FACILITIES PLANNING

AND DESIGN
__________________________
Instructor: Miriam F. Bongo, M.Eng.
Facilities planning
It determines how an activities tangible fixed assets best
support achieving the activity’s objectives
Facility location
The objective of location strategy is to maximize the
benefit of location to the firm
Factors that affect location decisions
(1) Labor productivity
(2) Exchange rates and currency risk
(3) Costs
(4) Political risk, values, and culture
(5) Proximity to markets
(6) Proximity to suppliers
(7) Proximity to competitors
 Efficiency
&
Effectiveness
Productivity
- Measure of efficient use of resources

𝑜𝑢𝑡𝑝𝑢𝑡
𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 =
𝑖𝑛𝑝𝑢𝑡
Sample problem:
Suppose a worker installed 720 square yards of carpeting in 8
hours. Compute for the productivity of the worker.

90 square yards per hour

Sample problem:
If Otis Elevator pays $70 per day with 60 units produced
per day in South Carolina, it will spend less on labor than
at a Mexican plant that pays $25 per day with production
of 20 units per day.
Sample problem:
Suppose three workers installed 720 square yards of carpeting in
8 hours. Compute for the productivity of the workers.

Productivity of three workers – 30 square yards per hour

Productivity of one worker – 90 square yards per hour
Single-factor productivity
- Indicates the ratio of one resource to the goods and services
produced
𝒐𝒖𝒕𝒑𝒖𝒕
𝒊𝒏𝒑𝒖𝒕
Multifactor productivity
- Indicates the ratio of a number of resources to the goods and
services produced

𝒐𝒖𝒕𝒑𝒖𝒕
𝒍𝒂𝒃𝒐𝒓 + 𝒎𝒂𝒕𝒆𝒓𝒊𝒂𝒍𝒔 + 𝒆𝒏𝒆𝒓𝒈𝒚 + 𝒄𝒂𝒑𝒊𝒕𝒂𝒍 + 𝒎𝒊𝒔𝒄𝒆𝒍𝒍𝒂𝒏𝒆𝒐𝒖𝒔
How is productivity measured in the
service industry?
 Sample problem:

Collins Title Insurance Ltd. wants to compute for its productivity

with a new computerized title-search system. The company has a staff
of four, each working 8 hours per day (for a payroll cost of $640 per
day) and overhead expenses of $800 per day. The new computerized
title-search system will allow the processing of 14 titles per day.
Compute for productivity in titles per dollar.

Single-factor productivity (labor) = 0.4375 titles per labor-hour

Multifactor productivity = 0.0097 titles per dollar
• Productivity increases when:
a. inputs increase while outputs remain the same
b. inputs decrease while outputs remain the same
c. outputs decrease while inputs remain the same
d. inputs and outputs increase proportionally
e. inputs increase at the same rate as outputs
• Productivity increases when:
a. inputs increase while outputs remain the same
b. inputs decrease while outputs remain the same
c. outputs decrease while inputs remain the same
d. inputs and outputs increase proportionally
e. inputs increase at the same rate as outputs
• Services often:
a. are intangible
b. are standardized
c. are knowledge-based
d. are low in customer interaction
e. have consistent product definition
• Services often:
a. are intangible
b. are standardized
c. are knowledge-based
d. are low in customer interaction
e. have consistent product definition
• Productivity:
a. can use many factors as the numerator
b. is the same thing as production
c. is dependent upon labor, management, and
capital
d. is the same thing as effectiveness
e. none of the above
• Productivity:
a. can use many factors as the numerator
b. is the same thing as production
c. is dependent upon labor, management, and
capital
d. is the same thing as effectiveness
e. none of the above
• Single-factor productivity:
a. remains constant
b. is never constant
c. usually uses labor as a factor
d. seldom uses labor as a factor
e. uses management as a factor
• Single-factor productivity:
a. remains constant
b. is never constant
c. usually uses labor as a factor
d. seldom uses labor as a factor
e. uses management as a factor
• Multifactor productivity:
a. remains constant
b. is never constant
c. usually uses substitutes as common variables
for the factors of production
d. seldom uses labor as a factor
e. always uses management as a factor
• Multifactor productivity:
a. remains constant
b. is never constant
c. usually uses substitutes as common variables
for the factors of production
d. seldom uses labor as a factor
e. always uses management as a factor
 Assignment

At Modern Lumber, Inc., Art Binley, president and producer of

apple crates sold to growers, has been able, with his current
equipment, to produce 240 crates per 100 logs. He currently
purchases 100 logs per day, and each log requires 3 labor-hours to
process. He believes that he can hire a professional buyer who can
buy a better-quality log at the same cost. If this is the case, he can
increase his production to 260 crates per 100 logs. His labor-hours
will increase by 8 hours per day.
What will be the impact on productivity if the buyer is hired?
George Kyparisis is interested to know if his organization is
maintaining the manufacturing average of 3% increase in
productivity per year. He has the following data you can work with.
Show the productivity percentage change for each category.

LAST YEAR THIS YEAR

Units produced 1,000 1,000
Labor (hours) 300 275
Resin (pounds) 50 45
Capital invested ($) 10,000 11,000
Energy (BTU) 3,000 2,850
Methods of evaluating location alternatives
(1) Factor-rating analysis
(2) Locational cost-volume analysis
(3) Center of gravity method
Factor-rating analysis
• A technique that simultaneously considers multiple
criteria (factors) in selecting an alternative.
Factor-rating analysis
1) Develop a list of relevant factors called key success factors
2) Assign a weight to each factor to reflect its relative
importance in the firm’s objectives
3) Develop a scale for each factor
4) Have management score each location for each factor
5) Multiply the score by the weights for each factor and get
the total score for each location
6) Make a recommendation based on the point score
Erick Davis, a president of Creative Toys in Palo Alto,
California, is interested in evaluating equipment that will
make nontoxic, environmentally-friendly paints and dyes for
his line of children’s toys. This is a critical strategic element
of his supply chain, and he desires a location that will
contribute to his product. He has narrowed down his
choices to two: FP Equipment in Ohio and SD Equipment
in New York. Use factor-rating approach to evaluate
compare the two.
 FPE SDE

CRITERION WEIGHT SCORE WEIGHTED SCORE SCORE WEIGHTED SCORE

Engineering/innovation skills 0.20 5 1.00 5 1.00
Production process capability 0.15 4 0.60 5 0.75
Distribution capability 0.05 4 0.20 3 0.15
Quality performance 0.10 2 0.20 3 0.30
Facilities/location 0.05 2 0.10 3 0.15
Financial strength 0.15 4 0.60 5 0.75
Information systems 0.10 2 0.20 5 0.50
Integrity 0.20 5 1.00 3 0.60

3.90 4.20
Locational cost-volume analysis
• A technique for making an economic comparison of
location alternatives
Locational cost-volume analysis
1) Determine the fixed and variable cost for each
location
2) Plot the costs for each location, with costs on the
vertical axis and amount of volume on the horizontal
axis
3) Select the location that has the lowest total cost for
the expected production volume
Sample:
European Ignitions Manufacturing needs to expand his
capacity. He is considering three locations – Athens,
Brussels, and Lisbon – for a new plant. The company
wishes to find the most economical location for an
expected volume of 2,000 units per year.
Conduct a locational cost-volume analysis given that fixed
costs per year at the sites are $30,000, $60,000, and
$110,000, respectively; and variable costs are $75 per unit,
$45 per unit, and $25 per unit, respectively. The expected
selling price of each system produced is $120.
Center-of-gravity method
A mathematical technique used for finding the location of a
distribution center that will minimize distribution cost
Center-of-gravity method
σ𝑖 𝑑𝑖𝑥 𝑄𝑖
𝑥=
σ𝑖 𝑄𝑖

σ𝑖 𝑑𝑖𝑦 𝑄𝑖
𝑦=
σ𝑖 𝑄𝑖
Sample:
Quain’s Discount Department Stores, a chain of four large
Target-type outlets, has store locations in Chicago,
Pittsburgh, New York, and Atlanta; they are currently being
supplied out of an old and inadequate warehouse in
Pittsburgh, the site of the chain’s first store. The firm wants
to find some “central” location in which to build a new
warehouse. The demand rates at each outlet is given as
follows:
 NUMBER OF CONTAINERS
STORE LOCATION
SHIPPED PER MONTH
Chicago 2,000
Pittsburgh 1,000
New York 1,000
Atlanta 2,000
140
Chicago 130, 130
120 30, 120
90, 110 New York
100
Pittsburgh
80
66.7, 93.3
60

40 60, 40
Atlanta
20

0
0 20 40 60 80 100 120 140
Activity 1, No.1:
In Myanmar, 6 laborers, each making the equivalent of $3
per day, can produce 40 units per day. In rural China, 10
laborers, each making the equivalent of $2 per day, can
produce 45 units. In Billings, Montana, 2 laborers, each
making $60 per day, can make 100 units. Based on labor
costs only, which location would be most economical to
produce the item?
Activity 1, No. 2:
(refer to details in no. 1)
Shipping costs from Myanmar to Denver, Colorado, the
final destination, is $1.50 per unit. Shipping cost from China
to Denver is $1 per unit, while the shipping cost from
Billings to Denver is $0.25 per unit. Considering both labor
and transportation costs, which is the most favorable
production location?
Activity 1, No. 3:
You have been asked to analyze the bids for 200 polished
disks used in solar panels. These bids have been submitted
by three suppliers: Thailand Polishing, India Shine, and
Sacramento Glow. Thailand Polishing has submitted a bid
of 2,000 baht. India Shine has submitted a bid of 2,000
rupees. Sacramento Glow has submitted a bid of $200. you
check with the local bank and find that $1=10 baht and
$1=8 rupees. Which company should you choose?
Activity 1, No. 4:
Subway, with more than 20,000 outlets in the U.S. is planning for a
new restaurant in Buffalo, New York. Three locations are being
considered. The following table gives the factors for each site (note
that scale is 1-100 with 100 being the highest):
FACTOR WEIGHT MAITLAND BAPTIST NORTHSIDE
CHURCH MALLL
Space 0.30 60 70 80
Costs 0.25 40 80 30
Traffic density 0.20 50 80 60
Neighborhood 0.15 50 70 40
income
Zoning laws 0.10 80 20 90
Activity 1, No. 5:
An American consulting firm is planning to expand globally
by opening a new office in one of four countries. The chief
partner entrusted with the decision, L. Wayne Shell, has
identified eight key success factors that he views as essential
for the success of any consultancy. He used a rating system
of 1 (least desirable) to 5 (most desirable).
 KEY SUCCESS FACTORS WEIGHT GERMANY ITALY SPAIN GREECE

Level of education 0.05 5 5 5 2

Number of consultants
National literacy rate 0.05 4 2 1 1

Political aspects 0.2 5 5 5 2

Stability of government
Product liability laws 0.2 5 2 3 5

Environmental regulations 0.2 1 4 1 3

Social and cultural aspects 0.1 4 2 1 1

Similarity in language
Acceptability of consultants 0.1 1 4 4 3

Economic factors 0.1 2 3 1 5

Incentives
Activity 1, No. 6:
The fixed and variable costs for three potential
manufacturing plant sites for a rattan chair weaver are
shown below. Over what range of production is each
location optimal? For a production of 200 units, which site
is best?
SITE FIXED COST PER VARIABLE COST PER
YEAR UNIT
1 $500 $11
2 $1,000 $7
3 $1,700 $4