Operations Management Unit-2

Operations Management
Unit-2
By: Mohd. Sadaf Ahmad

Plant Location
• Location Of facilities is a problem associated with the planning stage
of any factory.
• The selection of location is a key-decision as large investment is made
in building plant and machinery.
• It is also not possible to change the location very often.So an
improper location of plant may lead to waste of all investments made
in building and machinery equipment.
• Location decisions are affected by many factors such as the capacity
of production, the financial status of the factory, availability of the
work force and also by economic, political and social conditions in
various locations
Factors affecting Plant Locations
Steps in Location Study
Location Decisions
• A location decision arises due to the following reasons:-
1. When starting a new organization.
2. In some cases, the facility or plant operations & subsequent
expansion are restricted by a poor site, thereby necessities the
setting up of the facility at a new site.
3. The growing volume of business makes it advisable to establish
additional facilities in new territories.
4. The original advantages of the plant have been overweighed due to
new development.
5. New economic, social, legal or political factors could suggest for
change of location of the existing plant.
Types of Site-Village, Suburban or City Site
1. Village Site
The facilities available at a village site are not as many as are found in a
city; but they are more attractive
• Land is available at cheaper rates
• The rates and taxes are negligible
• Spacious lay-out available and open spaces are possible
• Low wages for unskilled workers but high wages for skilled workers.
• Fewer labour troubles
• Absence of restriction on smoke and disposal of waste
• Lack of transport facilities
2. Suburban Site
• Suburban sites offer a compromise between the city and the village
and have the advantages of both
• They are less costly
• All the rail and road transport facilities are available.
• Labour can be easily drawn from the nearby city or villages.
• Quarters for workers are provided by the local authorities.
• Facilities like parks, schools and clubs can be easily provided.
3. City Site:
• Transport facilities are no problem.
• Labour is available in plenty.
• Municipal services for water , sewage disposal, public health and
education are available.
• All type of technical and commercial institutions for the training of
staff and workers are available.
• Banking, repair and related services are available
• A large local market is available.
• High advertising value is available
Location Methods
• Various methods are available which help identify a near ideal
location like:-
1. Factor rating method
2. Point rating method
3. Break-even Analysis
4. Quantitative Factor Analysis
Factor Rating method
In this method , factor ratings are used to evaluate alternative
locations. The steps involved are :
1. List the most relevant factors in the location decision.
2. Rate each factor ( say from 1 for very low and to 5 for very high),the
higher the ratings the more important is the factor.
3. Rate each location(say 1 for very low and to 10 for very high)
according to its merits on each factor.
4. Compute the product of ratings by multiplying the factor rating by
the location rating for each factor.
5. Compute the sum of the product of ratings for each location.
Factor Rating method
Point Rating Method
• The relative weight a company assigns to each objective or to each
location factors may be represented by the number of points a
perfect site would receive in each category.
• Each potential site is then evaluated with respect to every factor a
company is looking for and points are assigned for each factor.
• The site with the highest total number of points is considered
superior to other sites.
• What is significant in the point-rating system is the relative
importance of tangible cost factors compared to intangible factors.
Point Rating Method
Locational Break-even Analysis
• An economic comparison of locations is made by identifying the fixed
costs and variable costs and plotting the break even analysis on a
graph for each location. The steps involved in this method are:-
1. Determine all relevant costs that vary with each location.
2. Categorise the costs for each location into annual fixed costs(FC)
and variable cost per unit (VC) and calculate the total cost (TC) for
the desired volume of production per annum, for each location.
3. Plot the total costs associated with each location on a single chart
or graph of annual cost versus annual production volume.
4. Select the location with the lowest total annual cost (TC) at the
expected production volume per annum (Q).
Question 1
Potential locations A,B and C have the cost structures shown for
producing a product expected to sell at Rs 100 per unit. Find the most
economical location for an expected volume of 2000 units/year. Also
determine the range of annual volume of production for which, each of
the locations A,B & C would be most economical.
Location Fixed cost/year Variable cost/unit

A 25,000 50
B 50,000 25
C 80,000 15
Solution 1
a) To determine the most economical location for an expected annual
volume of production of 2000 units, calculate the total cost of
production at each of the locations for the annual production
volume Q=2000 nos.
Total Cost= {Fixed cost} + { Variable cost } x { Quantity }

Per annum per unit produced
TC at Location A = 25000 + 50 x 2000
= 1,25,000
TC at Location B = 50000 + 25 x 2000
= 1,00,000
TC at Location C = 80000 + 15 x 2000
= 1,10,000
By comparing the total costs at each of the three locations, it is seen that location B
is the most economical location for a volume of production of 2000 nos. per year.
To determine the break-even volume between location A and location
B, the total cost for producing the break-even quantity say
QAB at each of location A & B are equated i.e.
25,000 + 50 QAB = 50,000 + 25 QAB
25 QAB = 25,000
QAB = 1000 units
To determine the break-even volume between location B and location
C, the total cost for producing the break-even quantity say
QBC at each of location B & C are equated i.e.
50,000 + 25 QBC = 80,000 + 15 QBC
10 QBC = 30,000
QBC = 3000 units
Qualitative Factor Analysis Method
• The steps involved are :-
1. Develop a list of relevant factors
2. Assign a weight to each factor to indicate its relative
importance(Weights may total upto 1.0)
3. Assign a common scale to each factor(say 0 to 100) and designate
any minimum point to be scored by any location.
4. Score each potential location according to the designated scale and
multiply the scores by the weights to arrive at the weighted scores.
5. Total points for each location and choose the location with
maximum points
XYZ company is evaluating four locations for a new plant and has
weighed the relevant scores as given below.Scores have been assigned
with higher values indicative of preferred conditions.Using these scores,
develop a qualitative factor comparison for the four locations
Solution:
Plant Layout
• Plant layout implies the physical arrangement of machines,
equipment and other industrial facilities on the factory floor in such a
manner that they can handle effectively and efficiently.
• Plant layout is the optimal arrangement of all inputs/ facilities
available in the unit like : man, machine, equipment and material etc.
• Showing the space allocate for the material movement, storage and
all supporting activities from the receipt of raw materials to the
shipping of the finished goods for an overall economy of production.
Plant Layout
• According to Moore : -
“ Plant Layout is a plan of an optimum arrangement of facilities
including personnel, operating equipment, storage space, material
handling equipment and all other supporting services along with the
design of best structure and to contain all facilities.”
Objectives of Plant Layout
1. Simplified production process in terms of equipment utilization,
reducing manufacturing time, reducing all delays and better
arrangement for maintenance work..
2. Best possible utilization of men, machine, materials, money and
other supporting activities.
3. Best possible location of floor space and effective space utilization
and less confusion.
4. Increased output and reduced inventories-in-process.
5. Effective supervision and control.
6. Provide excellent working environment and reduce accidents.
7. Maximum productivity and minimum waste
Objectives of Plant Layout
8. Maintain flexibility of arrangement and operation.
9. Avoid unnecessary capital investment.
10. Worker convenience; improved morale and working satisfaction.
Principles of Plant Layout
1. Principle of overall integration of all inputs.
A good layout is one that integrates men, material, machines and other
supporting activities and others in order to get the optimum utilization
of resources and maximum effectiveness.
2. Principle of minimum distance to move by man and material.
This principle is concerned with the minimum travel of man and
machine. The facilities should be arranged such that , the total distance
travelled by the men and material should be minimum and as far as
possible straight line movement should be preferred.
3. Principle of flow order of materials and other things
A good layout is one that makes the materials to move in forward
direction towards the completion stages.
4. Principle of optimum use of cubic space.
The good layout is one that utilizes both horizontal and vertical space. It
is not only enough if only the floor space is utilized optimally but the
third dimension, i.e. , the height is also to be utilized effectively.
5. Principle of workers satisfaction and safety.
A good is one that gives due consideration to workers satisfaction and
safety and also safeguards the plant and machinery against fire, theft
etc.
6. Principle flexibility
The good layout is one that can be altered without much cost and
time,i.e. future requirements should be taken into account while
designing the present layout.
Classification of Layout
A layout essentially refers to the arranging and grouping of machines
which are meant to produce goods.
The methods of grouping or the types of Layout are :-
1. Process Layout
2. Product Layout
3. Group Layout/Cellular Manufacturing Layout
4. Combination Layout
5. Fixed position Layout
Process Layout
• Process layout is suggested for job-shop or batch production.
• All machines performing similar type of operations are grouped at
one location in the process layout e.g. all lathes, milling machines, etc.
are grouped in a specified shop will be clustered in like groups.
• Thus in process layout the arrangement of facilities are grouped
together according to their activities.
• The flow paths of material through the facilities vary from product to
product.
Process Layout
Advantages of Process Layout
1. In process layout machine are better utilized and specified machines
are required.
2. Flexibility of equipment and personnel is possible in process layout.
3. Lower investment on account of comparatively less number of
machines.
4. Lower cost of general Purpose machine.
5. Highest utilization of Production procedures and facilities
6. Highest degree of flexibility with regards to work distribution to
machines and workers.
7. The diversion of task and variety of job makes the job challenging
and interesting.
Limitation of process Layout
• There is difficulty in movement of materials. Mechanical devices for
handling materials cannot be conveniently used.
• This type of layout requires more floor space.
• There is difficulty in production control.
• Production time is more as work-in-progress has to travel from place
to place in search of machines.
• There is accumulation of work in progress at different places
Product Layout
• Also called the straight-line layout or layout for serialized
manufacture, product layout involves the arrangement of machines in
one line, depending upon the sequence of operations.
• Materials are fed into the first machine and finished products come
out of last machine.
• In between , partly finished goods travel automatically, from machine
to machine, the output of one machine becoming the input for the
next.
• In a product layout, if there is more than one line of production, there
are as many lines of machines.
Product Layout
Features of Product layout
• The grouping of machines should be done on the product line keeping
in mind the following principles:-
1. All the machine tools or other items of equipment must be placed
at the point demanded by the sequence of operations.
2. There should be no points where one line crosses another line.
3. Materials must be fed where they are required for assembly.
4. All the operations, including assembly, testing and packing should
be included in the line.
Advantages of Product Layout
1. There is mechanization of materials handling and consequently
reduction in materials handling cost.
2. This type of layout avoids production bottlenecks.
3. There is economy in manufacturing time.
4. The layout facilitates better production control.
5. It requires less floor area per unit of production.
6. Work-in-progress is reduced and investment thereon, minimized.
7. Early detection of mistakes or badly produced items is possible.
8. There is greater incentive to a group of workers to raise their level
of performance
Disadvantages of Product Layout
1. Product Layout is known for its inflexibility.
2. This type of Layout is also expensive.
3. There is difficulty of supervision.
4. Expansion is also difficult.
5. Any breakdown of equipment along the production line can disrupt
the whole system.
Product Layout vs Process Layout
Fixed Position Layout
• Fixed position Layout involves the movement of men and machine to
the product which remains stationary.
• In this type of Layout, the material or major component remains in a
fixed location and tools, machinery and men as well as other pieces of
material are brought to this location.
• The movement of men and machines to the product is advisable
because the cost of moving them would be less than the cost of
moving the product which is very bulky.
• This type is followed in the manufacture of bulky and heavy products
such as locomotives, ships, boilers, aircraft and generators.
• The construction of a building requires a fixed location layout because
men, cement, sand, bricks, steel, wood and others are taken to the
site of the construction.
Advantages of Fixed Position Layout
1. Men and machines can be used for a wide variety of operations
producing different products.
2. The investment on layout is very small.
3. The worker identifies himself with the product and takes pride in it
when the work is complete.
4. The high cost and difficulty in transporting a bulky product are
avoided.
Cellular Manufacturing / Group Layout
• In cellular manufacturing (CM), machines are grouped into cells and
the cells function somewhat like a product layout within a larger shop
or process layout.
• Each cell in the CM layout, is formed to produce a single parts family-a
few parts, all with common characteristics, which usually means that
they require the same machine settings.
• The flow of parts within the cells, can take many forms.
• For example, in cells #1 and #2, the parts in the family flow through
the same machines in a product focussed, line flow fashion. But in the
cells #3 and #4, parts take different routes through the cells because
of the differences between the design of the two parts.
Cellular Manufacturing / Group Layout
Advantages of Cellular Manufacturing Layouts/Group Layouts
• Lower work-in-progress inventories.

• Reduced materials handling costs
• Shorter flow times in production
• Simplified production planning
• Increased operator responsibilities
• Improved visual control
• Fewer tooling changes
• Overall performance often increases by lowering production costs and
improving on time delivery.
Disadvantages of Cellular Manufacturing
Layouts/Group Layouts
• Reduced manufacturing flexibility
• Increased machine-down time
Combined Layout
• A combination of the product and process layouts, with an emphasis
on either, is noticed in most industrial establishments.
• It is possible to have both types of layout in an efficiently combined
form if the products manufactured are somewhat similar and not
complex.
• In plants involving the fabrication of parts and assembly, fabrication
tends to employ the process layout, while the assembly areas often
employ the product layout.
• In soap manufacturing plants, the machinery manufacturing soap is
arranged on the product-line principle; but ancillary services, such as
heating, the manufacturing of glycerine, the power-house, the water
treatment plant are arranged on a functional basis.
Combined Layout
Material Handling
• Material handling is defined as the art and science of moving,
packaging and storing of substances in any form. Other definitions
include:-
• Creation of time and place utility
• Movement and storage of material at the lowest possible cost
through the use of proper methods and equipments.
• Lifting, shifting and placing of material which effect a saving in money,
time and place.
• Art and science of conveying, elevating, positioning, transporting,
packaging and storing of materials.
Scope of Material Handling
• The scope of materials handling within an organization depends on
the type of the product manufactured, the size of the organization,
the value of the product and the value of the activity being
performed.
• There are three perspectives about material handling:-
1. The traditional point of view.
2. Plant-wide concern for overall flow of materials.
3. The systems point of view.
• In The traditional point of view of materials handling, the emphasis is
on the movement of materials from one location to another within
the confines of the individual plant.
• The concern is to find the best way to move the materials from one
place to another within the plant.
• Plant wide concern focuses the attention on the overall flow of
material in the plant. The main concern is the inter-relationships
between all handling problems and the possibility of establishing an
overall materials handling plan.
• The systems point of view of material handling requires visualization
of materials handling problems, the physical distribution activities and
all closely related functions as one, an all-encompassing system.
Importance of Materials Handling
1. Efficient materials handling is important to manufacturing
operations. Materials sent by vendors must be unloaded, moved
through inspections and production operations to stores and finally
to the shipping department. These movements do not add value to
the product but they do add to the cost.
2. Materials handling analysis is a subset of plant layout. Method
study, Plant layout and materials handling are all part of the design
of a production facility and can hardly be treated as separate.
Material handling system and plant layout enhance effectiveness of
each other. A good plant layout enables an operation to use the
most efficient handling method.
Objectives of Materials Handling
1. Lower unit materials handling costs.
2. Reduction in manufacturing cycle time through faster movement of materials
and by reducing the distance through which the materials are moved.
Reduction in manufacturing cycle time results in reduced work-in-progress
inventory costs.
3. Contribution towards a better control of the flow of materials through the
manufacturing facility.
4. Improved working conditions and greater safety in the movement of
materials.
5. Contribute to better quality by avoiding damage to products by inefficient
handling.
6. Increased storage capacity through better utilization of storage areas.
7. Higher productivity at lower manufacturing cost.
Materials handling Principles
1. Materials should move through the facility in direct flow patterns,
minimizing zig-zagging or backtracking.
2. Related production processes should be arranged to provide for direct
material flows.
3. Mechanized materials handling devices should be designed and located
so that human effort is minimized.
4. Heavy and bulk materials should be moved the shortest distance during
processing.
5. The number of times each material is handled should be minimized.
6. Systems flexibility should allow for unexpected breakdowns of materials
handling equipments, changes in production system technology, etc.
7. Mobile equipments should carry full loads all the times.
Advantages of well-planned Material-Flow pattern
1. Increased efficiency of production
2. Better utilization of floor space
3. Simplified handling activities
4. Better equipment utilization, less idle time.
5. Reduced in-process time
6. Reduced in-process inventory
7. More efficient utilization of work force.
8. Reduced product damage
9. Reduced walking distances
10. Minimal accident hazards
Advantages of well-planned Material-Flow pattern
11. Basis for an efficient layout.
12. Faster supervision
13. Simplified production control
14. Minimal back tracking
15. Smooth production flow
16. Improved scheduling process
17. Reduced crowded conditions
18. Better housekeeping
19. Logical work sequence
Factors affecting the selection of Materials
Handling Equipment
The selection of materials handling equipment requires consideration
of and attaining of proper balance between the following factors:-
1. Production problem
2. The capabilities of the handling equipment available.
3. The human element involved
The ultimate aim is to arrive at the lowest cost per unit of material
handled
Handling Equipment
The production problem factors are:-
1. Volume of production to be attained
2. Class of materials to be handled
3. The layout of plant and building facilities
Ex. The handling equipment that can be economically justified for the
manufacture of 1000 TV sets per day would be entirely different from
the handling equipment needed in a plant manufacturing 20 steam
turbine generators a year because the production rate, weight and class
of materials needed are different.
Handling Equipment
Equipment factors to be taken into consideration include the following:-
1. Adaptability: The load-carrying and movement characteristics of the
equipment should fit the material handling problem.
2. Flexibility: Wherever possible, the equipment should have the flexibility to
handle more than one material.
3. Load capacity: Equipment selected should have enough load-carrying
characteristics to do the job effectively.
4. Power: The equipment should have enough power available to do the job.
5. Speed: The speed of movement of the handling equipment should be as
high as possible, within the limits of production process and plant safety
Handling Equipment
6. Space requirements: The space required to instal or operate materials
handling equipment is also an important consideration.
7. Supervision required: The degree of Automation in the handling
equipment decides the amount of supervision required.
8. Ease of maintenance: Equipment selected should be capable of easy
maintenance at reasonable cost.
9. Environment: Equipment selected must confirm to any environmental
regulations.
10. Cost: The cost of the equipment is an obvious factor in the selection.
Handling Equipment
The various kinds of costs to be considered in addition to the initial
purchase price of the handling equipment are:
1. Operating costs
2. Installation costs
3. Maintenance costs
4. Power Requirements
5. Insurance requirements
6. Space cost
7. Depreciation charges.
Handling Equipment
The human factors cannot be overlooked in the selection of materials
handling equipment. They are:-
1. The capabilities of the available manpower to operate the
equipment.
2. Safety of personnel (those who operate it or come into contact with
it)
Material Handling Systems
The materials handling systems can be classified according to the type
of handling equipment used, type of material handled and the methods
or functions performed. These classifications are:-
1. Equipment oriented Systems:
a) Overhead systems
b) Conveyor systems
c) Tractor-transfer system
d) Fork-lift truck and pallet truck system
e) Industrial truck systems
f) Underground systems
2. Material oriented systems
a) Unit handling systems
b) Bulk handling systems
c) Liquid handling systems
3. Method oriented systems
d) Manual systems
e) Mechanised or automated systems
f) Job-shop handling systems
g) Mass-production handling systems
4. Function oriented systems:
a) Transportation systems
b) Conveying systems
c) Transferring systems
d) Elevating systems
Types of Material Handling Equipment
The materials handling equipments are classified into four basic types:-
1. Conveyers:
These are gravity or powered devices, commonly used for moving loads
from point to point over fixed paths. The various types of conveyors are:-
a) Belt conveyor – Motor driven belt, usually made of rubberised fabric
or metal fabric on a rigid frame.
b) Chain conveyor – Motor driven chain that drags materials along a
metal slide base
c) Roller conveyor – Boxes, large parts or unit loads roll on top of a
series of rollers mounted on a rigid frame. The rollers may be
powered or unpowered.
d) Pneumatic conveyor – High volume of air flows through a tube,
carrying materials along with the air flow. The other types of conveyors.
The other types of conveyors are bucket conveyor, screw conveyor,
pipeline conveyor, vibratory conveyor, tube conveyor, trolley conveyor
and gravity conveyor.
Conveyors
2. Cranes, Elevators and Hoists:
a) Cranes are devices mounted on overhead rails or ground level
wheels or rails. They lift, swing and transport large and heavy
materials. Examples :- Gantry crane, Jib Crane and Electrically
operated Overhead Crane (EOTC).
b) Elevators are a type of cranes that lift materials- usually between
floors of buildings
c) Hoists are devices which move materials vertically and horizontally
in a limited area. They are used primarily, when materials must be
lifted prior to being moved from one point to another.
3. Industrial Trucks:
These devices are used for moving mixed or uniform loads
intermittently over variable paths. They are electric , diesel, gasoline or
liquified petroleum, gas powered vehicles equipped with beds, forks,
arms or other holding devices.
Examples are :- Fork-lift trucks, pallet trucks, tractors with trailors, hand
trucks and power trolleys.
4. Auxiliary Equipments:
These are devices or attachments used with handling equipment to
make their use more effective and versatile.
Example are : ramps, positioners, pallets, containers and turn tables
Auxiliary equipments

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Operations Management

By: Mohd. Sadaf Ahmad

Location Fixed cost/year Variable cost/unit

Total Cost= {Fixed cost} + { Variable cost } x { Quantity }

• Lower work-in-progress inventories.

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