1 Facilities: Making Location and Layout DecisionsChapter 16 Facilities: Making Location and Layout Decisions

2 Learning Objectives Describe the impact facility decisions have on profitability and value. Identify common decision criteria for business location decisions. Explain why geographic information systems (GISs) benefit location decision making. Use multifactor rating as a decision-making tool. Perform the calculations necessary to use the center-of-gravity method. Compute the breakeven point when comparing alternative locations. Describe the strengths and weaknesses of process-oriented, product-oriented, and cellular layouts. Utilize the cut-and-dry method and systematic layout planning for a process-oriented layout. Determine the theoretical minimum number of work centers and balance a line in a product-oriented layout.

3 Strategic Importance of FacilitiesFacility Decision Criteria Checklist.

4 Strategic Importance of FacilitiesFacility location is important only if the location of other resources is important. If location of workforce, inventory, and capacity isn’t important, the facility can be anywhere True of information-oriented services The larger the facility, the more it costs to maintain it (power bills, tax bills...) Facility location decisions are more subjective than other resource decisions.

5 Facility Location Decisions: Locating a New BusinessBusinesses tend to locate facilities near inputs when: Raw materials are costly to transport Needed skilled labor is scarce, found in certain places High-volume manufacturers with products that are relatively inexpensive to ship tend to base location on lower labor costs (for example, clothing manufacturers) Near markets/customers when: Products are expensive to transport (bricks, beverages) Choose to be close to customer to provide better service (response time, dependability, flexibility...) Other factors are considered, such as quality of life, climate, nearness to a large city, potential for expansion.

6 Facility Location Decisions: Relocating an Existing BusinessRelocation decisions are made for several reasons. Financial reasons Availability of inputs has changed Lost or can no longer afford a lease May need to relocate to same geographic area to avoid losing employees or customers. For businesses that rely on foot or automobile traffic patterns, relocation can drastically affect demand Sometimes acceptable nearby facilities are not available and construction is not an option, making relocation a problem

7 Facility Location Decisions: Choosing a Location for Business ExpansionExpand current facility, or build a new, bigger one. Compare costs of expanding to costs of building Consider opportunities lost because of old facility limitations New technologies more easily integrated into a new building Keep current facility and build a new one Supervision and control issues when management needs to be two places at once Can lead to competitive advantages such as opening up new markets

8 Location Decision-Making Criteria: International IssuesLocating in another country to do business there. Entering a foreign market can be expensive and risky. Unfamiliarity with cultural differences, workforce differences, and differences in politics and regulation Economy, market and workforce state may change in unexpected ways in a short period of time Locating in another country for competitive advantage. Tax advantages, lower labor or materials costs. Advantages must be weighed against potential disadvantages such as transportation costs, decrease in skill of labor force, uncertain political climate

9 Location Decision-Making Criteria: Domestic Location DecisionsLocation Decision Criteria Checklist Levels at which criteria are an issue.

10 Location Decision-Making Criteria: Domestic Location DecisionsLocation Decision Criteria: Workforce Capabilities: Productivity/skill of the workforce has a huge impact on value created Labor Costs: May or may not be a priority, depending on labor-intensiveness of products or services. Business Services: Ability to outsource functions like payroll, maintenance, transportation, and information technology Quality of Life: Nice climate, good community, etc. are important factors for employees Market Access: For many businesses, how good the site is, as far as potential to attract customers, is the most important decision Transportation Access: Are there nearby airports, ports, highways, and railways?

11 Location Decision-Making Criteria: Domestic Location DecisionsLocation Decision Criteria (continued): Education System: Workers want good schools for their children, and workers may need to be further trained Regulatory and Tax Climate: Both important from a cost standpoint Utilities: Some businesses consume electricity and natural gas heavily. Incentives: Offered by states and communities to attract businesses (tax breaks, interest-free loans, etc.) Site Availability: Availability and cost of sites for the facility

12 Location Decision-Making Criteria: Geographic Information SystemsGeographic Information Systems (GISs) A merge of mapping and data base systems so that the criteria that a business considers important can be sorted and mapped Highways Schools Population centers Certain customers, etc. GISs are helpful in the search for potential sites.

13 Location Decision-Making TechniquesTools for location decisions: Multifactor rating Center-of-gravity method Decision trees (covered in chapter 2) Breakeven analysis

14 Location Decision-Making Techniques: Multifactor RatingMultifactor rating is a subjective process, but it does increase objectivity. Step-by-Step: Multifactor Rating Identify alternatives from which to select Identify factors important for the decision being made Determine a weight for each factor, making sure the weights sum to 1 For each alternative, give each factor a score from 1 to 100 Multiply each factor score by the factor’s weight For each alternative, sum up the weighted scores to compute a total score Compare scores for the alternatives

15 Location Decision-Making Techniques: Multifactor Rating ExampleOpening a tanning salon and looking for a preexisting building to modify by constructing 12 tanning booths. Six factors identified and weighted according to importance (weightings sum to 1) Exhibit 16.3 Factors and Importance Weightings

16 Location Decision-Making Techniques: Multifactor Rating ExampleFour possible locations Each scored from 1 to 100 for each factor Exhibit 16.4 Factor Scores for Each Location

17 Location Decision-Making Techniques: Multifactor Rating ExampleFactor scores multiplied by the factor weight Weighted factor scores added Alternative with the highest total score wins. Exhibit 16.5 Factor Scores for Each Location

18 Location Decision-Making Techniques: Breakeven ExampleExpected number of jobs < 75, use Site 3 Expected number of jobs ≥ 75 & ≤ 142, use Site 1 Expected number of jobs >142, use Site 2 Exhibit 16.7 Cost Curves for Location Breakeven

19 Business Location TrendsThe most value is created by skilled, highly creative workers. Business are locating where engineers, scientists, technology workers, etc. want to live. Quality of life is a more important factor Tends to be in cities with internet infrastructure, low crime, low taxes

20 Facility Layouts: Process-Oriented LayoutsProcess-oriented layouts are characterized by functional departments. Sequence of operations in a process is flexible Products or customers move between departments. Goal of process-oriented layout design is minimization of movement between departments. Departments that interact most should be close together. The ‘cut-and-try’ approach Systematic layout planning (SLP) Software optimization

21 Facility Layouts: Process-Oriented LayoutsCut-and-try approach First matrix is of frequency of interaction between departments Second matrix is of the distances between departments Third matrix, the total-distance matrix, is the product of the first two Attempt to minimize total distance by changing the layout.

22 Facility Layouts: Cut-and-Try ExampleThe diagram is a proposed layout for a printing business: Exhibit 16.9 Proposed Layout for a Printing Business

23 Facility Layouts: Cut-and-Try ExampleTrips Matrix: Print jobs move between departments at the following frequencies Exhibit Trips Matrix for Printing Business

24 Facility Layouts: Cut-and-Try ExampleDistance Matrix: Distances between the departments Exhibit Distance Matrix for Proposed Layout

25 Facility Layouts: Cut-and-Try ExampleTotal distance matrix: Total distance obtained by multiplying values in Trips matrix and distance matrix Minimize total distance Exhibit Total Distance Matrix for Proposed Layout

26 Facility Layouts: Cut-and-Try ExampleWhat happens to total distance if Paper Storage and Design switch places, Printing and Customer Service switch places? Exhibit Improved Layout

27 Facility Layouts: Cut-and-Try ExampleTotal distance is reduced by almost 37% under the improved layout. Exhibit Total Distance Matrix for Improved Layout

28 Facility Layouts: Process-Oriented LayoutsSystematic Layout Planning (SLP) assigns a ‘closeness desirability’ rating to relationships between departments. Relationships are rated A, E, I, O, U, or X Absolutely necessary (A) Especially important (E) Important (I) OK (O) Unimportant (U) Shouldn’t be close (X) Ratings illustrated by lines connecting departments

29 Facility Layouts: SLP ExampleDesirability matrix has been developed for a printing business Exhibit Closeness Desirability Matrix

30 Facility Layouts: SLP ExampleFirst step – move the departments with most important relationships closer together: Starting Point Improvement

31 Facility Layouts: SLP ExampleContinue the trial and error process until the layout is satisfactory: Second Iteration of Improvement

32 Facility Layouts: Product-Oriented LayoutsProduct-Oriented layouts take the form of assembly or production lines in manufacturing. Meant for high volume production Little flexibility A simple production line with processing times: Exhibit Production Line

33 Facility Layouts: Product-Oriented LayoutsA bottleneck is a constraint in a production system. Bottlenecks determine the utilization rate of the system. Cycle time is the frequency of products emerging completed from a product-oriented layout. A system’s cycle time can’t be any faster than the bottleneck. Balance delay is the lost resource utilization resulting from differences in processing time between a work center and the bottleneck. Production lead time is the amount of time a product spends in the system, start to finish. It is equal to cycle time multiplied by the number of workstations. The utilization rate for an entire system can be calculated by adding processing times at each work station and diving by production lead time.

34 Facility Layouts: Product-Oriented LayoutsIf a bottleneck can be made to work faster, the utilization rate of the whole system increases. In the system below, some of the work has been shifted from workstation D (the bottleneck) to C, speeding workstation D up by 0.3 minutes. The cycle time has gone from 2.5 to 2.2 minutes. Utilization has gone from 81.3% to 92.4% Reducing balance delay this way is called line balancing. Exhibit Production Line Improved (in minutes)

35 Facility Layouts: Step-by-Step: Line BalancingIdentify the tasks, work elements, and precedence relationships by using a precedence chart. Determine the cycle time (C) necessary to satisfy output requirements. This is accomplished using the following equation: Determine the theoretical minimum number of workstations (Nmin) by using the equation Nmin = T/C (T is total amount of work done) Assign the tasks to workstations Evaluate the utilization of the line C = Production Time Available per Day Units of Output Required per Day

36 Facility Layouts: Line Balancing ExampleA deck furniture manufacturer wants to balance a line for a table. Production consists of the work elements in the table Production equals 120 tables per day. Exhibit Assembly Work Elements for Deck Table

37 Facility Layouts: Line Balancing ExamplePrecedence relationships are presented below: Exhibit Deck Table Precedence Relationships

38 Facility Layouts: Line Balancing ExampleDeck Table Assembly Process Exhibit Diagram of Deck Table Assembly Process

39 Facility Layouts: Line Balancing ExampleCompute the cycle time: There are 480 minutes in an 8-hour workday, required production is 120 units per day. Required cycle time C = 480/120 = 4 minutes Compute the theoretical minimum number of workstations: Nmin = T/C T = = 19.6 minutes Nmin = 19.6/4 = 4.9 (round up to 5 workstations)

40 Facility Layouts: Line Balancing ExampleAssign tasks to workstations, making sure that precedence relationships are satisfied. Exhibit First Iteration at Grouping Work Elements at Workstations

41 Facility Layouts: Line Balancing ExampleThe final production line: Overall utilization is 18.5/20 = 92.5% It’s hard to balance a line perfectly. The smaller the work elements, the easier it is to get close to perfect balance Exhibit New Production Line

42 Facility Layouts: Cellular Layouts and Service LayoutsCellular layouts area compromise between product-oriented and process-oriented layouts. A family of products is produced in a “cell” Less material transport costs than process-oriented layouts More flexibility than product-oriented layouts Objectives of service layout may be very similar to manufacturing, but in some cases they are not. Consider retailers. Their objective is not to get customers in and out as efficiently as possible Objective is to expose customer to more products and increase chance of purchase High-frequency products (Milk, bread...) are often deliberately placed at the back of the store so customers are forced to walk past other products