OM Chapter 2

Chapter Two
Operations Systems Design
1
© 2008 Prentice Hall, Inc. 5–1
Chapter Objectievs
Chapter will cover the following topics:
2.1 Product –Service Design and Development
2.2 Process Design and Selection
2.3 Capacity Planning
2.4 Facility/Plant Location Decision
2.5 Facility/Plant Layout Decisions
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Meaning and Objectives of Product-Service Design
• What is product?
–is anything that can be offered to a market for
attention, acquisition, use, or consumption and that
might satisfy a want or need.
–is the set of tangible and intangible attributes
which a buyer may accept as offering want
satisfaction
–is a bundle of benefits (utilities) being offered to
the customer
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• What is design?
–is the process of structuring of component
parts/activities of a product so that as a
unit it can provide specified value.
–The product can be designed in terms of
size, color, and other related dimensions
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• What is product design?

–is a process which:
• defines appearance of product
• Sets standards for performance
• specifies which materials and component parts are
to be used in producing a product
• determines dimensions and tolerances
5
• Product design – or redesign – should be closely tied to an

organization’s strategy
• Major factors in design strategy
• Cost
• Quality
• Time-to-market
• Customer satisfaction
• Competitive advantage
• It should be based on
• Knowledge on market environment
• Available resources
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• Effective design can provide a competitive edge

by
• matching product or service characteristics with customer
requirements
• ensuring that customer requirements are met in the simplest
and least costly manner
• reducing time required to design a new product or service
• minimizing revisions necessary to make a design workable
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Objectives of Product Design:
• To bring new or revised products to the market as quickly as possible

• To design products which have customer appeal and increase level of
customer success
• Customers buy satisfaction/success/ benfit not just a physical good or
particular service
• To improve quality
• To reduce cost
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• For Business Organizations

• Increase competitive advantage ….then profit
• Increase market share
• To create good organizational Image
• For non-profit sectors
• to increase level of customers service
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• Main focus
• Customer Success
• Secondary focus
• Function of product
• Cost/profit
• Quality
• Appearance
• Ease of production/assembly
• Ease of maintenance/service
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© 2008 Prentice Hall, Inc. 5 – 10
Product Design Activities
• Translate customer wants and needs into product requirements
• Refine existing products
• Develop new products
• Formulate quality goals
• Formulate cost targets
• Construct and test prototypes
• Document specifications
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Reasons for Product Design
• Economic
• Social and demographic
• Political, liability, or legal
• Competitive
• Technological
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Designing for Operations
• Taking into account the capabilities of the organization in designing goods and services
• Legal, Ethical, and Environmental Issues
• It should not be only the responsibility of Production dept.
• Interactive decision making is required
– Mkt,
– purchasing
– HR,
– Finance
– Engineering ,
– legal
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Legal, Ethical, and Environmental Issues
• Legal
• Ministry of health
• OSH
• Product liability
• Uniform commercial code
• Ethical
• Releasing products with defects
• Environmental
• Green economy
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Legal, Ethical, and Environmental Issues
• Product Liability –
• A manufacturer is liable for any injuries or damages
caused by a faulty product.
• Uniform Commercial Code –
• Products carry an implication of merchantability and
fitness.
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Product Design Process
• Product design
• defines appearance of product
• sets standards for performance
• specifies which materials are to be used
• determines dimensions and tolerances
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Product Design
Process
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• Idea Generation
• Company’s own R&D department
• Customer complaints or suggestions
• Marketing research
• Suppliers
• Salespersons in the field
• Factory workers
• New technological developments
• Competitors
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• Idea Generation
• Perceptual Maps
– visual comparison of customer perceptions
• Benchmarking
– comparing product/process against best-in-class
• Reverse engineering
– dismantling competitor’s product to improve your own
product
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• Feasibility Study
• Market analysis
• Economic analysis
• Technical/strategic analyses
• Performance specifications
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• Rapid Prototyping and Concurrent

Design
• Testing and revising a preliminary design model
• Build a prototype
– form design
– functional design
– production design
• Test prototype
• Revise design
• Retest
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Concurrent Design
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Form and Functional Design
• Form Design
• how product will look?
• Functional Design
• how product will perform?
– reliability
– maintainability
– Usability…..Ease of use of a product
» ease of learning
» ease of use
» ease of remembering how to use
» frequency and severity of errors
» user satisfaction with experience
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Importance of Product Life Cycle Analysis in Product Design
• Product Life Cycles
• Products have limited life which may be any length from a few
hours to decades
• 4 stage of PLC
• Introduction
• Growth
• Maturity
• Decline
• Companies adopt different strategies for each stage

of PLC
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PLC and Product Design
Introduction Growth Maturity Decline
Company Strategy/Issues
CD-ROMs
Internet search engines
Analog TVs
Drive-through
LCD & plasma TVs restaurants
Sales
iPods
3 1/2”
Floppy
disks
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PLC and Product Design
Introduction Growth Maturity Decline
• Product design and • Forecasting critical • Standardization • Little product

development critical
OM Strategy/Issues
• Product and • Less rapid product differentiation

• Frequent product process reliability changes – more minor • Cost
and process design • Competitive changes minimization
changes product • Optimum capacity • Overcapacity in
• Short production improvements and
runs options • Increasing stability of the industry
process • Prune line to
• High production • Increase capacity
costs • Long production runs eliminate items
• Shift toward not returning
• Limited models product focus • Product improvement good margin
and cost cutting
• Attention to quality • Enhance • Reduce capacity
distribution
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New Product Design and Development Philosophies
• Market Pull Philosophy

• Technology-Push Philosophy
• Inter-functional Philosophy
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• Market Pull Philosophy

• “Make what you can sale”
• Customer oriented product development
• Customer survey and market research
• Less regard to existing technology &
processes
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• Technology-Push Philosophy
• Sell what can be made
• Product design and development decisions depend
on existing technology and processes
• R&D focuses on designing superior products based
on internal capacity
• Creates marketing myopia
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New Product Design and Development
Philosophies
• Inter-functional Philosophy
• Product design and development is the
result of interactions among customers,
functions with in the organization,
suppliers, and other stakeholder
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Approaches to Product Design and Development
– Concurrent Engineering (Design)

– Robust Design (Taguchi’s Method)
– Design for Mass Customization
– Quality Function Deployment
– Computer Aided Design
– Value analysis
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Concurrent Engineering (Design)
– involves simultaneous design & development of
products by design teams
– design for manufacturability;
– design for procurement;
– design for environment; and
– design for disassembly.
– Involves suppliers, customers, and people from
different functional areas in the organization
– Enables to see quality and cost issues at the early
stage of design decisions
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Considerations (Elements) in Concurrent Engineering

1. Design for Manufacturability
2. Design for procurement
3. Design for Environment
4. Design for disassembly
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i) Design for Manufacturability (DFM)

• a product development approach that explicitly
considers the effectiveness with which a product
can be made during the initial development of the
product design.
• Designing a product so that it can be produced
easily and economically
• Solve manufacturing problems during the design
stage
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i) Design for Manufacturability

• Ease and economy of production determined by:
– Standardization
» Using commonly available and interchangeable parts
» Reducing variety of products, processes
– Specification
» Descriptions of materials, components and parts used to produce
the product
– Simplification
» Reducing number of parts, assemblies, or options in a product
» Avoiding tools, separate fasteners, and adjustments
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ii) Design for procurement

• Address procurement issues at the early stage of
product design
– ………where there is high degree of flexibility and
objectivity
• Design a product which uses materials which are
available easily from many supply base, less costly,
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iii) Design for Environment and Disassembly

• Sustainability
– Ability to meet present needs without compromising
those of future generations
• Green product design
• Extended producer responsibility
– holds companies responsible for their product even after
its useful life
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B. Robust Design (Taguchi’s Method):
• Why A Product Fails? ………………..Because:

– It was manufactured wrongly in the factory
» quality of conformance, or
– It was designed incorrectly
» quality of design, or
– It was marketed incorrectly
» quality of marketing
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Robust design
• Proposed by Genichi Taguchi (Japanese industrialist
and statistician)
• Assumes product’s failure is largely a function of
quality of design
• is the process of designing a product which is less
sensitive to change in external forces (environment,
client use conditions, and manufacturing conditions)
• allows to experiment and test and retest prototypes
on multiple factors
• yields a product or service designed to withstand
variations in environmental and use (operating)
conditions (Robust Product)
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Robust design
Conditions that cause a product to operate
poorly from the designers point of view:
• Controllable factors
– design parameters such as material used, dimensions,
and form of processing
• Uncontrollable factors
– user’s control (length of use, maintenance, settings,
etc.)
– Environmental (external)
The designer’s responsibility is to choose values for
the controllable variables that react in a robust
fashion to the possible occurrence of uncontrollable
factors
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Benefits of Robust design
• Improves performance of products

• Promotes consistency in the performance of
products (durability and reliability)
• Simplifies designs to reduce cost
• Improves quality
• Enhances the chance of correcting errors in
product features
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C. Design for Mass Customization (Modular Design)
– Mass customization:
• A strategy of producing basically standardized products, but
incorporating some degree of customization using modular
design
– Modular Design:
• A form of standardization in which component parts are
grouped into modules that are easily replaced or
interchanged
• Involves combining standardized building blocks, or
modules, to create unique finished products
• Common in Automobile and Electronics Industries
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C. Design for Mass Customization (Modular
Advantages: Design)
– Failures are often easy to identify, diagnose, and remedy
because there are fewer pieces to investigate
– Ease of repair and replacement
– Adds flexibility to both production and marketing
– Improved ability to satisfy customer requirements
– Enhances simplification which reduces problems of
purchasing and inventory control
– makes fabrication and assembly operations standardized
– reduces training costs
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C. Design for Mass Customization (Modular
Design)
Disadvantages
• Reduction in variety
• Inability to disassemble a module to
replace a faulty part (sometimes)
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D. Quality Function Deployment (QFD): House of
Quality
–An approach which integrates “voice of
customers” into product development
process
–Purpose:
• To ensure the customer requirements are
factored into every aspect of the development
process
–Displays requirements in matrix diagrams
• “house of quality”
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D. Quality Function Deployment (QFD): House of
Quality
• QFD consists of two components which are
deployed into the design process: quality and
function.
– The "quality deployment" component brings the
costumer’s voice into the design process.
– The "function deployment" component links
different organizational functions and units into to
the design-to-manufacturing transition via the
formation of design teams.
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Approaches to Product Design and Development (cont.)
The idea of QFD is

– timing,
– performance evaluation, and
– resource commitment.
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The four phases of QFD are:

1.Product concept planning.
• It starts with customers and market research with leads to product
plans, ideas, sketches, concept models, and marketing plans.
2.Product development and specification.
• It would lead to the development to prototypes and tests.
3.Manufacturing processes and production tools.
• They are designed based on the product and component specifications.
4.Production of product.
• It starts after the pilot have been resolved
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1. Identify customer wants

2. Identify how the product that will satisfy customer wants
3. Relate customer wants to product how’s
4. Identify relationships between the firm’s how’s
5. Develop importance ratings
6. Evaluate competing products
7. Compare performance to desirable technical attributes
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House of Quality
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D. Quality Function Deployment (QFD):
QFD has been evolved by product development people in response
to the major problems in the traditional processes, which were:
– Disregard the voice of customer
– Disregard the competition
– Concentration on each specification in isolation
– Low expectations
– Little input from design and production people into product planning
– Divergent interpretation of the specifications
– Lack of structure
– Lost information
– Weak commitment to previous decisions
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QFD House of Quality
Interrelationships
Customer
importance
How to satisfy
ratings
customer wants
Competitive
assessment
What the Relationship
customer matrix
wants
Target values Weighted

rating
Technical
evaluation
D. Quality Function Deployment (QFD):
• Your team has been charged with designing a new camera for Great
Cameras, Inc.
• The first action is to construct a House of Quality
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Interrelationships
House of Quality Example

How to Satisfy
Customer Wants
Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants
Technical
What the Attributes and
Evaluation
customer
wants Customer
importance
rating
(5 = highest)
Lightweight 3
Easy to use 4
Reliable 5
Easy to hold steady 2
Color correction 1

Interrelationships

How to Satisfy
Customer Wants
Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants
Technical
Low electricity requirements

Attributes and
Evaluation
Aluminum components
Ergonomic design
Auto exposure
How to Satisfy
Customer Wants
Paint pallet
Auto focus

Interrelationships

How to Satisfy
Customer Wants
Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants
High relationship Technical

Attributes and
Evaluation
Medium relationship
Low relationship
Lightweight 3
Easy to use 4
Reliable 5
Color corrections 1
Relationship matrix
Interrelationships

How to Satisfy
Customer Wants
Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants
Technical
Attributes and
Evaluation

Relationships
between the
things we can do
Aluminum components
Ergonomic design
Auto exposure
Paint pallet
Auto focus

Interrelationships

How to Satisfy
Customer Wants
Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants
Technical
Attributes and
Evaluation
Lightweight 3
Easy to use 4
Reliable 5
Color corrections 1
Our importance ratings 22 9 27 27 32 25
Weighted
rating
Interrelationships
How to Satisfy
Customer Wants
Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants
Technical
Attributes and
Company B
Company A
Evaluation
How well do
competing products
meet customer wants
Lightweight 3 G P
Easy to use 4 G P
Reliable 5 F G
Easy to hold steady 2 G P
Color corrections 1 P P
Our importance ratings 22 5
Interrelationships
How to Satisfy
Customer Wants
Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants
Technical
Attributes and
Evaluation
Failure 1 per 10,000

Panel ranking
Target
2 circuits
values
(Technical
2’ to ∞
0.5 A
attributes)
75%
Company A 0.7 60% yes 1 ok G
Technical
evaluation Company B 0.6 50% yes 2 ok F
Us 0.5 75% yes 2 ok G
Aluminum components
Ergonomic design
Auto exposure
Company A
Company B
Paint pallet
Auto focus
Completed
Lightweight 3 G P
House of Easy to use 4 G P
Quality Reliable
5 F G
G P
Color correction 1 P P
Our importance ratings 22 9 27 27 32 25
Failure 1 per 10,000

Panel ranking
Target values
(Technical
2 circuits
attributes)
2’ to ∞
0.5 A
75%
Company A 0.7 60% yes 1 ok G
Technical
Company B 0.6 50% yes 2 ok F
evaluation
Us 0.5 75% yes 2 ok G
House of Quality Sequence
Deploying resources through the
organization in response to
customer requirements
Quality
plan
Production
process
Production
Specific
process
components House
components
4
Specific
Design House
characteristics
characteristics
3
House
Design
requirements
2
Customer
House
1
Figure 5.4

D. Quality Function Deployment (QFD): House of Quality

• Benefits of QFD
– Promotes better understanding of customer demands
– Promotes better understanding of design interactions
– Involves manufacturing in design process
– Provides documentation of design process
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E. Computer-Aided Design (CAD)

– The use of computer software and hardware to assists in creation, modification,
and analysis of a design
– Shorter development cycles, improved accuracy, lower cost
– Information and designs can be deployed worldwide
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Extensions of CAD
– Design for Manufacturing and Assembly (DFMA)
• Solve manufacturing problems during the design stage
– 3-D Object Modeling
• Small prototype development
– CAD through the internet
– International data exchange through STEP
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Computer-Aided Manufacturing (CAM)
– Utilizing specialized computers and program to control manufacturing equipment
– Often driven by the CAD system (CAD/CAM)
– Benefits of CAD/CAM
• Product quality
• Shorter design time
• Production cost reductions
• Database availability
• New range of capabilities
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F. Value analysis (VA)

– is the study of the relationship of
• design, function and cost of any product, material, or service
– with the aim of reducing its cost through
• modification of design or materials specifications,
• manufacture by more efficient process,
• change in source of supply (internal or external) or possible elimination.
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Approaches to Product Design and
Development (cont.)
– Is an approach that focuses on design improvement during production
– Seeks improvements leading either to a better product or a product which can be
produced more economically
– Review designs to prevent failures and ensure value
– Helps eliminate unnecessary features and functions so that quality can be
improved or cost will be minimized
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• Possible question during value analysis
– Can we do without it?
– Does it do more than is required?
– Does it cost more than it is worth?
– Can something else do a better job?
Can it be made by
– a less costly method?
– with less costly tooling?
– with less costly material?
– Can it be made cheaper, better, or faster by someone else?
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Service Design
• Service operations: render services

–Services are activities, relationships, or performances that
• produce time,
• place,
• form, or
• psychological utilities to customers
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Service Economy
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Service Design
Characteristics of service
– Services are intangible
– Service output is variable
– Services have higher customer contact
– Services are perishable (can not be inventoried)
– Service input is highly variable
– Service inseparable from delivery
– Services are consumed more often than products
– Services can be easily emulated (low entry barriers and can be copied
– Service operations are labor intensive
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Service Design Process
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• Service concept
– purpose of a service;
– it defines
• target market and the desired customer experience
• how our service is different from others
• how it will compete in the marketplace
– Sometimes services are successful because their service concept fills a previously unoccupied
niche or differs from the generally accepted mode of operation.
• Service package
• Service specifications
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• Service concept
• Service package
– It is mixture of
• physical items, ….. food, drinks, tableware, napkins
• sensual benefits, and …….. taste and aroma of the food and the sights and sounds of the people
• psychological benefits……. rest and relaxation, comfort, status, and a sense of well-being
– From the service concept, a service package is created to meet customer needs.
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• Service concept
• Service package
– performance specifications….. outline expectations and requirements
– design specifications ….. describe the service in enough detail to be replicated
– delivery specifications…. specify schedules, deliverables, location
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Service Design
Classification of Services
• Based on:
– The volume of activity
– The degree of professional skills and/or knowledge required
– The type of the service takers
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• Based on the volume of activity
– Service factory such as
• Bank,
• Insurance,
• Postal Service, etc
– Service shop such as
• cafeteria,
• clinic,
• gymnastics, etc
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Service Design
• Based the degree of professional skills and/or knowledge required
– Professional service such as
• pharmacy,
• consultancy,
• optician,
• architect, engineers, physician, etc
– Nonprofessional services which do not require special skills and/or knowledge to
provide the services.
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Service Design
• Based the type of the service takers
– Mass service such as
• bus,
• college,
• hotel, etc
– Personal service such as
• beauty salon,
• hair dresser, etc
87
Considerations (Attributes) in Service Design
• Degree of Labor Intensity
• Degree of Customer Contact
• Conditions of Interaction
• Degree of Customization
• Identity of Service Taker
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• Degree of Labor Intensity
– refers to the ratio of labor cost incurred in providing the service
– Labor cost is a the function of
The number of people &
Their qualification employed in the service process
• high labor intensity in service factory but
• lower in the case of personal service
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• Degree of Customer Contact

– Refers the proportion of the total time to provide the service with
the presence of customers
–the customer presents in the system.
• high contact in personal service but
• low in the case of professional service
90
• Conditions of Interaction
– refers to the extent which the customer actively interfere in the service
process
• high interaction in professional service but
• low interaction in the case of mass service.
• Degree of Customization
– refers to what extent the service could be adapted to the need of a
customer
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• Identity of Service Taker
– refers to whether the service is direct on the person or else direct to the thing
– Services direct to the thing include:
• architect,
• auditing,
• repair, etc.
– services direct to person may include
• nursing,
• cafeteria,
• bar tendering,
• training, etc
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Service Design
Tools for Service Design
There are many different tools for designing services. These includes
– Quality Function Deployment (QFD)
– Service Blueprints,
– Scripting,
– Servicescapes, and
– Waiting Line Analysis.
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– Quality Function Deployment (QFD)
– Service Blueprints,
• Method used in service design to describe and analyze a proposed service.
– Scripting,
– Servicescapes
• the design of the physical environment (including signs, symbols, and artifacts) in
which a service takes place.
– Waiting Line Analysis.
• A waiting line system consists of arrivals, servers, and waiting line structure.
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Service Design
Service blueprinting
– Flowchart
• The standard process for service design
• Now know as Service blueprint
– is a visual diagram usually a flowchart that depicts all of the activities in the service delivery
process
– originates from the areas of logistic & industrial engineering
– helps one focus on the depiction and design of efficient workflows and tasks
– Conceptualizing information in this way, allows one to develop a critical pathway with
decision points and to identify system or person factors that mediate the anticipated outcome
96
Service Design
• The benefit of this technique is that
– it allows
• measurement of system components and
• identification of potential fail points viewed by both
– the customer who accesses the service and
– the employees who deliver the service.
97
Service Design
• A unique feature of the service blueprint is the distinction made
between
– the high customer contact aspects of the service (the parts of the process
that the customer sees) and
– those activities that the customer does not see.
– The distinction is made with a "Line of Visibility" on the flowchart.
98
Service Design
• high customer contact elements can be identified and enhanced to deliver
personal satisfaction to the customer.
• Low contact elements can be separated from high contact elements to drive
down costs through standardizing, prioritizing, and automating.
– Efficiency
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• The line of influence
– shows activities designed to influence the customer to enter the service facility.
• The line of interaction is
– where the customer interacts with the service provider and other customers.
• The line of visibility
– separates front office (or onstage) activities from back office (or backstage) activities.
• The line of support is
– where the service provider interacts with backstage support personnel to complete their tasks.
• Moving these various lines on the service blueprint allows the designer
102
to experiment
Service Design
• Service blueprinting
– Service operations involves several players:
• Customers,
• primary service provider,
• support staff, front and back office operations, different opportunities for interactions among the
players
– Service blue printing
• is the process of recording in graphical form the activities and interactions in the service process
• E.g.: Service Blue Print for Installment Lending Operations
103
Steps of design improvements of existing
services
1. Develop the service Blueprint
2. Identify customer contact points and reduce contact where appropriate
3. Improve the quality of contact
4. Improve efficiency in low contact operations
104
services
1. Develop the service Blueprint
– include activities involving
• information processing,
• customer interactions, and
• employee decisions.
– The flowchart is analyzed to identify the fail points in the delivery system.
• Fail points are steps in the service delivery process where meeting customer expectations is critical
and perhaps more difficult to achieve.
– Resource, employee training, and management attention must be provided to these fail
points to ensure that customer need are met.
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services
2. Identify customer contact points and reduce contact where
appropriate
– customer contact activities are identified by a "line of visibility"
– contact activities should be examined to determine if some elements may
be removed from the customer’s presence
– Some activities …….reassigned to "backroom" areas
• where they do not interfere with customer service and
• where they can be more efficiently completed
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services
3. Improve the quality of contact
– where contact is critical to the service, opportunities to enhance the customer's
experience should be identified
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services
4. Improve efficiency in low contact operations
– in low contact operations, costs can be reduced by
• standardizing work procedures,
• prioritizing jobs, and
• adopting computerized and automated processing systems.
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Front Office and Back-Office Activities services
• Typical front office goals are
– courtesy,
– transparency,
– responsiveness,
– usability, and
– fun.
• Typical goals of the back office are
– efficiency,
– productivity,
– standardization, and
– scalability.
• conflicts exist between front and back officers
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• Process
Process Design
– is a group of related tasks with specific inputs and outputs.
– exist to create value for
• the customer, the shareholder, or society.
• Process design
– defines what tasks need to be done and
– how they are to be coordinated
• among functions, people, and organizations.
• Planning, analyzing, and improving processes is the essence of operations management.

– Processes are planned, analyzed, and redesigned as required by changes in strategy and emerging technology.
111
Process Design
• Process strategy
– is an organization’s overall approach for physically producing goods and providing
services.
– Process decisions should reflect how the firm has chosen to compete in the
marketplace,
• reinforce product decisions, and
• facilitate the achievement of corporate goals.
112
A firm’s process strategy defines its:
Process Design
• Vertical integration:
– The extent to which the firm will produce the inputs and control the outputs of each stage of the
production process.
• Capital intensity:
– The mix of capital (i.e., equipment, automation) and labor resources used in the production process.
• Process flexibility:
– The ease with which resources can be adjusted in response to changes in demand, technology, products
or services, and resource availability.
• Customer involvement:
– The role of the customer in the production process.
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Process Design
• Process
– Group of related tasks with specific inputs & outputs
• Process design
– tasks to be done & how they are coordinated among functions, people, & organizations
• Process strategy
– an organization’s overall approach for physically producing goods and services
• Process planning
– converts designs into workable instructions for manufacture or delivery
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Process Design
• Process
– a group of related tasks with specific inputs and outputs
– Includes the facilities, equipment's and knowledge used to produce goods or services
– an organization’s overall approach for physically producing goods and services
– workable instructions for manufacture or delivery
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Process Design
• Process design
– Devising what tasks need to be done and how they are coordinated among
functions, people, and organizations in producing goods or services
– Deciding how to produce products or provide services
– Deciding on the way production of goods or services will be arranged
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Process Design
• Process design Has long term effects on
– Efficiency
– Production flexibility
– Costs
– Quality
117
POM tools used in process design are
1. Assembly drawing
2. Assembly charts
3. Process charts
118
• Assembly drawing
– simply shows an exploded view of the product.
– is usually a three-dimensional drawing, known as an isometric drawing;
• the relative locations of components are drawn in relation to each other to
show how to assemble the unit/product.
119
120
121
• Assembly charts
– is a schematic form that show how a product is assembled
• i.e., a graphic means of identifying how components flow into
subassemblies and ultimately into a final product.
122
123
124
• Process charts:
– It is a detailed analysis of only one of the operations required to produce a
specific product
– It can be used to compare alternative methods of performing individual
operations or groups of operations
– It is a tool to be used in Business Process Reengineering (BPR) analysis
125
• This planning tool breakdown the operation into various elemental steps:
126
127
128
129
130
Types of Process
A. Based on the type of product flow

– Continuous Production Process/Line Flow
– Mass production
– Intermittent/Batch/Job Shop Production Process
– Project Production Process
B. Based on Type of Customer Order
– Make-to-Stock (Push System)
– Make-to-Order (Pull System)
131
Types of Process
A. Based on the type of product flow
i) Continuous Production Process/Line Flow
– Is a production process in which activities are arranged in a linear sequence
– Used when a company produces well standardized commodity products in very-
high volume
– Is typically operated for 24 hours
• E.g. Oil refinery, chemical industries, steel factories, paper factories, flour milling, sugar
factories, beer factories
132
133
Types of Process (cont.)
Continuous Work Flow

Output
variations
Few in size,
inputs shape,
and
packaging
134
Characteristics of Continuous production system:

– Highly automated system
– High volume but low variety of products
– Long, continuous production runs enable economies of scale (lower unit cost)
– Typically high fixed cost but low variable cost
– Generally less skilled labor required
– Fixed path materials handling
– Lower storage cost per unit 135
• Limitations
– Very rigid
– Lack of variety
– Very high cost of downtime
136
ii) Mass production

– produces large volumes of a standard product for a mass market.
– Product demand is stable, and product volume is high.
– Goods that are mass produced include
• automobiles, televisions, personal computers, fast food, and most consumer goods.
137
138
139
iii) Intermittent/Batch/Job Shop Production Process

• Occurs at irregular intervals
• Is a type of process which processes many different jobs at the same
time in groups or batches
• Suitable for producing varied, low volume products
– E.g. Furniture, bakeries, machine shops, print shops, education, custom
jewelries,
140
141
Characterized by:
• Equipment's and labor organized into work centers based on similarity of skills and operations
– The product will flow to work centers
– The process is jumbled
• Longer production time
• Higher storage cost per unit
• Lower investment cost associated with use of general purpose equipment's
• Variable path materials handling
• Flexible production process
• Varied products produced
142
Job Shop
Many departments and

many routings
Many
Many variety
inputs of
outputs
143
iv) Project Production Process
• Used for one-of-a-kind production of a product to customer order
• Take a long time to complete
• For needs for creativity and uniqueness
• No automation
• Involves a large investment of funds and resources
– E.g. Construction projects, ship building, air craft manufacturing
• Problem:
– Planning, sequencing, controlling
144
145
146
147
B. Based on Type of Customer Order
i) Make-to-Stock (Push System)
• A process designed to make standardized product for stock based on forecast
• Customer demand is fulfilled from stock
• The key performance measures:
• Production assets utilization (capacity, inventory, )
• Customer service
148
i) Make-to-Order (Pull System)
• A process designed to respond to each customer order

• Products are produced after customer demand is known
• Key performance measures:
• Delivery time
• Percentage of completed orders
149
Characteristics Make-to-order Make-to-stock
Product • Customer specific • Producer specified
• High variety • Low variety
• Expensive • Less expensive
Objective • Manage delivery lead • Balance inventory,
time and capacity capacity and service
Main problems • Delivery promises and time • Forecasting
• Capacity planning
• Inventory control
6-150
Process Selection
• Three primary questions need to be answered in process

selection
– How much variety in products or services will the system need to
handle?
– What degree of equipment flexibility will be needed?
– What is the expected volume of output
151
Process Selection
Factors Which Affect Process Selection
• Product or service characteristics

• Standardization and demand volume
• Market conditions
• Mass market
• Target market
• Capital intensity
• Labor availability and cost
• Management skills
152
Process Selection Matrix
Make-to-stock Make-to-order
Line flow • High volume, highly standardized, • High volume, few major assembly
commodity products products, e.g.
• e.g. • Automobile assembly
• Oil refinery • Personal computers
• Flour milling • Television assembly
• Paint factory
Intermittent flow • Fast food • Restaurants
• Furniture • Hospitals
• Education
Project • Low volume low-low • Very low volume, one of a kind
standardization • Ship builders
• Real estate (home construction) • Aircraft assemblers
6-153
Business Process Reengineering/Process Innovation
• What is Business Process?

• Series of activities designed to produce a product or service
• All the activities that deliver particular results for a given customer (both internal and
external)
• Example:
– procurement process, order receipt and fulfillment process, machining process, weaving process, etc.
• Business processes designed in response to:

– New plants, or facilities, new technology, new product, new markets, and so on
154
What is BPR?
• A fundamental rethinking and redesign of business processes
– Reached its heyday in 1990s when Hammer and Champy published
the book “Reengineering the Corporation”
– BPR: The surest way to the Top!
155
Business Process Reengineering
• Objective of BPR:
– Achieve radical improvement in critical measures of performance:
• Cost
• Quality
• Service
• Speed
– Radical improvement: 50% to 100% within 12 months
– Total renovation of business processes
156
• process reengineering requires the “fundamental rethinking and radical
redesign of business processes to achieve dramatic improvements in critical,
contemporary measures of performance, such as cost, quality, service, and
speed.”
• The definition of BPR
– Fundamental
– Radical
– Dramatic
– Process
157
Business Process Reengineering (BPR)
• Fundamental,
– It ignores what is and concentrates on what should be.
– It starts with no assumption and given.
– It first determine what a company must do, then “how” issue comes later
• Radical
– Radical redesign means getting to the root of things.
– Not improving the existing system to make better.
– Not superficial change, or modification
– Throwing away the old, reinventing completely new ways of doing work.
158
• Dramatic
– Reengineering is not about making marginal or incremental improvement , but about
achieving quantum leaps in performance.
– Not 10% but 10x dramatic improvement in quality, speed, and service level.
• Process
– It is only business process the object of reengineering.
– It is the process, not the organization, or parts of it( E.g. department) to be redesigned
in reengineering.
– Reengineering is not restructuring or downsizing(reengineering reduce costs not
people)
159
• is redesigning or reinventing how we perform our daily work, and

• it is a concept that is applicable to all industries regardless of size, type,
and location.
• The intent of process reengineering is to make organizations
significantly more flexible, responsive, efficient, and effective for their
customers, employees and other stakeholders.
160
• If process reengineering is to work, a business’s priorities must change in the following ways:
– from boss ……..to customer focus;
– from controlled workers …..to empowered, involved process owners and decision makers;
– from activity-based work ……to a results orientation;
– from scorekeeping ……to leading and teaching so that people measure their own results;
– from functional (vertical) ……to process (horizontal or cross functional) orientation;
– from serial ……to concurrent/ simultaneous operations;
– from complex……. to simple, streamlined processes;
– from empire building and guarding the status quo …..to inventing new systems and processes and
looking toward the future (i.e., from the caretaker mentality to visionary leadership).
161
• Reasons for Process Reengineering
– to re-invent the way they do work to satisfy their customers;
– to be competitive;
– to cure systemic process and behavioral problems;
– to enhance their capability to expand to other industries;
– to accommodate an era of change;
– to satisfy their customers, employees, and other stakeholders who want them to be dramatically
different and/or to produce different results
– to survive and be successful in the long term; and
– to invent the “rules of the game.”
162
• Requirements for Successful Process Reengineering
– Initiation from the top by someone with a vision for the whole process and
relentless deployment of the vision throughout the organization.
– Leadership that drives rapid, dramatic process redesign.
– A new value system which includes a greater emphasis on satisfying
customers and other stakeholders.
– A fundamental re-thinking of the way people perform their daily work,
with an emphasis on improving results (quality, cycle time, cost, and other
baselines).
163
– An emphasis on the use of cross-functional work teams which may result in structural redesign
as well as process redesign.
– Enhanced information dissemination (including computerization after process redesign) in
order to enable process owners to make better decisions.
– Training and involvement of individuals and teams as process owners who have the knowledge
and power to re-invent their processes.
– A focus on total redesign of processes with non-voluntary involvement of all internal
constituents (management and non-management employees).
– Rewards based on results; and a disciplined approach.
164
– An emphasis on the use of cross-functional work teams which may result in structural redesign
as well as process redesign.
– Enhanced information dissemination (including computerization after process redesign) in
order to enable process owners to make better decisions.
– Training and involvement of individuals and teams as process owners who have the knowledge
and power to re-invent their processes.
– A focus on total redesign of processes with non-voluntary involvement of all internal
constituents (management and non-management employees).
– Rewards based on results; and a disciplined approach.
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• Why Process Reengineering Fails?

– Not focusing on critical processes first.
– Trying to gradually “fix” a process instead of dramatically re-inventing it.
– Making process reengineering the priority and ignoring everything else (e.g., strategy
development and deployment, re-structuring based on new strategies, etc.).
– Neglecting values and culture needed to support process reengineering and allowing
existing culture, attitudes, and behavior to hinder reengineering efforts (e.g., short-term
thinking, bias against conflict and consensus decision making, etc.).
– “Settling” for small successes instead of requiring dramatic results.
166

– Stopping the process reengineering effort too early before results can be achieved.
– Placing prior constraints on the definition of the problem and the scope for the
reengineering effort.
– Trying to implement reengineering from the bottom up instead of top down.
– Assigning someone who doesn’t understand reengineering to lead the effort.
– Skimping/Thrifty on reengineering resources.
– Dissipating energy across too many reengineering projects at once.
167
– Attempting to reengineer when the CEO is near retirement.
– Failing to distinguish reengineering from, or align it with, other improvement
initiatives (e.g., quality improvement, strategic alignment, right-sizing, customer-
supplier partnerships, innovation, empowerment, etc.)
– Concentrating primarily on design and neglecting implementation.
– Pulling back when people resist making reengineering changes (not understanding
that resistance to change is normal).
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• Focus
– On processes-not on people, or not on jobs, or not on
tasks, or not on functions, or not organization structure
Product Development
Manufacturing
Purchasing
Accounting
Order to payment process
Sales
Supply Chain Management
Customer Service
Function Process
169
Steps in BPR
1. Prepare for BPR: “If you fail to plan, you plan to fail”
– Ask if BPR is really needed
– Build Cross functional team
– Develop Strategic Vision/Mission/Purpose
– Identify Customer driven objective
170
2. Map & Analyze Existing (orSteps in
As-Is) Processes BPR
• Two School of Thoughts:
– Pro-analyzing existing process
– Against analyzing exiting processes (start from clean slate)
• Identify and Map the existing processes to:
• Give a picture of how work flows through the company
• Better understand and significantly improve the business process
• Identify disconnects & value adding processes
• Determine the order of processes redesign
171
Steps in BPR
Selection criteria for redesign
• Dysfunction:
– Which processes are functioning the worst
– Which processes conflict the most with the company’s vision
• Importance:
– Which are the most critical and influential in terms of customer satisfaction
• Feasibility:
– Which are the processes most likely to be successfully reengineered 172
173
Steps in BPR
3. Design To-Be Processes

– Benchmark processes
– Design To-Be processes
– Validate To-Be processes
– Perform Trade-off Analysis
– Identify IT levers
174
Steps in BPR
• Financial justification of technology
– Purchase cost
– Operating Costs
– Annual Savings
– Revenue Enhancement
– Replacement Analysis
– Risk and Uncertainty
175
4. Implement Reengineered processesSteps in BPR
– Evolve Implementation plan
– Prototype & Simulate transition plans.
– Initiate training programs
– Implement transition plan
• Problems that need to be improved during implementation
– Cost cutting focus
– Too many projects underway
– Narrow technical focus
– Fear and lack of optimism
– Animosity: IT people, HR
– The wrong sponsor “Do it to me” Attitude
176
Steps in BPR
5. Improve Continuously
–Initiate Ongoing measurement
–Review Performance against target
–Improve process continuously
177
Critics of BPR:
• Another name for Downsizing or Layoffs
• Most BPR efforts failed to meet the expectations :
– 50 to 70 percent of reengineering efforts fail to deliver the intended
dramatic results
• The approach assumes processes as the only factors which limit
success
• Failure to consider constraints
178
Favorable conditions for BPR
• Senior management commitment and support
• Realistic expectations
• Empowered and collaborative workers
• Shared vision
• Sound management practice
• Full participation of people
• Sufficient budget
© 2008 Prentice Hall, Inc.
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5 – 179
Comparison of BPR With TQM
• BPR:
– Focuses on radical change
• TQM:
– focuses on continuous and incremental improvement
– customer-oriented, leadership, strategic planning, employee responsibility,
continuous improvement, cooperation, statistical methods, and training and
education
180
Continuous improvement
refines the breakthrough
Breakthrough
Improvement
Total redesign of a Continuous improvement activities

peak; time to reengineer process
process for
breakthrough
improvements
181
TQM Vs. BPR
Description TQM BPR
Level of Change Incremental/continuous Innovative, radical
Starting Point Existing process Clean slate
Frequency of Change One time/continuous One-time
Time required to introduce Open ended with in short time Bounded time frame with long
period period
Participation Bottom-up Top-down
Scope Narrow Broad, cross-functional
Risk Low High

Primary enabler SPC IT
Type of change Cultural Cultural/structural
6-182
Capacity Planning
• Important Concepts in Capacity Planning
• Meaning of Capacity and Capacity Planning
• Measures of Capacity
183
Capacity Planning
• Capacity
– is the maximum capability to produce.
– is the rate of output that can be achieved from a process or a facility can hold,
receive, store, or produce in a period of time
• Capacity planning:
– a process
– establishes the overall level of productive resources for a firm.
• equipment, space, labor, plants, technology, and other facilities
184
Capacity Planning
• Design capacity:
– is the rate at which a firm would like to produce under ideal condition
• Maximum capacity:
– is used to describe the maximum output rate that could be achieved when productive
resources are used to their maximum
– It may result in
• inefficient use of recourses:
• increasing energy costs,
• the need for OT,
• higher maintenance costs, etc.
185
• Capacity decisions affect
Capacity Planning
– product lead times,
– customer responsiveness,
– operating costs, and
– a firm’s ability to compete.
• In adequate capacity can
– lose customers and
– limit growth.
• Excess capacity can
– drain a company’s resources and
– prevent investments in more lucrative ventures.
• When to increase capacity and how much to increase it are critical decisions.
186
Capacity Planning
• The capacity of the production system defines the firm’s competitive boundaries i.e.,
– It sets the firm’s response rate to the market
– Its cost structure
– Its work-force composition
– Its level of technology
– Its management and staff supports requirements
– Its inventory strategy
• The objective of a capacity
– is to specify which level of capacity will meet market demands in a cost-efficient way
• Capacity decisions
– must merge consumer demands with the human, material, and financial resources of the
187
organization
Capacity Planning
• Basic strategies for the timing of capacity expansion in relation to a steady
growth in demand
– Capacity lead strategy
– Average capacity strategy
– Capacity lag strategy.
– Incremental versus one-step expansion
• The first three are basic strategies
188
Capacity Planning
• Capacity lead strategy.
– Capacity is expanded in anticipation of demand growth.
– This aggressive strategy is used to pull customers from competitors who are
• capacity constrained or
• to gain a foothold in a rapidly expanding market.
– It also allows companies to
• respond to unexpected surges in demand and
• provide superior levels of service during peak demand periods.
189
Capacity Planning
• Average capacity strategy.
– Capacity is expanded to coincide with average expected demand.
– This is a moderate strategy in which managers are certain they will be able to sell at
least some portion of expanded output, and tolerate some periods of unmet
demand.
– Approximately half of the time capacity leads demand, and half of the time
capacity lags demand.
190
Capacity Planning
• Capacity lag strategy.
– Capacity is increased after an increase in demand has been documented.
– This conservative strategy produces a higher return on investment but may lose
customers in the process.
– It is used in industries with standard products and cost-based or weak
competition.
– The strategy assumes that lost customers will return from competitors after
capacity has expanded.
191
192
Capacity Planning
• Incremental expansion is
– less risky but more costly.
• An attractive alternative to expanding capacity is outsourcing, in
which suppliers absorb the risk of demand uncertainty.
• The best operating level for a facility is the percent of capacity utilization
that minimizes average unit cost.
193
Capacity Planning
• Capacity planning sets a firm’s
– Response rate to market needs
– Cost structure (fixed and variable costs)
– Workforce composition
– Level of technology
– Management and staff support requirements
194
Capacity Planning Over a Time Horizon Planning
• Capacity planning determines
– the long, medium, and short range capacity requirements of the organization
– The objective is to specify what level of capacity will meet market demand in a cost
effective way
• Capacity Planning Duration
– Long range capacity decision/Long range capacity planning
– Medium range capacity decisions/ Medium range capacity planning
– Short range capacity decision/ Short range capacity planning
195
Capacity Planning
• Capacity planning takes place at several levels of detail.
– long-term capacity planning
– intermediate term capacity planning
– short-term capacity
196
Capacity Planning Over a Time
Horizon Planning
1. Long range capacity planning
– Involves resource plan such as land, equipment, plant, and human resource on long
term basis
– The goal is to match the long term demand with long term supply capability of the
firm
– Focuses on decisions such as:
• New facility development
• Expansion of existing facility
• Contraction or phase-out of existing facility
197
Horizon Planning
2. Medium range capacity planning
– Is a capacity planning process to determine the resource requirement of a firm to meet its demand over an
intermediate time horizon, usually, 6 to 18 months
– The most commonly used techniques are CRP/Capacity Requirements Planning, APP, and MPS (master
production schedule)
– Focuses on decisions such as:
• Subcontract
• Add personnel
• Add equipment with short lead time
• Build or use inventory
• Add shifts
• Relocation of workforce
• Back-order
198
Horizon Planning
3. Short range capacity planning
Is capacity planning process which concerned with
– responding to fluctuating demand in the short term
– utilization of existing capacity
– Uses the techniques of MRP, CRP, and PAC to control input and output
• MRP- determines the timing, and size of order and receipt for materials, sub-assemblies, and component
parts
• CRP- Capacity Requirements Planning
– converts material plan into labor and machine requirements
• PAC- Production activity control
– used for loading, sequencing and monitoring production activities or jobs
– scheduling and monitoring day-to-day production in a job shop 199
Two Broad Factors that affect Capacity
• External Factors:
– Government regulations (working hours, safety, pollution)
– Union agreements
– Suppliers' capabilities
• Internal Factors:
– Product design
– Personnel and jobs (training, motivation learning curve, job content, methods)
– Plant layout and process flow
– Equipment capabilities and maintenance
– Materials management
– Quality control system
– Management capabilities 200
Two Capacity Extremes
• Capacity Excess : may result in:

– Reduction of price
– Idle workforce
– Excess inventory
• Capacity Shortage: may result in:
– Loss of customer
– Allow competitors to get into market
201
5 – 201
Factors that affect Capacity
• Controllable factors:
• The amount of labor
– Facility
– Machines
– Tooling
– Shifts worked per day, days worked per week, overtime, and subcontracting
– Preventive maintenance and number of setups
• Less controllable factors
– Absenteeism
– Labor performance
– Machine breakdowns
– Material shortages
– Scrap and rework
– Other unexpected problems
202
Important Concepts in Capacity Planning
1. Best operating level
– % of capacity utilization that minimizes unit costs
– Output rate which results in the lowest unit cost of production
– also refer to the most economic size of a facility
• larger in size and costing less per unit of measurement than a smaller size
• smaller in size and costing less:
– economy-size cars.
• Of a size which offers a large quantity for a proportionally lower cost:
– an economy-size container
203
2. Economies of Scale
– Unit cost decreases as output volume increases
– fixed costs can be spread over a larger number of units
– production or operating costs do not increase linearly with output levels
– quantity discounts are available for material purchases
– operating efficiency increases as workers gain experience
204
Diseconomies of scale:
– when higher levels of output cost more per unit to produce.
– an economic concept referring to a situation in which economies of
scale no longer function for a firm.
– Rather than experiencing continued decreasing costs per increase
in output, firms see an increase in marginal cost when output is
increased.
205
206
3. Capacity Cushion
– Amount of Capacity in Excess of Expected Demand
– % of Capacity Held in Reserve for Unexpected Occurrences
– Depends on the company’s capacity strategy
– Could be negative or positive
• Negative capacity cushion occurs when a firm’s design capacity is less than the
capacity required to meet its demand.
207
Capacity Cushion
–Large-capacity cushions are common in industries in which
• demand is highly variable,
• resource flexibility is low, and
• customer service is important.
208
4. Capacity Flexibility
– Ability to meet customer requirements within lead times (LD) shorter than competitors
– Means
• Flexible plants: Zero-changeover time
• Flexible process:
– FMS (flexible manufacturing system) and
– simple and easily set-up equipment's,
– economies of scope
• Flexible workers
• Use of External Capacity
– Subcontracting
– Capacity sharing
209
Capacity Flexibility
Such flexiblity is achieved through:
– Flexibile plants:
• when a co. uses movable equipment, knockdown walls, easily accessible and re-routable utilities
• The ultimate plant flexibility is zero-changeover-time plant i.e., change in real time – a plant with
equipment that is easy to install and easy to tear-down and move
– Flexible processes:
• are characterized by
– Flexible Manufacturing Systems (FMS) and
– simple, easily set-up equipment
210
Capacity Flexibility
Such flexibility is achieved through:
– Flexible workers:
• occurs when co. workers have multiple skills and the ability to switch easily from one kind of
task to another.
• They require broader training than specialized workers and need managers and staff
support to facilitate quick changes in their work assignments.
– Using external capacity:
• when a co. uses the capacity of other organizations such as subcontracting and sharing
capacity.
211
5. Capacity Balance
– The extent to which the input and output of each stage of the production process is
matched
• Perfectly balance
500 units 500 units 500 units
• Imbalance
500 units 250 units 400 units
212
Capacity Balance
– in a perfectly balanced plant, when the output of stage 1 provides the exact
input requirement for stage 2, stage 2’s output provides the exact input
requirement for stage 3..
– In practice, however, achieving such a “perfect” design is usually both impossible
and undesirable: why?
• The best operating levels for each stage generally differ; and
• The variability in product demand and the process
– It occurs only in an automated production line which considers to be one big
machine
213
• How to Deal with Capacity Imbalance

– Add capacity to the bottleneck
• Schedule overtime,
• leasing equipment,
• purchasing additional capacity
– Use buffer inventories:
• make the bottleneck busy
– Duplicate facilities:
• Copy the bottleneck
214
6. Capacity Focus
– the concept was developed by Wickham Skinner in 1974
– Production facility works best when it focuses on limited set of production
objectives
– A firm can not excel in everything:
• Cost ….Quality ….Flexibility
• -Reliability - Short lead time
• -Introduction of new products
• -Low investment
– Plants Within Plants-PWPs
215
Capacity Focus
– The capacity focus concept can also be operationalized through the mechanism of Plants
Within Plants – PWPs in Skinner's terms.
– A focused plant may have several PWPs, each of which may have separate:
• Sub-organizations
• Equipment and process policies
• Workforce management policies
• Production control methods and so forth for different products – even if they are made
under the same roof.
216
7. Capacity utilization rate:

– is calculated by dividing capacity used (actual output) with design capacity.
𝒂𝒄𝒕𝒖𝒂𝒍 𝒐𝒖𝒕𝒑𝒖𝒕
• Capacity Utilization Rate=
𝒅𝒆𝒔𝒊𝒈𝒏 𝒄𝒂𝒑𝒂𝒄𝒊𝒕𝒚
– It determines the extent to which a firm uses its capacity.

– It is expressed in terms of
• Machine hours/day,
• Barrels of oil/day,
• Patients/day,
• Amount of output/month, etc.
217
8. Capacity and Complexity

• one of the main factors that must be considered in capacity planning is how
much complexity is added to the Operation Manager’s job as a result of how
that capacity is deployed.
• This is especially true in multi-site services where the locations of capacity
are, by definition widely dispersed and inherently difficult to coordinate.
218
219
Measures of Capacity
• Measuring capacity is not an easy task due to the different

interpretation of the term capacity
• Choosing one that does not require updating over time is
important
• Capacity can be measured in terms of both input and output
220
Business Inputs Outputs
Auto Assembler Labor hours, machine Number of cars per shift
hours
Steel Mill Furnace size Tons of steel per day
Oil Refinery Refinery size Gallons of fuel per day
Farming Number of acres, number KGs of grain per acre per year,
of cows gallons of milk per day
Restaurant Number of tables, seating Number of meals served per

capacity day
Theater Number of seats Number of tickets sold per

performance
Retail sales Square feet of floor space Revenue generated per day
221
1. Design capacity
2. Actual Output Capacity
3. System (Effective) Capacity-
222
i) Design capacity
– The maximum output rate or service capacity an operation, process or facility
designed for under normal, or ideal conditions
– is the maximum theoretical engineered or planned output of a system
– output rate under full scale operations with no fluctuations allowed
– Care must be taken not to make inadequate capacity because it may result in
inferior service and dissatisfied or lost customers
223
ii) System (Effective) Capacity-
– The maximum output rate given some variations in operating conditions such as:
• Changing product mix
• The need for maintenance
• Lunch and coffee breaks
• Problems in scheduling and imbalance of operations
• Tight quality specifications, scraps
– System Capacity = Design capacity less allowances for the above operating conditions
224
iii) Actual Output Capacity
– The rate of output accomplished in a particular point in time
– Usually less than system capacity because of such factors as:
• Machine breakdown
• Absenteeism
• Shortage of materials
• Quality problems
225
• System efficiency:
– the ratio of actual output to system capacity
– measures the percent of system capacity achieved
Actual Output
• System Efficiency =
System Capacity
• Utilization Rate :
– the ratio of actual output to designed capacity
– measures the percent of design capacity achieved
Actual Output
» Utilization Rate =
Design Capacity
226
• Example 1:
A loan processing operation has a designed capacity of processing 10 loans per
day, and a system capacity of processing 8 loans per day. Over the past few
days the operation has processed 7 loans per day on average. Compute the
efficiency and utilization rate of the loan processing operation.
227
228
• Example 2:
The following diagram shows a 4-step process that starts from 1 and ends with 4. The rates shown in
each box represents individual capacity (per day) of each step
1 2 3 4
Actual out put
500 units 300 units 700 units 500 units = 250 units
Required: Calculate
1. System capacity of the process
2. System efficiency of the process
229
A) System Capacity
– is determined by the most constrained or bottle neck of the process
– The most constrained step in the process is step 2
– Therefore, system capacity is 300 units per day
B. Systems Efficiency
𝐴𝑂
– 𝑆𝐸 =
𝐴𝐶
250
= = 83.33%
300
230
Exercise 1:
A company is planning to replace milling machines currently used to shape metal parts
in operations. The management’s interest is to install enough number of milling
machines to meet its annual demand of 165,550 good shaped metal parts. The shaping
operation takes 2 minutes per metal parts, but its output is subject to 5% defective rate.
It is proved that each milling machine will be available for 1,500 hours per year.
Required:
1. What is the required system capacity of the shaping operation
2. How many machine hours required for the required system capacity?
3. How many milling machines need to be installed to meet system capacity
231
232
Facility Location Decision
• Facilities:
– Places where products are stored, assembled or fabricated
– Types of Facilities
• Plants
• Retail and service facilities
• Warehouses
– Two decisions
• Facility location
• Facility layout 233
• Facilities:
– Two decisions
• Facility location
– a specific position or point in physical space
– a place where a firm produced its products
» Both goods and services
– For services more critical
• Facility layout
– the way facilities are placed
– the floor plan of a plant, where the machines are grouped according to their functions
– the floor plan of a plant, where the machines are ordered by the assembly sequence
234
• It is the process of determining a geographical site for a
company’s operations
• It is among the strategic operations decisions areas
• It answer for the question
– “Where should locate the plant and/or facility?”
235
Nature and Reasons for Facility Location Decisions
• Location Decision
– is strategic and long-term in nature
– is not reversible in short-term and made infrequently
– Once committed to a location, many resource and cost issues are difficult to change
– Affects operational costs such as
• Costs of raw materials, transportation, labor, energy, land,
– Limits future expansion and growth potentials
– Limits the marketing effectiveness of an organization
236
The Operation Managers of a business firm, when confronted with problems
leading to a decision on plant location, have several alternatives:
– Continuing operating on the present location and subcontract for the additional
demand when demand is instable
– Expand the present plant on the present site provided that there is available site.
– Keeping the present plant and at the same time build new plant/plants
elsewhere.
– Sell the present plant and relocate the entire operation.
237
If the decision is to build new plants elsewhere, then a complex analysis is necessary related
to:
– Which market will be served?
– Where are the sources of raw materials used?
– What type labor supply is necessary?
– What methods of transportation are necessary?
– How much land will be needed for the plant and for future expansion?
– What types of power will be needed/required in the production process?
– What particular type of climatic conditions required? Dry, temperate, damp, …… climates
238
How you locate your business?
– depends on its size and the nature or scope of its operations.
– because that is where you as owner lives.
– Large established companies, particularly ones that already operate in
more than one location, then to take a more formal approach.
239
Procedure for making location decisions
1. Problem …..location decision /where to locate
2. Decide on the criteria that will be used to evaluate location alternatives, such as
– increased revenues, minimize cost, or community services.
3. Identify the factors that are important, such as location of markets or raw materials.
4. Develop location alternatives:
– Identify the general region for a location
– Identify a small number of community alternatives
– Identify a particular site alternatives
5. Evaluate the alternatives and make a selection

240
Considerations/Factors in Location Decisions
Management is involved in selecting
– the region or general area, then
– the community within the region, and
– the particular site at which the plant should be located.
• Therefore, factors in Location Decisions are
– Regional Selection Considerations
– Community Selection Considerations
– Site Selection Considerations 241
Regional Considerations/Factors
– Proximity to markets
– Proximity to materials
– Adequate transportation facilities
– Labor supply
– Climates
Community Considerations/Factors
– Managerial preference
– Community facilities
– Community attitudes
– Community government and taxation
– Availability and cost of sites
Site Considerations/Factors
– The following are some of the considerations:
– Size of the site
– Drainage and soil condition:
– Water supply
– Utilities:
– environmental considerations:
– Land and development costs:
– Transportation facilities:
242
–Proximity to markets
–Proximity to materials
–Adequate transportation facilities
–Labor supply
–Climates
243
244
– The following are some of the considerations:
– Water supply
– Utilities:
245
– Proximity to markets
– Proximity to materials
– Adequate transportation facilities
– Labor supply
– Climates
246
Proximity to markets
• possible reasons to locate plants near their market can be:
– perishable products
– risk of long shipment
– volume/ bulk product's
– large transportation space
– When the product is a service.
247
Proximity to materials:
• relates to the location of
– raw materials,
– supplies,
– semi-finished goods,
– parts, equipment, tools etc.
• Possible reasons to locate near source of raw materials can be:
– When the weight or bulk of the product largely decreases by further processing. e.g sugar cane
– When the perishability of products decrease by further processing. e.g, freezing, canning, pasteurizing ....
– If the product needs a number of raw materials or components
248
Adequate transportation facilities
– for the economical operations of production systems
– raw materials and finished products types of transportation
facilities:
• water, railroad, road, pipelines, and airlines transports.
249
Labor supply:
labor-related questions require answers:
– The availability of potential employees
– The level of skill and education of potential employees
– Productivity of potential employees
– Their degree of unionization
– Costs of labor (including fringe benefits)
– Costs of living as related to labor cost
250
Climates
– favorable climate is important in order to acquire and
maintain productive workforce.
– Certain industries like agricultural business require specific
climatic conditions.
251
Choice of community includes the following considerations:
252
• Managerial preference:
– relates to the personal preference of owners and managers.
• Community facilities:
– is concerned with the availability of
• schools, churches, medical facilities, residential housing,
• recreational opportunities, police and fire protection, highways, etc.
• Community attitudes:
– to assure the long-term existence in that community
– interest, enthusiasm, and cooperation of the society.
– poor relations with local government, labor, customers
253
• Community government and taxation
– stable, competent, honest and cooperative government officials are great
assets to a newly located company.
• Availability and cost of sites:
– relates to the consideration of the availability of sites and building.
– Selecting communities without assessing the availability and costs of sites
often leads to a mistake.
254
• The following are some of the considerations:
– Water supply
– Utilities:
255
• Size of the site:
– the size of the site must be large enough to satisfy some requirements such as
• employee parking requirement,
• future expansion plan, etc.
• Drainage and soil condition:

– Poor drainage
– Soil load bearing capacity
• Water supply:
– all enterprises require getting access to safe and pure water.
– Some organizations like breweries need water even with some extraordinary quality.
256
• Utilities:
– costs of acquiring and using utilities like
– electricity, natural gas, water, etc.
• Transportation facilities:
– relates to getting access to highways, railroads, pipelines, water, and air transport as the case
may be.
• Land and development costs:
– costs related to excavation, grading, filling, construction of roads, siding etc.
• environmental considerations:
– preventing and reducing pollution and environmental degradations and deteriorations.
257
• Where do we get such Information for Plant Location Analysis?
– Investment office (both federal and regional),
– Municipalities,…………. Sub cities,
– Addis Ababa Chamber of Commerce (AACC) ………….. Ethiopia Chamber of Commerce
(ECC),
– Commercial banks (both governmental and private),
– Industrial development corporations,
– Ethiopian Road Authority (ERA) or Addis Ababa Road Authority Administration,
– Ethiopian Electric Power Corporation (EEPC),
– Addis Ababa Water and Sewerages Authority (AAWSA),
– Ethio telecom, etc
258
Methods/Approaches of Location Analysis
 Location break-even Analysis
 Location factor rating
 Center-of-gravity
 Transportation Model
259
Location Break-even Analysis
• Examines cost trade-offs associated with demand volume for different locations
• Cost
– Fixed costs
• constant over predictable period regardless of the number of units produced
– Variable costs
• vary with the volume of units produced
260
Four Steps
– Step 1: Determine the fixed and variable cost for each location
– Step 2: Plot the Total Cost Line for each location
• Total cost = Fixed cost + Total variable cost
– TC = FC + (VC/unit X Volume)
– Step 3: Determine the BEP
– Step 4: Select the location with lowest total cost for the expected production or
demand volume
261
Example:
There are three location options as shown below. Using the location break-
even analysis method, determine the range of demand that each location is
preferred:
Fixed Variable
Location Cost Cost/unit
A $30,000 $75
B $60,000 $45
C $110,000 $25
Total Cost = Fixed Cost + (Variable Cost/unit x Volume)
262
Step 1: Determine Total Cost Line and Plot It Graphically
Total Cost (TC) = Fixed Cost + (Variable Cost x Volume)
• TC for Q = V= 0 unit
– L-A= 30,000 + 75V = 30,000 + 75 (0) = $30,000
– L-B= 60,000 + 45V = 60,000 + 45(0) = $60,000
– L-C = 110,000 + 25V = 110,000 + 25(V) = $110,000
• TC for Q= V = 2,000 units

– L-A = 30,000 + 75(2,000) = $180,000
– L-B = 60,000 + 45(2,000) = $150,000
263
Annual cost
Volume
264
–
$180,000 –
–
$160,000 –
$150,000 –
–
$130,000 –
Annual cost
–
$110,000 –
–
–
$80,000 –
–
$60,000 –
–
–
$30,000 –
–
$10,000 –
| | | | | | |
–
0 500 1,000 1,500 2,000 2,500 3,000
Volume
Step 2 Find BEP of Locations
• BEP for locations A and B
= TC at A = TC at B
Location A = Location B
$30,000 + $75v = $60,000 + $45v
$30v = $30,000
v = 1,000 units
• BEP for Locations B and C
TC at A = TC at B
Location B = Location C
$60,000 + $45v = $110,000 + $25v
$20v = $50,000
v = 2,500 units
266
–
$180,000 –
–
$160,000 –
$150,000 –
–
$130,000 –
Annual cost
–
$110,000 –
–
–
$80,000 –
–
$60,000 –
–
–
L-A L-C lowest
$30,000 – lowest
L-B lowest cost
cost
– cost
$10,000 –
| | | | | | |
–
0 500 1,000 1,500 2,000 2,500 3,000
Volume
• Step 3: Determine the range of demand each
location is preferred
– If demand is below 1,000 units, choose location A
– If demand is above 1000 units and less than 2,500 units, choose
location B
– If demand is above 2,500 units, choose location C
268
• Which Location is best for expected demand of 5000 units given
prices of the finished product are birr 100, 75 and 50 at locations
A, B, and C respectively?
Steps
– Calculate profit for each location
• Profit = Total Revenue – Total Cost
– Select the location with the highest profit for the expected demand
269
• Profit At L-A = TR – TC
» PV –(FC + ( VC/unit X V)
» 100 (5000) – (30,000 + (75 X 5000)
» 500,000 – 405,000 = $95,000
• Profit at L-B = TR- TC

• PV – (FC + (VC/unit X V)
• 75 (5000) – (60,000 + (45 X 5000)
• 375,000-285,000 = $90,000
• Profit at L-C = TR- TC

• PV – (FC + (VC/unit X V)
• 50 (5000) – (110,000 + (25 X 5000) 270
B. Location Factor Rating
 Popular because a wide variety of factors can be included in the analysis
 Six steps in the method
1. Develop a list of relevant factors called critical success factors
2. Assign a weight to each factor
3. Develop a scale for each factor
4. Score each location for each factor
5. Multiply score by weights for each factor for each location and sum weighted scores
6. Recommend the location with the highest point score
271
Location Factor Rating: Example
SCORES (0 TO 100)
Location Factor Weight Site 1 Site 2 Site 3
Labor availability .30 80 65 90
Proximity to suppliers .20 100 91 75
Wage rates .15 60 95 72
Community environment .15 75 80 80
Proximity to customers .10 65 90 95
Shipping modes .05 85 92 65
Air service .05 50 65 90
Weighted Score for “Labor availability” for

Site 1 = (0.30)(80) = 24
272
Location Factor Rating: Example (cont.)
WEIGHTED SCORES
Site 1 Site 2 Site 3
24.00 19.50 27.00
Site 3 has the
20.00 18.20 15.00
highest factor rating
9.00 14.25 10.80 and considered to be
11.25 12.00 12.00 the best of the three
6.50 9.00 9.50 locations
4.25 4.60 3.25
2.50 3.25 4.50
77.50 80.80 82.05
273
C. Center-of-Gravity Technique
• Center of Gravity Technique:
– is a quantitative method for locating facility at the center of movement in
geographic area based on weight and distance traveled
– establishes a grid-map of area and finds location of distribution center that
minimizes distribution costs
– Considers
• Location of markets
• Volume of goods shipped to those markets
• Shipping cost (or distance)
274
275
276
277
278
Grid-Map Coordinates
y n n
 xiWi  yiWi
2 (x2, y2), W2 i=1 i=1
y2 x= n y= n
 Wi  Wi
1 (x1, y1), W1 i=1 i=1
y1
where,
x, y = coordinates of new facility
3 (x3, y3), W3 at center of gravity
y3 xi, yi = coordinates of existing
facility i
Wi = annual weight shipped from
facility i
x1 x2 x3 x
Center-of-Gravity Technique: Example
Example:
 A food processor purchases ingredients from
four different food suppliers. The company
wants a new central distribution center to
process and package the ingredients before
shipping them to various restaurants. The
suppliers transport ingredient items in 40-foot
truck trailers, each with a capacity of 19,000
kg. The locations of the four suppliers, A, B, C,
and D, the X & Y coordinates of the location of
each supplier, and the annual number of trailer
loads that will be transported to the distribution
center from each supplier are shown below
Center-of-Gravity Technique: Example
Supplier A B C D
X-coordinate (kilometer) 200 100 250 500
Y-coordinate (kilometer) 200 500 600 300
Number of trailer loads 75 105 135 60
 Using the-center-of-gravity method,

determine the possible location of the new
distribution center
Center-of-Gravity Technique:
Example
y A B C D
700 x 200 100 250 500
C y 200 500 600 300
600 (135)
B Wt 75 105 135 60
kilometers
500 (105)
400
D
300
A (60)
200 (75)
100
0 100 200 300 400 500 600 700 x

Kilometers
Example (cont.)
n
 xiWi
i=1 (200)(75) + (100)(105) + (250)(135) + (500)(60)
x= = = 238
n 75 + 105 + 135 + 60
 Wi
i=1
n
 yiWi
i=1 (200)(75) + (500)(105) + (600)(135) + (300)(60)
y= = = 444
n 75 + 105 + 135 + 60
 Wi
i=1
Example (cont.)
y A B C D
700 x 200 100 250 500
C y 200 500 600 300
600 (135)
B Wt 75 105 135 60
kilometers
500 (105)
Center of gravity (238, 444)
400
D
300
A (60)
200 (75)
100
0 100 200 300 400 500 600 700 x

kilometers
D. Transportation Model
• It involves finding the lowest-cost plan for distributing stocks of goods or
supplies from multiple origins to multiple destinations that demand the good
• The shipping (supply) points can be factories, warehouses, departments, or any
other place from which goods are sent
• Destinations can be factories, warehouses, departments, or other points that
receive goods
• The linear programming model involves:
– Objective: Minimize total production & shipping costs
– Constraint
• Production capacity at source (factory)
• Demand requirement at destination
285
• The information needed to use the model:

– A list of the origins and each one's capacity or supply quantity per period.
– A list of the destinations and each one's demand per period.
– The unit cost of shipping items from each origin to each destination
• Assumptions to use the model: .
– The items to be shipped are homogeneous
– Shipping cost per unit is the same
– There is only one route or mode of transportation being used
286
• The transportation model starts with the development of a feasible

solution, which is then sequentially tested and improved until an
optimal solution is obtained.
• The major steps in the process are in the following order:
1. Obtaining an Initial Solution
2. Testing the Solution for Optimality
3. Obtaining an Improved Solution
287
• The major steps in the process are in the following order:
288
Obtaining an Initial Solution
– In order to begin the process, it is necessary to develop a feasible
distribution plan.
– There are a number of different methods for obtaining such a plan
– Setting up the Initial Tablue
• The first step in solving a transportation problem is to formal it in a standard matrix, known
as initial tablue
• The basic steps in setting up an initial table are as follows: .
• Create a row for each plant (existing or new) being considered and a column for each
warehouse
• Add a column for plant capacities and a row for warehouse demands, and then insert their
specific numerical values
• Insert the unit cost in the upper right-hand corner of each of the cells.
• The initial feasible solution is when the number of occupied cells is equal to the number of
rows (m) plus the number of column (n) minus one i.e., (m + n) - 1
289
290
Facility Layout
• Meaning, Reasons and Objectives of Facility Layout
–Types of Facility Layout
–Tools/Techniques for Designing Facility Layout
• Load distance analysis
• Systematic layout planning
• Line balancing
291
Facility Layout
• What is Layout ?
– It refers to the configuration of Departments, Work centers, and Equipment, with particular
emphasis on movement of work (customers or materials) through the system
• What is Facility Layout ?
– It is an arrangement of machines, storage areas, and/or work areas usually within the confines
of a physical structure, such as
• a retail store,
• an office,
• a warehouse, or
• a manufacturing facility
292
Meaning, Reasons and Objectives of Facility Layout
• What is Facility Layout?

– Arrangement of areas within a facility
– Arrangement, Configuration, or placement of
• departments
• workstations /work centers
• machines
• Personnel, with in productive facility
293
Facility Layout
• Layout decisions are important for three basic reasons:
– Require substantial investments of money and effort
– Involve long-term commitments, which makes mistakes difficult
to overcome
– Have a significant impact on the cost and efficiency of operations
294
Facility Layout
• Factors that influence layout include: .
– Volume of items to be produced
– weight of items to be produced
– Nature of the service to be provided
– Cost of the building to house the operation
– The product mix that must have a facility
– The fragility of the product or component
295
Facility Layout
Why Layout & Re-layout ?
– Changes in the level of demand
– The introduction of new products and changes in the design of existing
products
– Obsolescence of processes or machines
– Personnel problems and industrial accident hazards
• i.e., satisfy the needs of all personnel associated with the production system
– The need for cost reductions
296
Objectives of Facility Layout
• Higher utilization of space, equipment, and people

• Improved flow of works, information, materials, or people
• Improved employee morale and safer working conditions
• Improved customer/client interaction
• High degree of flexibility
• Minimize material-handling costs
• Reduced manufacturing and customer service time
• Eliminate bottlenecks and wasted or redundant movement
297
5 – 297
Objectives of Facility Layout
• To facilitate attainment of product or service quality

• To eliminate unnecessary movements of workers or materials
• To design for safety to avoid hazard to employees
• Provide a visual control of operations
• Provide flexibility to adapt changing condition
• Minimize interferences from machines:
– such as
• excessive noise,
• dust,
• vibration,
• fumes and
298
© 2008 Prentice Hall, Inc. • heat that can be emitted from machines 5 – 298
Types of Layouts
• Basic Layouts
– Process layouts
– Product layouts
– Fixed-position layouts
• Other types of layouts
– Mixed/Combination/Hybrid layouts
• Cellular Layouts
– Office Layout
– Retail Layout
299
– Warehousing and Storage Layouts
A. Process/Functional Layout
• Group similar equipment's, machines, knowledge, skill, or functions
together according to process or function they perform (e.g.,)
• Hospital Service • In Machine Shop • In clothing Store-
– Maternity Ward – milling, – women’s clothes,
– Intensive Care Units – men’s clothes,
– Emergency – grinding,
– shoes,
– drilling, and – cosmetics
– lathing
300
301
• Department areas having similar processes located in close proximity
– group similar activities together in departments or work centers
• according to the process or function they perform.
• A part worked on then, travels, according to established sequence of
operations, from area to area, where the proper machines or equipment's are
located for each operation
• Used for
– Intermittent, Job Shop or Batch processing
302
Manufacturing Process Layout
303
Service Process Layout: Emergency Room Process Layout
304
Advantages
• It is used for low volume, high variety production
• Resources are general purpose and less capital intensive
• More flexible and less vulnerable to change
• Equipment utilization is higher when volumes are low as resources can be dedicated to other
product lines
• Process layouts are less vulnerable to breakdowns i.e., if one machine breaks down, the other can
continue processing
• It is possible to isolate machines that create interference (noise, vibration, heat, …)
• Individual-based incentive pay systems can be used, since work is usually paced by the
employees rather than by the machine
305
Disadvantages
• Processing rates tend to be slower
• Productive time is lost changing from one product to another
• More space and capital are tied up in inventory as there is large varieties
• Longer production Lead Time (LT)
• Materials handling is costly
• Variable-path devices (which are more costly) are used
• Production planning and control is more difficult 306
B. Product Layout
• Arranges equipment's, machines, and activities according to the progressive
steps or sequences of operations by which a particular product or service is
made.
• Suitable for continuous production process
– suitable for mass production or repetitive operations in which demand is stable and
volume is high.
• Also known as:
– Production line layout
– Assembly line layout
– Flow-shop layout
307
5 – 307
B. Product Layout
• Resources are arranged around the product route

instead shared across products
• The product flow/path could be:
–A straight line
–U-shaped
–Branched 308
Product Layout: Example
In
Out
309
310
B. Product Layout
• The previous slide photo shows a product layout where car

bodies are moving down a paced assembly line with workers
following along completing their tasks.
• Notice the workstations alongside the assembly line with tools,
materials, signage, instructions, and on lights (for signaling line
slow down or stoppage).
• Today's factories are clean and orderly; inspectors even wear
white gloves!
311
312
B. Product Layout
Advantage
• High rate of output
• Faster processing rates due to mechanized fixed-path and the machine pacing of the production
rate
• Routing and scheduling of production are much simpler
• Low fixed-cost-per-unit due to standardized high volume products
– Economies of scale
• Reduced work-in-process inventory
• Easier training and supervision…..b/c of labor specialization
• Less unproductive time due to changes in processes and materials
313
• Efficiency
B. Product Layout
Disadvantages
– Machine breakdowns and absenteeism may cause shutdown of the
entire plant
– Less flexible necessitating standardized products
– It demands high-volume to justify the ROI in special purpose machines
– Difficult to avoid machine interference like excessive noise
– Difficulty of applying individual-based incentive plans
– Less employees motivation …repetitive work
314
B. Product Layout
Advantages of u-shaped over long straight-line layout
– There is not interferes with cross travel of workers and vehicles
– It often requires a little more than half the length of a straight production line
– It permits increased communication among workers on the line because
workers are clustered and facilitates teamwork
– It increases flexibility in work assignments because workers can handle not
only adjacent stations, but also stations on opposite sides
– It minimizes materials handling cost as materials enter the plant at the same
point that finished products leave it
315
316
317
C. Fixed Position Layout
• Is a layout in which the product or project remains stationary, and workers, materials, and equipment are
moved as needed
• Typical of projects in which a product produced is too fragile, bulky, or heavy to move
• Often characterized by:
– Low equipment utilization
– Highly skilled labor requirement
– High variable costs
• It is appropriate for large projects such as:
– Ships
– Planes
– Farming
– Firefighting
– Road building
– Home building
318
319
320
321
322
323
Advantages
– Reduces movement of work items;
– Minimizes damage or cost of moving
– More continuity of the assigned workforce since the item does not go from one
department to another
– It reduces the problems of re-planning and instructing people each time a new
type of activity is to begin
– Provides pride for workers as they can apply their skill to complete the job
– Highly flexible i.e., easy to alter the sequences of operations when tools, materials,
or supplies do not arrive on time
324
Disadvantages
– Highly skilled and versatile workers are needed who are difficult to find and
demand high pay
– Lack of efficiency i.e., movement of people and equipment to and from the work site
– Equipment utilization may be low because the equipment may be left at a location
where it will be needed again in a few days rather than moved to another location
where it would be productive
– Difficulty in scheduling and communicating with widely dispersed resources
– Potential for significant cost overruns and quality problem
325
D. Hybrid/Combination Layouts
• The two Extreme Layouts:
– Product layouts
– Process layouts
• Hybrid layouts:
– Combine the benefits of both the product and process layouts
• Commonly applied in fabrication and assembly industries with the help of FMS….. flexible
manufacturing system
• They are a combination of process and product layouts
– i.e., some portions of the facility are arranged in a Process Layout (fabrication) and
– others are arranged in a Product Layout (assembly)
• In a fabrication operation, components are made from raw materials, then these components
are assembled in to finished products
326
Hybrid/Combination Layouts
Hybrid layouts modify and/or combine some aspects of
product and process layouts.
Three hybrid layouts:
cellular layouts,
flexible manufacturing systems, and
mixed-model assembly lines.
327
Group Technology (GT) / Cellular Layout
• An approach to manufacturing in which similar parts are identified
and grouped together
– in order to take advantage of their similarities in design and production
• Similarities among parts permit them to be classified into part
families
– which processing steps are similar
• The improvement is typically achieved by organizing the production
facilities into manufacturing cells that specialize in production of
certain part families
328
5 – 328
Part Family
• A group of parts that possess similarities in
– geometric shape and size, or
– the processing steps used in their manufacture
• Part families are a central feature of Group Technology
– There are always differences among parts in a family, but the similarities
are close enough that the parts can be grouped into the same family
329
Ways to identify Part Families are:
• Visual inspection:
– using best judgment to group parts into appropriate families, based on the parts
or photos of the parts
• Production flow analysis:
– using information contained on route sheets to classify parts
• Parts classification and coding:
– identifying similarities and differences among parts and relating them by means
of a coding scheme
330
Parts Classification and Coding System
a. Based on part design attributes:
– major dimensions,
– basic external shape,
– basic internal shape,
– length/diameter ratio,
– material type,
– part function,
– tolerances,
– surface finish
b. Based on part manufacturing attributes:
– major process,
– operation sequence,
– batch size,
– annual production,
– machine tools, cutting tools, material type
331
c. Based on both design and manufacturing attributes
332
Shifting from Process Layout to a GT layout:
• Grouping parts into families that follow a common sequence of steps:
– It requires developing and maintaining a computerized parts classification and
coding system for identifying parts families
• Identifying dominant flow patterns of parts families as a basis for location or
relation of processes
– Physically grouping machines and processes into cells:
• of course, there could be parts that cannot be associated with a family and specialized machinery that
cannot be placed in any one cell because of its general use. .
• These unattached parts and machinery are placed in a "remainder
333 cell"
334
335
336
337
338
Benefits of GT
– Standardization of tooling, fixtures, and setups is encouraged
– Material handling cost will be reduced
– Parts are moved within a machine cell rather than entire factory
– Simplified process planning and production scheduling
– Reduced work-in-process and manufacturing Lead Time (LT)
– Improved worker communication in a GT cell
339
Cellular Layout/Group Technology
Advantages
 Reduced material handling and transit
time
 Reduced setup time
 Reduced work-in- process inventory
 Better use of human resources
 Easier to control
 Easier to automate 340

Problems in Group Technology (GT) .
• Identifying the part families could be challenging:
– imagine if a plant makes 10,000 different parts, reviewing all of the part
drawings and grouping the parts into families is a substantial task
• Rearranging production machines in the plant into the appropriate
machine cells:
– it takes time to plan and accomplish this rearrangement, and the
machines are not producing during the changeover i.e., lost productive
time meanwhile 341
Cellular Layout/Group Technology
Disadvantages
 Inadequate part families
 Poorly balanced cells
 Expanded training and scheduling of workers
 Increased capital investment
342
Flexible Manufacturing System (FMS)
• A flexible manufacturing system (FMS) consists of numerous programmable machine
tools connected by an automated material handling system and controlled by a common
computer network.
• It is different from traditional automation, which is fixed or “hard wired” for a specific
task.
• Fixed automation is very efficient and can produce in very high volumes, but is not
flexible.
• Only one type or model of product can be produced on most automated production
lines, and a change in product design would require extensive changes in the line and its
equipment.
343
Flexible Manufacturing System (FMS)
• An FMS combines flexibility with efficiency.
• Tools change automatically from large storage carousels at each
machine, which hold hundreds of tools.
• The material-handling system (usually conveyors or automated
guided vehicles) carries work pieces on pallets, which can be locked
into a machine for processing.
• The efficiency of an FMS is derived from reductions in setup and
queue times.
344
• , clDGrouping of workers,E.
theirOffice Layout
equipment, and spaces to provide comfort, safety, and
movement of information
• esign the positions of people, equipment, & offices facilities for improved
– communication and
– workflow flow
• The trend in office layout is toward more open offices, with personal workspace
separated only by low-rising dividing walls to foster:
– Greater communication
– Teamwork
• In office layout, size and orientation of desks can indicate the importance or
professionals of the people behind them such as Manager, Officererk, . . .
345
346
347
348
Retail Service Layouts
Five considerations in Retail Layout:
– Locate high-draw items around the edge of the store such as meat and diary
– Use prominent locations such as the first or last aisle for high-impulse and high
margin items such as beauty aids, and shampoos
– 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 for new products because they will have a very high exposure
rate
349
350
351
352
Warehouse and Storage Layouts
• The objective of warehouse layout is to find optimal trade-off between
handling cost and warehouse space and minimize the damage and spoilage
of materials within the warehouse.
• Materials handling costs related to
– the incoming transport,
– storage, and
– outgoing transport of the materials to be warehoused.
• The costs include
– equipment,
– people,
– material,
– supervision,
– insurance, and
– depreciation
353
354
355
• An important component of warehouse layout is
the relationship between the receiving /
unloading area and the shipping/loading area
• Facility designed depends on the type of:
– Store Keeping Units (SKUs) unloaded
– Mode of transportation:
• truck,
• rail cars, . . .
– Where SKUs are unloaded
356
5 – 356
Factors to be considered in the Warehouse Layout
include
– Frequency of order
– Correlations between items
– Widths of aisles
– The height of storage racks
– Rail and/or truck loading and unloading
– Need to periodically make a physical count of stored items.
357
358
359
Layout Techniques/Models
The main concern:
– The relative position of departments, machines, processing
centers, and/or people involved
– Departments need to be assigned to locations
There are three popularly used layout techniques:
– Load-distance analysis,
– Computerized Relative Allocation of Facilities Technique
(CRAFT), and
– Systematic Layout Planning (SLP).
360
Load-Distance Analysis
• Applied to process-oriented layout
– to arrange departments/work centers so as to minimize the costs of
materials handling
– departments with large flows of parts or people between them should
be placed next to one another.
– Material handling costs in this approach depend on
• the number of loads (or people) to be moved between two departments during
some period of time and
• the distance-related costs of moving loads (or people) between departments.
• Cost is assumed to be a function of distance between departments.
361
• The objective can be expressed as follows:
n n
Cost = ∑ ∑ Xij Cij
i=1 j=1
where n = total number of work centers or departments

i, j = individual departments
Xij = number of loads moved from department i to department j
Cij = cost to move a load between department i and department j
362
• The Load-distance analysis for process layout procedure
involves the following six steps
1. Construct a “from-to matrix”
2. Determine the space requirements
3. Develop an initial schematic diagram
4. Determine the cost of this layout
5. Try to improve the layout
6. Prepare a detailed plan
363
Process Layout Example
• Example
– Page 78
50 100 0 0 20
30 50 10 0
20 0 100
50 0
364
365
Process Layout Example
• Step 1 Construct a “from-to matrix”
Number of loads per week

Department Assembly Painting
50 Machine
100 Receiving
0 Shipping
0 Testing
20
(1) (2) Shop (3) (4) (5) (6)
30 50 10 0
Assembly (1) 50 100 0 0 20
20 0 100
Painting (2) 30 50 10 0
50 0
Machine Shop (3) 20 0 100
0
Receiving (4) 50 0
Shipping (5) 0
Testing (6)
366
Step 2: Determine the space requirements
Area 1 Area 2 Area 3
Assembly Painting Machine Shop

Department Department Department
(1) (2) (3)
12 Meter
Receiving Shipping Testing

Department Department Department
(4) (5) (6)
Area 4 Area 5 Area 6

18 meter 367
Step 3: Develop an initial schematic
diagram
100
50 30
1 2 3
20
20 10 100
50
4 50 5 6
368
Step 4: Determine the cost of this layout
n n
i=1 j=1
Cost = $50 + $200 + $40
(1 and 2) (1 and 3) (1 and 6)
+ $30 + $50 + $10
(2 and 3) (2 and 4) (2 and 5)
+ $40 + $100 + $50
(3 and 4) (3 and 6) (4 and 5)
= $570
369
Step 5: Try to improve the layout
30
50 100
2 1 3
10 20
20 100
50
4 50 5 6
370
n n

i=1 j=1
Cost = $50 + $100 + $20

(1 and 2) (1 and 3) (1 and 6)
+ $60 + $50 + $10

(2 and 3) (2 and 4) (2 and 5)
+ $40 + $100 + $50

(3 and 4) (3 and 6) (4 and 5)
= $480
371
Step 6: Prepare a detailed plan
372
Computer Software
• Computer programs are available to solve bigger problems
– CRAFT
• Computerized Relative Allocation of Facilities Technique
• Graphical approach only works for small problems
– ALDEP
• Automated Layout Design program
– CORELAP
• Computerized Relationship Layout Planning
– Factory Flow
373
Systematic Layout Planning (SLP)
• It is a tool used to develop process-oriented layouts in service
organization and other setting where need for proximity
between departments is influenced by a number of
qualitative factors
• The first step in this approach is to classify the need for each
department to be adjacent to other departments using an A-
E-I-O-U-X taxonomy
374
Systematic Layout Planning
(SLP)
• Usually used in services industry
– based on location preference between areas
– used when quantitative data is not available
• Uses the letters: A- E-I-O-U-X
– to determine the need for adjacency between departments
usually based on manager preferences for department
locations
375
Systematic Layout Planning
(SLP)
• “A”-adjacency is Absolutely necessary
• “E” – adjacency is Essentially important
• “I” – adjacency is Important
• “O”- Ordinary closeness is Okay
• “U”- proximity is Unimportant
• “X”- proximity is undesirable
376
Assembly-Line Balancing
• A tool for Designing Product Layout
– Assembly lines are a special case of product layout.
• refers to progressive assembly linked by some material handling device.
• is the apportionment of sequential work activities into workstations
– in order to gain
• a high utilization of labor and equipment and
• therefore minimize idle time.
• refers to compatible work activities that are combined into approximately
equal time groupings.
– These in turn should not violate the order (or precedence) in which they
must be done.
377
Assembly-Line Balancing
• The usual assumption is that some form of pacing is present and the
allowable processing time is equivalent for all workstations .
• Within this broad definition, there are important differences among line
types.
– material handling devices (belt or roller conveyer, overhead crane);
– line configuration (U-shape, straight, branching);
– pacing (mechanical, human);
– product mix (one product or multiple products);
– workstation characteristics (workers may sit, stand, walk with the
line, or ride the line); and
– length of the line (few or many workers) .
378
5 – 378
Application of Heuristics in Assembly-Line Balancing
• Heuristic is a decision rule based upon either one's intuition

or some empirical evidence which leads to believe that some
particular decision generally is a good one to follow.
• heuristic Programming cannot guarantee optimality
• In contrast to an algorithm such as the simplex method, which produces an
optimal or exact solution
– Good heuristics often do yield optimal solutions, but in some cases

the best one can hope for is a solution that is just close to being
optimal.
• Consequently, heuristic solutions are called approximate or
near optimal.
379
Problems Associated with Balancing an Assembly-Line
• In attaining a perfectly balanced line, the major problem is

– the ability to obtain task bundles and/or groupings having
the same duration.
– This could be due to:
• impossibility of combining certain activities because of
difference in equipment or because the activities are not
compatible;
• grouping tasks may not always the difference among
elemental/individual task length, and
• required technical sequence may prohibit task combination.
380
Assembly Line Balancing
• Typical objectives are to

–Minimize the work imbalance
–Minimize the number of workstations
–Improve labor & equipment utilization
–Reduce systems’ idle time
381
• Typical inputs are
– Demand
– Task times
– Precedence among tasks
• Typical outputs are
– Task-to-station assignments
– The number of stations/workers
382
Terminologies Commonly Used in Assembly Line Balancing
• Task:
– element of work
• Task Length:
– the amount of time required to complete a task
• Precedence requirements/relationships
– physical restrictions on the order in which operations are performed
• Operating Time
– Total available time during specific period
383
• Desired output
– The rate of output required during operating time
• Cycle time
– Maximum amount of time a product is allowed to spend at
each workstation if the desired output is to be reached
– Desired cycle time is computed by dividing the time available
for production by the number of units scheduled to be
produced
384
• Workstation
– A physical location where a particular set of task is performed
• Work center:
– location for two or more identical workstations
• Assignment Rules/Heuristics
– Heuristic- Derived from Greek- to discover
– Heuristics- are decision rules discovered by trial and error to
solve problem
385
Five Layout Heuristics for Assigning Tasks in Assembly Line Balancing
• Longest task time –
– choose task with longest operation time
• Most following tasks –
– choose task with largest number of following tasks
• Ranked positional weight –
– choose task where the sum of the times for each following task is longest or greatest
– Positional weight is the sum of each task’s time and the times of all following tasks.
• Shortest task time –
– choose task with shortest operation time
• Least number of following tasks –
– choose task with fewest subsequent tasks
386
Assembly Line Balancing Steps
1. Determine tasks (operations)
• Determine sequence
2. Draw precedence diagram
3. Estimate task times
4. Calculate cycle time
5. Calculate theoretical number of work stations
6. Assign tasks
7.
Calculate efficiency 387
5 – 387
Steps in Balancing an Assembly Line
Example
Step 1: Draw precedence diagram
– To specify the sequential relationships among tasks
– The diagram consists of
• circles and
• arrows.
– Circles
• represent individual tasks
– arrows
• indicate the order of task to be performed.
388
389
390
391
392
Step 2: Determine the required workstation Cycle Time (CT), using the following formula:
𝑂𝑇
𝐶𝑇 =
𝐷
Since the task time is stated in seconds, we first compute available production time in
terms of seconds i.e., 60𝑥60 = 3600 𝑠𝑒𝑐𝑜𝑛𝑑𝑠
60 × 60 3600
𝐶𝑇 = = = 25 𝑆𝑒𝑐𝑜𝑛𝑑𝑠
144 144
393
394
395
Step 4: Select a primary rule by which tasks are to be
assigned to workstations and a secondary rule to break
ties.
– The primary and secondary rules are to be selected
from any of the given five heuristic rules stated
earlier in Five Major Heuristic Rules.
• Therefore,
– Primary rule: Largest positional weight heuristic
– 2ndry Rule: The most number of following heuristic
396
397
Step 5: Assign tasks one at a time to the first workstation until
– the sum of the task times is equal to the CT or
– no other tasks are feasible because of time or sequence restrictions.
• And repeat the process for the following workstations until all tasks are
assigned.
• The grouping of tasks is done heuristically with the aid of a
precedence diagram.
• Designate workstations on the precedence diagram and more
appropriate activities into preceding zones that is to the left until the
time is fully used as possible.
398
Eligible
Work Available Idle
(Feasible) Assigned
Station Time Time
Tasks
399
Eligible
Work Available Idle
(Feasible) Assigned
Station Time Time
Tasks
1 25
400
Eligible
Work Available Idle
(Feasible) Assigned
Station Time Time
Tasks
1 25 A,D
401
Eligible
Work Available Idle
(Feasible) Assigned
Station Time Time
Tasks
1 25 A,D A
402
Eligible
Work Available Idle
(Feasible) Assigned
Station Time Time
Tasks
1 25 A,D A 13
403
Eligible
Work Available Idle
(Feasible) Assigned
Station Time Time
Tasks
1 25 A,D A 13
13
404
Eligible
Work Available Idle
(Feasible) Assigned
Station Time Time
Tasks
1 25 A,D A
13 B,D
405
Eligible
Work Available Idle
(Feasible) Assigned
Station Time Time
Tasks
1 25 A,D A
13 B,D D
406
Eligible
Work Available Idle
(Feasible) Assigned
Station Time Time
Tasks
1 25 A,D A
13 B,D D 2
407
Eligible
Work Available Idle
(Feasible) Assigned
Station Time Time
Tasks
1 25 A,D A
13 B,D D
2
408
Eligible
Work Available Idle
(Feasible) Assigned
Station Time Time
Tasks
1 25 A,D A
13 B,D D
2 B,E
409
Eligible
Work Available Idle
(Feasible) Assigned
Station Time Time
Tasks
1 25 A,D A
13 B,D D
2 B,E -
410
Eligible
Work Available Idle
(Feasible) Assigned
Station Time Time
Tasks
1 25 A,D A
13 B,D D
2 B,E - 2
411
Eligible
Work Available Idle
(Feasible) Assigned
Station Time Time
Tasks
1 25 A,D A
13 B,D D 2
2 B,E - 2
2 25 B,E B 18
18 C,E C 10
10
412
413
414
415

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Chapter Two

Operations Systems Design

• What is product design?

• Product design – or redesign – should be closely tied to an

• Effective design can provide a competitive edge

• To bring new or revised products to the market as quickly as possible

• For Business Organizations

• Rapid Prototyping and Concurrent

• Companies adopt different strategies for each stage

• Product design and • Forecasting critical • Standardization • Little product

• Product and • Less rapid product differentiation

• Market Pull Philosophy

• Market Pull Philosophy

– Concurrent Engineering (Design)

Considerations (Elements) in Concurrent Engineering

i) Design for Manufacturability (DFM)

i) Design for Manufacturability

ii) Design for procurement

iii) Design for Environment and Disassembly

• Why A Product Fails? ………………..Because:

• Improves performance of products

The idea of QFD is

The four phases of QFD are:

1. Identify customer wants

Target values Weighted

House of Quality Example

© 2008 Prentice Hall, Inc. 5 – 58

House of Quality Example

Low electricity requirements

© 2008 Prentice Hall, Inc. 5 – 59

House of Quality Example

High relationship Technical

House of Quality Example

Low electricity requirements

© 2008 Prentice Hall, Inc. 5 – 61

House of Quality Example

House of Quality Example

House of Quality Example

Failure 1 per 10,000

Low electricity requirements

Failure 1 per 10,000

© 2008 Prentice Hall, Inc. 5 – 66

D. Quality Function Deployment (QFD): House of Quality

E. Computer-Aided Design (CAD)

F. Value analysis (VA)

F. Value analysis (VA)

• Service operations: render services

• Degree of Customer Contact

• Planning, analyzing, and improving processes is the essence of operations management.

A. Based on the type of product flow

Continuous Work Flow

Characteristics of Continuous production system:

ii) Mass production

iii) Intermittent/Batch/Job Shop Production Process

Many departments and

• A process designed to respond to each customer order

• Three primary questions need to be answered in process

• Product or service characteristics

• What is Business Process?

• Business processes designed in response to:

• is redesigning or reinventing how we perform our daily work, and

• Why Process Reengineering Fails?

• Why Process Reengineering Fails?