GROUP 5

PROCESS SELECTION,
FACILITY LAYOUT &
STRATEGIC CAPACITY
PLANNING

OPERATIONS MANAGEMENT
GROUP 5
Table of Contents
Process Selection and Facility Layout
INTRODUCTION

PROCESS SELECTION

TECHNOLOGY

PROCESS STRATEGY

STRATEGIC RESOURCE ORGANIZATION: FACILITIES LAYOUT

DESIGNING PRODUCT LAYOUTS: LINE BALANCING

DESIGNING PROCESS LAYOUTS

Strategic Capacity Planning for Products and Services

INTRODUCTION

CAPACITY DECISIONS ARE STRATEGIC

DEFINING AND MEASURING CAPACITY

DETERMINANTS OF EFFECTIVE CAPACITY

STRATEGY FORMULATION

FORECASTING CAPACITY REQUIREMENTS

ADDITIONAL CHALLENGES OF PLANNING SERVICE CAPACITY

DO IT IN-HOUSE OR OUTSOURCE IT?

DEVELOPING CAPACITY STRATEGIES OPERATIONS MANAGEMENT

GROUP 5
CONSTRAINT MANAGEMENT

EVALUATING ALTERNATIVES(X)

OPERATIONS STRATEGY(x)
 JOSH
Process Selection and Facility Layout
Introduction
- What Does Product and Service Design Do?
- is there a demand for it?
- can we do it
- what level of quality is appropriate?
-Does it make sense from an economic standpoint?

Reason for Product and Services Design or Redesign

A.Economic - demand, warranty, cost
B.Social and demographic - aging baby boomers, population shifts
C.Political, Liability, or legal - safety issues, new regulations,
government changes
D.Competitive - new or changed products or services, new
advertising/promotions
E.Cost or availability - raw materials, components, labor, water,
energy
F.Technological - process
 JOSH

Process Selection
1. How much variety in products or services will the
system need to handle?
2. What degree of equipment flexibility will be needed?
3. What is the expected volume of output?

Process types
1. Job Shop
2. Batch
3. Repetitive
4. Continuous

Technology
Automation
Fixed Automation
Programmable Automation
CAM
N/C Machines
FMS
CIM
 CATHERINE
 D ESIGNING PROCESS LAYOUT

The optimal relative positions of functional work centers are determined

by the designing process layouts. The main issue in designing process
layouts concerns to relative positioning of the department involved.

MEASURES OF EFFECTIVENESS
-One of the advantage of process layouts is their ability to satisfy a variety of processing
requirements customers or materials. In this system require different operations and different
sequence of operations which cause them to follow different paths through the system.
-Material-oriented system necessitates the use of variable path material handling equipment to
move materials from work centers to work centers.
-Consumer oriented system people must have traveled or be transported from work centers to
work centers
-In both cases, transportation cost or time can be significant.

-INFORMATION REQUIREMENTS
The design process layouts require six information requirements.
 - MINIMIZING TRANSPORTATION COSTS
OR DISTANCE
The most common goals in designing process layouts are
minimization of transportation costs or distance
travelled.
Ranking departments according to highest work flow
and locations according to highest inter-location
distances helps in making assignments.

From these listings, you can see that departments 1 and 3 have the highest interdepartmental work flow, and
that locations A and B are the closest. Thus, it seems reasonable to consider assigning 1 and 3 to locations A and
B, although it is not yet obvious which department should be assigned to which location. Further inspection of
the work flow list reveals that 2 and 3 have higher work flow than 1 and 2, so 2 and 3 should probably be located
more closely than 1 and 2. Hence, it would seem reasonable to place 3 between 1 and 2, or at least centralize
that department with respect to the other two. The resulting assignments might appear an illustrated in Figure
6.11.

CATHERINE
 CATHERINE

CLOSENESS RATINGS
Muther suggests the following list:
1. They use same equipment or facilities.
2. They share the same personnel or records.
3. Required sequence of work flow.

CAPACITY DECISIONS ARE STRATEGIC

For a number of reasons, capacity decisions are among the most fundamental of all design decisions that
manager must make. In fact, capacity decisions can be critical for an organization:
1. Capacity decisions have a real impact on the ability of the organization to meet future demands for
products and services; capacity essentially limits the rate of output possible.
2. Capacity decisions affect operating costs. Ideally, capacity and demand requirements will be matched,
which will tend to minimize operating costs.
3. Capacity is usually a major determinant of initial cost. Typically, the greater the capacity of a productive
unit, the greater its cost. This does not necessarily imply a one-for-one relationship; larger units tend to
cost proportionately less than smaller units.
4. Capacity decisions often involve long-term commitment of resources and the fact that, once they are
implemented, those decisions may be difficult or impossible to modify without incurring major costs.
5. Capacity decisions can affect competitiveness.
6. Capacity affects the ease of management; having appropriate capacity makes management easier than
when capacity is mismatched.
7. Globalization has increased the importance and the complexity of capacity decisions.
8. Because capacity decisions often involve substantial financial and other resources, it I necessary to plan
for them far in advance.
 IRENE
PROCESS STRATEGY
Process strategy is the pattern of decisions made in managing processes so that they will achieve their
competitive priorities
Decision makers choose flexible systems for either of two reasons: 
1. Demand variety or uncertainty exists about demand. 
2. Can be overcome through improved forecasting.
STRATEGIC RESOURCE DESIGNING PRODUCT LAYOUTS: LINE BALANCING The
ORGANIZATION goal of a product layout is to arrange workers or machines
FACILITIES LAYOUT in the sequence that operations need to be performed.
Layout refers to the configuration of Line balancing -The process of assigning tasks to
departments, work centers, and equipment, workstations in such a way that the workstations have
with particular emphasis on movement of approximately equal time requirements.
work (customers or materials) through the Cycle time- The maximum time allowed at each workstation
system to complete

Precedence diagram -A diagram that shows elemental
The basic objective of layout design is to tasks and their precedence requirements. Balance delay
facilitate a smooth flow of work, material, Percentage of idle time of a line.
and information through the system. Some Guidelines for Line Balancing 
Tasks are assigned one at a time to the line 
The three basic types of layout are:  Unassigned tasks are checked to determine which are
product  eligible for assignment
process  Eligible tasks are checked to see which of them will fit in
Fixed-position. the workstation being loaded
 ROSE IVY
Process Selection and Facility Layout
Capacity often refers to an upper limit on the rate of output. Even though this seems simple enough,
there are subtle difficulties in actually measuring capacity in certain cases due to different
interpretations. Up to this point, we have been using a general definition of capacity. Although it is
functional, it can be refined into two useful definitions of capacity:

1. Design capacity: The maximum output rate or service capacity an operation, process, or facility is
designed for.
2. Effective capacity: Design capacity minus allowances such as personal time, and maintenance.

These different measures of capacity are useful in defining two measures of system effectiveness:
efficiency and utilization. Efficiency is the ratio of actual output to effective capacity. Capacity
utilization is the ratio of actual output to design capacity.

These different measures of

capacity are useful in defining two
measures of system effectiveness:
efficiency and utilization. Efficiency
is the ratio of actual output to
effective capacity. Capacity
utilization is the ratio of actual
output to design capacity.
 DETERMINANTS OF EFFECTIVE CAPACITY ROSE IVY

STRATEGY FORMULATION Steps in the Capacity Planning Process

The three primary strategies are leading, following, and 1. Estimate future capacity requirements.
tracking. A leading capacity strategy builds capacity in 2. Evaluate existing capacity and facilities and
anticipation of future demand increases. If capacity identify gaps.
increases involve a long lead time, this strategy may be 3. Identify alternatives for meeting requirements.
the best option. A following strategy builds capacity when 4. Conduct financial analyses of each alternative.
demand exceeds current capacity. A tracking strategy is 5. Assess key qualitative issues for each
similar to a following strategy, but it adds capacity in alternative.
relatively small increments to keep pace with increasing 6. Select the alternative to pursue that will be best
demand. An organization typically bases its capacity in the long term.
strategy on assumptions and predictions about long-term 7. Implement the selected alternative.
demand patterns, technological changes, and the behavior 8. Monitor results.
of its competitors.
 KEVIN
Forecasting Capacity Requirements
Capacity planning decisions involve Short-term capacity needs are less
- Long term capacity needs require forecasting demand concerned with cycles or trends than
over a time horizon and then converting those forecasts with seasonal variations and other
into capacity requirements. variations from average.
Basic Demand Patterns identified by Forecast
1. Trend (Fundamental Issues)
a. how long the trend might persist, because few things
last forever,
b. how long the trend might persist
2. Cycles (Interest Focus)
a. the approximate length of the cycles
b. the amplitude of the cycles

A reasonable approach to determining capacity

requirements is to obtain a forecast of future
demand, translate demand into both the
quantity and the timing of capacity
requirements, and then decide what capacity
changes (increased, decreased, or no changes)
are needed.
ADDITIONAL CHALLENGES OF PLANNING SERVICE
KEVIN
CAPACITY
It is important to note that capacity planning for services can
present special challenges due to the nature of services.
Three very important factors in planning service capacity DO IT IN-HOUSE OR OUTSOURCE IT?
are: -
1. The need to be near the customer- Convenience for Once capacity requirements have been
customers is often an important aspect of service. Generally, determined, the organization must decide
service must be located near customers. whether to produce a good or provide a
2. The inability to store services- capacity also must be service itself or to outsource from
matched with demand. Unlike goods, services cannot be another organization. Many organizations
produced in one period and stored for use in a later period. buy parts or contract out services, for a
Thus, speed of delivery, or customer waiting time, becomes a variety of reasons.
major concern in service capacity planning. The factors are:
3. The degree of volatility of demand- presents problems for 1. Available Capacity
capacity planners. Demand volatility tends to be higher for 2. Expertise
services than for goods, not only in the timing of demand but 3. Quality Considerations
also in the amount of time required to service individual 4. The Nature of Demand
customers. A wide range of social, cultural, and even whether 5. Cost
factors can cause major peaks and valleys in demand. The 6. Risks
fact that services can’t be stored means the service system
cannot turn to inventory to smooth demand requirements on
the system the way goods-producing systems are able to.
Instead, service planners have to devise other methods of
coping with demand volatility and cyclical demand.
 VHEA
DEVELOPING CAPACITY STRATEGIES
1. Design Flexibility into Systems
2. Take Stage of Life Cycle into account
3. Take a ‘’big picture’’ (i.e., systems) approach to capacity changes.
4. Prepare to deal with capacity ‘’chunks’’
5. Attempt to smooth out capacity requirements.
6. Identify the optimal operating level
7. Choose a strategy if expansion is involved

CONSTRAINT MANAGEMENT
A constraint is something that limits the performance of a process or system in achieving its goals.
Constraint management is often based on the work of Eli Goldratt ( The Theory of Constraints ),
and Eli Schragenheim and H. William Dettmer ( Manufacturing at Warp Speed )

There are seven categories of constraints:

Market: Insufficient demand.
Resource: Too little of one or more resources (e.g., workers, equipment, and space), as illustrated in Figure
5.2
Material: Too little of one or more materials.
Financial: Insufficient funds.
Supplier: Unreliable, long lead time, substandard quality.
Knowledge or competency: Needed knowledge or skills missing or incomplete.
Policy: Laws or regulations interfere.

 VHEA

There may only be a few constraints, or there may be more than a few. Constraint
issues can be resolved by using the following five steps:

1. Identify the most pressing constraint. If it can easily be overcome, do so, and return to
Step 1 for the next constraint. Otherwise, proceed to Step 2.
2. Change the operation to achieve the maximum benefit, given the constraint. This may be
a short-term solution.
3. Make sure other portions of the process are supportive of the constraint (e.g., bottleneck
operation).
4. Explore and evaluate ways to overcome the constraint. This will depend on the type of
constraint. For example, if demand is too low, advertising or price change may be an
option. If capacity is the issue, working overtime, purchasing new equipment, and
outsourcing
are possible options. If additional funds are needed, working to improve cash
flow, borrowing, and issuing stocks or bonds may be options. If suppliers are a problem,
work with them, find more desirable suppliers, or insource. If knowledge or skills areNO DRAFT
needed, seek training or consultants, or outsource. If laws or regulations are the issue,
working with lawmakers or regulators may be an option.
5. Repeat the process until the level of constraints is acceptable.
 The owner of Old. Fashioned Berry Pies. S. Simon is
Evaluating Alternatives contemplating adding a new line of pies which will
- The purpose is to help eliminate the bias decision. require leasing new equipment for a monthly
payment of $6,000. Variable costs would be $2 per
Cost- volume analysis pie, and pies would retail for $7 each.
It focuses on relationships between cost, revenue, and
volume of output FC= $6,000 VC= $2 per pie R= $7 per pie
a.) pies must sold in order to break even.
TC = FC+VC (5-3) QBEP = FC = $6,000 = $1,200 pies/ month
VC = Q x v (5-4) R-VC $7-$2

TR= R x Q (5-5) b.) profit (loss) be if 1,000 pies sold in a month.

For Q= 1,000, P- Q (R-v) – FC= 1,000 ($7-$2)-
P= TR-TC= R x Q- (FC + v x Q) $6,000= -$1,000

Rearranging terms, we have c.) pies sold to realize a profit of $4,000.

P= Q (R-v)- FC (5-6) P= $4,000 solve for Q using formula 5-7:

Q= P+FC (5-7) Q= $4,000+ $6,000 = $2,000 pies

R-v $7-$2

Q BEP = FC (5-8) d.) price should be charged per pie.

R-v Profit= Q (R-v) – FC
$5,000- 2,000 (R- $2) - $6,000
R= $7.50
a.) determining the break-even point for each range.
QBEP = FC/ (R-v)
Cost volume analysis can be valuable tool for comparing capacity alternatives if
certain assumptions are satisfied.
1.) One product is involved
2.) Everything produced can be sold
3.) The variable cost per unit is the same regardless of the volume
4.) Fixed costs do not change with volume changes or they are step changes
5.) The revenue per unit is the same regardless of volume
6.) Revenue per unit exceeds variable cost per unit
Financial Analysis
- To reach business decision.

Three methods of Financial Analysis

· Payback- focuses on the length of time.
· Present value- summarizes the initial cost of investment.
· Internal rate of return- identifies the rate of return.

Decision theory- identifying the set of possible future conditions.

Waiting- line analysis- designing or modifying service systems.

Simulation- evaluating scenarios.