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8. Explain the cost-volume analysis in capacity planning.

A: Technique useful in evaluating capacity alternatives from an economic

standpoint:

Cost-volume analysis:

It focuses on relationships between cost, revenue and volume of output.

Estimates the income under different operating conditions. Requires the

identification of all costs related to the production of a given product.

Cost-volume analysis is used in several different areas of POM and QMespecially capacity planning and location analysis. Breakeven andcost/volume analysis are included in nearly every POM textbook.Cost/volume analysis is used to find the point of indifference between twooptions based on fixed and variable costs. A breakeven point is computed in

terms of units or dollars. Breakeven is simply a special case of cost/volumeanalysis where there is one fixed cost, one variable cost and revenue perunit.

In cost-volume analysis we compare two or more options to determine whatoption is least costly at any volume. The costs consist of two types - fixedcosts and variable costs but there may be several individual costs whichcomprise the fixed costs or the variable costs In the example below we areindicating that there are 5 different individual costs and two options

Data

Cost Type. Each type of cost must be identified as either a fixed cost or avariable cost. The default is that the first cost in the list is fixed and that allother costs are variable. These values can be changed by using the usualdropdown box.

Costs. The specific cost for each option gets listed in the two columns in thetable.

Volume. If a volume analysis is desired then enter the volume at which thisanalysis should be performed. The volume analysis will compute the total

cost (revenue) at the chosen volume. If the volume is 0 then no volumeanalysis will be performed other than for the breakeven point.

The assumptions are:

• One product is involved.

• Everything produced can be sold

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• The variable cost per unit is the same regardless of the volume.

• Fixed costs do not change with volume changes, or they are stepchanges.

The revenue per unit is the same regardless of volume.

Cost-Volume Symbols

FC = Fixed Cost

VC = Variable cost per unit

TC = Total Cost

TR = Total Revenue

R = Revenue per unit

Q = Quantity or volume of output

QBEP = Break-Even Quantity

SP = Specified Profit

Cost-Volume Formulas

TC = FC + (VC x Q)

TR = R x Q

P = TR – TC

P = (R X Q) – [FC + (VC X Q)]

Volume = (SP + FC)/( R – VC)

QBEP = FC/( R – VC)

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Cost-Volume Relationships

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9. Explain the decision tree tool with example & state it’s advantages &

disadvantages.

A: A decision tree is a decision support tool that uses a tree-like graph or

model of decisions and their possible consequences, including chance event

outcomes, resource costs, and utility. It is one way to display an algorithm.

Decision trees are commonly used in operations research, specifically in

decision analysis, to help identify a strategy most likely to reach a goal.

Another use of decision trees is as a descriptive means for calculating

conditional probabilities. When the decisions or consequences are modelled

by computational verb, then we call the decision tree a computational verb

decision tree.

Advantages:

• Useful for operational decision making.

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• Enables effective use of back data.

• Use of probability allows flexibility.

• Scientific/objective analysis to decision making

• Encourages clear thinking and planning

Disadvantages:

• Reliant on the accuracy of the data used.

• Requires qualitative input to give complete picture.

• Probabilities only estimated.

• Real time data problems

Look what happens however if the probabilities change. If the firm is

unsure of the potential for growth, it might estimate it at 50:50. In this

case the outcomes will be:

Economic growth rises: 0.5 x £300,000 = £150,000

Economic growth declines: 0.5 x -£500,000 = -£250,000

In this instance, the net benefit is -£100,000 – the decision looks less

favourable!

Decision trees provide an effective method of decision making because they:

• Clearly lay out the problem so that all options can be challenged.

• Allow us to analyze the possible consequences of a decision fully.

• Provide a framework to quantify the values of outcomes and the

probabilities of achieving them.

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• Help us to make the best decisions on the basis of existing information

and best guesses.

• As with all decision making methods, decision tree analysis should be

used in conjunction with common sense - decision trees are just one

important part of your decision making tool kit.

10. Explain the different types of facility layouts.

A: Facility LayoutA typical manufacturing plant has anumber of diverse activities interactingwith each other. Thus, raw materials arrive at a shipping dock, they areunpacked and checked in a quality control area, they may then be processedthrough several processing areas, and finally the finished product againpasses through the shipping dock. In addition to areas specifically related toproduction, there must be dressing rooms, lunch rooms, and restrooms foremployees; offices for supervision, design, and production control; and spacefor inventory and aisles. In fact, a plant may be viewed as a large number of

finite geometric areas arranged on the floor space of the building. Theproblem of arranging these areas in an effective manner is the facility layoutproblem.Clearly, the layout problem has relevance in many areas of facility andequipment design, from the layout of the rooms in a home to the layout of chips on an electronic circuit board. Although the facility layout problem mayarise in many contexts, in this section we assume we are dealing with a plantmanufacturing products for sale.

Types of Layouts There are several alternative layout types that are appropriate for different

product mixes and production volumes. Determination of the layout type is amajor design decision because it impacts on so many other aspects of theproduction system.

Job Shop LayoutIn the Job Shop Layout, machines are grouped according to function intomachine centers. Orders for individual products are routed through thevarious machine centers to obtain the required processing. This layout may

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be appropriate when there are many different products, each with a lowvolume of production. Machines are general purpose, within their generalfunction area, so that a wide variety of products can be handled. Becausethe expense of automation may be too great to be justified by the lowvolume, the machines in this arrangement will probably be at a relatively low

level of automation. Workers will be highly skilled.Production scheduling is difficult with this type of arrangement because thelevel and type of work is highly variable. This results in large amounts of work-in-process, long product lead times, and high levels of managementinteraction. Typically there is a high degree of product movement requiredby the long and variable routes of individual products through the system. The costs for setting up machines to produce the various products will behigh because of the variety of different products and small lot sizes. The arrangement can adapt readily to changes in product volume and designbecause of its inherent flexibility.

Assembly Line or Flow Shop LayoutHere the product (or products) follows a fixed path through the productionresources. The resources are arranged to minimize the material movementrequired. This type of layout is typical for an assembly line where a singleproduct, or a few very similar products, passes through the line in acontinuous fashion. Because of the high volume of production, the machineson the line can be designed with a high level of fixed automation, with verylittle manual labor. Direct labor will be much less than for the job shop, butthere will be high costs for maintenance. Setup costs and work-inprogresswill be low for this arrangement. The line, in general, is not flexible to product or volume changes. It is very

sensitive to failures that cause the entire line to shut down. The arrangement is also appropriate for a flow shop that may have a numberof products that all pass through the machine centers in the same order. Inthis case, the machines implementing the system may or may not beautomated depending on the product mix and volume, but one would expecta higher level of automation than for the job shop.

Group Technology Layout The product mix appropriate for this arrangement is similar to that of the jobshop. Products are grouped into classes that have some similarity withrespect to processing. A manufacturing cell is designed for each group

consisting of machines particularly adapted to the processing required. Thefigure shows the cells as collections of dissimilar machines. Because therange of products manufactured by each cell is less than that for the jobshop, the machines and workers can be more specialized. Typically, the workers in a cell are given more of the responsibility forproduction scheduling of a product class. This, together with the start-to-finish nature of the processing, results in more interesting jobs for theworkers. The group technology arrangement requires less setup time and

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cost than the job shop because of the greater specialization of function. It iscompatiblewith the just-in-time concept of manufacture, so prevalent today, because of the smaller lot sizes made possible by the low setup costs.Often the level of automation with group technology is low, indicating the

dependence of the concept on the skill of the labor force. Many companieshave, however, introduced highly automated flexible manufacturing cellsinto the system. Because the cell has a smaller range of products than theentire plant, it is easier to design the automation to handle the set of products in a group. The group technology approach is more sensitive to changes in product mixand volume than the job shop, again because of the specializationintroduced because of the manufacturing cell approach. When a productrequires processing in more than one cell, problems similar to those of the job shop are introduced.

Fixed Location LayoutFor tasks on large objects such as the manufacture of an electricalgenerator, the construction of a building, or the repair of a large airplane, themachines implementing the operation must come to the product, rather thanthe product moving to the achines. Here the question is more often thescheduling of operations rather than the layout of machines.

11. What are the criteria for a good layout?

A: Small business owners need to consider many operational factors whenbuilding or renovating a facility for maximum layout effectiveness. Thesecriteria include the following:

• Ease of future expansion or change—Facilities should be designed sothat they can be easily expanded or adjusted to meet changingproduction needs. "Although redesigning a facility is a major, expensiveundertaking not to be done lightly, there is always the possibility that aredesign will be necessary," said Weiss and Gershon in their bookProduction and Operations Management . "Therefore, any design should

be flexible…. Flexible manufacturing systems most often are highlyautomated facilities having intermediate-volume production of a varietyof products. Their goal is to minimize changeover or setup times forproducing the different products while still achieving close to assemblyline (single-product) production rates."• Flow of movement—The facility design should reflect a recognition of the importance of smooth process flow. In the case of factory facilities,the editors of How to Run a Small Business state that "ideally, the plan

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will show the raw materials entering your plant at one end and thefinished product emerging at the other. The flow need not be a straightline. Parallel flows, U-shaped patterns, or even a zig-zag that ends upwith the finished product back at the shipping and receiving bays can befunctional. However, backtracking is to be avoided in whatever pattern

is chosen. When parts and materials move against or across the overallflow, personnel and paperwork become confused, parts become lost,and the attainment of coordination becomes complicated."

• Materials handling—Small business owners should make certain thatthe facility layout makes it possible to handle materials (products,equipment, containers, etc.) in an orderly, efficient—and preferablysimple—manner.

• Output needs—The facility should be laid out in a way that is conduciveto helping the business meet its production needs.

• Space utilization—This aspect of facility design includes everythingfrom making sure that traffic lanes are wide enough to making certain

that inventory storage warehouses or rooms utilize as much verticalspace as possible.• Shipping and receiving—The J. K. Lasser Institute counseled smallbusiness owners to leave ample room for this aspect of operations."While space does tend to fill itself up, receiving and shipping rarely getenough space for the work to be done effectively," it said in How to Runa Small Business.

• Ease of communication and support—Facilities should be laid out sothat communication within various areas of the business andinteractions with vendors and customers can be done in an easy andeffective manner. Similarly, support areas should be stationed in areas

that help them to serve operating areas.• Impact on employee morale and job satisfaction—Since countlessstudies have indicated that employee morale has a major impact onproductivity, Weiss and Gershon counsel owners and managers to heedthis factor when pondering facility design alternatives: "Some wayslayout design can increase morale are obvious, such as providing forlight-colored walls, windows, space. Other ways are less obvious and notdirectly related to the production process. Some examples are includinga cafeteria or even a gymnasium in the facility design. Again, though,there are costs to be traded off. That is, does the increase in morale dueto a cafeteria increase productivity to the extent that the increasedproductivity covers the cost of building and staffing the cafeteria."

• Promotional value—If the business commonly receives visitors in theform of customers, vendors, investors, etc., the small business ownermay want to make sure that the facility layout is an attractive one thatfurther burnishes the company's reputation. Design factors that caninfluence the degree of attractiveness of a facility include not only the

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design of the production area itself, but the impact that it has on, forinstance, ease of fulfilling maintenance/cleaning tasks.

• Safety—The facility layout should enable the business to effectivelyoperate in accordance with Occupational Safety and HealthAdministration guidelines and other legal restrictions.

"Facility layout must be considered very carefully because we do not want to

constantly redesign the facility," summarized Weiss and Gershon. "Some of

the goals in designing the facility are to ensure a minimum amount of

materials handling, to avoid bottlenecks, to minimize machine interference,

to ensure high employee morale and safety, and to ensure flexibility.

Essentially, there are two distinct types of layout. Product layout is

synonymous with assembly line and is oriented toward the products that are

being made. Process layout is oriented around the processes that are used to

make the products. Generally, product layout is applicable for high-volume

repetitive operations, while process layout is applicable for low-volume

custom-made goods."

12. Explain the Load Distance Model for layout study.

A:

13. Explain the concept of Line Balancing.

A: Line and work cell balancing is an effective tool to improve the throughput

of assembly lines and work cells while reducing manpower requirements and

costs. Assembly Line Balancing, or simply Line Balancing (LB), is the problem

of assigning operations to workstations along an assembly line, in such a

way that the assignment be optimal in some sense. Ever since Henry Ford’s

introduction of assembly lines, LB has been an optimization problem of

significant industrial importance: the efficiency difference between an

optimal and a sub-optimal assignment can yield economies (or waste)reaching millions of dollars per year.

LB is a classic Operations Research (OR) optimization problem, having been

tackled by OR over several decades. Many algorithms have been proposed

for the problem. Yet despite the practical importance of the problem, and the

OR efforts that have been made to tackle it, little commercially available

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software is available to help industry in optimizing their lines. In fact,

according to a recent survey by Becker and Scholl (2004), there appear to be

currently just two commercially available packages featuring both a state of

the art optimization algorithm and a user-friendly interface for data

management. Furthermore, one of those packages appears to handle only

the “clean” formulation of the problem (Simple Assembly Line Balancing

Problem, or SALBP), which leaves only one package available for industries

such as automotive. This situation appears to be paradoxical, or at least

unexpected: given the huge economies LB can generate, one would expect

several software packages vying to grab a part of those economies.

It appears that the gap between the available OR results and their

dissemination in today’s industry, is probably due to a misalignment

between the academic LB problem addressed by most of the OR approaches,

and the actual problem being faced by the industry. LB is a difficult

optimization problem (even its simplest forms are NP-hard – see Garey and

Johnson, 1979), so the approach taken by OR has typically been to simplify

it, in order to bring it to a level of complexity amenable to OR tools. While

this is a perfectly valid approach in general, in the particular case of LB it led

to some definitions of the problem that ignore many aspects of the real-

world problem. Unfortunately, many of the aspects that have been left out in

the OR approach are in fact crucial to industries such as automotive, in the

sense that any solution ignoring (violating) those aspects becomes unusable

in the industry.

In the sequel, we first briefly recall classic OR definitions of LB, and then

review how the actual line balancing problem faced by the industry differs

from them, and why a solution to the classic OR problem may be unusable in

some industries. Thus, we used line balancing technique to achieve:

1. the minimization of the number of workstations;

2. the minimization of cycle time;

3. the maximization of workload smoothness;

4. The maximization of work relatedness.

14. Explain concept of Assignment Model in operations research used forlayout study with an example.

A:

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tut 7__Q8-Q14