PRE 572

Operations Management

 Facility Location
 FacilityLayout
Factor Rating Method
Facility Location
 Facility Location Models

Common techniques for location evaluation:

 Factor rating method
 Locational cost-volume-profit (BE) analysis
 Center of gravity method
Load-distance method
 Transportation model (a specialized linear
programming method)
 Factor Rating Method
 A general approach to evaluating locations that
includes quantitative and qualitative inputs
 Most widely used location technique
 Useful for service and industrial locations
 Rates locations using both
 tangible (quantitative) factors such as short-run and
long-run costs and
 intangible (qualitative) factors such as education
quality, labor skills.
 Factor Rating Method Cont.
Procedure:
 Determine which factors are relevant
 Assign a weight to each factor that indicates its relative
importance compared with all other factors.
 Weights typically sum to 1.00
 Decide on a common scale for all factors (such as 1-100),
and set a minimum acceptable score if necessary
 Score each location alternative along each factor
 Multiply the factor weight by the score for each factor, and
sum the results for each location alternative
 Choose the alternative that has the highest composite score,
unless it fails to meet the minimum acceptable score
 Factor Rating Method: Example
A photo-processing company intends to open a new branch
store. The following table contains information on two
potential locations. Which is better?
Scores
(Out of 100)
Factor Weight Alt 1 Alt 2
Proximity to
existing source .10 100 60
Traffic volume .05 80 80
Rental costs .40 70 90
Size .10 86 92
Layout .20 40 70
Operating Cost .15 80 90
1.00
 Factor Rating Method: Example Cont.
A photo-processing company intends to open a new branch
store. The following table contains information on two
potential locations. Which is better?
Scores
(Out of 100) Weighted Scores
Factor Weight Alt 1 Alt 2 Alt 1 Alt 2

Proximity to
existing source .10 100 60 .10(100) = 10.0 .10(60) = 6.0

Traffic volume .05 80 80 .05(80) = 4.0 .05(80) = 4.0

Rental costs .40 70 90 .40(70) = 28.0 .40(90) = 36.0
Size .10 86 92 .10(86) = 8.6 .10(92) = 9.2
Layout .20 40 70 .20(40) = 8.0 .20(70) = 14.0
Operating Cost .15 80 90 .15(80) = 12.0 .15(90) = 13.5
1.00 70.6 82.7
Locational cost-volume profit
(Breakeven ) Analysis
 Break-Even Analysis Cont.
• Break-even analysis computes the amount of goods
required to be sold to just cover costs
• Break-even analysis includes fixed and variable costs
• Break-even analysis can be used for location analysis
especially when the costs of each location are known
– Step 1: For each location, determine the fixed and
variable costs
– Step 2: Plot the total costs for each location on one graph
– Step 3: Identify ranges of output for which each location
has the lowest total cost
– Step 4: Solve algebraically for the break-even points over
the identified ranges
 Break-Even Analysis Cont.

Assumptions:
1. Fixed costs are constant for the range of
probable output
2. Variable costs are linear for the range of
output
3. The required level of output can be closely
estimated
4. Only one product is involved
 Break-Even Analysis Cont.
• Remember the break even equations used for
calculation total cost of each location and for
calculating the breakeven quantity Q.
– Total cost = F + cQ
– Total revenue = pQ
– Break-even is where Total Revenue = Total Cost
Q = F/(p-c)
Q = break-even quantity, p = price/unit,
c = variable cost/unit , F = fixed cost
 Break-even Analysis Example:
A glass company can produce a certain insulator on any three
machines which have the following charges shown below. The
firm has an opportunity to accept an order for either (i) 50
units at N20/unit or (ii) 150 units at N12/unit.
(i) Which machine should be used if 50 units order is accepted
and how much profit will result?
(ii) Which machine should be used if the 150 units order is
accepted and what will be the resultant profit?
Break-even Analysis Example Cont.
Machine Fixed Cost (N) Variable Cost (N)

A 50 4/unit
B 200 2/unit

C 400 1/unit
Breakeven Analysis: Solution to Example
(i) For 50 unit order at N20/unit.

Costs for various machines:

Mach (N) Profit (N)
ine
A 50 + 50 x 4 = 250 (50 x 20) – 250 = 750
B 200 + 50 x 2 = 300 (50 x 20) – 300 = 700
C 400 + 50 x 1 = 450 (50 x 20) – 450 = 550

Since Machine A gives the highest profit of N750 it is to

be preferred.
Breakeven Analysis: Solution to Example

(ii) For 150 unit order at N12/unit.

Costs for various machines:

Machine Fixed Cost (N) Profit (N)
A 50 + 150 x 4 = 650 (150 x 12) – 650 = 1150
B 200 + 150 x 2 = 500 (150 x 12) – 500 = 1330
C 400 + 150 x 1 = 550 (150 x 12) – 550 = 1250

Since Machine B gives the highest profit of N1330 it is to

be preferred.
Breakeven Analysis: Solution to Example

(iii) Breakeven volume for Machine B at N12/unit.

Let x be the number of units to be produced.

Total costs at ‘x’ units = 200 + 2x
Total revenue at x units = 12x
At breakeven point, we get:
200 + 2x = 12x
i.e. x = 20
Hence 20 units is the breakeven volume.
Load-Distance Method
 Load-Distance (ld) Method Cont.
• Identify and compare candidate locations
– Like weighted-distance method
– Select a location that minimizes the sum of
the loads multiplied by the distance the load
travels
– Time may be used instead of distance
 Load-Distance (ld) Method Cont.

• Calculating a load-distance score

– Varies by industry
– Use the actual distance to calculate ld score
– Use rectangular or Euclidean distances
– Different measures for distance
– Find one acceptable facility location that minimizes the ld
score

• Formula for the ld score

ld =  lidi
i
 Load-Distance (ld) Method Cont.
• Compute (Load x Distance) for each site
• Choose site with lowest (Load x Distance)
• Distance can be actual or straight-line
Load-Distance (ld) Method Cont.

where,
LD = load-distance value
li = load expressed as a weight, number of trips or units
being shipped from proposed site and location i
di = distance between proposed site and location i
di = (xi - x)2 + (yi - y)2
where,
(x,y) = coordinates of proposed site
(xi , yi) = coordinates of existing facility
Load-Distance (ld) Method: Example
Potential Sites Suppliers
Site X Y A B C D
1 360 180 X 200 100 250 500
2 420 450 Y 200 500 600 300
3 250 400 Wt 75 105 135 60

Compute distance from each site to each supplier

Site 1 dA = (xA - x1)2 + (yA - y1)2 = (200-360)2 + (200-180)2 = 161.2

dB = (xB - x1)2 + (yB - y1)2 = (100-360)2 + (500-180)2 = 412.3

dC = 434.2 dD = 184.4
Load-Distance (ld) Method Example Cont.
Site 2 dA = 333 dB = 323.9 dC = 226.7 dD = 170
Site 3 dA = 206.2 dB = 180.3 dC = 200 dD = 269.3
Compute load-distance

n
LD =  l i di
i=1
Site 1 = (75)(161.2) + (105)(412.3) + (135)(434.2) + (60)(434.4) = 125,063
Site 2 = (75)(333) + (105)(323.9) + (135)(226.7) + (60)(170) = 99,789
Site 3 = (75)(206.2) + (105)(180.3) + (135)(200) + (60)(269.3) = 77,555*

* Choose site 3
Centre of Gravity Method
 Center of Gravity Method
 A method for locating a distribution center that minimizes
distribution costs
 Finds location of a single distribution center serving several
destinations
 Used primarily for services
Treats distribution costs as a linear function of the distance and
the quantity shipped
The quantity to be shipped to each destination is assumed to be
fixed
The method necessitates to identify coordinates and weights
shipped for each location and includes the use of a map that
shows the locations of destinations
The map must be accurate and drawn to scale
A coordinate system is overlaid on the map to determine relative
locations
 Center of Gravity Method Cont.

Considers
• Location of existing destinations eg. Markets, retailers etc.
• Volume to be shipped
• Shipping distances (or costs)
• Shipping cost/unit/mile is constant
 Center of Gravity Method Cont.
If quantities to be shipped to every location are equal, you
can obtain the coordinates of the center of gravity by finding
the average of the x-coordinates and the average of the y-
coordinates

x
 x i

y
 y i

n
where
xi  x coordinates of destination i
yi  y coordinates of destination i
n Number of destinations
 Center of Gravity Method Cont.
Suppose you are attempting to find the center of gravity
for the problem.
Destination x y

D1 2 2
x
 x i 18
 4.5
D2 3 5 n 4
D3 5 4

D4 8 5
y
 y i 16
 4
18 16 n 4

Here, the center of gravity is (4.5,4). This is slightly

west of D3 from the Figure
 Center of Gravity Method Cont.
When the quantities to be shipped to every location are
unequal, you can obtain the coordinates of the center of
gravity by finding the weighted average of the x-coordinates
and the average of the y-coordinates
Cx 
 xQ
i i

Q i

Cy 
 yQ
i i

Q i

where
Qi Quantity t o be shipped to destinatio n i
xi  x coordinates of destinatio n i
yi  y coordinates of destinatio n i
 Grid-Map Coordinates
y n n
 xQ i i  yQ i i
2 (x2, y2), Q2 i=1 i=1
y2
Cx = n Cy = n
V i V i
1 (x1, y1), Q1 i=1 i=1
y1
where,
3 (x3, y3), Q3 C x, Cy =
y3 coordinates of the new
facility at center of
gravity
xi, yi = coordinates of
existing facility i
x1 x2 x3 x Vi = annual volume
shipped from or to the
ith location
Center of Gravity Method : Example 1
Suppose the shipments for the problem depicted in Figure
are not all equal. Determine the center of gravity based on
the following information.
Weekly
Destination x y Quantity
D1 2 2 800
D2 3 5 900
D3 5 4 200
D4 8 5 100
18 16 1,000
Center of Gravity Method : Example 1
Cont.

Cx 
 xQi i

2(800)  3(900)  5(200)  8(100) 6,100
 3.05
Q i 2,000 2,000

Cy 
 yQi
i
2(800)  5(900)  4(200)  5(100) 7,400
i
 3.7
Q i 2,000 2,000

The coordinates for the center of gravity are (3.05, 3.7). You
may round the x-coordinate down to 3.0, so the coordinates
for the center of gravity are (3.0, 3.7). This south of
destination D2 (3, 5).
Center of Gravity Method : Example 1
Cont.
Center-of-Gravity Technique: Example 2
A B C D
y
x 200 100 250 500
700
C y 200 500 600 300
600 (135) Vt 75 105 135 60
B
500 (105)
Miles

400
D
300
A (60)
200 (75)
100

0 100 200 300 400 500 600 700 x

Miles
 Center-of-Gravity Technique: Example 2


n
xiWi
i=1 (200)(75) + (100)(105) + (250)(135) + (500)(60)
Cx = n
= 75 + 105 + 135 + 60 = 238


Wi
i=1


n
yiWi
i=1 (200)(75) + (500)(105) + (600)(135) + (300)(60)
Cy = n = 75 + 105 + 135 + 60 = 444


Wi
i=1
Center-of-Gravity Technique: Example 2

y A B C D
700 x 200 100 250 500
C y 200 500 600 300
600 (135) Wt 75 105 135 60
B
500 (105)
Center of gravity (238, 444)
Miles

400
D
300
A (60)
200 (75)
100

0 100 200 300 400 500 600 700 x

Miles
Facility Layout
 Classification of production
systems and types of layouts
 Facility Layout

The arrangement of departments, work centers,

and equipment, with particular emphasis on
movement of work (customers or materials)
through the system.
Product Layout
 Design Product Layouts: Line Balancing

Line Balancing is the process of assigning tasks to

workstations in such a way that the workstations have
approximately equal time requirements.

• Tasks are grouped into manageable bundles and assigned to

workstations with one or two operators

• Goal is to minimize idle time along the line, which leads to

high utilization of labor and equipment

• Perfect balance is often impossible to achieve

 Product Layout Design

• Line balancing is the assignment of work to stations in a line

so as to achieve the desired output rate with the smallest
number of workstations.
• Work elements are the smallest units of work that can be
performed independently.
• Immediate predecessors are work elements that must be
done before the next element can begin.
• Precedence diagram allows one to visualize immediate
predecessors better; work elements are denoted by circles,
with the time required to perform the work shown below
each circle.
 Line Balancing Example
Green Grass, Inc., a manufacturer of lawn & garden equipment, is
designing an assembly line to produce a new fertilizer spreader, the
Big Broadcaster. Using the following information, construct a
precedence diagram for the Big Broadcaster.
 Work Time Immediate
Element
A
Description (sec) Predecessor(s)
Bolt leg frame to hopper 40 None
Line Balancing
B
C
Insert impeller shaft
Attach axle
30
50
A
A Green Grass, Inc.
D Attach agitator 40 B
E Attach drive wheel 6 B
F Attach free wheel 25 C
G Mount lower post 15 C
H Attach controls 20 D, E D
I Mount nameplate 18 F, G H
Total 244 B 40
20
30 E
A 6
F
40 C 25
50 I
18
G
15
 Desired Output and Cycle Time

• Desired output rate, r must be matched to the staffing or production

plan.

 Cycle time, c is the maximum time allowed for work on a unit

at each station:
c= 1
r
 Theoretical Minimum

Theoretical minimum (TM ) is a benchmark or goal for the smallest

number of stations possible, where total time required to assemble
each unit (the sum of all work-element standard times) is divided by
the cycle time. It must be rounded up

Idle time is the total unproductive time for all stations in the
assembly of each unit.
Efficiency (%) is the ratio of productive time to total time.
Balance Delay is the amount by which efficiency falls short of
100%.
Output Rate and Cycle Time Example Cont.

Green Grass, Inc.

• Desired output rate, r = 2400/week
Plant operates 40 hours/week
r = 2400/40 = 60 units/hour

 Cycle time, c = 1/60

1
= 1 minute/unit r
= 60 seconds/unit
Calculations for - Example Cont.

Theoretical minimum (TM ) - sum of all work-element standard

times divided by the cycle time.

TM = 244 seconds/60 seconds = 4.067

It must be rounded up to 5 stations

Cycle time: c = 1/60 = 1 minute/unit = 60 seconds/unit

Efficiency (%) - ratio of productive time to total time.

Efficiency = [244/5(60)]100 = 81.3%

Balance Delay - amount by which efficiency falls short of 100%.

(100 − 81.3) = 18.7%

Designing Process Layouts
 Designing Process Layout

• The main issue in design of process layouts concerns

the relative positioning of the departments involved.
• Departments must be assigned to locations.
• The problem is to develop a reasonably good layout;
some combinations will be more desirable than
others.
 Process Layout Methods
• Algorithmic Approaches such as Relationship
diagramming, pairwise exchange method, etc.)
• Muther’s Systematic Layout Planning (SLP), Charts
• Graph Based Construction Method, for small
problems
• Computer software (CRAFT, CRAFT 3-D, ALDEP,
etc), for large problems
 Pairwise Exchange Method (1)
• The pairwise exchange method simply states
that for each iteration
• All feasible exchanges in the location of
department pairs are evaluated and the pair
that result in the largest reduction in total cost
is selected. Since all Department areas are
assume to be equal size
 Pairwise Exchange Method (2)

• The pairwise exchange procedure describe

above is not guarantee to yield the optimal
layout solution because the final outcome is
dependent on the initial layout
• A Different intial layout can result another
solution. Thus, we can only claim local
optimality.
 Optimizing a Layout
Finding the optimal layout that minimizes
the total cost of transporting materials
among all departments in a facility
o Based on rectilinear distance from centroid to
centroid
Since the final outcome is based on the
initial layout, we might not converge to
the optimal solution
General methods
 Simple rule-of-tumb method
 Pairwise exchange method
1. Simple Rule-of-Tumb
Method
n n

Minimize cost = ∑ ∑ Xij Cij

i=1 j=1

where n = total number of work

centers or departments
i, j = individual
departments
Xij = number of loads
moved from department i to
department j
Cij = cost to move a load
between department i and
department j
 1. Simple Rule-of-Tumb Method-
Example

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.

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
 1. Simple Rule-of-Tumb
Method- Example Cont.
Number of loads per week
Department Assembly Painting Machine Receiving Shipping Testing
(1) (2) Shop (3) (4) (5) (6)

Assembly (1) 50 100 0 0 20

Painting (2) 30 50 10 0

Machine Shop (3) 20 0 100

Receiving (4) 50 0

Shipping (5) 0

Testing (6)

Figure 9.4
 1. Simple Rule-of-Tumb
Method- Example Cont.
Area 1 Area 2 Area 3

Assembly Painting Machine Shop

Department Department Department
(1) (2) (3)

40’

Receiving Shipping Testing

Department Department Department
(4) (5) (6)

Figure 9.5 Area 4 Area 5 Area 6

60’
 1. Simple Rule-of-Tumb Method-
Example Cont.
Interdepartmental Flow Graph
100

50 30
1 2 3
20 20
10
50 100

4 5 6
50
Figure 9.6
1. Simple Rule-of-Tumb
Method- Example Cont.
n n

Cost = ∑ ∑ Xij Cij

i=1 j=1

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
1. Simple Rule-of-Tumb
Method- Example Cont.
Revised Interdepartmental Flow Graph
30

50 100
2 1 3

10
50 20 50 100

50
4 5 6

Figure 9.7
1. Simple Rule-of-Tumb
Method- Example Cont.
n n

Cost = ∑ ∑ Xij Cij

i=1 j=1

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
 1. Simple Rule-of-Tumb
Method- Example Cont.
Area 1 Area 2 Area 3

Painting Assembly Machine Shop

Department Department Department
(2) (1) (3)

40’

Receiving Shipping Testing

Department Department Department
(4) (5) (6)

Figure 9.8 Area 4 Area 5 Area 6

60’
 2.Pairwise Exchange
Method
Procedure
Calculate total cost for the existing layout
For each iteration evaluate all feasible
exchanges in the locations of department
pairs
Select pair that results in the largest
reduction in total cost
Recompute the distance matrix each time an
exchange is performed
If the lowest total cost for your next iteration
is worse than the total cost for the previous
iteration, the procedure is terminated
 2.Pairwise Exchange Method Example
 Four departments with equal sizes
 From- To Chart

 Distance matrix (based on existing layout)

 Determine final layout

 Pairwise Exchange Method for Layout Improvement-1

Total cost forn an

n existing
1 2 3 4 Iteration 0
layout = ∑ ∑ Xij Cij
i=1 j=1

TC1234 = 10(1) + 15(2) + 20(3) + 10(1) + 5(2) + 5(1) = 125

Distance Matrix Based on
Material Flow Matrix Existing Layout
To 1 2 3 4 To 1 2 3 4
From From
1 - 10 15 20 1 - 1 2 3

2 - 10 5 2 - 1 2

3 - 5 3 - 1

4 - 4 -
 Pairwise Exchange Method for Layout Improvements-2

The distance matrix recomputed each Recomputed distance matrix

time an exchange is performed. To 1 2 3 4
From
2 1 3 4 1 - 1 1 2
TC2134(1-2) 2 - 2 3
3 - 1
4 -
Flow matrix is same
TC2134(1-2)=10(1)+15(1)+20(2)+10(2)+5(3)+5(1)=105
To 1 2 3 4
From
1 - 10 15 20

2 - 10 5
3 - 5
69
4 -
 Pairwise Exchange Method for Layout Improvements-2

• FIRST ITERATION (based on the existing solution:1-2-3-4)

• TC2134(1-2)=10(1)+15(1)+20(2)+10(2)+5(3)+5(1)=105
• TC3214(1-3)=10(1)+15(2)+20(1)+10(1) +5(2)+5(3)=95
• TC4231(1-4)=10(2)+15(1)+20(3)+10(1) +5(1)+5(2)=120
• TC1324(2-3)=10(2)+15(1)+20(3)+10(1) +5(1)+5(2)=120
• TC1432(2-4)=10(3)+15(2)+20(1)+10(1) +5(2)+5(1)=105
• TC1243(3-4)=10(1)+15(3)+20(2)+10(2)+5(1)+5(1)=125
– New layout: 3-2-1-4
 Pairwise Exchange Method for Layout Improvements-3

• SECOND ITERATION (based on the previous layout: 3-2-1-4)

• TC3124(1-2)=10(1)+15(1)+20(2)+10(1)+5(1)+5(3)=95
• TC1234(1-3)=10(1)+15(2)+20(3)+10(1)+5(2)+5(1)=125
• TC3241(1-4)=10(2)+15(3)+20(1)+10(1)+5(1)+5(2)=110
• TC2314(2-3)=10(2)+15(1)+20(1)+10(1)+5(3)+5(2)=90
• TC3412(2-4)=10(1)+15(2)+20(1)+10(3)+5(2)+5(2)=105
• TC4213(3-4) =10(1)+15(1)+20(2)+10(2)+ 5(1)+5(3)=105
– New Layout: 2-3-1-4
 Pairwise Exchange Method for Layout Improvements-4

• THIRD ITERATION (based on the previous layout:2-3-1-4)

• TC3214(1-2)=10(1)+15(2)+20(1)+10(1)+5(2)+5(3)=95
• TC1324(1-3)=10(2)+15(1)+20(3)+10(1)+5(1)+5(2)=120
• TC3421(1-4)=10(1)+15(3)+20(2)+10(2)+5(1)+5(1)=125
• TC2134(2-3) =10(1)+15(1)+20(2)+10(2)+5(3)+5(1)=105
• TC3142(2-4) =10(2)+15(1)+20(1)+10(3)+5(1)+5(2)=100
• TC4123(3-4) =10(1)+15(2)+20(1)+10(1)+5(2)+5(3)=95
– Since the possible changes resulted in increase then the
previous layout is the best. Therefore the best is:
– 2-3-1-4
• Local best
• Global best: 90 (1-2;2-4;3-3;4-1)
 The End

Thank You