Chapter 6: Process Facility Selection and Layout

Monday, February 6, 2023 3:31 PM

Process Selection
- The way an organization chooses to produce its goods or services
- Goal: Process capabilities match the product/service requirements
○ The degree of standardization (how much variety)
○ The volume of production (how much volume)
- Types of Processing
○ Job Shop Process Layout
▪ Customized services or products
▪ Able to handle large variety of work
▪ Highest cost per unit, complex scheduling and planning
○ Batch
▪ Semi standard
▪ Flexibility
▪ Moderate cost per unit
○ Repetitive Assembly/Product Layout
▪ Standardized
▪ Low unit cost with high volume efficient
▪ Low flexibility
▪ Example: Autocar Makers
○ Continuous Product Layout
▪ Highly standardized
▪ Lowest possible costs
▪ High cost of maintenance
- Basic Layout Types
○ Product Layouts
▪ Stations along an assembly line
▪ Each station does something to the product as it moves along the line
▪ Each worker is highly specialized in their role, but boring for workers
○ Process Layouts
▪ Different sections for different purposes
▪ Different sections having issues or being closed doesn’t close down the whole
operation (one department)
- Designing Product Layouts
○ Cycle Time: The maximum time allowed at each workstation
▪ Minimum cycle time is equal to the longest task time
○ Minimum # of workstations needed
▪ N = (Sum of task times)/Cycle Time
○ Precedence Diagram
▪ Diagram that shows elemental tasks and their precedence requirements
▪ Goal: To achieve a match between the long term supply capabilities of an
organization and the predicted level of long term demand
○ Overcap: operating costs that are too high
○ Production is more than demand
▪ Main Questions:
○ What capacity
○ How much is needed
○ When is it needed
▪ Definition of Capacity
○ Design Capacity
▪ Maximum output rate or service capacity of an operation, process
or facility
▪ Classroom: 60 people
○ Effective capacity
▪ Design capacity minus allowances such as personal time and
maintenance
▪ Same classroom: 35 people
○ Actual Capacity
▪ What is expected
▪ Same classroom: 30 people

▪ Measuring System Effectiveness

○ Actual Output
▪ Rate of output actually achieved
▪ Cannot exceed effective capacity
○ Efficiency: Actual Output/Effective Capacity
Utilization: Actual Output/Design Capacity

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 ○ Utilization: Actual Output/Design Capacity

- Strategy Formulation
○ Long Term demand
○ Technical requirements
- Capacity Cushion
○ Extra capacity used to offset demand uncertainty
○ Organizations that have greater demand uncertainty have greater
cushions (airlines)
○ Organizations that have standard products and service are going to have
a smaller cushion
- Steps in planning
○ Estimate, Evaluate, Identify, Conduct, Assess, Select, Implement,
Monitor
- Demand Management Strategies
○ Pricing, promotion, discounts, other tactics to shift demand from peak
periods into slow periods (movies, Starbucks, flights)
- In House vs. Outsource
○ Factors to Consider
▪ Available capacity
▪ Expertise
▪ Quality considerations
▪ Nature of demand: long term or seasonal?
▪ Cost
▪ Risks
- Bottleneck
○ A step along the process that can not process as high as the prior or
later stations so it slows the whole system down
- Optimal Operating level
○ Hitting the best volume/cost level for your facilities
- Cost Volume Analysis
○ Fixed Costs
○ Variable Costs
○ Total Costs: FC + VC = TC
○ Total Revenue: Rev per unit * Quantity
○ Break Even Point: Optimal Quantity = FC/(Retail price - variable cost)
▪ Add profit to the Fixed cost

ABC System:
- A: Most important, High dollar amount, low quantity. 10-20% of the number
of items, 60-70% of the dollar value
- B: Less Important
- C: Least important, 50-60% of the items but only about 10-15% of the dollar
value
EOQ Models
1. Basic economic order quantity model
a. Assumptions: One product, annual demands known, demand is even
throughout the year, lead time does not vary, each order received in a
single delivery, there are no quantity discounts
2. Quantity discount model

Re ordering point = Lead time * Usage (demand)

Total Cost = Annual holding cost + annual ordering cost (these two are equal for an
economic order model)
= (order quantity in units/2)* Holding cost per unit (per year) + (Demand/order
quantity in units)*Ordering cost per unit
= Average inventory * holding cost + Amt of orders * ordering cost per unit

EOQ = sqrt((2*annual demand*order cost)/(annual per unity holding cost))

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