OM Chapter Three

Chapter Three
Design of the Operation System

Chapter outline
• Product and service

Part One
design
Part Two Process selection
Part Three • Facility location and layout
• Strategic Capacity
Part Four Planning
Part Five • Job design and work
measurement
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Part One
Product and service design

Learning objectives
By the end of this session, you should be able to:
✓ Explain the strategic importance of product and service design
✓ List some key reasons for design and redesign
✓ Discuss the importance of standardization and Mass customization
✓ Discuss the importance of legal, ethical, and sustainability

considerations in product and service design
✓ Briefly describe the phases in product design and development

Product/Service design
Product/Service design plays a strategic role in helping an

organization achieve its goals.
Product design is the process of deciding on the unique characteristics and
features of the company’s product.
A good product/service design can ensure
customer satisfaction,
quality and
production costs.
Discuss the result of A poor product or service design
Cont’d….
Sending product to customers is not enough, there should be

training how to use, who to use…
The fact is that we cannot leave out services from
products or exclude products from service.
Both are complement and supplement each other
if our institution is providing students with an education
service, it also supplements the services side by providing
products like books, handouts, meal, dormitory etc.
Major factors in design strategy
Cost
Quality
Time-to-market
Customer satisfaction
Competitive advantage
Product and service design – or redesign – should be
closely tied to an organization’s strategy
Finally, if a product is to achieve customer satisfaction, it must have
the combined characteristics of good design, competitive pricing,
and the ability to fill a market need.
Product or service design activities
Translate customer wants and needs into product and service requirements
Refine existing products and services
Develop new products and services
Formulate quality goals
Formulate cost targets
Construct and test prototypes
Document specifications
Reasons for product or service design
Market opportunities and threats
be competitive by offering new products or services.
to make the business grow and increase profits
alternative to downsizing
PESTLED
Objective of product or service design
Main focus
Customer satisfaction via
• Translating customer wants and needs, understand what the customer
wants
Secondary focus
Function of product/service
Cost/profit
Quality
Appearance
Ease of production/assembly
Ease of maintenance/service
Legal, ethic, and environmental issues
Designers must be careful to take into account for
Legal
Product liability- is liable for any injuries or damage caused by a faulty
product
Sustainability- don’t harm the ecological system by used the

3Rs
Ethical= do not release products with defects
Other issues in product design
PLC
Introduction - treated as a curiosity for low volume
Growth – create a more reliable and less costly output,
higher volume
Maturity – few design change, demand level off
Decline – prolong the useful life, seek alternative use of
their product
Product life cycle
Maturity
Demand
Decline
Growth
Introduction
Time
Critical Issues in Product Design
How much standardization
Product/service reliability
Range of operating conditions
Product design
Companies chooses various ways to design their products and
the types of service they deliver. Among them
Standardization
Standardization is the extent to which there is an absence
of variety in a product or process.
Standardized products are immediately available to customers.

• Computers, calculators, biscuit
Standardization…… cont’d
Advantage Disadvantage
Fewer parts. reduction in variety

Low design cost Lack of frequent modification
Reduced training costs and time e.g. another arrangement of keys
More routine would be more efficient
Quality is more consistent High cost of design changes
Perfecting designs
Products are immediately
available
Mass customization
A strategy of producing standardized goods but incorporating

some degree of customization in the final product/services
Also known as “build to order” or “made to order”
Answers what, where, when, and how customers want a product
Falsify the famous statement of Henry Ford – “you can have any
color car you want as long as it’s black”
Approaches of Mass customization
Change
Transparent Collaborative
Product Customization Customization
Adaptive Cosmetic
No change
Customization Customization
No change Representation Change
Approaches of Mass customization
Change
examine client’s behavior • Customer involve in product design.
without direct communication • Manufacturing/process is standardized
with them and then discreetly Transparent Collaborative • Suitable if its difficult to articulate
customize their products for them.
Product Customization Customization what customers wants
Adaptive Cosmetic
No change
Customization Customization • present a standard product

differently to different customers.
• Example: in a different size of
package
No change Representation Change
• Products are standardized
• Customers can use the product on their own
• Example: software configuration
Tactics for mass customization
Delayed differentiation (postponement tactic )
• The process of producing but not quite completing until customers’
preference or specifications are known
• Dining room sets without stains, suits no cuffed
Modular design
• Components parts are subdivided into modules
• Dell Computers
Robust design (Taguchi Method)
• Product which can be functional at any climatic condition
– The more robust a p/s, the less likely of failure due to environmental change
Modular design
Advantage Disadvantage
Easier diagnosis and Limited number of possible
remedy of failures product configuration
Easier repair and Limited ability to repair a
replacement faulty module; the entire
Simplification of module must often be
manufacturing and scrapped
assembly
Product/service reliability
Reliability- the ability of a product, part, or system to perform its

intended function under a prescribed set of condition.
Results in
Repeat sales
Image
Failure- a situation in which a product, part or system doe not perform
as intended.
Phases in product design& development
Idea generation
Supply chain based- ideas can come from anywhere in the supply chain e.g. customer,
supplier, distributors, employees etc
Competitor based- reverse engineering by dismantling and inspecting
Research based- basic research or applied research
Feasible analysis- market (demand), economic, financial, technical
Product specification- detailed description
process specification- collaboration b/n accounting and operation
Prototype development – concurrent engineering, CAD, DFM
Design review- make a necessary changes/abandon
Market test- test acceptance
Product introduction- promote the product
Follow-up and evaluation
Service design
Service refers to an act, something that is done for
customers
Its any primary or complementary activity that does not directly
produce a physical product
It is consumed while it is produced
Service delivery system- facilities, processes and skills needed
to provide a service
Product bundle- the combination of goods and services provide
to a customer
Service package- the physical resources needed to perform the
services, the accompanying of people of goods and the services
Similarities between service and product
Creation of value and customer satisfaction
Employing similar production system
Possibility of standardization and customization
Difference between service and product
Timing of production and consumption
Transportability and storability
Functional separation of production and sales department
Difficulty of measuring productivity
Difficulty of managing and controlling quality
Difficulty of forecasting demand level
Types of channel used/employed; direct vs indirect
Option/alternatives for plant location
Phases in service design
A method used in service design to describe
Conceptualize and analyze a proposal service
Service blueprinting • Shows the basic customers and service
actions
Idea generation
Assessment of customer wants
Identify service package components needed
Determine performance specification into design specification
Translate design specification into delivery specification
Nature and Characteristics of a Service
• Service cannot be • Service cannot be

seen, tasted, felt, separated from their
heard, smelled providers
before purchased
Intangibility Inseparability
Service
Variability Perishability
• Quality of
services depends • Services cannot be
on who provides stored for later
them, when, safe or use
where, and how
Characteristics of well-designed service system
Being consistent with the organization mission
Being user friendly
Being robust if variability is a factor
Being easy to sustain
Being cost effective
Having value that is obvious to customer

Part Two
Process Selection
Learning objectives
Explain the strategic importance of process selection
Describe the basic processing types
Process selection
Process selection- the development of the process

necessary to produce the designed product.
Deciding on the way production of goods or services will
be organized
It specifies in detail the processes and sequences

required to transform inputs into products and
services
Implications of Process Selection in Operations Management
Process Planning is among System Design duties in OM.

Capacity
planning
Forecasting
Facilities and
Process Equipment
selection
Layout
Product and
service design Work
design
Key aspect of process selection
• Key aspects of process strategy

– Capital intensive – equipment/labor
– Process flexibility
– Adjust to changes
– Design
– Volume
– technology
Process Selection
Three primary questions bears on process selection
Variety
How much
Flexibility Serve as guide to selecting an appropriate

process
What degree
Volume
Expected output
Three types of goods and services
1. custom, or make-to-order, goods and service
Produced and delivered as one-of- a- kind or in small quantities
Designed to meet specific customers specifications
Example; ships, wedding, building, surgery etc.
2. option, or assemble-to-order, goods and service
Are configurations of standard parts, subassemblies, or services
Example; computers, travel agent services, machine tools
3. Standard, or make-to-stock, goods and services
Made according to a fixed design
Example; appliances, online web-based courses, bus services infotesfish@gmail.com

Types of process
Job shop
Intermittent
process
Batch
Ongoing
operation
Repetitive/
Continuous or
assembly
semi-continuous
process
Continuous
Project One time

operation
Job shop
Operates in small scale
Suitable for low volume of high variety goods/services
Processing is intermittent
High flexibility
General-purpose equipment and skilled labor required

Able to produce one-of-kind tools
Example: veterinarian’s service, surgery, wedding

Batch
Ideal for moderate volume of product
Moderate variety
Equipment are not as one-of-a-kind/flexible as in job shop
Processing is intermittent
Moderate skilled labour
Bakeries: bread and cake as batch, food processing
theatre, books, beer, magazines, paint, soft drinks

Repetitive
Known as assembly/line/flow shop
Used when high volume and standardized goods/service are desired
Processing is repetitive
Only slight flexibility of equipment is needed
Low skill of labour
Example: automobiles, television sets, computers, automatic carwash,
Continuous
Highly standardized goods/service
Very high volume of nondiscrete
Processing is continuous
No variety in output
No need of flexibility in equipment
Workers’ skill ranges of low to high depends on complexity of the system
if the equipment is specialized, worker skill can be lower
Example: petroleum, sugar, flour, cement, monitoring, supplying electricity to

home
Project
A non-repetitive set of activities directed toward a unique
goal within a limited time frame.
Example: discuss
Process selection….
Low
Job shop
Product standardization
Batch
Repetitive
Continuous
High
Low Volume High
Product – Process Matrix
Dimension Job shop Batch Repetitive Continuous
Job variety Very High Moderate Low Very low
Process Very High Moderate Low Very low

flexibility
Unit cost Very High Moderate Low Very low
Volume of Very low Low High Very high

output
Summary….
Activities Job shop Batch Repetitive Continuous Project
Cost estimation Difficult Somewhat routine Routine Routine Simple to complex
Cost/unit high Moderate Low Low Very high
Equipment used General purpose General purpose Special purpose Special purpose Varied
Fixed cost Low Moderate high Very high Varied
Variable cost High Moderate Low Very low high
Scheduling Complex Moderately Routine Routine Complex, subject

complex to change
Work-in-process High High Low low Varied
inventory
Product/service profiling
Product/service profiling linking key product or service

requirements to process capabilities.
Helps to avoid any inconsistency in production
Automation
Automation: Machinery that has sensing and control devices
that enables it to operate. Example: ATM, online banking etc
• Advantage over human labour
• Low variability
• Reduce variable costs
• No boredom, distraction, strike etc

– Less flexibility
– Expensive
– Fear of losing of job for workers
Types of Automation
Fixed automation
• The most rigid of the three
• Uses high cost, specialized equipment
• Adv- low cost and high volume
• Disadv- minimum variety, rigidity
Programmable automation
• Most dynamic
• Uses high cost, general purpose equipment
Flexible automation infotesfish@gmail.com

Automation
• Computer-aided design and manufacturing
systems (CAD/CAM)
• Numerically controlled (NC) machines
• Robot
• Manufacturing cell
• Flexible manufacturing systems(FMS)
• Computer-integrated manufacturing (CIM)
Part Three Facility Layout
Learning objectives
• LO1:
• Explain some reasons for redesign of layouts
• Describe the basic layout types
• Compare process layouts & product layouts
• Discuss Service layout
• LO2:
• Discuss location selection decisions
• Explain Factors determining location
• Describe Models of location analysis
Facilities Layout
Facility Layout: the configuration of
• departments,
• work centers, and
• equipment,
• with particular emphasis on movement of work (customers or
materials) through the system.
Plant layout- Planning the optimum arrangement of

• facilities, personnel, equipment, storage space, material handling equipment and
all supporting services, along with the design of the best structure to contain all these
facilities.
Objective of layout design
Facilitate attainment of product or service quality
Use workers and space efficiently
Avoid bottlenecks
Minimize unnecessary material handling costs
Eliminate unnecessary movement of workers or materials
Minimize production time or customer service time
Design for safety

Importance of Layout Decisions
Involves long-term commitments
Requires substantial investments of money and effort
Has significant impact on cost and efficiency of short-term
operations
The Need for Layout Decisions
Inefficient operations
For Example: Changes in the design
High Cost of products or services
Bottlenecks
Accidents
The introduction of new
products or services
Safety hazards
The Need for Layout Design (Cont’d)
Changes in
environmental Changes in volume of
or other legal output or mix of
requirements products
Morale problems
Changes in methods
and equipment
Basic Layout Types
Product Process (functional)

layouts
layouts
Combination
Fixed-Position layout
(hybrid) layouts
Cellular manufacturing
and group technology
Volume-variety characteristics
Low VOLUME High
Fixed position layout

High
VARIETY
Process layout
Cell layout
Low
Product layout
Product layout/line layout
Uses standardized processing
Found in flow shops i.e. repetitive assembly and process/continuous flow
industries
Produces- high volume
High standard products
Permits specialization of equipment and division of labour
Resources are arranged sequentially
High degree of labor and equipment utilization
Work-in-process is minimum
Important Considerations
➢ All machines placed at points demanded by sequence of operation
➢ No crossing over of one line with the other
➢ All operations including assembly, testing and packing included
in the line
Examples of product layout
Assembly line for air-conditioner
Car manufacturing unit
Car washes
Canteen facilities
Laundry.
✓ common in manufacturing
Product Layout
Material Material Material Material

and/or and/or and/or and/or
labor labor labor labor
Product layout of laundry
Raw
Station Station Station Station Finished
materials 1 2 3 4 item
or customer
Classification Storage
and Washing Steam Area for Delivery
Dryer
marking of Machine press Pressed Counter
clothes clothes
• To produce one standard product in large volumes.

• Each unit produced undergoes same sequence of operations and uses same flow of work.
• The work centers and equipment are arranged in a line for continuous operation.
Product Layout……
PRODUCTION SUB-SYSTEM
RAW MATERIALS
RECEIVING
EDP CONTROL
OPERATION B SYSTEMS
STORAGE
OPERATION A
MATERIAL FLOW
OPERATION D
OPERATION C
SHIPPING
INFORMATION
FINISHED GOODS FLOWS
CONTINUOUS FLOW PRODUCTION SYSTEM (FLOW SHOP)

Used for Repetitive or Continuous Processing
A U-Shaped Production Line
In 1 2 3 4
Workers/materials
Out 10 9 8 7
Advantages of Product Layout
Output- generate a large volume of product in a short time
Cost- unit cost is low
Utilization- high degree of labor and equipment utilization
Specialization- reduces training cost and time
Disadvantages of Product Layout
Motivation- intensive division of labour creates dull and repetitive jobs
Flexibility- product layouts are inflexible
System protection- highly susceptible to breakdown/ shutdowns
Process layout/functional layout
Found primarily in intermittent/job shops or firms that produce
Customized
Low-volume products
Similar nature or functions are grouped together
Purpose- processing goods and provide services that involve a variety of

processing requirements
Example- a machine shop grouped together by function i.e. milling, grinding, drilling,
hydraulic presses, and lathes
General-purpose equipment provides flexibility

Hospitals, banks, universities use process layouts- common in service
Process Layout
Milling
Assembly
& Test Grinding
Drilling Molding
Process Layout - work travels

to dedicated process centers
Process Layout….
PRODUCTION SUB-
SYSTEM
RAW MATERIALS
RECEIVING
OPERATION A OPERATION B
WIP WIP
MATERIAL FLOW STORAGE EDP CONTROL

SYSTEMS
FINISHED
WIP WIP
GOODS
OPERATION D OPERATION C
SHIPPING INFORMATION
FINISHED GOODS FLOWS
INTERMITTENT FLOW PRODUCTION SYSTEM (JOB SHOP )

Important considerations
Distance between departments as small as possible
Departments to be located as per function of operation
Convenience for inspection as well as supervision
Process Layout Examples
Car servicing
Hospital-Patient requiring various tests
Garment factory producing half sleeve shirts, full sleeve shirts,

pants and suits.
Office buildings, schools, universities, hospitals, library, book

store or amusement centers are planned on this basis.
Advantage
Flexibility- firm can handle a variety of processing

requirements
Cost- less cost
Motivation- employees perform variety of tasks
System protection- not vulnerable to equipment failures
Disadvantage
Utilization- very low equipment utilizations
Cost- if batch processing is used, in-process inventory cost

could be high, lower volume results high cost per unit
Confusion- needs content change of schedule results in

confusing in doing routine activities
Product vs Process Layout
Process Layout
(functional) Product Layout
(sequential)
Dept. A Dept. C Dept. E
Work Work Work
Station 1 Station 2 Station 3
Dept. B Dept. D Dept. F
Used for Intermittent/norepetitive

Used for Repetitive Processing
processing Repetitive or Continuous
Job Shop or Batch
Fixed-position/Project layout
• Appropriate for a product that is
• Too large or
• Too heavy to move
• Example- battleships, ship buildings, hospital operating room, dams, home
repair,
• Product remains stationary
• Resources must be portable to take to the job “on the spot”
performance
• Disadvantage
• Space-
• Administration-difficult to coordinate and span of control is narrow
Fixed-point ….
RAW MATERIALS
MACHINE & EQUIPMENT FINISHED

AIRCRAFT ASSEMBLY
PRODUCT
LABOUR (AIRCRAFT)
FIXED POSITION OR STATIC LAYOUT
Fixed Position Layout
Employed in large project type organisation
Example
GERD
Helicopter
Nuclear plant
Combined layouts
Mixed layouts – pure basic layouts can be used in different
departments in one organisation.
Its is a combination of the two/three main layout types.
also known as hybrid layouts
Example: A hospital would be arranged on process-layout principles. Within

individual departments different layouts are used e.g. x-ray department
probably process, surgical theatres fixed-position and the blood-processing
lab a product layout.
Combination layout – case of a cement plant
Clay
Yard Twister
Blending
Bauxite Storage
Yard twister
Raw Rotary oven
Mill
Iron ore Bay space
Yard Of oven Ashes cooler
ESP
Lime Stone
Pipe Cement
Yard
Mill
Process layout for a portion of Product layout for a portion of

Cement plant Cement plant
Cellular manufacturing (cm) & Group Technology
Grouping of machines into cells
Cells function somewhat like product layout within a larger shop

or process layout
Each cell in the cm formed to produce a single part / a few parts

All with common characteristics which usually requires similar
machines and settings
Flow of parts within the cell can take many forms
Group Technology
This is philosophy that seeks to exploit the commonality in

manufacturing and uses this as a basis for grouping components and
resources.
Pioneered by Russians
Mid volume & mid variety scenario
70% of mfg. industry may fall under this category
Service facility layout
Main difference between service and manufacturing facility is to

bring together customers & services in many service facilities
Facilities to provide for

Easy entrance from the freeways and busy thoroughfares
Large well organized and amply illuminated parking areas etc.
Hotels, cinema halls etc have different areas to cater to the

comfort & convenience of customers
SERVICE FACILITY LAYOUT ( HOSPITAL LAYOUT )
EXIT ENTRANCE
PARKING AREA CASUALTY DEPT/INPATIENT DEPT PARKING AREA
HOSPITAL WARDS
SURGERY, RADIOLOGY,
TECH SERVICES
HOSPITAL WARDS
DOCTORS
LOUNGE /
HOSPITAL WARDS OFFICES NURSES CAFETE
LOUNGE RIA
ADMIN. OFFICE
PARKING AREA CASUALTY DEPT / INPATIENT DEPT PARKING AREA
ENTRANCE infotesfish@gmail.com
EXIT
Layout important to achieve client-customer goal of fast service
Fast service supported by point of sale system, scanners, self service to provide speed as
well as reduce cost, ATMs by banks etc.
Flow line approach followed in fast food service
Process line layout occurs in many services like medical clinics, offices etc.
Generally, as in manufacturing
Line layout preferred in high volume, standardised products
• Fast food service
Process layout preferred in service operations also

• General offices, banks, general hospitals, municipal offices etc.
Service Layouts Types
Warehouse and storage layouts

Minimizing movement & picking time and cost
Retail layouts
Presence & influence of customers
Office layouts:
Information is computerized, image of openness
Designing Process Layouts
Information Requirements:
1. List of departments
2. Projection of work flows
3. Distance between locations
4. Amount of money to be invested
5. List of special considerations
6. Location of key utilities
Reading assignment
Design Product Layouts: Line Balancing
Line Balancing is the process of assigning tasks to

workstations .
Objective:
•To obtain equal time requirements at majority of the
workstations.
•Shorten manufacturing time and reduce idle time
•High utilization of labor and equipment
Cycle Time (CT)
Maximum output
Assume that a work station required to fabricate a certain

product can be divided up into five elemental tasks, with the
task times and precedence relationship as shown in the
follow
0.1 min 0.7 min 1 min 0.5 min 0.2 min
The task time govern cycle times
The min cycle time is equal to the longest task (1 min).

The maximum cycle time is equal to the sum of the task times
(0.1+0.7+1+0.5+0.2=2.5 min)
The min cycle time would be apply if there were five work stations
The max cycle time would apply if all task were performed at a single workstation
Assume that the line will operate for eight hours per day
(480 min). With a cycle time of 1 min output would be
With cycle time of 2.5 min output would be
Example 1: Assembly Line Balancing
Arrange tasks shown in Figure 6.10 into three
workstations.
Use a cycle time of 1.0 minute
Assign tasks in order of the most number of followers
Example 1 Solution
Revised
Time Assign Time Station
Workstation Remaining Eligible Task Remaining Idle Time
1 1.0 a, c a 0.9
0.9 c c 0.2
0.2 none - 0.2
2 1.0 b b 0.0 0.0
3 1.0 d d 0.5
0.5 e e 0.3 0.3
0.3 - - 0.5
Minimum numbers of workstations required
Example 2
0.2 0.2 0.3

a b e
0.8 0.6
c d f g h
1.0 0.4 0.3
Solution to Example 2
Station 1 Station 2 Station 3 Station 4
a b e
f g h
c d
Precedence Diagram
Precedence Diagram: Tool used in line balancing to display

tasks and sequence requirements
1.0 A simple precedence diagram
a b
0.1 Suppose the desired rate of output is
the maximum of 480 units per day.
(this will require a cycle time of 1 mi)
The minimum number of stations
required to achieve this goal is
0.7
c d e
0.5 0.2
Line balancing rules
Some Heuristic (intuitive) Rules:
Assign tasks in order of most following tasks

• Count the number of tasks that follow
Assign tasks in order of greatest positional weight

• Positional weight is the sum of each task’s time and the times of
all following tasks
Designing process layouts require certain information, which
includes the following
1. List departments
2. Projection of work flows
3. Amount of money to be invested
4. List of special considerations
5. Location of key utilities

Facility location
Facility location
Facility location is the selection of suitable location or site where the factory
or facility will be installed, and from where it will function.
There are two fundamental objectives to a facility location exercise.
These are:
• Minimizing cost
• Maximizing revenue
Being at best location per se is a source of competitive advantage
Importance of facility location
• Why is facility location so important?
• What could happen if the location selection was wrong?
• huge expenditure in shifting machinery, equipment, manpower, etc.
• time and added costs for taking new land lease/outright purchase,
registration, etc.
• It may accumulate losses.
• Competitors with better locations will have an edge.
• The company will lose market share/customer goodwill.
Factors Affecting Location Decision
• Proximity to Customers (Markets)
• Proximity to Raw Materials
• Good Transportation Facilities
• Availability of Power
• Basic Amenities
• Government Policies
• Environmental and Community Considerations
• Proximity to Subcontractors
• Availability of Cheap Land
• Low Construction Costs
• Availability of sufficient, Skilled and Efficient Labour
Needs of location decisions
Two primary reasons
Entail a long-term commitment
• Difficult to overcome mistakes
Have an impact on investment requirements, operating costs and

revenues and operations.
• Poor choice of location can result in- excessive transportation cost
- shortage of qualified labor
- loss of competitive advantage
- inadequate supplies
- loss of customer and high operating costs etc
Location options
Four options in location planning

1. Expand existing facility- suitable for those who have an adequate space
2. Add new location while retaining existing ones- Shoa
3. Shut down at one location and move to another- lifan
4. Doing nothing
Important Factors in Location Decisions
International
National
State-wide
Community-wide
Site-wide
FACTORS TO CONSIDER IN THE FACILITY LOCATION DECISION
Proximity to source of SS/ Raw Material i.e. bulky

Regional Proximity to Markets/customer i.e. high population
Availability of labor
Community Living Conditions/quality of life
Services
Community SKA
Environmental regulation i.e. taxes, access to utilities etc
• transportation
• land
Site
• Energy
• Water supply
Geographic Information Systems (GIS)
Computerized system for storing, managing, creating,

analyzing, integrating, and digitally displaying
geographic, i.e., spatial data
Specifically used for site selection
Enables users to integrate large quantities of information

about potential sites and analyze these data with many
different, powerful analytical tools
GIS Diagram
Procedures in facility location
Preliminary screening
Basic stage before selecting the location
• Proximate to customer, market, raw material
• Business climate
• PEST
• Availability of labour, raw material
Detailed analysis
Both micro and macro
Qualitative and quantitative models

Qualitative- non monetary factors
1. Simple comparative chart analysis (SCCA)- analyze the

intangible factors of location
Steps
❖Identify intangible factors
❖Compare/ranking the factor
❖Select the best alternative
Intangible factor Sebeta Burayou Dukem

Labour supply Suitable more suitable Suitable
Business climate Good Very good Not good
Attitude of Favorable v. Favorable Unfavorable
community
Union activities More important Less important Important
2. Point/factor rating method
Steps
Identify relevant factors
Assign rate to each factor (1-5)
Assign the rate for each alternatives (1-10)
Find the cumulative total rating
Select the location with highest level score
Example1
Factors Rating Location A B C
factor Location Score Location Score Location Score
rate Rate rate
RM 5 10 50 8 40 10 50
Labor 4 6 24 10 40 8 32
Power ss 3 8 24 6 18 8 24
Taxes 1 2 2 4 4 5 5
Insurance 2 4 8 5 10 4 8
Total 108 112 119
http://www.slideshare.net/dipakmer90/pommm
Example2
XYZ Ltd. is considering three alternative sites for its new facility.
After evaluating the firm’s Needs, the Managers have Narrowed the
list of Important Selection Criteria down into three major Factors.
- Availability of skilled labor
- Availability of Raw materials, and
- Proximity to the firm’s markets.
Example…..
Weights reflecting the relative importance of each factor have been
assigned as follows:
Factor Weight
Availability of skilled labor 0.5
Availability of raw materials 0.3
Proximity to the firm’s market 0.2
Total= 1.0
Example…..
Based on these criteria, the three Alternative sites were
scored between 0 and 100 points:
Factor Site A Site B Site C

Availability of skilled labor 70 70 50
Availability of raw materials 60 40 90
Proximity to the firm’s market 70 95 60
Example….
Now we will multiply each score by its corresponding factor weight:
Weighted scores are calculated as: (Site Score)x(Factor Weight)
Factor Site A Site B Site C

Score Weighted Score Weighted Score Weighted
Availability of skilled labor 70 35 70 35 50 25

Availability of raw materials 60 18 40 12 90 27
Proximity to the firm’s market 70 14 95 19 60 12
Total weighted scores 67 66 64
From these results, the largest total weight is for Site A. It appears to be the best location.
Class work
What happens if we change the factor weights. Lets use the

following factor weights:
Skilled labor: 0.45; Raw Materials: 0.40; and Market: 0.15
Which site is best?
Class work
In this case, Site C appears to be the best choice with largest weight score.
Therefore, factor rating method is very sensitive to the weights assigned to
each factor.
QUANTITATIVE MODELS
Used to analyzing which can be measured in terms

of money.
Load-distance technique
Center of gravity model
Location cost- volume Analysis
LP/Transportation model
2. Center of gravity
Used to minimize distribution cost
Assist decision makers to balance cost and service

objective
➢Considers
Location of market
Volume of goods shipped to those markets
Shipping cost (distance covered)

Example
Let’s suppose your company wants to expand its logistics network
and locate a facility within a network of three existing facilities.
Given the following assumptions below, what are the coordinates
for the new potential location?
Let’s assume the following:

• Warehouse 1 has a daily outbound goods volume of 2,500 units
And the current coordinates of the existing facilities are:

Example
Distance in KM
WH3. (100, 150); 5000

150
100 WH2. (300, 100); 1300
50 WH1. (200,50); 2500
0
100 200 300 400
Given
Existing grid coordinate Volume
D1x= 200 V1= 2500
D2x= 300 V2= 1300
V3= 5000
D3x= 100
D1y= 50
D2y= 100
D3y= 1500
Solution
Distance in KM
150
WH3. (100, 150); 5000
new WH (Center of
gravity) . (158, 114) WH2. (300, 100); 1300
100
50 WH1. (200,50); 2500
0
100 200 300 400
3. Locational cost-volume analysis
Helps to conduct an economic comparison of location
alternatives
Can be numerically or graphically
• Steps
– Determine the fixed and variable cost for each location
– Plot the total cost lines for each location on the same graph
– Determine the location with the lowest cost for expected level of out put
Assumptions
• Fixed cost is constant for range of out put
• Variable cost is linear for range of out put
• The required level of out put can be estimated
• Only one product is involved
Count…
FC & VC for four potential plant locations are shown below
Location FC/Year VC/Year
A 250000 11
B 100000 30
C 150000 20
D 200000 35
a. Plot the total cost line for these locations on single graph
b. Identify the range of output for which each alternative is superior (i.e. has the
lowest cost)
c. If expected output at the selected location is to be 8000 unit/year, which location
would provide the lowest totalinfotesfish@gmail.com
cost
a. plot…assume output is 10000/year
TC (‘000) D
B
700
Location FC/Year VC/Year TC
600 C
A 250000 11 360000
500 A
B 100000 30 (10000) 400000
20 400
C 150000 350000
35
D 550000 300
200000
200
100
Q (‘000)
C superior A superior
B superior
0
infotesfish@gmail.com 2 4 6 8 10 12 14 16
b. The approximate ranges for which the various alternatives will yield the lowest
care shown on the graph. Note that location D is never superior. The exact ranges
can be determined by finding the output level at which lines B and C and A cross.
To do this, set their TC equations equal and solve for Q, the break-even output
level. Thus, for B & C.
c. From the graph, you can see that for 8000 unit
(B) (C) per year, location C provides the lowest total cost
100000+30Q= 150000+20Q
A= 338000
Q= 5000/year
For C & A B= 340000
150000+20Q= 250000+11Q C= 310000
Q= 11111
Behavioral impacts of facility location
Behavioral impacts
Quantitative and Qualitative analysis only consider the
cost and benefits of the alternative locations.
Behavioral Factors are the unquantifiable factors which

affects to take decision regarding facility/factory
locations.
Behavioral aspects of a location play influencing role for

success of business.
Behavioral impacts
• The behavioral aspects of each alternative locations
should be taken consideration for selection of location.
• They are:
✓ Cultural Difference
✓ Job Satisfaction
✓ Consumers’ Consideration
Cultural Difference
Culture is the norms and customs of the society.
It is differs form one community to another community, one

region to another region and one country to another country.
Culture influence the attitude of the people towards business.
Economic, social and cultural variations of locations directly

affects the location decisions of the organization.
Job Satisfaction
Job satisfaction directly reflects on employees motivation.
It is an individual’s emotional reaction to the job itself.
The degree of unionization, prosperity of the location determines
the value of attitude of labours.
❖ Job satisfaction ensures the following:
✓ Less Absenteeism - More Motivation

✓ Less Tardiness - Labour efficiency
✓ Less labour turnover - Less labour grievance
Consumers’ Consideration
Consumers are the main source of revenues of any organization.
Specially, service organizations have more consideration about

consumers.
 Such as banks, supermarkets and restaurants heavily emphasize customer
convenience.
Location decision should be taken consideration the behavior of

the customers and their satisfaction.
Part four
Strategic
Capacity
planning
Learning Objectives
Explain the importance of capacity planning.

Discuss ways of defining and measuring capacity.
Describe the determinants of effective capacity.
Discuss the major considerations related to developing
capacity alternatives.
Briefly describe approaches that are useful for evaluating
capacity alternatives
Definition - Capacity
‘Management
Capacity’ is referred
as the amount of
input resources
available to produce
relative output over
period of time.
‘Capacity’ is referred
‘Capacity’ is the to as maximum
ability of a given production capacity,
system to produce which can be attained
output within the within a normal
specific time period. working schedule.
CAPACITY (DEFINITION OF)
➢ It is the upper limit or ceiling on the load that an operating unit can
handle. It includes equipment, space, employee skills etc
Capacity is the maximum output rate that can be achieved by a facility. The facility
may be an entire organization, a division, or only one machine.
…. is the process of establishing the output rate that can be achieved by a facility.
The basic questions in capacity handling are:

• What kind of capacity is needed?
• How much is needed?
• When is it needed?
What is Strategic Capacity Planning?
• ‘Strategic Capacity Planning’ is crucial as

it helps the organization in meeting the
future requirements of the organization.
• Planning ensures that operating costs are

maintained at a minimum possible level
without affecting the quality.
✓ Goal
• It ensures that the organization remain • Balance between
competitive and can achieve its long-term long term SS &
growth plan. DD
Reasons for capacity planning
➢Changes in demand
➢ Changes in technology
➢ Changes in the environment
➢ Perceived threats and opportunities
Overcapacity- operating cost high
Under capacity- strained resources and loss of customers
IMPORTANCE OF CAPACITY DECISIONS
1. Impact the ability of the organization to meet future demands

2. Affect operating costs
3. Affect lead time responsiveness
4. are a major determinant of initial costs
5. Involve long-term commitment of resources
6. Affect competitiveness
7. Affect ease of management
8. are more important and complex due to globalization
9. need to be planned for in advance due to their consumption of
financial and other resources
CAPACITY definition and measures
o Can we measure capacity by birr (which requires updating)? Efficiency/utilizn. (%)
o Is there any single measures of capacity? Or tailored to the situation?
Business Inputs Outputs
Can manufacturing Labour hr., machine hr. No. of cars per shift
Hospital Available beds per month No. of patients per month
Oil refinery Refinery size Gallons/barrels of fuel per month
Restaurant No. of tables, seating capacity No. of meals served per day
Lecture rooms No. of chairs, class size No. of students in each room
Retail sales Square feet of floor space Revenue generated per day
Types of capacity
➢Design capacity (DC)
•Max. rate of output that can be achieved under ideal conditions
➢System/Effective capacity (EC)- expected variation
✓Max. output rate that can be sustained under normal conditions
✓ Design capacity minus allowances i.e. personal time, maintenance and scrap
✓EC<DC
➢Actual output- unexpected variations and demand
• Rate of output actually achieved
• Cannot exceed effective capacity – due to breakdowns, absenteeism, shortage of
materials
Capacity Measures of system effectiveness
EXAMPLE- EFFICIENCY/UTILIZATION
Design capacity = 50 trucks/day

Effective capacity = 40 trucks/day
Actual output = 36 units/day

= 90%
Efficiency = Effective capacity 40 units/ day

Utilization = = 72%
Design capacity 50 units/day
DETERMINANTS OF EFFECTIVE CAPACITY
▪ Facilities ▪ Operational Factors
▪ Product and Service Factors ▪ Supply Chain Factors
▪ Process Factors ▪ External Factors
▪ Human Factors
STRATEGY FORMULATION
Strategies are typically based on assumptions and

predictions about:
• Long-term demand patterns
• Technological change
• Competitor behavior
Capacity Cushion (CC)
Capacity cushion (CC)- extra demand intended to offset uncertainty

CC= 100%-utilization
STEPS OF CAPACITY PLANNING
➢ Estimate future capacity requirements
➢ Evaluate existing capacity and facilities and identify gaps
➢ Identify alternatives for meeting requirements
➢ Conduct financial analysis
➢ Assess key qualitative issues
➢ Select the best alternative for the long term
➢ Implement the alternative chosen
➢ Monitor results infotesfish@gmail.com

AMOUNT OF CAPACITY NEEDED
FORECASTING CAPACITY REQUIREMENTS
▪ Long-term considerations relate to overall level of capacity
requirements
▪ Difficult because the future demand and technology are uncertain
Factors affect long-term capacity decisions
• Multiple products
• Phasing in capacity: updated manufacturing facilities
• Phasing out capacity: outdated manufacturing facilities
• Short-term considerations relate to probable variations in capacity
requirements. Deals with the following strategies
• Inventories, backlog, hiring/firing employees, subcontracting
CALCULATING PROCESSING REQUIREMENTS
Calculating processing requirements requires reasonably accurate

• Demand forecasts,
• standard processing times, and
• available work time k
pD i i
NR = i =1
T
where
N R = number of required machines
pi = standard processing time for product i
Di = demand for product i during the planning horizon
T = processing time available during the planning horizon
CALCULATING PROCESSING REQUIREMENTS: EXAMPLE 1 (1 of 2)
Standard
Annual processing time Processing time
Product Demand per unit (hr.) needed (hr.)
#1 400 5.0 2,000
#2 300 8.0 2,400
#3 700 2.0 1,400

5,800
CALCULATING PROCESSING REQUIREMENTS: EXAMPLE 1 (2 of 2)
Capacity considerations
• Economies of scale
• Best operating level
• Diseconomies of scale
OPTIMAL OPERATING LEVEL
Average cost per room
Best operating
level
Economies of Diseconomies of scale

scale
250 500 1000

# Rooms
ECONOMIES OF SCALE
➢If the output rate is less than the optimal level,

increasing output rate results in decreasing average
unit costs
Reasons for economies of scale:
➢Fixed costs are spread over a larger number of units
➢Construction costs increase at a decreasing rate as facility size

increases
➢Processing costs decrease due to standardization

DISECONOMIES OF SCALE
If the output rate is more than the optimal level, increasing the output
rate results in increasing average unit costs
Reasons for diseconomies of scale
➢Distribution costs increase due to traffic congestion and shipping

from a centralized facility rather than multiple smaller facilities
➢Complexity increases costs
➢Inflexibility can be an issue
➢Additional levels of bureaucracy
Part Five Design of work system
Learning objectives
Explain the importance of work design
Briefly describe the two basic approaches of job design
Discuss advantages and disadvantages of specialization
Explain work measurement and common methods work measurement
Discuss compensation and incentives
Introduction
Designing a work system is part of developing an operations strategy
Involves
• Job design
• Work measurement
• Establishment of time standard
• Worker motivation and compensation
Focus on human efforts (i.e. work)
Oldest aspect of OM, was de-emphasized

Job design
Job design is the function of specifying the work activities

of an individual or group in an organizational setting.
it specifies the content of the job.
Objectives of job design

Productivity
To meet the requirements of the organization
Safety to meet jobholder’s personal requirement
QWL
Job design answers…
Who What Where When Why How
Geographic Orgn.al
Mental and Tasks to be Time of day; Methods of
rationale for
physical cxcs performed locale of the time of performance
job; objectives
of the work orgn. occurrence in and and
force Location of the work motivations of motivation
workers flow workers
Ultimate
job
structure
Job design….
Consistent with organizational goals
Write it down!
Understand and communicate it
Involve employees and management
Factors in job design
Technical feasibility
The job must be physically and mentally doable
Eliminate unreasonable requirements
Economical feasibility
The cost should less than the value it adds
Behavioral feasibility
Intrinsic motivation by doing the job
Job design schools
1. Efficiency school refinement of Taylor scientific management theory

It emphasize on:
– systematic,
– logical approach to job design.

2. Behavioral approach
➢Emphasize on the satisfaction of need and want
▪ It reminded that managers of the complexity of human beings and
▪ The efficiency approach is not appropriate for every situation
▪ It emerged in US when job designer identified about the disappointment of
workers due to their job
✓ Specialization was the main issue of disagreement between the
approaches
Specialization
Specialization- work that concentrates on some aspect

of a product or service.
Describes jobs that have a very narrow in scope
Major advantages and disadvantages of specialization in business
Specialization Management Employees
a. Simplifies training a. Low education/skill

Advantages b. Higher productivity b. Minimum responsibilities
c. Low wage costs c. Little mental effort needed
a. Difficult to motivate a. Monotonous and boring

quality b. Limited opportunities for
Disadvantages b. Worker dissatisfaction, advancement
absenteeism, high turn- c. Little control over work
over, disruptive tactics, d. Little opportunity for self-
poor attention to quality fulfillment
c. Lack of flexibility
Behavioral approach to job design
• Give a larger • Workers • increasing
Job enrichment
Job enlargement
Job rotation
portion of the periodically responsibility
total task exchange jobs for planning and
• Horizontal coordinating
loading • Enable them to tasks
• Variety of skill fill in for others • Vertical loading
required in the event of
• Suitable in sickness or
production to absenteeism
allow employees • Avoid
to work in the monotonous
sequence jobs
What are examples of each? infotesfish@gmail.com

Core job dimensions
Skill variety: the extent to which a job requires a worker to use different skills, abilities,
or talents
Task identity: the extent to which a job involves performing a whole piece of work
from beginning to its end
Task significance: the extent to which a job has an impact on the lives or work of
other people in or out of the organization
Autonomy: the degree to which a job allows a worker the freedom and independence
to schedule work and decide how to carry it out
Feedback: the extent to which performing a job provides a worker with clear information
about his/her effectiveness
Motivation
The previous ways increase the motivational power of

jobs by increasing satisfaction hence improve quality
of work life (QWL).
Productivity
Employee-mgmt. relation
Trust
Teams
Team?
Synergy
Diversity – various skill
Forms of team
Short-term
Long-term i.e. self-directed team- groups empowered to make a
certain changes in their work processes.
Motion study
Is a systematic study of human motion used to perform an operation
Its’ purpose is:

To eliminate unnecessary motion and Improved
productivity
To identify the best sequence of motions for maximum efficiency.
Techniques
• Motion study principle- guidelines for designing motion-efficient work
• Analysis of therbligs- basic elemental motions
• Micro motion study- use of slow motions/replay to study motions
• charts
Work measurement
Work measurement is a process of analyzing jobs for the purpose of setting
time standards.
❖ Determines how long it should take to do a job.
Work measurement is the process of estimating the amount of worker time

required to produce one unit of output.
Goal of work measurement is to develop labor standards that can be used for
planning and controlling operations.
Why use it?
Scheduled work and allocate capacity
Motivate and measure work performance
Evaluate performance
Provide benchmark
Job times are vital for
• Man power planning
• Estimating labor cost
• Scheduling
• Budgeting
• Designing incentive system and
• Moreover from worker point of view time standard provide an indication

of expected out put.
Standard time
The standard time is the time it should take a qualified operator, working at
a sustainable pace and using the appropriate tools and process, to do the job.
The standard time is the sustainable time it takes to do either a whole job or a
portion or element of a job.
Why should a company set the standard time for a job? Companies use standard
for costing, evaluating, and planning.
Example: Labor Standard
In a time study of a manufacturing operation, the average time observed to

complete a product was 8.6 minutes. The performance rating applied to the
observed worker was 0.95 and the allowance during an 8-hour shift was 12.5%
or 60 minutes.
Solution
Compute the labor standard.
• Observed time = 8.6 minutes
• Performance rating = 0.95
• Allowance fraction = 0.125
Normal time = Observed time x Performance rating
8.6 x 0.95
8.17 minutes
Standard Time = Normal time / (1 - Allowance)
8.17 / (1 - .125)
8.17 / (0.875)
9.337 minutes
End

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Chapter Three

Design of the Operation System

• Product and service

Part Three • Facility location and layout

Product and service design

By the end of this session, you should be able to:

✓ Explain the strategic importance of product and service design

✓ List some key reasons for design and redesign

✓ Discuss the importance of standardization and Mass customization

✓ Discuss the importance of legal, ethical, and sustainability

✓ Briefly describe the phases in product design and development

Product/Service design plays a strategic role in helping an

Sending product to customers is not enough, there should be

Refine existing products and services

Develop new products and services

Formulate quality goals

Formulate cost targets

Construct and test prototypes

Market opportunities and threats

be competitive by offering new products or services.

to make the business grow and increase profits

Designers must be careful to take into account for

Sustainability- don’t harm the ecological system by used the

How much standardization

Range of operating conditions

Standardized products are immediately available to customers.

Fewer parts. reduction in variety

A strategy of producing standardized goods but incorporating

Also known as “build to order” or “made to order”

Answers what, where, when, and how customers want a product

No change Representation Change

Customization Customization • present a standard product

Reliability- the ability of a product, part, or system to perform its

Creation of value and customer satisfaction

Employing similar production system

Possibility of standardization and customization

• Service cannot be • Service cannot be

Being consistent with the organization mission

Being user friendly

Being robust if variability is a factor

Being easy to sustain

Being cost effective

Having value that is obvious to customer

Explain the strategic importance of process selection

Describe the basic processing types

Process selection- the development of the process

It specifies in detail the processes and sequences

Process Planning is among System Design duties in OM.

• Key aspects of process strategy

Flexibility Serve as guide to selecting an appropriate

Produced and delivered as one-of- a- kind or in small quantities

Designed to meet specific customers specifications

Example; ships, wedding, building, surgery etc.

2. option, or assemble-to-order, goods and service

Are configurations of standard parts, subassemblies, or services

Example; computers, travel agent services, machine tools

3. Standard, or make-to-stock, goods and services

Made according to a fixed design