Facility Location

Where should a plant or service facility be located?

Need to produce close to supplier as well as customer due to time-based
competition, trade agreements and shipping costs
Need to locate near the appropriate labor pool to take advantage of low
wage and high technical skills
Profit-oriented organization Make decision on profit potential
Non-profit organization
Balance between cost and
level of customer service
Facility Location
Factors Affecting Location Decisions
Labor pool
Total costs
Proximity to customers and suppliers
Business climate
Infrastructure
Government barriers
Trade blocks
Facility Location
Plant Location Methods
Factor Rating System: most widely used -- can provide a
mechanism to combine diverse factors
Center of Gravity Method: locating a single facility that
considers the existing facility, distance
between them and the volume of goods to be shipped
Service Location Method
Have multiple sites to maintain close contact with customers
Location decision is closely tied to the market selection decision
Facility Location
A company needs to locate an intermediate holding facility
between its plant and major distributors. Locations and
amounts of product are as follows:
Center of Gravity Method
Location Amount
Plant (325, 75) 1500
Distributor A (25, 240) 450
Distributor B (350, 400) 350
Distributor C (400, 150) 250
Distributor D (450, 350) 450

Facility Location

0
100
200
300
400
500
0 100 200 300 400 500 600
Plant
A
B
C
D
Plant : (325,75) 1500
Dist A: (25,450) 450
Dist B: (350,400) 350
Dist C: (400,150) 250
Dist D: (450,350) 450
Facility Location

i
i ix
x
V
V d
C

i
i iy
y
V
V d
C
9 . 307
450 250 350 450 1500
450 * 450 250 * 400 350 * 350 450 * 25 1500 * 325

x
C
7 . 216
450 250 350 450 1500
450 * 350 250 * 150 350 * 400 450 * 450 1500 * 75

y
C
Location of Intermediate holding facility
Facility Location

0
100
200
300
400
500
0 100 200 300 400 500 600
Plant
A
B
C
D
Plant : (325,75)
Dist A: (25,450)
Dist B: (350,400)
Dist C: (400,150)
Dist D: (450,350)
Facility : (308,217)
Facility Location
Locating Service Facility
Miles to Clinic From
Community A B C D
Population
(in thousand)
Relative
Weight
A 0 11 8 12 10 1.1
B 11 0 10 7 8 1.4
C 8 10 0 9 20 0.7
D 9.5 7 9 0 12 1.0

Find the locations of two clinics at the lowest weighted travel-distance cost
Facility Layout
Configuration of departments, work centres and equipment, with
particular emphasis on movement of work through the system
Two basic types of layout:

Product
Process
Require substantial investment of money & effort
Involve long term commitment
Have significant impact on the cost and efficiency of operations
Why Important?
Product Layout
The work is divided into a series of standardized tasks,
permitting specialization of both labor and equipment
Facility Layout
Layout that uses standardized processing operations
to achieve smooth, rapid, high volume flow
Advantages
High rates of output
Low unit cost due to high volume
Low material handling cost per unit
High utilization of labor & equipment
Limitations
Repetitive work boring & fatigue
System is fairly inflexible
System is highly susceptible to breakdown
Facility Layout
U-shaped Layouts
Compact
Increased communication
Flexibility in work
Facility Layout
Process Layout
Designed to process items or provide services that involve a
variety of processing requirements
Items are frequently moved in batches to the departments
in a sequence that varies from job to job
Layout features functional grouping where similar kinds of
activities are performed
X-ray ECG
Pathology Ultrasound
Facility Layout
Advantages
Can handle a variety of processing requirements
Not particularly vulnerable to equipment failures
General-purpose equipment is easier to maintain
Limitations
High inventory costs for batch processing
Routing & scheduling pose continual challenges
Equipment utilization rates are low
Slow material handling also inefficient
Facility Layout
X-ray ECG
Pathology Ultrasound
Facility Layout
X-ray
ECG
Pathology
Ultrasound
Cell 1: X-ray, Ultrasound, Pathology
Cell 2: X-ray, ECG
Cell 3: Ultrasound, Pathology
Cell 4: X-ray, ECG, Pathology
Cell 1 Cell 2
Cell 3 Cell 4
Cells are miniature versions of Product/Process layout
Groupings are determined by operations needed to
perform work for a set of similar items
Facility Layout
Cell 1 Cell 2
Cell 4 Cell 3
X-ray
ECG
Pathology
Ultrasound
Cellular Layout
Machines are grouped into cells
Fixed Position Layout
The items being worked on remains stationary, and
workers, material and equipment are moved about
Facility Layout
Weight, size, bulk or some other factor makes it
undesirable or extremely difficult to move the product
Facility Layout
Line Balancing
Assignment of work to stations in a line as to achieve the
desired output rate with the smallest number of workstations
The goal is to obtain workstations with well-balanced workload
Facility Layout
Steps of Line Balancing
Determine desired output rate
Calculate Cycle Time
Find Theoretical Minimum
Determine Idle Time
Calculate Efficiency
Assign Tasks to Stations
r
c
1

c
t
TM

t nc I
% 100 *
nc
t
e

Station 1 Station 3 Station 2

Station 4 Station 5
Facility Layout
B
A
D
C
F
E
H
G
I
Intermediate-range planning that typically covers a time horizon
of 2~12 months may extend to as much as 18 months.
Product and service selection
Facility size and location
Equipment decision
Facility layout
General levels of
Output
Employment
Finished goods inventories
Machine loading
Job assignments
Job sequencing
Work scheduling
Long-term planning Short-term planning
Intermediate planning
Concept of Aggregation
Essentially a big picture approach to planning
Lump all models of a product together
Deal with them as though they are a single product
Overview of Aggregate Planning
Begins with a forecast of aggregate demand for intermediate range
Followed by a general plan to meet demand requirements by setting
o Output
o Employment
o FG inventory level
Updated periodically rolling planning horizon
Purpose and Scope
Balancing of Demand and Capacity
Demand and Capacity
concerns are quantity and timing of expected demand
Available resources over the planning period must be known
A forecast of expected demand must be available
Inputs to Aggregate Planning
Output of Aggregate Planning
Production Plan
Demand options
Pricing shift demand from peak periods to off-peak periods
Promotion sometimes are very effective in shifting demand
Back orders taken in one period and delivers for a later period
New demand creating new demand at off-peak time
Capacity options
Hire and layoff workers hiring during peak and laying off
during off-peak may have sever effect
Overtime/ Slack time can be easily & quickly implemented
less severe
Part time workers for seasonal work - requiring low job skills
Inventories produce goods in one period & sell in another period
Subcontracting enables planers to acquire temporary capacity
Techniques for Aggregate Planning
Determine demand for each period
Determine capacity for each period
Identify company or departmental policies
Develop alternative plans & compute cost for each
Select the one that best satisfies objectives.
Inventory Management
Inventory is stock or store of goods
Raw material
Work-in-process
Finished goods
To meet anticipated demand
To smooth production requirements seasonal
To protect against stockouts
To take advantages of quantity discounts
To permit operations about WIP
Function of Inventory
Inventory Costs
Holding cost
Ordering cost
Shortage cost
Material Classification
Class A: 10-15% contributes 60-70% value
Class B: 20-30% contributes 20-30% value
Class C: 60-70% contributes 5-10% value
Quantity
C
o
s
t

A
B
C
Inventory Management
Inventory ordering & usage occur in cycles
Inventory Management
ROP
LT
Time
Q
u
a
n
t
i
t
y

Economic Order Quantity (EOQ)
EOQ is the order size that minimizes total cost
Only one product is involved
Annual demand requirements are known
Demand is spread evenly
Lead time does not vary
No quantity discount
Inventory Management
Assumptions
Order Quantity
A
n
n
u
a
l

C
o
s
t

Holding cost
Ordering cost
Total cost
EOQ
Inventory Management
Material cost
Cost Curves
Annual holding cost =
H
Q
2
Annual ordering cost =
S
Q
D
Total cost =
S
Q
D
H
Q
TC
2
H
DS
Q
2

Inventory Management
Total cost (including material) =
D * P S
Q
D
H
Q
TC
2
For minimum cost,
Cost Calculations
Order Quantity
A
n
n
u
a
l

C
o
s
t

Holding cost
Ordering cost
Total cost
EOQ
Inventory Management
Material cost
Quantity Discount
TC is affected by the price
discount on order size