Module-3 Facility Planning

8/14/2019 Module-3 Facility Planning

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5-1 Capacity Planning

MODULE 3 06 Hours

Facility, Capacity, Location and Layout:Manufacturing facility planning,

Long range capacity planning,Facility location

and Facility layout

(Problems in Facility Location,

Layout and Capacity Planning)


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Facility Planning

Long range capacity planning,

Facility location

Facility layout


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Chapter 9

Strategic Capacity Planning

Strategic Capacity Planning Defined

Capacity Utilization & Best Operating

Level

Economies & Diseconomies of Scale

The Experience Curve

Capacity Focus, Flexibility & Planning Determining Capacity Requirements

Decision Trees

Capacity Utilization & Service Quality


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Strategic Capacity PlanningDefined

Capacitycan be defined as the ability tohold, receive, store, or accommodate.

Strategic capacity planningis an

approach for determining the overallcapacity level of capital intensive

resources, including facilities, equipment,

and overall labor force size.


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Capacity Utilization

Capacity used

rate of output actually achieved

Best operating level capacity for which the process was designed

Capacity utilization rate = Capacity used

Best operating level


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Best Operating Level

Underutilization

Best OperatingLevel

Average

unit cost

of output

Volume

Overutilization


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Example of CapacityUtilization

During one week of production, a plantproduced 83 units of a product. Its historichighest or best utilization recorded was

120 units per week. What is this plantscapacity utilization rate?

Answer:Capacity utilization rate = Capacity used .

Best operating level

= 83/120=0.69 or 69%


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Economies & Diseconomiesof Scale

100-unitplant

200-unit

plant 300-unit

plant

400-unit

plant

Volume

Average

unit cost

of output

Economies of Scale and the Experience Curve working

Diseconomies of Scale start working


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The Experience Curve

Total accumulated production of units

Cost orprice

per unit

As plants produce more products, they

gain experience in the best production

methods and reduce their costs per unit.


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Capacity Flexibility

Flexible plants

Flexible processes

Flexible workers

13 C i Pl i


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Capacity Planning: Balance

Maintaining System Balance

Stage 1 Stage 2 Stage 3

Units

permonth

6,000 7,000 4,500

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Capacity Planning

Frequency of Capacity Additions

External Sources of Capacity

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Determining CapacityRequirements

Forecast sales within each individual

product line.

Calculate equipment and labor

requirements to meet the forecasts.

Project equipment and labor availability

over the planning horizon.

5 16 C it Pl i


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Requirements

A manufacturer produces two lines of mustard,

FancyFine and Generic line. Each is sold in small

and family-size plastic bottles.

The following table shows forecast demand for

the next four years.

Year: 1 2 3 4

FancyFineSmall (000s) 50 60 80 100

Family (000s) 35 50 70 90

Generic

Small (000s) 100 110 120 140

Family (000s) 80 90 100 110

5 17 C it Pl i


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Requirements: The Product froma Capacity Viewpoint

Question: Are we really producing two

different types of mustards from the

standpoint of capacity requirements? Answer: No, its the same product just

packaged differently.

5 18 Capacity Planning


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Requirements: Equipment andLabor Requirements

Year: 1 2 3 4

Small (000s) 150 170 200 240

Family (000s) 115 140 170 200

Three 100,000 units-per-year machines are available

for small-bottle production. Two operators required

per machine.

Two 120,000 units-per-year machines are available

for family-sized-bottle production. Three operators

required per machine.


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20


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Year: 1 2 3 4

Small (000s) 150 170 200 240

Family (000s) 115 140 170 200

Small Mach. Cap. 300,000 Labor 6

Family-size Mach. Cap. 240,000 Labor 6

Small

Percent capacity used 50.00%

Machine requirement 1.50

Labor requirement 3.00Family-size

Percent capacity used 47.92%

Machine requirement 0.96

Labor requirement 2.88

Question: What are the values for columns 2, 3 and 4 in the table below?

56.67%

1.70

3.40

58.33%

1.17

3.50

66.67%

2.00

4.00

70.83%

1.42

4.25

80.00%

2.40

4.80

83.33%

1.67

5.00

20

The McGraw-Hill Companies, Inc., 2001



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Example of a Decision TreeProblem

A glass factory specializing in crystal is experiencing a

substantial backlog, and the firm's management is considering

three courses of action:

A) Arrange for subcontracting,B) Construct new facilities.

C) Do nothing (no change)

The correct choice depends largely upon demand, which may

be low, medium, or high. By consensus, managementestimates the respective demand probabilities as .10, .50, and

.40.



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Example of a Decision TreeProblem: The Payoff Table

0.1 0.5 0.4

Low Medium High

A 10 50 90B -120 25 200

C 20 40 60

The management also estimates the profits when

choosing from the three alternatives (A, B, and C) under

the differing probable levels of demand. These profits, in

thousands of dollars are presented in the table below:


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Example of Decision Tree Problem:Step 2. Add our possible states of

nature, probabilities, and payoffs

A

B

C

High demand (.4)

Medium demand (.5)

Low demand (.1)

$90k

$50k

$10k

High demand (.4)

Medium demand (.5)

Low demand (.1)

$200k

$25k

-$120k

High demand (.4)

Medium demand (.5)

Low demand (.1)

$60k

$40k

$20k



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Example of Decision TreeProblem: Step 3. Determine the

expected value of each decisionHigh demand (.4)

Medium demand (.5)

Low demand (.1)

A

$90k

$50k

$10k

EVA=.4(90)+.5(50)+.1(10)=$62k

$62k



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Example of Decision TreeProblem: Step 4. Make decision

High demand (.4)

Medium demand (.5)

Low demand (.1)

High demand (.4)Medium demand (.5)

Low demand (.1)

AB

CHigh demand (.4)

Medium demand (.5)

Low demand (.1)

$90k$50k

$10k

$200k$25k

-$120k

$60k

$40k

$20k

$62k

$80.5k

$46k

Alternative B generates the greatest expected profit, so our

choice is B or to construct a new facility.



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Planning Service Capacity

Time

Location

Volatility of Demand



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Capacity Utilization &Service Quality

Best operating point is near 70% of

capacity

From 70% to 100% of service capacity,

what do you think happens to servicequality?



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Capacity Planning

Capacity is the upper limit or ceiling on

the load that an operating unit can

handle.

The basic questions in capacity

handling are:

What kind of capacity is needed?

How much is needed?

When is it needed?

5-30 Capacity Planningmpor ance o apac y


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p y g

1. Impacts ability to meet futuredemands

2. Affects operating costs

3. Major determinant of initial costs

4. Involves long-term commitment

5. Affects competitiveness

6. Affects ease of management

7. Globalization adds complexity

8. Impacts long range planning

mpor ance o apac yDecisions



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p y g

Capacity

Design capacity maximum output rate or service capacity an

operation, process, or facility is designed for

Effective capacity

Design capacity minus allowances such as

personal time, maintenance, and scrap

Actual output

rate of output actually achieved--cannot

exceed effective capacity.



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p y g

Efficiency and Utilization

Actual outputEfficiency =Effective capacity

Actual outputUtilization =

Design capacity

Both measures expressed as percentages



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p y g

Actual output = 36 units/dayEfficiency= =

90%

Effective capacity 40 units/ day

Utilization= Actual output = 36 units/day=

72% Design capacity 50 units/day

Efficiency/Utilization Example

Design capacity = 50 trucks/dayEffective capacity = 40 trucks/day

Actual output = 36 units/day

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p y ge erm nan s o ec veCapacity

Facilities

Product and service factors

Process factors Human factors

Operational factors

Supply chain factors External factors



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Strategy Formulation

Capacity strategy for long-term demand Demand patterns

Growth rate and variability

Facilities Cost of building and operating

Technological changes

Rate and direction of technology changes

Behavior of competitors

Availability of capital and other inputs



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Key Decisions of Capacity

Planning1. Amount of capacity needed2. Timing of changes

3. Need to maintain balance

4. Extent of flexibility of facilities

Capacity cushionextra demand intended to offset uncertainty



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Steps for Capacity Planning

1. Estimate future capacity requirements2. Evaluate existing capacity

3. Identify alternatives

4. Conduct financial analysis5. Assess key qualitative issues

6. Select one alternative

7. Implement alternative chosen

8. Monitor results



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Make or Buy

1.Available capacity2.Expertise

3.Quality considerations

4.Nature of demand5.Cost

6.Risk

5-39 Capacity Planning eve op ng apac y


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eve op ng apac yAlternatives

1.Design flexibility into systems2.Take stage of life cycle into account

3.Take a big picture approach to capacity

changes4.Prepare to deal with capacity chunks

5.Attempt to smooth out capacity

requirements

6.Identify the optimal operating level


E i f S l


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Economies of Scale

Economies of scale If the output rate is less than the optimal level,

increasing output rate results in decreasing

average unit costs

Diseconomies of scale

If the output rate is more than the optimal

level, increasing the output rate results in

increasing average unit costs



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Evaluating Alternatives

Minimumcost

Averagec

ostperunit

0 Rate of output

Production units have an optimal rate of output for minimal cost.

Figure 5.3

Minimum average cost per unit


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Need to be near customers Capacity and location are closely tied

Inability to store services

Capacity must be matched with timing ofdemand

Degree of volatility of demand

Peak demand periods

Planning Service Capacity



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Cost-Volume Relationships

Amount($)

0Q (volume in units)

Fixed cost (FC)

Figure 5.5a



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Amou

nt($)

Q (volume in units)0

Figure 5.5b



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Amou

nt($)

Q (volume in units)0 BEP units

Figure 5.5c


Break Even Problem with Step


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Break-Even Problem with StepFixed Costs

Quantity

Step fixed costs and variable costs.

1 machine

2 machines

3 machines

Figure 5.6a


Break-Even Problem with Step


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Break-Even Problem with StepFixed Costs

$

TC

TC

TCBEP

2

BEP3

Quantity

1

2

3

Multiple break-even points

Figure 5.6b

5-49 Capacity PlanningAssumptions of Cost-Volume


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1.One product is involved

2.Everything produced can be sold

3.Variable cost per unit is the sameregardless of volume

4.Fixed costs do not change withvolume

5.Revenue per unit constant withvolume

6.Revenue per unit exceeds variable

cost per unit

Assumptions of Cost VolumeAnalysis



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Financial Analysis

Cash Flow - the difference betweencash received from sales and other

sources, and cash outflow for labor,

material, overhead, and taxes.

Present Value - the sum, in current

value, of all future cash flows of an

investment proposal.

5-51 Capacity Planninga cu a ng rocess ng


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a cu a ng rocess ngRequirements

ProductAnnualDemand

Standardprocessing time

per unit (hr.)Processing time

needed (hr.)

#1

#2

#3

400

300

700

5.0

8.0

2.0

2,000

2,400

1,400 5,800



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CHAPTER

Location Planningand Analysis

McGraw-Hill/Irwin

Operations Management, Eighth Edition, by William J. StevensonCopyright 2005 by The McGraw-Hill Companies, Inc. All rights reserved.



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Need for Location Decisions

Marketing Strategy

Cost of Doing Business

Growth

Depletion of Resources



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Nature of Location Decisions

Strategic Importance Long term commitment/costs

Impact on investments, revenues, and

operations Supply chains

Objectives Profit potential

No single location may be better than others Identify several locations from which to choose

Options Expand existing facilities

Add new facilities



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Making Location Decisions

Decide on the criteria Identify the important factors

Develop location alternatives

Evaluate the alternatives Make selection



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Location Decision Factors

Regional Factors

Site-relatedFactors

Multiple PlantStrategies

Community

Considerations



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Location of raw materials

Location of markets

Labor factors Climate and taxes

Regional Factors



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Quality of life

Services

Attitudes Taxes

Environmental regulations

Utilities Developer support

Community Considerations



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Land

Transportation

Environmental Legal

Site Related Factors



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Product plant strategy Market area plant strategy

Process plant strategy

Multiple Plant Strategies

5-61 Capacity Planningompar son o erv ce anM f t i C id ti


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pManufacturing Considerations

Manufacturing/Distribution Service/Retail

Cost Focus Revenue focus

Transportation modes/costs Demographics: age,income,etc

Energy availability, costs Population/drawing area

Labor cost/availability/skills Competition

Building/leasing costs Traffic volume/patterns

Customer access/parking

Table 8.2



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Trends in Locations

Foreign producers locating in U.S.

Made in USA

Currency fluctuations

Just-in-time manufacturing techniques

Microfactories

Information Technology



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ForeignGovernment a. Policies on foreign ownership of production facilitiesLocal ContentImport restrictionsCurrency restrictionsEnvironmental regulationsLocal product standards

b. Stability issuesCulturalDifferences

Living circumstances for foreign workers / dependentsReligious holidays/traditions

CustomerPreferences

Possible buy locally sentiment

Labor Level of training and education of workersWork practicesPossible regulations limiting number of foreign employeesLanguage differences

Resources Availability and quality of raw materials, energy,transportation

Table 8.3



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Evaluating Locations

Cost-Profit-Volume Analysis

Determine fixed and variable costs

Plot total costs

Determine lowest total costs



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Location Cost-Volume Analysis

Assumptions Fixed costs are constant

Variable costs are linear

Output can be closely estimated

Only one product involved

5-66 Capacity Planningxamp e : os - o ume


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pAnalysis

Fixed and variable costs for

four potential locationsL o c a t i o n F i x e d

C o s t

V a r i a b l e

C o s tABCD

$ 2 5 0 , 0 0 01 0 0 , 0 0 01 5 0 , 0 0 02 0 0 , 0 0 0

$ 1 13 02 03 5



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Example 1: Solution

FixedCosts

VariableCosts

TotalCosts

ABCD

$250,000100,000150,000200,000

$11(10,000)30(10,000)20(10,000)35(10,000)

$360,000400,000350,000550,000



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Example 1: Solution

800700600500400300200100

0

Annual Output (000)

$(000)

8 10 12 14 166420

A

B

C

B SuperiorC Superior

A Superior

D



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Evaluating Locations

Transportation Model Decision based on movement costs of raw

materials or finished goods

Factor Rating

Decision based on quantitative and

qualitative inputs

Center of Gravity Method

Decision based on minimum distribution

costs



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CHAPTER

6

Facility Layout

McGraw-Hill/IrwinOperations Management, Eighth Edition, by William J. Stevenson

Copyright 2005 by The McGraw-Hill Companies, Inc. All rights reserved.



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Layout: the configuration of

departments, work centers, and

equipment, with particular emphasis

on movement of work (customers or

materials) through the system

Facilities Layout



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Requires substantial investments of

money and effort

Involves long-term commitments Has significant impact on cost and

efficiency of short-term operations

Importance of Layout Decisions


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Product layouts

Process layouts

Fixed-Position layout

Combination layouts

Basic Layout Types


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Raw

materials

or customer

Finished

item

Station

2

Station

3

Station

4

Material

and/or

labor

Station

1

Material

and/or

labor

Material

and/or

labor

Material

and/or

labor

Used for Repetitive or Continuous Processing

Figure 6.4 Product Layout


Ad f P d L


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High rate of output Low unit cost

Labor specialization

Low material handling cost High utilization of labor and equipment

Established routing and scheduling

Routing accounting and purchasing

Advantages of Product Layout


Disadvantages of Product


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Creates dull, repetitive jobs

Poorly skilled workers may not

maintain equipment or quality of

output

Fairly inflexible to changes in volume

Highly susceptible to shutdowns Needs preventive maintenance

Individual incentive plans are

impractical

Disadvantages of Product

Layout


A U Sh d P d ti Li


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1 2 3 4

5

6

78910

In

Out

Workers

Figure 6.6A U-Shaped Production Line


P L t


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Dept. A

Dept. B Dept. D

Dept. C

Dept. F

Dept. E

Used for Intermittent processing

Job Shop or Batch

Process Layout(functional)

Figure 6.7 Process Layout


P d t L t


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Work

Station 1

Work

Station 2

Work

Station 3

Figure 6.7 (contd)

Product Layout

(sequential)

Used for Repetitive Processing

Repetitive or Continuous

Product Layout


Ad t f P L t


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Can handle a variety of processing

requirements

Not particularly vulnerable to equipment

failures

Equipment used is less costly

Possible to use individual incentive

plans

Advantages of Process Layouts


Disadvantages of Process


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In-process inventory costs can be high

Challenging routing and scheduling

Equipment utilization rates are low Material handling slow and inefficient

Complexities often reduce span of

supervision Special attention for each product or

customer

Accounting and purchasing are more

Disadvantages of Process

Layouts


C ll l L t


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Cellular Production

Layout in which machines are grouped

into a cell that can process items that

have similar processing requirements

Group Technology

The grouping into part families of items

with similar design or manufacturingcharacteristics

Cellular Layouts


F ti l C ll l L t


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Dimension Functional CellularNumber of moves

between departments

many few

Travel distances longer shorter

Travel paths variable fixed

Job waiting times greater shorter

Throughput time higher lower

Amount of work in

process

higher lower

Supervision difficulty higher lower

Scheduling complexity higher lower

Equipment utilization lower higher

Table 6.3Functional vs. Cellular Layouts


Oth S i L t


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Warehouse and storage layouts

Retail layouts

Office layouts

Other Service Layouts


Design Product Layouts: Line


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Line Balancing is the process of assigning

tasks to workstations in such a way that

the workstations have approximatelyequal time requirements.

Design Product Layouts: LineBalancing


C l Ti


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Cycle timeis the maximum time

allowed at each workstation to

complete its set of tasks on a unit.

Cycle Time


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Determine the Minimum Number


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N =(D)( t)

OT

t = sum of task times

Determine the Minimum Numberof Workstations Required


Precedence Diagram


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Precedence diagram: Tool used in line balancing todisplay elemental tasks and sequence requirements

A Simple Precedence

Diagrama b

c de

0.1 min.

0.7 min.

1.0 min.

0.5 min. 0.2 min.

Figure 6.10 Precedence Diagram


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Example 1 Solution


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Workstation

TimeRemaining

EligibleAssignTask

RevisedTimeRemaining

StationIdle Time

1 1.0

0.9

0.2

a, c

c

none

a

c

-

0.9

0.2

0.2

2 1.0 b b 0.0 0.0

3 1.0

0.5

0.3

d

e

-

d

e

-

0.5

0.3 0.3

0.5

Example 1 Solution


Calculate Percent Idle Time


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Percent idle time =Idle time per cycle

(N)(CT)

Efficiency = 1Percent idle time

Calculate Percent Idle Time


Line Balancing Rules


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Assign tasks in order of most

following tasks.

Count the number of tasks that follow

Assign tasks in order of greatest

positional weight. Positional weight is the sum of each

tasks time and the times of all following

tasks.

Some Heuristic (intuitive) Rules:

Line Balancing Rules


Example 2


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c d

a b e

f g h

0.2 0.2 0.3

0.8 0.6

1.0 0.4 0.3

Example 2


Solution to Example 2


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Station 1 Station 2 Station 3 Station 4

a b e

fd

g hc

Solution to Example 2


Parallel Workstations


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1 min.2 min.1 min.1 min.30/hr. 30/hr. 30/hr.

30/hr.

1 min.

1 min.

1 min.1 min.60/hr.

30/hr. 30/hr.

60/hr.

1 min.

30/hr.

30/hr.

Bottleneck




Designing Process Layouts


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Information Requirements:

1. List of departments

2. Projection of work flows

3. Distance between locations4. Amount of money to be invested

5. List of special considerations

6. Location of key utilities

Designing Process Layouts

5-100Capacity Planning

Example 3: InterdepartmentalWork Flows


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1 3 2

30

170 10

0

A B C

Figure 6.12 Work Flowsfor Assigned Departments



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Authors note:

The following three slides are not in the

8e, but I like to use them for alternate

examples.


Process Layout


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Process Layout - work travelsto dedicated process centers

Milling

Assembly& Test

Grinding

Drilling Plating

Process Layout


Functional Layout


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Gear

cutting

Mill Drill

Lathes

Grind

Heat

treat

Assembly

111

333

222

444

222

111

444

111 3331111 2222

222

3333

111

444

111

Functional Layout


Cellular Manufacturing Layout


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-1111 -1111

222222222 - 2222

Assem

bly

3333333333 - 3333

44444444444444 - 4444

Lathe

Lathe

Mill

Mill

Mill

Mill

Drill

Drill

Drill

Heattreat

Heattreat

Heattreat

Gearcut

Gearcut

Grind

Grind

Cellular Manufacturing Layout


Flexible Manufacturing


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Flexible Manufacturing

VD7

Process at Trek Bikes


Location/Criteria


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Location/Criteria

PS11

Guitar site location


Process Overview


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Process Overview

Documents

Module-3 Facility Planning