Recommendation 1:

If Glenn Moore is primarily concerned with short term costs, we recommend

option 3, renew the lease with additional 7,000 square foot building. This option
has a much lower financial impact on the organization in the short term. The
space that will become available for his company will provide adequate square
footage to house his current production activities and will allow for further
expansion. However, we will like to point out, that in the long-term the company
will not have the most efficient layout and productivity due to the distance
between certain production areas.
Recommendation 2:

If Glenn Moore is focused on long term efficiency and productivity gains, we

recommend option 2, building new 19,000 square foot building. This option has
a much higher financial impact on the organization in the short term, but will
provide a much better atmosphere for a fluid plant layout. The new buildings
space will provide adequate square footage to house his current production
activities and will allow for further expansion. The proposed layout will
accommodate the need for a creative atmosphere for the staff and a better
production environment.