Plant Design Day 5

Day 5
11. Logistic and design of transport systems

12. Design of Warehouse
13. Location of Plant
11. Logistic and design of transport systems
Definition of logistics
Took its origin in the logistics of the supply of Armed Forces (military
logistics). In its modern development, the term "logistics" is derived from
French. The verb "loger" means support, accommodate, care, supply.
The right product in the right amount, in the right quality, at the right
place, at the right time, at the right costs, for the right customer.
Logistics is the General design of the information- and material flows

across the whole supply chain from the first supplier to the last customer.
A Vocational Degree programme developed by MCAST

Logistics Definition #1
“The process of planning, implementing, and controlling the

efficient, effective flow and storage of goods, services, and
related information from point of origin to point of
consumption for the purpose of conforming to customer
requirements”.
.
The professional organization for individuals who have an interest in logistics management
“The art and science of management, engineering, and

technical activities concerned with requirements, design,
and supplying and maintaining resources to support
objectives, plans, and operations.”
“Logistics is the science of planning and carrying out the movement

and maintenance of forces. In its most comprehensive sense, those
aspects of military operations which deal with: (a) design and
development, acquisition, storage, movement, distribution,
maintenance, evacuation, and disposition of materials; (b)
movement, evacuation, and hospitalization of personnel; (c)
acquisition or construction, maintenance, operation, and disposition
of facilities; (d) acquisition or furnishing of services.”
North Atlantic Treaty Organization (NATO)

Main logistics activities and decisions:
➢ cooperate with marketing to set customer service levels,
➢ facility location decisions,
➢ transportation activities (i.e. transportation mode selection,
vehicle scheduling, carrier routing),
➢ inventory management (inventory short -term forecasting,
planning and control, cooperate with production to calculate
EOQ, sequence and time production ),
➢ information collection and flows and order processing,
➢ warehousing and materials handling,
➢ packaging and packing.
Logistic – four levels
Source: Sihn IPA Vienna

A view of business logistics in a firm

Logistic functional areas

Relationship between deliverability, delivery reliability and delivery
time
Market demand Own capabilities

Order
date
Required
Delivery Promised delivery time
delivery time
time
Delivery
Delivery
date
reliability
Desired
Requested deadlines Confirmed
date date
Deliverability

The competitiveness of a company is determined by
➢ its ability to adjust its product offerings and performance to

the changing market needs and
➢ its capability to realize the existing potentials in purchasing,
production and distribution.
Therefore, the long-term survivability of a company is measured by

target values like
▪ relative competitive position,
▪ growth in sales,
▪ increase in productivity
▪ and the return on equity.
At the same time, delivery reliability and delivery time have
established themselves as equivalent buying criteria alongside
product quality and price.
High delivery reliability and short delivery times for companies

demand high schedule reliability and short throughput times in
production .
In order to manufacture efficient under such conditions, it is

necessary to generate a high logistic performance and to minimize
logistic costs simultaneously.
Just-In-Time (JIT) - Production
Definition
Just-in-time inventory and production system is a comprehensive inventory
and manufacturing control system which no materials are purchased and no
products are manufactured until they are needed.
The main goal is to eliminate or reduce inventories in every stage of
production.
Wiendahl, IFA Hannover

Load-oriented order release

Logistic flow model of a production enterprise
order / delivery calls
purchase
purchase
goods entry
warehousing /
goods withdrawal/ the delivery items
order release
department
system
work
manufacturing
process chain
order completion/
warehouse entry warehousing the
warehouse withdrawal/ semi finished products
assembly order release
assembly
assembly order
completion warehousing the
warehouse withdrawal/ finished goods
transport
distribution
customer customer customer delivery customer
Planning and design of the logistics system - material flow
Moving of goods in any direction over

Material flow Transport limited distance using technical equipment
and persons (unless the field of
transportation equipment)
Warehouses Stocking of goods in short-term
storing stay (also known as buffer)
Create, modify or custom
maintaining a temporary
Material given spatial arrangement of
handling geometrically defined bodies.
The functions may overlap, for example: storing can be within flexible manufacturing
system.
Ultimate Factories - Coca Cola
The core tasks of factory planning, the design of material handling system for
- Production material (semi-finished products, parts, modules, products)
- Production equipment (tools, devices, etc.)
Other considerations
International Logistics
• Through the implementation of international logistics, the
firm can implement cost-saving programs such as just-in-
time (JIT), electronic data interchange (EDI), and early
supplier involvement (ESI).
• The two phases of the movement of materials include:
– materials management, or the timely movement of
materials, parts, and supplies.
– physical distribution, or the movement of the firm’s
physical product to its customers.
25
The International Supply Chain
Suppliers Corporation Customers
Domestic/Impo Inbound Outbound Domestic/Export

rt Throughflow
Materials Materials Distribution
Sourcing
Order Order
Order Order Processing Placement
Processing Processing
Supplier-Firm Transportation Transportatio

Interface
n
Costumer-Firm
Physical
Materials Distribution
Transportation Transportation Interface
Management Management Physical
Customer
Service Distribution
Management
Storage Storage Inventory Storage Inventory Inventory

Management Management Management
Forward and Reverse Flow of Information, Products, and Funds 26

Considerations for Selecting a
Mode of Transport
Transit Time Predictability
Cost Non-economic
Factors 27
Export Documentation
• A bill of lading is a contract between the exporter and the
carrier indicating that the carrier has accepted
responsibility for the goods and will provide transportation
in return for payment.
• A commercial invoice is a bill for the goods stating basic
information about the transaction, including a description
of the merchandise, total cost of the goods sold, addresses
of the shipper and seller, and delivery and payment terms.
• A freight forwarder specializes in handling export
documentation.
28
International Inventory Issues
• Inventories tie up a major portion of corporate funds,
therefore proper inventory policies should be a major
concern to the international logistician.
• Just-in-time inventory policies minimize the volume of
inventory by making it available only when needed.
• The purpose of establishing inventory systems are:
– to maintain product movement in the delivery pipeline
– to have a cushion to absorb demand fluctuations
29
International Packaging Issues
• Packaging is instrumental in getting the merchandise to
the destination in a safe, presentable condition.
• Because of the added stress of international shipping,
packaging that is adequate for domestic shipping may be
inadequate for international shipping.
• Packaging considerations that should be taken into
account are environmental conditions and weight.
• One solution to the packaging problem has been the
development of inter-modal containers.
• Cost attention must be paid to international packaging.
30
Storage Facilities
• A stationary period is involved when merchandise
becomes inventory stored in warehouses.
• The location decision addresses how many distribution
centers to have and where to locate them.
• Storage facilities abroad can differ in availability and
quality.
• The logistician should analyze international product sales
and then rank order products according to warehousing
needs.
31
Special Trade Zones
• Foreign trade zones are areas where
foreign goods may be held or processed
and then re-exported without incurring
duties.
• Trade zones can be useful as
transshipment points to reduce logistics
cost and redesign marketing approaches.
• Governments and firms benefit from
foreign trade zones.
32
Export Processing Zones and
Economic Zones
• In export processing zones, special rules apply that are
different in other regions of the country.
• These zones usually provide tax-free and duty-free
treatment for production facilities whose output is
destined abroad.
• Through the creation of special economic zones, the
Chinese government has attracted many foreign investors
bringing in millions of dollars.
33
Centralized Logistics Management
• In international logistics, the existence of a
headquarters staff that retains decision-making power
over logistics is important.
• To avoid internal problems, both headquarters staff and
local management should report to one person.
• This individual can contribute an objective view when
inevitable conflicts arise in international logistics
coordination.
34
Decentralized Logistics
Management
• When a firm serves many diverse international markets,
total centralization might leave the firm unresponsive to
local adaptation needs.
• If each subsidiary is made a profit center in itself, each one
carries the full responsibility for its performance.
• Once products are within a specific market, increased input
from local logistics operations should be expected and
encouraged.
35
Outsourcing Logistics Services
• The systematic outsourcing of logistics
capabilities is a third option.
• By collaborating with transportation
firms, private warehouses, or other
specialists, corporate resources can be
concentrated on the firm’s core
product.
• One-stop logistics allows shippers to
buy all the transportation modes and
functional services from a single carrier.
36
Logistics and Security
• After the terrorist attacks of 2001, companies have to
deal with the fact that the pace of international
transactions has slowed down and that formerly routine
steps will now take longer.
• Logistics systems and modern transportation systems are
often the targets of attacks.
• The need to institute new safeguards for international
shipments will affect the ability of firms to efficiently
plan their international shipments.
37
Logistics and the Environment
• Since environmental laws and regulations differ across
the globe, the firm’s efforts need to be responsive to a
wide variety of requirements.
• Reverse distribution systems are instrumental in
ensuring that the firm not only delivers the product to
the market, but also can retrieve it from the market for
subsequent use, recycling, or disposal.
• Companies need to learn how to simultaneously
achieve environmental and economic goals.
38
Space shuttle fuselage transportation
Space Shuttle Full Fuselage Trainer Loaded Into Super Guppy
787 fuselage transportation

787 Fuselage delivery Alenia Aermacchi's plant
Gas Turbine transportation

Record Breaking Heavy Lift Transport of 370 tons Alstom GT26
Electronics logistics
Rutronik Logistics on the fast track
F1 logistics
F1 Logistics Feature
Material flow costs

Logistic Units
Example of the reduction of operations
by forming logistic units
From the bottling plant to truck loading of 1000 pcs 0.7 l wine bottles:
1000
1000
1000 1000 1000 50 17
1000
E
Before palletization:
From the filling in hand cars 1000 operations

From carts stacking in racks 1000 operations
From racks in handcarts 1000 operations
From hand car in labeling 1000 operations
From labelling to packing table 1000 operations
From packing table in the box 1000 operations
The crate loaded onto handcarts 50 operations
From handcarts load in the truck 17 operations Source: Sihn IPA Vienna
6067 operations
Logistic Units
Example of the reduction of operations
by forming logistic units
From the bottling plant to truck loading of 1000 pcs 0.7 l wine bottles:
2 2
1000 1000
After palletizing:
From filling to the labeler
1000 operations
From labelling in the box pallet
1000 operations
Box pallet transportation to warehouse
2 operations
From the warehouse to load into the truck
2 operations Source: Sihn IPA Vienna
2004 operations
Logistic Units
Transport systems: Logistics unit

Production unit - Storage unit - Transportation unit - Packaging unit -
Order unit - Picking unit - Shipping unit

Logistic Units
Possibilities for forming logistic units
Logistic
unit
Folding Packaged Packaged

Container boxes Pallets goods
units
Large Small
containers containers Box pallet Flat pallet Stake pallet
An important consideration in the choice of the logistic unit is to choose an unit which allows
uninterrupted transport chain.

Logistic Units
Pallet (DIN 15 145 and DIN 55405)
is transferable platform with or without a body, which serves to goods in order to form a
loading unit for transporting, storing and stacking with forklift trucks or other mechanical
devices.
Flat pallet Container pallet
Box-
pallet
Stake pallet
Grid box
pallet
Tank
pallet
Pallet with an extension frame Silos or

bunkers
pallet

Logistic Units
Euro pallet
• EUR-pallet or European four-way flat pallet made of wood, 800 x 1200 mm, according to UIC
standard 435/2 (content coincident with ÖNORM A 5300) = Pool pallet

https://www.srs-i.com/

Forklift trucks
Under trucks refers to all types of forklifts, tractors,

cars with and without a lifting device and
commissioner.
- manual control
- manual / automatic control: driver's workload in
specific driving situations.
- automatic control: AGV (automated guided vehicle)

Forklift truck
• Suitable for the manipulation of palletized goods.

• For use on short, medium and long distances.
• Load capacity: 1200 kg to 3000 kg.
• Designed as a hand pallet truck or electric pallet truck.
Advantages and disadvantages of hand forklift trucks:
+ Low capital investment

- Excessive force

Pallet truck- Types
Electric pedestrian pallet truck
Stand up control electric pallet truck Load capacity : 2200 kg
Load capacity : 2000 kg Working aisle width: 2130 mm
Working aisle width: 2274 mm Turning radius: 1620 mm
Turning radius: 1749 mm

Pallet truck - Types
Side seated-position electric pallet truck
Load capacity : 3000 kg Electric pedestrian pallet truck
Working aisle width: 3875 mm Load capacity : 2000 kg
Turning radius: 3026 mm Working aisle width: 2530 mm

Pallet truck - Types
Electric pedestrian pallet truck

Load capacity : 2200 kg
Working aisle width: 2130 mm

Trucks
Counter-balance pedestrian operated lift truck Wheel-supported truck
Reach truck High rack stackers Source: Sihn IPA Vienna

Counterbalance pedestrian operated lift truck
▪ Type: four-wheel truck, tricycle truck

▪ Drive unit: electric, diesel or LPG (Liquefied Petroleum Gas) drive
▪ Capacity: 1000 kg to 7500 kg
▪ Standard lift up to 7 m

Counterbalance pedestrian operated lift truck
Application criteria:
• Truck is manipulating device
• As a pure transport equipment due to high operating costs less suitable
• Economically optimal use of manipulation and transport up to 200 m.
• Heavy weight loads lead to a strong floor
• Truck driver has poor visibility

Counterbalance pedestrian operated lift truck - Types
Diesel and LPG lift truck Electric three-wheeled lift truck
Load capacity : 3000 kg Load capacity : 1600 kg
Working aisle width: 1285 mm Working aisle width: 1200 mm
Turning radius: 2360 mm Turning radius: 1545 mm

Wheel-supported truck
• Load capacity: 1000 kg to 2000 kg

• Standard lift: up to 5350 mm

Wheel-supported truck - Types
Electric hand truck Electric pedestrian truck
Load capacity : 1000 kg Load capacity : 1600 kg
Working aisle width: 3170 mm Working aisle width: 2278 mm

Reach trucks
• Reach trucks are used in rack storage for storage

and retrieval of palletized goods.
• Standard lift: up to 11.5 m
Compared to conventional forklift trucks, reach trucks obtain up to 40% better

collocated storage room.

Reach trucks

Reach trucks – Types
Electric Reach truck Electric multi-directional truck
Load capacity: 1000 kg Load capacity: 2000 kg
Working aisle width: crosswise : 2192 mm Working aisle width: crosswise : 2367 mm
lengthwise: 2592 mm lengthwise: 2767 mm

High rack stackers

• Lifting height: up to 14.5 m
• Smaller aisle width requirement (1.4 m) results
from swiveling and telescopic forks.
• The steering gear is carried by the guide rails
(wear!) or inductive (no wear and tear).

High rack stackers
High rack stacker with swivel fork

High rack stackers

High rack stackers - Types
High rack and picking
Three-way truck Load capacity: 1500 kg
Load capacity: 1250 kg Working aisle width: 1200 mm
Working aisle width: 2100 mm Road with rail guidance: 1640 mm
Ast bei Schienenführung: 1840 mm Turning radius: 2497 mm

Order pickers
• Vertical order pickers • Horizontal order pickers

Order pickers
A distinction is made between horizontal

and vertical order pickers.
Load capacity: 1000 kg to 2000 kg
Picking height: 1 Rack level to a maximum of
10.4 m
Horizontal order pickers

Vertical order pickers

Order pickers

Order pickers - Types
Vertical order pickers
Load capacity: 1000 kg Horizontal order pickers
Working aisle width: 3115 mm Load capacity: 2000 kg
Road with rail guidance: 1400 mm Working aisle width: bis 4318 mm
Turning radius: E-lifting frame: 1530 mm Turning radius: 3368 mm
ZZ-Hubgerüst: 1560 mm

12. Design of Warehouse
The nature and importance of warehousing

Warehousing provides time and place utility for raw materials, industrial
goods, and finished products, allowing enterprises to use customer service
as a dynamic value-adding competitive tool.
Functions of warehousing include:
➢ Transportation consolidation
➢ Product mixing & Cross-docking
➢ Service
➢ Protection against contingencies
& Smoothing

A transportation consolidation program seeks to eliminate wasted
space and inefficiencies in transporting goods from point A to point B and
beyond.
Essentially, a transportation consolidation program seeks to eliminate

partially-filled full truckloads by taking advantage of all existing vehicles.
Product mixing means mixing products from multiple supplier/production
facilities to shipment to a single customer/plant.
The basic benefit of mixing is to reconfigure transportation as it flows from

origin to destination. This usually results in significant transportation costs.
Crossdocking has the same effect as mixing and typically serves as
"distribution mixing centre" . Example: no storage involve, receive-sort-ship
action
• Avoids placing goods into storage

• Requires suppliers provide effective addressing (bar codes, RFID) and
packaging that provides for rapid trans-shipment.
Warehousing as balance of unsteadiness

Areas and functions of a warehouse

Storage integrated into the material flow
Extensions (perpendicular to the flow of material)
Manufacturing Manufacturing
I II MATERIAL
FLOW
Input Inter Output

warehouse warehouse warehouse

➢ Errors / problems in the organizational structure
➢ Transportation costs
➢ Administrative costs
➢ Cost of storage (Hall, forklifts, …)
➢ Rest and dead stock
➢ Personnel costs

Basic principles for warehouse planning

Storage key figures
Instead of SU (Stock Unit) you might find SKU (Stock Keeping Units)
Logistics design decisions
• Determine the appropriate number of warehouses
• Determine the location of each warehouse
• Determine the size of each warehouse
• Allocate space for products in each warehouse
• Determine which products customers will receive from each
warehouse

The number of warehouses
Factors affecting the number of

warehouses:
• Inventory costs
• Warehousing costs
• Transportation costs
• Cost of lost sales
• Maintenance of customer
service levels
• Servicing small quantity
buyers

Industry benchmarks: Number of distribution centers

Basic warehouse operations
• Movement
– Receiving
– Put-away
– Order picking
– Shipping
• Storage
– Stock location
– Warehouse Management System
(WMS)

Warehouse layout and design
• Develop a demand forecast.

• Determine each item’s order
quantity.
• Convert units into cubic
footage requirements.
• Allow for growth.
• Allow for adequate aisle space
for materials handling
equipment.

• Provide for the transportation

interface.
• Provide for order-picking space.
• Provide storage space.
• Provide recouping, office, and
miscellaneous spaces.

Layout and Design Principles:

➢ Use one story facilities where possible.
➢ Move goods in a straight-line.
➢ Use the most efficient materials
handling equipment.
➢ Minimize aisle space.
➢ Use full building height.

Warehouse productivity metrics
• Kg (or SKU) per day (or SKU/year or Kg/year)
• Employees per kilo moved
• Kg unloaded per hour
• Kilo picked per hour
• Kilo loaded per hour
• Percentage of orders correctly filled
• Productivity ratio = kilo handled/day divided by labour hours/day
• Throughput = amount of material moved through the system in a
given time period

• Capacity → amount of material [Kg or SKU] storable at one time
• Warehouse Throughput → amount of material moved through the

system in a given time period [Kg/year or SKU/year]
𝑬𝒇𝒇𝒆𝒄𝒕𝒊𝒗𝒆 𝑺𝒖𝒓𝒇𝒂𝒄𝒆
• Surface Utilization Rate → 𝑺𝑼𝑹 =
𝑻𝒐𝒕𝒂𝒍 𝑺𝒖𝒓𝒇𝒂𝒄𝒆
𝑬𝒇𝒇𝒆𝒄𝒕𝒊𝒗𝒆 𝑽𝒐𝒍𝒖𝒎𝒆
• Volume Utilization Rate → 𝐕𝑼𝑹 =
𝑻𝒐𝒕𝒂𝒍 𝑽𝒐𝒍𝒖𝒎𝒆
𝑵𝒐
• Selectivity Index → 𝑺𝑹 = • No is the number of items that can be
𝑵𝒕
moved without handling an other item
• Nt is the number of itmes

𝒉𝒐𝒖𝒓𝒔
𝐌𝐚𝐧𝐩𝐨𝐰𝐞𝐫 [ ]
𝒚𝒆𝒂𝒓
• Manpower Index → 𝐌𝐈 = 𝑺𝑲𝑼
𝑾𝒂𝒓𝒆𝒉𝒐𝒖𝒔𝒆 𝑻𝒉𝒓𝒐𝒖𝒈𝒉𝒕𝒑𝒖𝒕 [𝒚𝒆𝒂𝒓]
𝒌𝑾𝒉
𝐄𝐧𝐞𝐫𝐠𝐲 𝐂𝐨𝐧𝐬𝐮𝐦𝐩𝐭𝐢𝐨𝐧 [𝒚𝒆𝒂𝒓]
• Energy Use Index →𝐄𝐔𝐈 = 𝑺𝑲𝑼
𝑾𝒂𝒓𝒆𝒉𝒐𝒖𝒔𝒆 𝑻𝒉𝒓𝒐𝒖𝒈𝒉𝒕𝒑𝒖𝒕 [𝒚𝒆𝒂𝒓]
▲EUI could be expressed in terms of kWh/m2

Σ 𝑰𝒊 𝑻𝒊
Average Stock Inventory → 𝐀𝐒𝐈 = [sku]
Σ 𝑻𝒊
• Ii is the inventory [SKU] in the period i

• Ti is the time of Stocking in the period i
𝒀𝒆𝒂𝒓𝒍𝒚 𝑷𝒓𝒐𝒅𝒖𝒄𝒕 𝑭𝒍𝒐𝒘 [€/𝒚]

Inventory Turnover → 𝐈𝐓 =
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝒀𝒆𝒂𝒓𝒍𝒚 𝑺𝒕𝒐𝒄𝒌 𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚 𝑽𝒂𝒍𝒖𝒆 [€/𝒚]
▲In some cases Inventory Turnover can be also found as Stock Rotation

Example 1 Trim I II III IV
N. Pcs 100 300 150 250
100 ×3 +300 ×3+150 ×3+250 ×3[𝑝𝑐𝑠 ×𝑚𝑜𝑛𝑡ℎ𝑠]

𝐴𝑆𝐼 = = 200 pcs
3+3+3+3 [𝑚𝑜𝑛𝑡ℎ𝑠]
Example 2
date in out Inventory 𝑻𝒊 [days] 𝑰𝒊 𝑻𝒊
1/1/14 213 2 426

3/1/14 24 237 7 1659
10/1/14 35 202 7 1414
17/1/14 7 209 6 1254
23/1/14 67 276 2 552
25/1/14 34 242 6 1452
31/1/14 202
Σ 30 6757 6757 [𝑝𝑐𝑠 ×𝑑𝑎𝑦𝑠]
𝐴𝑆𝐼 = = 225,2 SKU
30 [𝑑𝑎𝑦𝑠]
Determination of Economic order quantity (EOQ)
• Economic order quantity (EOQ) is the order quantity that
minimizes total inventory holding costs and ordering costs.
• Assumptions:
– Items are withdrawn from stock continuously at a constant demand
rate (units/time unit).
– Items are produced or ordered Q units at a time, and all Q units arrive
instantaneously, i.e., there is no lead time.
– This is a continuous review process, i.e., we look at the inventory
continuously and when it reaches zero, ordered material is received.
X(t)
-a
Q
t
T
The single-item EOQ formula finds the minimum point of the following
cost function:
Total Cost (TC) = purchase cost + ordering cost + holding cost
In equations:
Q - order quantity
Q* - optimal order quantity
D - annual demand quantity
K - fixed cost per order, setup cost (/order).
c - unit purchasing or production cost (EUR/unit).
h - annual unit holding cost (EUR/unit/time unit).
X(t) - inventory on hand at time t.
T - cycle order time (time between consecutive orders).
• Purchase cost = purchase unit price × annual demand quantity.
c×D
• Number of orders = annual demand quantity / order quantity.
D/Q
• Ordering cost: fixed cost per order × number of orders .
K × D/Q
• Holding cost: annual unit holding cost × the average quantity in stock.
h × Q/2
• Total cost:
KD hQ
TC = cD + +
Q 2
• To determine the minimum point of the total cost curve, partially
differentiate the total cost with respect to Q (assume all other variables
are constant) and set to 0:
KD h
− 2
+ =0
Q 2
Example 4:
Calculate economic order quantity (EOQ) for annual demand of
24000 pcs. Fixed cost per order is 400 EUR/order, and annual unit
holding cost is 1,2 EUR/pcs/year. Production cost is 3 EUR/pcs.
D = 24000 pcs/year
K = 400 EUR/order
h = 1,2 EUR/pcs/ye ar
c = 3 EUR/pcs
2KD 2  400  24000

Q* = = = 4000 pcs/order
h 1,2
Q* 4000 1
T* = = = = 2 months
D 24000 6
KD hQ *
TC * = + cD + = 2K Dh + cD = 2  400  24000  1,2 + 3  24000
Q* 2
TC * = 76800 EUR/year
Example 5: Design Capacity of a tank
Design the service supply and minimum capacity of a tank
given knowing the hourly request of the users (in the following
table).
Starting Finishing Flow Qi
Time i
[h] [h] [l/h]
1 0 8 200
2 8 10 240
3 10 13 340
4 13 17 280
5 17 24 250
I. Analyse the demand of the user

I. Create a Column Dii, II. Create a Column Dii*Qii III. Calculate the
which is the duration of which represents the cumulative request
the ith
th interval request for of the ith
th
interval
IV. Calculate the

average request
II. Analyse the filling of the buffer

I. Create a Column Qb_i = Qm-Qi, II. Create a Column Vb_i = Qb_i *Di, which
which is the rate at which the represents the request for of the
buffer is filling/emptying. quantity that filled/emptied during ith
interval.
III. Create a Column Vb(t),

which represents the
inventory level during
ith interval.
iii. Analyse the production

I. Create a Column Qp_i = Qm*Di,
which is the production during
ith interval. II. Create a Column Vp(t),
which represents the
production during the
whole production
time.
The total daily production
(the final value) will match
the total daily request.
IV. Synthesises od findings
II. Size of the buffer will be the max

I. The supply shall be dimensioned
of the inventory level trough the
on the Qave, which is the average
day.
demand of the customer.
Take into consideration safety
cushions.
Example 6: Store
EVT ltd is renting a warehouse with the following having the sizes: H=4m x L=32m x W= 20m.
In the middle of the longest side there is the only door (w=2m).
The SKU are pallets (1m x 1m x 1m) that can be stack up to 3, no racks are present in the
warehouse (consider the gap between pallets is negligible).
The SKU are loaded/unloaded one at a time on/from a truck parked in the area outside the
warehouse by a 3 ton fork lifter that requires aisles of 2m.
The handling of a pallet does not have to cause the handling of more than another two pallets.
a. Sketch at least 2 possible layouts of the warehouse. For the each layout calculate the
maximum capacity, the Surface and Volume Utilization Rate, the Selectivity Index.
Choose the one that you believe will minimize costs (briefly explain why).
b. If the yearly product flow is 3000 sku/year and knowing that 3 people are employed (8 hr
per 250 days/year) and Consumption of Energy is 48 MWh/year, calculate the Manpower
Index and the Energy Use Index.
c. If the yearly product flow is 3000 sku/year and knowing that the average inventory in the
1st trimester was 350 sku, in the 2nd trimester it was 650 sku and in the 2nd semester 480
sku, calculate: the Annual Average Stock Inventory and the Inventory turnover.
d. Knowing that the Annual Product Flow D is 3000 sku/yr, the Ordering Cost k is 1800
€/order, the Holding Cost h is 50€/sku yearly and that the Purchasing Cost c is 650 €/sku,
Calculate the Economic Order Quantity and the Minimal Cost per year.
Example 6: Store
➢ Pallets (1m x 1m x 1m) can be stack up to 3, no racks are present in the

warehouse (consider the gap between pallets is negligible) + The handling of a
pallet does not cause the handling of more than another two pallets. → each
pile must be accessible! And note that accessible from only one side.
➢ This means that I will have line-blocks.
➢ Two possible options are option A and B in the following slides.
Please note that these are not the only options available, bur they are plausible
ones.
Example 6: Store
Option A
Example 6: Store
Option B
Example 6: Store
➢ Capacity
A. (32+9*30)*3=906 sku
B. (40+14*18)*3=876 sku
➢ SUR
Being the total surface of the warehouse 640 m2
A. 302/640= 0,4719
B. 292/640= 0,4563
➢ VUR
Being the total surface of the warehouse 2560 m3
A. 906/2560=0,3533
B. 876/2560=0,3422
➢ SI
In both cases SI=0,3333, since only 1 raw out of 3 can be immediately accessed without
touching the other pallets.
A B
Capacity 906 876
SUR 0,4719 0,4563
VUR 0,3533 0,3422
SI 0,3333 0,3333
Example 6: Store
If the yearly product flow is 3000 sku/year and knowing that 3 people are employed (8 hr per
250 days/year) and Consumption of Energy is 48 MWh/year, calculate the Manpower Index
and the Energy Use Index.
𝒉𝒐𝒖𝒓𝒔 ℎ𝑜𝑢𝑟𝑠
𝐌𝐚𝐧𝐩𝐨𝐰𝐞𝐫 [ ] 3∗8∗250 [ ] ℎ𝑜𝑢𝑟
𝒚𝒆𝒂𝒓 𝑦𝑒𝑎𝑟
➢Manpower Index → 𝐌𝐈 = 𝑺𝑲𝑼 → MI = 𝑆𝐾𝑈 =2[ ]
𝑾𝒂𝒓𝒆𝒉𝒐𝒖𝒔𝒆 𝑻𝒉𝒓𝒐𝒖𝒈𝒉𝒕𝒑𝒖𝒕 [ ] 3000[ ] 𝑠𝑘𝑢
𝒌𝑾𝒉 𝑘𝑊ℎ
𝐄𝐧𝐞𝐫𝐠𝐲 𝐂𝐨𝐧𝐬𝐮𝐦𝐩𝐭𝐢𝐨𝐧 [ ] 48000[ ] 𝑘𝑊ℎ
➢Energy Use Index →𝐄𝐔𝐈 = 𝑺𝑲𝑼 → EUI = 𝑆𝐾𝑈 = 12[ ]
𝑾𝒂𝒓𝒆𝒉𝒐𝒖𝒔𝒆 𝑻𝒉𝒓𝒐𝒖𝒈𝒉𝒕𝒑𝒖𝒕 [ ] 3000 [ ] 𝑠𝑘𝑢
If the yearly product flow is 3000 sku/year and knowing that the average inventory in the 1st
trimester was 350 sku, in the 2nd trimester it was 650 sku and in the 2nd semester 480 sku,
calculate: the Annual Average Stock Inventory and the Inventory turnover.
Σ 𝑰𝒊 𝑻𝒊 350 ×3 +650 ×3+480 ×6[𝑝𝑐𝑠 ×𝑚𝑜𝑛𝑡ℎ𝑠]
➢Average Stock Inventory → 𝐀𝐒𝐈 = → 𝐴𝑆𝐼 = = 490 𝑠𝑘𝑢
Σ 𝑻𝒊 3+3+6 [𝑚𝑜𝑛𝑡ℎ𝑠]
𝒀𝒆𝒂𝒓𝒍𝒚 𝑷𝒓𝒐𝒅𝒖𝒄𝒕 𝑭𝒍𝒐𝒘 [€/𝒚] 3000[𝑠𝑘𝑢/𝑦]

➢Inventory Turnover → 𝐈𝐓 = → IT = = 6,12
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝒀𝒆𝒂𝒓𝒍𝒚 𝑺𝒕𝒐𝒄𝒌 𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚 𝑽𝒂𝒍𝒖𝒆 [€/𝒚] 490[𝑠𝑘𝑢/𝑦]
Example 6: Store
Knowing that the Annual Product Flow D is 3000 sku/yr, the Ordering Cost k is 1800 €/order,
the Holding Cost h is 50€/sku yearly and that the Purchasing Cost c is 650 €/sku, Calculate
the Economic Order Quantity and the Minimal Cost per year.
𝐷 = 3000 sku/year
k = 1800 €/order
𝐸
ℎ = 50 year
𝑠𝑘𝑢
C= 650€/sku
€ 𝑠𝑘𝑢
2𝐾𝐷 2 ⋅ 1800 ⋅ 3000
𝑜𝑟𝑑𝑒𝑟 𝑦𝑒𝑎𝑟
𝑄 ∗= = = 464,75 sku/order
ℎ 𝐸
50 𝑠𝑘𝑢 year
𝑄∗ 464,75
𝑇∗ = = = 0,1549 𝑦𝑒𝑎𝑟𝑠 = 1 month 26 days → 6,46 orders/year
𝐷 3000
𝐾𝐷 ℎ𝑄 ∗ 464,75
𝑇𝐶 ∗= + 𝑐𝐷 + = 650 ⋅ 3000 + 1800 ∙ 6,46 + 50 ∙ = 1.973.239,15 €/year
𝑄∗ 2 2
of which 1,950,000 € for purchasing and 23,239.15 € Costs.

Materials handling
➢ Definition: Efficient short distance

movement in or between buildings
and a transportation agency.
➢ Four dimensions
– Movement
– Time
– Quantity
– Space

Objectives of materials handling
• Increase effective capacity

• Minimize aisle space
• Reduce product handling
• Develop effective working conditions
• Reduce heavy labour
• Improve logistics service
• Reduce cost

High rack warehouse and manufacturing
• Advantage: High use of the rack trucks

• Disadvantages: disturbances have strongly impact
Raw material-,
intermediate and
finished products warehouse
Assembly
Moduls manufacturing

Parts manufacturing

An emancipated system manufacturing - warehouse
High rack warehouse
Working
places
Automatic transport
system Enlargement

Restructuring of the storage systems
Piece goods - floor storage
Aggregate state fixed storage goods
Piece bulk goods

Storage goods type
Floor warehouse Rack warehouse Warehouse with Special warehouse

Storage mode
continuous handling
Line / Block Line Block
Static / dynamic static static
without without
Storage device
Dividing on the 2-dimensional. 2-dimensional

warehouse warehouse
requirements /
height / mobility
Floor Floor Floor- Floor
block line block line
Alternatives warehouse warehouse warehouse warehouse

Warehouse systems for packaged goods:
Floor warehousing - classification
Floor warehouse
Block warehouse Line warehouse
Automated Warehouse

Block warehouse
• Floor warehouse (2d storage)

• Line warehouse (3d storage)
Advantage:
• low investment costs
• high flexibility
• local adaptation
Disadvantages:
• Low automation and mechanization
• Low access possibility
• not possible a first in - first out
(FIFO)

Floor-line warehouse
• Floor warehouse (2d storage)
• Line warehouse (3d storage)
Advantage :
• appropriate loading devices (access
to each unit)
Disadvantages:
• middle room and space utilization
rate
• additional area through work
processes

Warehouse systems for packaged goods:
Rack warehousing - classification
• better use of the third dimension

• clear storage
• better spatial order
• not suitable for stackable storage items
• customizable to each stored goods
Rack warehouse
Line-rack warehouse Compact rack warehouse
Container rack warehouse Drive-bay warehouse
Pallet racking Corousel warehouse
Mobil racking warehouse
Drive-through pallet rack
Satellite warehose - high rack warehouse

Container rack storage
• Shelving storage
• Shelf storage compartment
Advantage:
• direct access to every article
• flexible at structure change
Disadvantages:
• Man to goods
• partially unfavourable grip position
tbp electronics Logistics English

Container platform system
• Floor, level system

• Multi-storey rack
Advantage:
• utilization of room height
Disadvantages:
• plant flexibility is limited

Container high bay warehouse
• Shelf high-bay warehouse (man to goods)
Advantage:
• optimum space utilisation
Disadvantages:
• man to goods
• fixed storage site regulations is necessary

Container high bay warehouse
• Automatic small parts warehouse -

(goods to man)
Advantage:
• protection of valuable items
• optimum space utilisation
• automation and mechanization are
possible
• good inventory control
Disadvantages:
• limited flexibility
• high investment costs

Pallet racking
• Racks with height up to about 7m
Advantage:
• good extensibility
Disadvantages:
• man to goods
• intensive care staff

High bay racks (rack clad buildings)
• Racks from height of

approximately 7m
Advantage:
• high level of automation and
mechanization
• good space utilisation
Disadvantages:
• single purpose building
• high organizational and control
costs

Compact rack warehouse vs. block warehouse
Rack warehouse
• connects the advantages of block
Line-rack warehouse Compact rack warehouse
warehouse with those of rack
warehouse Container rack warehouse Drive-bay racking
Pallet racking Carousel warehouse

• individual access to each unit load Mobil racking
by the block principle is impossible Drive-through pallet rack
Satellite warehouse
or limited
• surface and space utilization are
often better than the line rack
warehouse
• stacking capacity is not condition

Single bay racking
• Drive-in Regal
Advantage:
• good area and space utilization
• reliable operation
• expandable
Disadvantages:
• loading units not directly accessible
• no FIFO but LIFO
• no free space allocation

Drive-through pallet racks
Advantage:
• Storage and retrieval independently
• First in - first out
Disadvantages:
• higher investment as racking
storage
• less use of space as racking
storage

Paternoster warehouse
• large cupboard
• vertical carousel
Advantage:
• high surface / space utilization
• goods to man
• optimal ergonomic grip position
Disadvantages:
• high investment cost
• availability in case of failure

Carousel warehouse
• horizontal carousel
• turning rack
Advantage:
• use of space depth
• goods to man
• FIFO principle possible
Disadvantages:
• limited storage goods weight, limited
storage goods dimensions
• medium to high investment costs Source: Sihn IPA Vienna

Mobile racking warehouse
• movable rack
• sliding rack
Advantage:
• high area and space utilization
• lock of the stored goods
• individual access to each unit
load
Disadvantages:
• direct access - process
necessary
• low power handling

Throughput-warehouse - gravity operated
Advantage:
• inevitable keeping of the FIFO
principle
• high handling capacity
• mechanized and automatable
Disadvantages:
• no direct access
• risk of accidents
• investment costs

Satellite warehouse and automated "high rack warehouse"
• Movement of the pallet in the
racking aisle accomplished an
electric motor-powered satellite
vehicle with low overall height
Advantage:
• mechanized and automatable
• spatial and land use
• upgradeable
Disadvantages:
• no direct access into loading units
• availability in case of failure

Commission system
Commission is the arrangement of certain subsets

(products) from a total quantity (assortment of
goods) due to demand information (orders)

Withdrawal strategy in two dimensions
Warehouse picking systems, a warehouse

logistics solution at WIP by SSI Schaefer
Krones: Automatic
order-picking
Amazon Warehouse's processing system
Commission without and with simple strategy
x
K om m issionieren ohne Strategie
Commission wthout stategy
Kom m issionieren m it einfacher S trategie (x (i+1) > x i)

Commission with simple stategy
Information and supporting documents flow
• Pick list
- warehouse place
- item number
- number of units
• Terminal display
• Barcode reader
• Commissioning display on rack

13. Location of Plant
Location planning & analysis

What is Facility Location?
Facility location is determining the

best geographic location for a
company’s facility.
Involves the need for location
decisions, factors that affect them,
and guidelines for evaluating
location alternatives.
These decisions require sizable financial investment and can have a large
impact on operating costs and revenues.
Poor location can result in high transportation costs, inadequate supplies of

raw materials and labour, loss of competitive advantage, and financial loss.
Why Facility Location?
Why should a company decide to locate or relocate?

➢ Marketing strategy (e.g. need to expand into other markets)
➢ Growth
➢ Depletion of demand (e.g. lack of customers)
➢ Cost of doing business (e.g. customer requirements)
➢ Competitive advantage
➢ Lower operating costs
➢ New products/services

Factors Affecting Location Decisions
Many factors can affect location decisions, including

• proximity to customers,
• transportation,
• source of labour,
• community attitude,
• proximity to suppliers,
and many other factors like for example those regarding the site or the
quality of life.
The nature of the firm’s business will determine which factors should
dominate the location decision.
It is important to identify factors that have a critical impact on the
company’s strategic goals.

National and Regional factors

Community and Site considerations

Location decision factors
Community
Regional factors considerations
Multiple plant Site-related

strategies factors

Multiple plant strategies

Service & retail locations
The primary concern is accessibility and volume of customer traffic

where adequate facilities are available for customer convenience
and safety (e.g. parking, restaurants, etc.)

Trends in location selection

Trends in location selection

Proximity to Sources of Supply Many firms need to locate close to

sources of supply. The reasons for this can vary.
• In some cases, the firm has no choice, such as in farming, forestry, or
mining operations, where proximity to natural resources is necessary.
• In other cases, the location may be determined by the perishable nature
of goods, such as in preparing and processing perishable food items.
• Another reason to locate close to sources of supply is to avoid high
transportation costs - for example, if a firm’s raw materials are much
bulkier and costlier to move than the finished product.

Proximity to Customers Locating near the market they serve is often

critical for many organizations, particularly service firms.
➢ service firms need to be accessible to their customers. For this

reason, service firms typically locate in high-population areas that offer
convenient access.
Large retail firms often locate in a central area of the market they serve.
Smaller service firms usually follow the larger retailers because of the
large number of the customers they attract.
Other reasons for locating close to customers may include:
➢ the perishable nature of the company’s products - food items, fresh

flowers, and medications are perishable and need to be offered close to
the market.
➢ high costs of transportation to the customer site - items such as

heavy metal sheets, pipes, and cement need to be produced close to
the market because the costs of transporting these materials are high.
Proximity to Source of Labour Proximity to an ample supply of qualified

labour is important in many businesses, especially those that are labour
intensive.
The company needs to consider the availability of a particular type of
labour and whether special skills are required.
➢ Some companies, such as those looking for assembly-line workers,
want to be near a supply of blue-collar labour.
➢ Other companies may be looking for computer or technical skills and
should consider locating in areas with a concentration of those types of
workers.
➢ Other factors that should be considered are local wage rates, the
presence of local unions, and attitudes of local workers. Work ethics
and attitudes toward work can vary greatly in different parts of the
country and between urban and rural workers. Attitudes toward factors
such as absenteeism, tardiness, and turnover can greatly affect a
company’s productivity.

Community Considerations The success of a company at a particular

location can be affected by the extent to which it is accepted by the local
community.
➢ Many communities welcome new businesses, viewing them as
providing sources of tax revenues and opportunities for jobs, and as
contributing to the overall well-being of the community.
➢ However, communities do not want businesses that bring pollution,
noise, and traffic and that lower the quality of life.
Extreme examples are a nuclear facility, a trash dump site, and an airport.
Less extreme examples are companies like Wal-Mart, which often are not
accepted by smaller communities, which may view such large merchants
as a threat to their way of life and thus actively work to discourage them
from locating there.

Site Considerations Site considerations for a particular location include
factors such as utility costs, taxes, zoning restrictions, soil conditions, and
even climate.
These factors are not too different from those one would consider when
purchasing a home or a lot to build on. Just as most homeowners consider their
purchase to be an investment, so does a business. Inspectors should be hired to
perform a thorough evaluation of the grounds, such as checking for adequate
drainage. Site-related factors can also limit access roads for trucks and make it
difficult for customers to reach the site.
They include room for customer parking, visibility, customer and

transportation access, as well as room for expansion. Room for expansion
may be particularly important if the company has decided to expand now
and possibly expand further at a later date.
Other factors include construction costs, insurance, local competition, local
traffic and road congestion, and local ordinances.
Other factors include construction costs, insurance, local competition, local

traffic and road congestion, and local ordinances.
Quality-of-Life Issues Another important factor in location decisions is

the quality of life a particular location offers the company’s employees.
This factor can also become important in the future when the business is recruiting
high-calibre employees. Quality of life includes factors such as climate, a desirable
lifestyle, good schools, and a low crime rate. Certainly, quality of life would not be
considered the most critical factor in selecting a location. However, when other
factors do not differ much from one location to another, quality of life can be the
decisive factor.

Making Location Decisions
A sequence of decisions
Political, social, economic stability;

National decision Currency exchange rates; ...
Climate; Customer concentrations;

Regional decision Degree of unionization; ...
Transportation system availability;

Community decision Preference of management; ...
Site size/cost; Environmental impact;

Site decision Zoning restrictions;...

As with capacity planning, managers need to follow a three-step procedure

when making facility location decisions. These steps are as follows:
1. Identify Dominant Location Factors. In this step managers identify
the location factors that are dominant for the business. This requires
managerial judgment and knowledge.
2. Develop Location Alternatives. Once managers know what factors
are dominant, they can identify location alternatives that satisfy the
selected factors. → Identify general region, Identify community
alternatives, Identify site alternatives among community choices.
3. Evaluate Location Alternatives. After a set of location alternatives
have been identified, managers evaluate them and make a final
selection. This is not easy because one location may be preferred
based on one set of factors, whereas another may be better based on
a second set of factors.

Procedures for Evaluating Location Alternatives

A number of procedures can help in evaluating location alternatives. These
are decision support tools that help structure the decision-making process.
Some of them help with qualitative factors that are subjective, such as
quality of life. Others help with quantitative factors that can be measured,
such as distance.
A manager may choose to use multiple procedures to evaluate alternatives
and come up with a final decision.
Remember that the location decision is one that a company will have to live
with for a long time. It is highly important that managers make the right
decision.

Factor Rating You have seen by now that many of the factors that managers need to
consider when evaluating location alternatives are qualitative in nature. Their importance is
also highly subjective, based on the opinion of who is evaluating them. An excellent procedure
that can be used to give structure to this process is called factor rating.
Factor rating can be used to evaluate multiple alternatives based on a number of selected
factors. It is valuable because it helps decision makers structure their opinions relative to the
factors identified as important. The following steps are used to develop a factor rating:
Step 1 Identify dominant factors (e.g., proximity to market, access, competition, quality of life).
Step 2 Assign weights to factors reflecting the importance of each factor relative to the other
factors. The sum of these weights must be 100.
Step 3 Select a scale by which to evaluate each location relative to each factor. A commonly
used scale is a five-point scale, with 1 being poor and 5 excellent.
Step 4 Evaluate each alternative relative to each factor, using the scale selected in Step 3.
For example, if you chose to use a five-point scale, a location that was excellent based on
quality of life might get a 5 for that factor.
Step 5 For each factor and each location, multiply the weight of the factor by the score for
that factor and sum the results for each alternative. This will give you a score for each
alternative based on how you have rated the factors and how you have weighted each of the
factors at each location.
Step 6 Select the alternative with the highest score.
Let’s look at an example to see how this procedure is used.

Factor Rating

Factor Rating

The Load–Distance Model

It is a procedure for evaluating location alternatives based on distance. The
distance to be measured could be proximity to markets, proximity to
suppliers or other resources, or proximity to any other facility that is
considered important.
The objective of the model is to select a location that minimizes the total
amount of loads moved weighted by the distance travelled.
Our goal is to make the ld score as low as possible by reducing the

distance the large loads have to travel.
Next we look at the steps in developing the load–distance model.
Step 1 Identify Distances. It is certainly possible to use the actual mileage

between locations. However, it is much quicker, and just as effective, to use
simpler measures of distance. A frequently used measure of distance is
→ rectilinear distance the shortest distance between two points
measured by using only north–south and east–west movements. To
measure rectilinear distance, we place grid coordinates on a map and
use them to measure the distance between two locations.
Example. The rectilinear distance between two
locations A and B, is computed by summing the
absolute differences between the x coordinates and
the absolute differences between the y coordinates.
The equation is as follows:
𝑑𝐴𝐵 = 𝑥𝐴 − 𝑥𝐵 + 𝑦𝐴 − 𝑦𝐵
In our example, the coordinates for location A are
(30, 40). The coordinates for location B are (10, 15).
Therefore, the rectilinear distance between these two
points is
𝑑𝐴𝐵 = 30 − 10 + 40 − 15 = 45 𝑚𝑖𝑙𝑒𝑠
Step 2 Identify Loads. The next step is to identify the loads between different
locations. The notation 𝑙𝑖𝑗 is used to indicate the load between locations i and j.
Step 3 Calculate the Load–Distance Score for Each Location. Next we

calculate the load–distance score for each location by multiplying the load, 𝑙𝑖𝑗 , by
the distance, 𝑑𝑖𝑗 . We compute the sum σ 𝑙𝑖𝑗 ∙ 𝑑𝑖𝑗 to get the ld score. Finally, we
select the site with the lowest load–distance score.





The Centre of Gravity Approach When we used the load–distance

model, we compared only two location alternatives. An easy way to do this
is to start by testing the location at the centre of gravity of the target area.
The X and Y coordinates that give us the centre of gravity for a particular
area are computed in the following way:
σ 𝒍𝒊 𝒙𝒊 σ 𝒍 𝒊 𝒚𝒊
𝑿𝒄𝒈 = ; 𝒀𝒄𝒈 =
σ 𝒍𝒊 σ 𝒍𝒊
The location identified with the centre of gravity puts a larger penalty on
long distances. This can have practical value given that longer distances
impose more costs on the organization. However, the location identified
may not be a feasible site because of geographic restrictions (i.e. in a lake
or on a mountain).
However, the centre of gravity provides an excellent starting point. We can
use it to test the load–distance score of other locations in the area.

The Centre of Gravity Approach

Break-Even Analysis Break-even analysis is a technique used to

compute the amount of goods that must be sold just to cover costs.
It is possible to use break-even analysis to evaluate different location
alternatives. Remember that break-even analysis works with costs, such as
fixed and variable costs. It can be an excellent technique when the factors
under consideration can be expressed in terms of costs.
Let’s briefly review the basic break-even equations:
where
F fixed cost
𝑻𝒐𝒕𝒂𝒍 𝑪𝒐𝒔𝒕 = 𝑭 + 𝒄𝑸 c variable cost per unit
𝑻𝒐𝒕𝒂𝒍 𝑹𝒆𝒗𝒆𝒏𝒖𝒆 = 𝒑𝑸 Q number of units sold
p price per unit
At the break-even point, total cost and total revenue are equal. We can use
those equations to solve for Q, which is the break-even quantity:
𝐹
𝑄=
𝑝−𝑐
These quantities can be obtained and worked graphically.

Exercise – BEP and unit cost
A manufacturing company is launching a new product .
The Marketing Department forecasts the demand in 100 kpcs/year.
The product is manufactured on a special machine that has an OEE of 0.94 at the end of the
production the 3% of the items is scraped due to quality reasons.
The net available production time per day is 430.4 min/day
The standard production time is 4.20 min/pcs → This will require 4 machines, to satisfy the
demand.
The is also evaluating to produce in a new location where the manufacturing costs are
estimated as follows:
Rent of building 15k €/month
Rent of machines 8 k€/month per machine
Direct Labour 20 €/hour
Indirect Labour 5 k€/month
Raw materials 1 €/pcs
Energy 0,12 €/kWh
Packaging 0.25 €/pcs
General expenses 10 k€/month
Each machine requires an operator, and the average energy consumption is 12 kWh/pcs.
a) Calculate the unit cost.
b) Compute the number of units to Break Even if the selling price is 9€/pcs and sketch a
graph, reporting fixed and total variable cost and revenue line.
c) Calculate the selling price to break even after having produced the 20% of the demand.
fixed k€/yr variable €/pcs
Rent of building 15 k€/month 180
Rent of machines 8 k€/month per machine 384
you must pay for scrap, rework,
Direct labour 20 €/hour non-producing time
1,489
Indirect Labour 5 k€/month 60
Raw materials 1 €/pcs Scrap must be considered 1,031
Energy cost 0,12 €/kWh
Electricity is consumed also to
Energy per piece 12 kWh/pcs produce scrap and rework 0,104
Packaging 0,25 €/pcs 0,25
General expenses 10 k€/month 120
744,0 2,874
Total fixed costs 744000 €/yr

total variable costs 287420,71 €/yr
Total costs 1031420,7 €/yr
unit cost 10,31 €/pcs
n.to BE 121453,66
Price to BE@20%of_prod 40,07 [€]
Break-Even Analysis
Step 1: For Each Location, Determine Fixed and Variable Costs. Fixed
costs are incurred regardless of how many units are produced and include
items such as overhead, taxes, and insurance. Variable costs are costs
that vary directly with the number of units produced and include items such
as materials and labour. Total cost is the sum of fixed and variable costs.
Step 2: Plot the Total Costs for Each Location on One Graph. To plot
any straight line we need two points. One point is Q=0, which is the y
intercept. Another point can be selected arbitrarily, but it is best to use the
expected volume of sales in the future.
Step 3: Identify Ranges of Output for Which Each Location Has the
Lowest Total Cost.
Step 4: Solve Algebraically for the Break-Even Points over the

Identified Ranges. Select the location that gives the lowest cost for the
range of output required by the new facility.
The break-even analysis





Extra question
Let’s say that the demand is currently 9000 units per year, but there is a
probability of the 20% that the demand will increase to 10000 units, a
probability of the 10% that it will drop to 6000 units.
• Which location would you suggest?
Hint: use the decision tree to compare the expected costs of location A with the
outcome of location B.
The Transportation Method The transportation method of linear programming is a

useful technique for solving specific location problems.
The method relies on a specific algorithm to evaluate the cost impact of adding
potential location sites to the network of existing facilities.
For example, an existing network of facilities may consist of multiple sending and
receiving sites. Our task might be to evaluate adding a new location site to this
network, either a receiving site or a sending site. We might also wish to evaluate
adding multiple new sites or completely redesigning the network.
The transportation method can efficiently analyse all these situations and provide
the lowest cost for each configuration considered.

Evaluating alternatives – Total cost
Methodology
– Determine the fixed and variable costs
– Plot the total-cost lines on the same graph
– Determine which location will have the lowest
– Total cost for the expected level of output.
– Determine which location will have the lowest cost
Assumes
– Fixed costs are constant for the range of output
– Variable costs are linear for the range of output
– The required level of output can be closely estimated
– Only one product is involved

Evaluating alternatives – Factor rating
• Another method that can be used is the subjective factor

weighting, which is a general approach to evaluating location
alternatives using quantitative and qualitative data.
• The following procedure is used to produce a factor weighting:
– Determine which factors are relevant (e.g. location of
market, water supply, parking facilities, revenue potential)
– Assign a weight to each factor that indicates its relative importance compared
with all the other factors.
– Decide on a common scale for all factors (e.g. 0 to 100)
– Score each location alternative
– Multiply the factor weight by the score for each factor and sum the results for
each location alternative
– Choose the alternative with the highest composite score

Summary
Company goals Locations
Description of location Order system Location description
requirements
minimum fixed Location Local location factors
demand demand factors
>T* < T* Regional location factors
global Global location factors
regional
local
T* = threshold
Rough selection
Location A Location B Location C
F1 x x x F1 x x x F1 x
F2 x x x F2 x x x F2 x
F3 x x x F3 x x x F3 x x
Final selection
Evaluation procedures
Nutzwertanalyse singular method
W1 G1 E1 N1 Supplier 1
Customerr
W2 G2 E2 N2 Ranking
W3 G3 E3 N3
Location 1 Location A 432 points
W4 G4 E4 N4 2 Location B .408 points
W5 G5 E5 N5 Supplier2 . . . optimal
Transport cost optimization
location
Source: Pfeffer IPA Stuttgart

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Day 5

11. Logistic and design of transport systems

Logistics is the General design of the information- and material flows

A Vocational Degree programme developed by MCAST

“The process of planning, implementing, and controlling the

“The art and science of management, engineering, and

“Logistics is the science of planning and carrying out the movement

North Atlantic Treaty Organization (NATO)

Source: Sihn IPA Vienna

A Vocational Degree programme developed by MCAST

Source: Sihn IPA Vienna

A Vocational Degree programme developed by MCAST

Source: Sihn IPA Vienna

A Vocational Degree programme developed by MCAST

Market demand Own capabilities

A Vocational Degree programme developed by MCAST

➢ its ability to adjust its product offerings and performance to

Therefore, the long-term survivability of a company is measured by

High delivery reliability and short delivery times for companies

In order to manufacture efficient under such conditions, it is

Wiendahl, IFA Hannover

A Vocational Degree programme developed by MCAST

Wiendahl, IFA Hannover

A Vocational Degree programme developed by MCAST

Moving of goods in any direction over

Domestic/Impo Inbound Outbound Domestic/Export

Supplier-Firm Transportation Transportatio

Storage Storage Inventory Storage Inventory Inventory

Forward and Reverse Flow of Information, Products, and Funds 26

Transit Time Predictability

787 fuselage transportation

Gas Turbine transportation

Source: Sihn IPA Vienna

A Vocational Degree programme developed by MCAST

From the filling in hand cars 1000 operations

Transport systems: Logistics unit

Source: Sihn IPA Vienna

A Vocational Degree programme developed by MCAST

Possibilities for forming logistic units

Folding Packaged Packaged

Source: Sihn IPA Vienna

A Vocational Degree programme developed by MCAST

Pallet (DIN 15 145 and DIN 55405)

Flat pallet Container pallet

Pallet with an extension frame Silos or

Source: Sihn IPA Vienna

A Vocational Degree programme developed by MCAST

Source: Sihn IPA Vienna

A Vocational Degree programme developed by MCAST

A Vocational Degree programme developed by MCAST

Under trucks refers to all types of forklifts, tractors,

Source: Sihn IPA Vienna

A Vocational Degree programme developed by MCAST

• Suitable for the manipulation of palletized goods.

Advantages and disadvantages of hand forklift trucks:

+ Low capital investment

A Vocational Degree programme developed by MCAST

Source: Sihn IPA Vienna

A Vocational Degree programme developed by MCAST

Source: Sihn IPA Vienna

A Vocational Degree programme developed by MCAST

Electric pedestrian pallet truck

Source: Sihn IPA Vienna

A Vocational Degree programme developed by MCAST