Facility Layout, Capacity

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Production and Operations Management

Facility Layout
Arrangement of areas within a facility to:
Minimize material-handling costs
Utilize space efficiently
Utilize labor efficiently
Eliminate bottlenecks
Facilitate communication and
interaction
Reduce manufacturing cycle time
Reduce customer service time
Eliminate wasted or redundant
movement
Increase capacity
2-508-97 Production and Operations Management

Facilitate entry, exit, and placement

of material, products, and people
Incorporate safety and security
measures
Promote product and service quality
Encourage proper maintenance
activities
Provide a visual control of activities
Provide flexibility to adapt to
changing conditions

Basic Layouts
Product layouts
arrange activities in line according to sequence of
operations for a particular product or service
Process layouts
group similar activities together according to process
or function they perform
Fixed-position layouts
are used for projects in which product cannot be
moved

2-508-97 Production and Operations Management

Product Layout

Trays

Desserts

Salads

Main
Course

Vegetable

Drinks

Cashier

Source : Adapt de Stevenson W., Benedetti C., (2001), p

208
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Manufacturing Process Layout

Lathe Department

Milling
Department

Grinding
Department
Receiving and
Shipping

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Drilling Department

Painting Department

Assembly

Process Layout in Services

Womens
lingerie

Shoes

Housewares

Womens
dresses

Cosmetics
and jewelry

Childrens
department

Womens
sportswear

Entry and
display area

Mens
department

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Emergency Room Layout

ry

E.R.Triage
room

Patient A broken leg

E.R. Admissions

Su

rge

Patient B - erratic
pacemaker

Hallway
Ra
dio

log
y

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E.R. beds

Pharmacy

Billing/exit

2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Comparison of Product and Process Layouts

Product
Description
Description
Type
Type of
of process
process

Sequential
arrangement of
activities
Continuous, mass
production, mainly
assembly

Product
Product

Demand
Demand
Volume
Volume
Equipment
Equipment

2-508-97 Production and Operations Management

Process

Functional
grouping of
activities
Intermittent, job
shop, batch
production, mainly
fabrication
Standardized, made Varied, made to
to stock
order
Stable
Fluctuating
High
Low
Special purpose
General purpose

Comparison of Product and Process Layouts

Product
Limited skills
Low in-process, high
finished goods

Small
Storage space
Storage

Material handling Fixed path (conveyor)

Narrow
Aisles

Part of balancing /Line

Scheduling
Scheduling

Line balancing
Layout decision
Layout

Equalize work at each

Goal
station

Efficiency
Advantage
Advantage

Workers
Workers
Inventory
Inventory

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Process
Varied skills
High in-process, low
finished goods
Large
Variable path (forklift)
Wide
Dynamic / Orders
Machine location
Minimize material
handling cost
Flexibility

Fixed-Position Layouts
Typical of projects
Equipment, workers, materials, other resources brought
to the site
Highly skilled labor
Often low fixed costs
Typically high variable costs

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Cellular Layouts
Manufacturing cell: Layout in which machines are
arranged in a cell that can process items that have similar
processing requirements .
Operations Management, 3rd Canadian Edition, page 206

Identify families of parts with similar flow paths

Group machines into cells based on part families
Arrange cells so material movement is minimized
Locate large shared machines at point of use

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Original Process Layout

Assembly

7
8

5
2

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12

10
3

11
Raw materials

12

Revised Cellular Layout

Assembly
8

10

12
11

Cell 1

Cell 2

Cell 3
7

A B C
Raw materials

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Direction of part movement within cell

A Manufacturing Cell
with Worker Paths

HM

Source: J.T. Black, Cellular Manufacturing

Systems Reduce Setup Time, Make Small Lot
Production Economical. Industrial
Engineering (November 1983).

VM
Worker 3

VM
L
Paths of three
workers moving
within cell
Material
movement

Worker 2

Key:
S
L
HM
VM
G

Final
inspection

= Saw
= Lathe
= Horizontal milling
machine
= Vertical milling machine
= Grinder

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Worker 1

In

Finished
part

Out
14

Advantages and Disadvantages

of Cellular Layouts
Advantages

Reduced material
handling and transit
time
Reduced setup time

Disadvantages

Expanded training and

scheduling of workers
Increased capital
investment

Reduced work-inprocess inventory

Better use of human
resources
Easier to control
Easier to automate
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low
Variety

HIGH
Volume

Product Process

Layout

Continuous

Mass
Repetitive

Batch

HIGH

low

Job Shop

Project

Fixed

Production
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2006 Michel
Cloutierand Operations Management

Process

Cellular

Product
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Retail Layouts - Some Rules of Thumb

Locate high-draw items around the periphery of the store
Use prominent locations such as the first or last aisle for
high-impulse and high margin items
Remove crossover aisles that allow customers the
opportunity to move between aisles
Distribute what are known in the trade as power items
(items that may dominate a shopping trip) to both sides of
an aisle, and disperse them to increase the viewing of
other items
Use end aisle locations because they have a very high
exposure rate
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Store Layout - with Dairy, Bread, High Drawer

Items in Corners

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SUAVE

SUAVE

5
facings

VO-5

PERT

VO-5

PERT

PERT

PERT
VO-5

Example: P&G

VO-5
VO-5

Computerized tool for

shelf-space
management
Generated from stores
scanner data on sales
Often supplied by
manufacturer

PERT

Retail Store Shelf Space Planogram

2 ft.
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 The basic questions :What kind of capacity is needed?

How much is needed? When is it needed?
Human Resources
Number / learning
Managing
Capacity
Resources
Material and machinery
Quality and quantity
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Processes

20

Related Performance Measures

Three distinct measures:
Design
Capacity

Actual
Output

Effective
Capacity

Gap = Planned and controlled

(ex: meals, set-ups)

Gap = Unplanned and

uncontrolled
(ex: breaks, stock-outs)

Two ratios used:

Actual Output

Efficiency
Effective Capacity

2-508-97 Production and Operations Management

Utilization

Actual Output
Design Capacity

21

Measuring Capacity - Examples

Business
Automobile industry

Inputs

Outputs

Man-hours

Number of cars per working

Machine-hours

shift

Steel Mill

Size of ovens

Tonnes of steel per day

Oil refinery

Size of the refinery

Barrels of fuel
Per day

Farming

Restaurant
Theatre

Number of acres

Bushels of grain per acre, per

year,

Number of animals

Litres of milk per day

Number of tables

Number of meals served

Seating capacity

Per day

Number of seats

Number of tickets sold

Per show

Retail sales

Square metres of floor space

Revenue generated
Per day

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Determinants of Effective Capacity

1. Facilities
2. Products or services (product mix)
3. Processes (learning curves)
4. Human considerations (performance, motivation)
5. Operations (balanced process)
6. External forces
7. Degree of vertical inegration
8. Technologies
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Determinants of Effective Capacity

Operations : Balanced Process
Problems are caused when there is a gap between the
capacity of machines or the complexity of tasks.
A system is balanced when the output of each step supplies
the exact volume of input required by the following step.
Otherwise, there will appear a bottleneck.
The capacity of the bottleneck determines the capacity of the
entire system.
Where is the bottleneck in the following example?
Cut

6/hr

10 min.
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Mold
10 min.

6/hr

Paint
20 min.

3/hr

Assemble

3/hr

15 min.
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Determining Capacity Requirements :

How much and where
Long-term Capacity Requirements (Where?) (three options)
Extend existing installations
Close the plant and build somewhere else
Build a new plant while keeping our existing one
Medium and short-term planning (How much?):
Capacity is adjusted according to seasonalities or trends of
demand.
Capacity is adjusted according to forecast. This is why
communication between Operations and Marketing is so
important.
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Determining Capacity Requirements : When

When? :Three options:

Lead strategy : Capacity is

raised before it becomes
necessary
Over-capacity

Average strategy : Capacity

is added when required.
Lag strategy : Capacity is
added after it has become
necessary.
Under-capacity
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Determining Capacity Requirements : How

You can increase the existing capacity by changing the
the way you manage your capacity.
Use overtime
Use more shifts or more personnel
Improve the bottleneck
Subcontract

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Developing Capacity Alternatives

1.

Design flexibility into systems

2.

Differentiate between new and mature products or

services

3.

Take a big picture approach to capacity changes

4.

Prepare to deal with capacity chunks

5.

Attempt to smooth out capacity requirements

6.

Use capacity cushion

7.

Identify the optimal operating level

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Some strategies to manage the demand level

of services
Price
Reduced price during the low demand periods to move the
demand from the peak periods.

Reservations / Appointment Systems

Applicable when the customer attaches a rather large importance
to the service and that the alternatives are limited.
Allows to put the demand "on standby" and to stabilize it.
Offer to the customer a certain guarantee to receive the service at
the desired time.
The problems of no show customers are sometimes mitigated
by the overbooking.

Waiting lines
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Break Even Analysis

TC FC VC
VC Q v
TR Q r

P TR TC Q r FC Q v

QBEP

FC

r v

TC Total Cost
FC Total Fixed Cost
VC Total Variable Cost
TR Total Revenue
v variable cost per unit
r revenue per unit
Q volume of output
QBEP break even volume
P profit

Note:
Unit Cost = TC / Q
Profit margin = (P / TC)
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Cost in Dollars

Break Even Chart

Total revenue line
Profit

Breakeven point
Total cost = Total revenue

Total cost line

$ BEP

Variable cost

Loss

Fixed cost

QBEP

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Volume (units/period)

31

Break-Even Problem with Step Fixed Costs

$

+
FC

FC

TC
=
C

+
FC
TC

=
C
V

3 machines

TC
=
C
V
2 machines
+

1 machine
Quantity
Step fixed costs and variable costs.

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Assumptions of Break Even Analysis

One product is involved
Everything produced can be sold
Variable cost per unit is the same regardless of
volume
Fixed costs do not change with volume
Revenue per unit constant with volume
Revenue per unit exceeds variable cost per unit

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Example
A manager wants to add a new production line. The
fixed costs are $ 6000 per month. The cost of raw
material, labor, and energy to produce one unit are
estimated at $ 2. The product sells for $7 per unit.
Questions:
1. Determine the profit break-even point.
2. Determine the (monthly) profit (or loss) if you sell 1000 units
per month.
3. How many units do you need to sell to have a monthly profit
of $4000?
4. What should the sales price be if you want to have a profit
margin of 25% and you produce 1000 units per month.

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Example
Solution :
1) Breakeven: P = 0 = r X Q - v X Q - FC

r X Q = v X Q + FC
7,00 $/u X Q = 2,00 $/u X Q + 6 000 $
(7,00$/u - 2,00 $/u) X Q = 6 000 $
Q = 6 000 $ / (7,00$/u - 2,00 $/u) = 1 200 units
2) For 1 000 units, we have the following revenu:
TR = r X Q = 7,00 $/u X 1 000 u= 7 000 $
and the following costs:
TC = v X Q + FC = 2,00 $/u X 1 000 u + 6 000 $ = 8 000 $
Hence the monthly losses are 1 000 $
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Example
Solution :
3) For a profit level of 4 000 $ :
TR - TC = 4 000 $
TR = TC + 4 000 $ = (v X Q + CF) + 4 000 $
= (2,00 $/u X Q + 6 000 $) + 4 000 $
r X Q = (2,00 $/u X Q + 6 000 $) + 4 000 $
7,00 $/u X Q = 2,00 $/u X Q + 10 000 $
5,00 $/u X Q = 10 000 $
Q = 2 000 units
Profit Margin = Profit / CT
= 4 000 / (2,00 X 2 000 + 6 000) = 40 %
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Example
Solution :
4)

For 1 000 units, we have the following total cost:

TC = VC + FC
= 2,00 $/u X 1 000 u + 6 000 $ = 8 000 $

We have a profit margin of 25%; hence:

Profit = 25% * 8 000 $ = 2 000 $
Profit = Q * r TC
2 000 $ = 1000 * r - 8 000 $
r = 10 $/u
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