LOCATION, FACILITIES AND CAPACITY PLANNING

Location Planning- decisions are very important for all types of business
units. This is because it affects the cost, selling price, and demand of the
product. It is a non-recurring heavy expenditure. Large companies take the
help of different professionals like lawyers, accountants, environmentalist, etc.

Factors that Influence Location Positioning:

Raw Materials - for manufacturing companies, raw materials inventory

requires detailed budgeting and a special framework for accounting on the
balance sheet and income statement. Examples of raw materials include:
steel, oil, corn, grain, gasoline, lumber, forest resources, plastic, natural gas,
coal, and minerals.

Proximity to the Market - refers to the ability of providers to stay close to

customers so as to be in a position to accurately read and analyze customer
needs and to respond quickly.

Climate - A region's position on the globe and on a continent determines its

fundamental climate. Latitude determines a location's solar radiation and
location within the wind belts. If a region is near a large water body, its climate
will be influenced by that water body.

Culture - is defined as a strategy that positions the brand as symbolic of a

specific foreign consumer culture; that is, a brand whose personality, use
occasion, and/or user group are associated with a foreign culture.

Need for Location Decisions:

Marketing Strategy - it depends on what kind of marketing strategy which is

link to the unarism strategy company is for you. Example: Banks and fast
foods so these strategy could be basically a costumers cominiance so base
on that they make their location decision.

Cost Doing Business - because cost will reduce profits and if a location is
directly impacting let say transportation cost to move material to one place to
other place. So that is another criteria for helping are to make proper location
decisions

Growth - a company wants to grow, they want to have more costumers so

obviously they need to decide on location. Example: let say a big company
United State and they want to expand into Asia and Europe to attract more
costumer so obviously they will looking for proper location.

Depletion of Resources – there are many businesses that theirbasic

resources are the key of their success. Let say for example, fishing , logging
and mining, all of these resources are limited and a company has look for new
location.
Nature of Location Decisions:

I. Strategic Importance
- Long term commitment/cost
- Impact on investment, revenues and operations
- Supply chains
II. Objectives
- Profit potential
- No single location may be better than others
- Identify several location from which to choose
III. Options
- Expand existing facilities
- Add new facilities
- Move

Location Decision Factors:

1. Regional Factors
a. Location of Raw Materials
b. Location of Markets
c. Labor Factors
d. Climate and Taxes
2. Community Consideration
a. Quality of life
b. Services
c. Attitides
d. Taxes
e. Environmental regulations
f. Utilities
g. Developer support
3. Site Related Factors
a. Land
b. Transportation
c. Environmental
d. Legal
4. Multiple Plant Strategies
a. Product Plant Strategy
b. Market Area Plant Strategy
c. Process Plant Strategy

Evaluating Location

Cost-Profit-Volume Analysis- it determine fixed and variable cost, plotting

total cost and it determine the lowest total cost.

Location Evaluation Methods:

Transportation Model- decisions are based on the movement costs of raw

materials or finished goods.
Factor Rating- decisions are based on quantitative and qualitative inputs.

Center of Gravity Model- decisions are based on minimum distribution of

cost.

Facility Planning- determines how an activity’s tangible fixed assets best

support achieving the activity’s objective.

What is a Facility?
It is broadly defined as buildings where people, material and machine come
together for a stated purpose, typically to make a tangible product or provides
service.

Facility Planning Objectives:

I. Support the organization’s mission through improved material handling,
materials control and good housekeeping.
II. Effectively utilize people, equipment, space and energy.
III. Minimal Capital Investments.
IV. Be flexible and promote ease of maintenance.
V. Provide for employee’s safety and job satisfaction.

Engineering Design Process- is a series of steps that guides engineering

team as they solve problem. The design process is iterative meaning that it
repeat the steps as many time as needed, making improvements along the
way as they learn from failure and uncover new design possibilities to arrive at
great solutions.

Procedure for Solving Engineering Design Problems:

1. Formulate or identify the problem.
2. Analyze the problem.
3. Search for alternative solutions.
4. Select preferred design.
5. Implement the design.

Application of the Engineering Design Process to Facility Planning:

1. Define the objective of the facility.
2. Specify the primary and support activities to be performed in accomplishing
objective.
3. Determine the interrelationship among all activities.
4. Determine space requirement.
5. Generate alternative facility plan.
6. Evaluate alternative facility plans.
7. Select a facility plan
8. Implement the facility plan.
9. Maintain an adapt the facility plan.
10. Redefine the objective of the facility.
Important Factors to Evaluate Facility Plans:

A. Layout Characteristics
- total distance traveled
- manufacturing floor visibility
- overall aesthetics of the layout
- ease of adding future business

B. Material Handling requirements

- use for the current material handling equipment
- investment requirements on new equipment
- space and people requirements

C. Unit Load Implied

- impact on WIP levels
- space requirements
- impact of material handling equipment

D. Storage Strategies
- space and people requirements
- impact on material handling equipment
- human factor risks

E. Overall Building Impact

- estimated cost of alternatives
- opportunities for new business

Capacity Planning- is the process of determining the amount of capacity

required to meet market demand for products and services.

What is Capacity?
It is the specific ability of an entity (such as person or organization) measured
in quantity and level of quality over an extended period.

Capacity Planning Strategies

I. Lead Strategy
- most aggressive approach of capacity planning
- company increases its production capacity in advance of anticipated
increase in demand
- it is riskier compare to other strategies

II. Lag Strategy

- it is much more conservative than the lead strategy
- this strategy responds to actual increases in demand

III. Match Strategy

- this strategy emphasizes small incremental modification to capacity based
on changing conditions in market place.
- it is risk-averse however it takes more effort and is harder to accomplish
Measurement of Capacity Planning

Design Capacity- It is the planned or engineered rate of output of good or

services under normal or full scale operating condition.

System Capacity- It is the maximum output of the specific product or product

mix the system of workers and machines is capable of producing as an
integrated whole.

Capacity and Output Relationship

Measuring System Effectiveness

Process of Capacity Planning

Capacity Planning is concerned with defining the long-term and short-term
capacity needs of an organization and determining how those needs will be
satisfied. Capacity planning decisions are taken based upon the consumer
demand and this is merged with the human, material and financial resources
of the organization.

I. Long-Term Capacity Strategies- is mainly concerned with accommodating

major changes that affect the overall level of the output in long-term. Long
term capacity is more difficult to determine because the future demand and
technology are uncertain. Long range capacity requirements are dependant
on marketing plans, product development and life-cycle of the products.
Parameters that will Affect Long Range Capacity Decisions:

* Multiple Products- companies produce more than one products using the
same facilities in order to increase profit. Manufacturing multiple times will
reduce the risk of failure.
* Phasing in Capacity- in high technology industries and in industries where
technology developments are very fast the product should be brought into the
market quickly.
* Phasing out Capacity- the phasing out should be done in humanistic way
without affecting the community. Phasing out options make alternative
arrangements.

II. Short-Term Capacity Strategies- concerns issues of scheduling, labor

shifts and balancing resource capacities. The goal of this is to handle
unexpected shifts in demand in an efficient economic manner.

The Short-Term Strategies are:

* Inventories- stock of finished goods during periods to meet the demans

during peak period.

* Backlog- is a build up work that need to be completed. Willing customers

are requested to wait and their orders will be fulfilled after a peak demand
period.

* Employment Level- hiring and firing, add employees during peak demand
period and layoff employees as demand decreases.

* Employee Training- to develop multi-skilled employees through training.

* Subcontracting- is the practice of assigning our outsourcing. It’s the

process of entering an contractual agreement with an outside person or
company tp perform a certain amount of work.

* Process Design- the act of transforming an organization’s vision, goals and

audible resources into discernible, measurable means of achieving the
organization’s vision.

LACAP, VENJO B.
SANTOS, ALLEN C.
BSCE-II