© wiley 20101 chapter 9– capacity planning & facility location define capacity planning and...
TRANSCRIPT
© Wiley 2010 1
Chapter 9– Capacity Planning & Facility Location
Define capacity planning and location analysis Describe relationship between capacity
planning and location, and their importance Explain the steps involved in capacity
planning and location analysis Describe the decision support tools used for
capacity planning Identify key factors in location analysis Describe the decision support tools used for
location analysis
© Wiley 2010 2
Capacity planning Capacity is the maximum output rate of a facility Capacity planning is the process of establishing
the output rate that can be achieved at a facility: Capacity is usually purchased in “chunks” Strategic issues: how much and when to spend
capital for additional facility & equipment Tactical issues: workforce & inventory levels, &
day-to-day use of equipment
© Wiley 2010 3
Measuring Capacity Examples
There is no one best way to measure capacity Output measures like kegs per day are easier to understand With multiple products, inputs measures work better
Type of BusinessInput Measures of
CapacityOutput Measures
of Capacity
Car manufacturer Labor hours Cars per shift
Hospital Available beds Patients per month
Pizza parlor Labor hours Pizzas per day
Retail storeFloor space in square feet
Revenue per foot
© Wiley 2010 4
Measuring Available Capacity
Design capacity: Maximum output rate under ideal
conditions A bakery can make 30 custom cakes per
day when pushed at holiday time Effective capacity:
Maximum output rate under normal (realistic) conditions
On the average this bakery can make 20 custom cakes per day
© Wiley 2010 5
Measuring Effectiveness of Capacity Use Measures how much of the available
capacity is actually being used:
Measures effectiveness Use either effective or design
capacity in denominator
100%capacity
rateoutput actualnUtilizatio
© Wiley 2010 6
Example of Computing Capacity Utilization: A bakery’s design capacity and effective capacity are 30 and 20 cakes per day, respectively. Currently the bakery is producing 28 cakes per day. What is the bakery’s capacity utilization relative to both design and effective capacity?
93%(100%)30
28(100%)
capacity design
output actual nUtilizatio
140%(100%)20
28(100%)
capacity effective
output actual nUtilizatio
design
effective
The current utilization is only slightly below its design capacity and considerably above its effective capacity
The bakery can only operate at this level for a short period of time
© Wiley 2010 7
Capacity Considerations The Best Operating Level is the output that results
in the lowest average unit cost Economies of Scale:
Where the cost per unit of output drops as volume of output increases
Spread the fixed costs of buildings & equipment over multiple units, allow bulk purchasing & handling of material
Diseconomies of Scale: Where the cost per unit rises as volume increases Often caused by congestion (overwhelming the process with
too much work-in-process) and scheduling complexity
© Wiley 2010 8
Best Operating Level and Size
Alternative 1: Purchase one large facility, requiring one large initial investment Alternative 2: Add capacity incrementally in smaller chunks as needed
© Wiley 2010 9
Other Capacity Considerations Focused factories:
Small, specialized facilities with limited objectives
Plant within a plant (PWP): Segmenting larger operations into
smaller operating units with focused objectives
Subcontractor networks: Outsource non-core items to free up
capacity for what you do well
© Wiley 2010 10
Making Capacity Planning Decisions
The three-step procedure for capacity planning decisions:
1. Identify Capacity Requirements
2. Develop Capacity Alternatives
3. Evaluate Capacity Alternatives
© Wiley 2010 11
Identifying capacity requirements
Forecasting Capacity: Long-term capacity requirements based on future demand Identifying future demand based on forecasting Forecasting, at this level, relies on qualitative forecast
models Executive opinion Delphi method
Forecast and capacity decisions must include strategic implications
Capacity cushions Plan to underutilize capacity to provide flexibility
Strategic Implications How much capacity a competitor might have Potential for overcapacity in industry is a possible hazard
© Wiley 2010 12
Developing & Evaluating Capacity Alternatives
Capacity alternatives include Could do nothing, expand large now (may included capacity
cushion), or expand small now with option to add later
Use decision support aids to evaluate decisions (decision tree: most popular)
© Wiley 2010 13
Decision trees
Diagramming technique which uses Decision (square) nodes– points in time when
decisions are made. Decision alternatives branches of the tree from the decision nodes.Pruning of the tree (decision has to be made) here.
Chance (circular) nodes – where different possible outcomes (with different probabilities) emanate. No decisions made here.
© Wiley 2010 14
Decision tree diagrams
Decision trees developed by Drawing from left to right Use squares to indicate decision points Use circles to indicate chance events Write the probability of each chance by the
chance (sum of associated chances = 100%)
Write each alternative outcome in the right margin
© Wiley 2010 15
Example Using Decision Trees: A restaurant owner has determined that she needs to expand her facility. The alternatives are to expand large now and risk smaller demand, or expand on a smaller scale now knowing that she might need to expand again in three years. Which alternative would be most attractive? (see notes)
© Wiley 2010 16
Evaluating the Decision Tree
Decision tree analysis utilizes expected value analysis (EVA)
EVA is a weighted average of the chance events Sum of (Probability of occurrence * value of the
chance event outcome) Refer to previous slide
At decision point 2, choose to expand to maximize profits ($200,000 > $150,000)
Calculate expected value of small expansion: EVsmall = 0.30($80,000) + 0.70($200,000) = $164,000
© Wiley 2010 17
Evaluating the Decision Tree con’t
Calculate expected value of large expansion: EVlarge = 0.30($50,000) + 0.70($300,000) =
$225,000 At decision point 1, compare alternatives &
choose the large expansion to maximize the expected profit: $225,000 > $164,000
Choose large expansion despite the fact that there is a 30% chance it’s the worst decision: Take the calculated risk!
© Wiley 2010 18
Location Analysis Facility location is the process of identifying the best geographic location for a service or production facility. Factors affecting location Decisions are:
Proximity to source of supply: Reduce transportation costs of perishable or
bulky raw materials Proximity to customers:
High population areas, close to JIT partners Proximity to labor:
Local wage rates, attitude toward unions, availability of special skills (silicon valley)
© Wiley 2010 19
Other Location Factors Community considerations:
Local community’s attitude toward the facility (prisons, utility plants, etc.)
Site considerations: Local zoning & taxes, access to utilities, etc.
Quality-of-life issues: Climate, cultural attractions, commuting time, etc.
Other considerations: Options for future expansion, local competition,
etc.
© Wiley 2010 20
Globalization – Should Firm Go Global?
Globalization is the process of locating facilities around the world
Potential advantages: Inside track to foreign markets, avoid trade barriers, gain
access to cheaper labor Potential disadvantages:
Political risks may increase, loss of control of proprietary technology, local infrastructure (roads & utilities) may be inadequate, high inflation
Other issues to consider: Language barriers, different laws & regulations, different
business cultures
© Wiley 2010 21
Making Location DecisionsAnalysis should follow 3 step process:
1. Identify dominant location factors2. Develop location alternatives3. Evaluate locations alternatives
Procedures for evaluation location alternatives include
Factor rating method Load-distance model Center of gravity approach Break-even analysis Transportation method
© Wiley 2010 23
A Load-Distance Model Example: Matrix Manufacturing is considering where to locate its warehouse in order to service its four Ohio stores located in Cleveland, Cincinnati, Columbus, Dayton. Two sites are being considered; Mansfield and Springfield, Ohio. Use the load-distance model to make the decision.
Calculate the rectilinear distance:
Multiply by the number of loads between each site and the
four cities
miles 4515401030dAB
© Wiley 2010 24
Calculating the Load-Distance Score for Springfield vs. Mansfield
The load-distance score for Mansfield is higher than for Springfield. The warehouse should be located in Springfield.
Computing the Load-Distance Score for SpringfieldCity Load Distance ld
Cleveland 15 20.5 307.5Columbus 10 4.5 45Cincinnati 12 7.5 90Dayton 4 3.5 14
Total Load-Distance Score(456.5)
Computing the Load-Distance Score for MansfieldCity Load Distance ld
Cleveland 15 8 120Columbus 10 8 80Cincinnati 12 20 240Dayton 4 16 64
Total Load-Distance Score(504)
© Wiley 2010 25
The Center of Gravity Approach
This approach requires that the analyst find the center of gravity of the geographic area being considered
Computing the Center of Gravity for Matrix Manufacturing
Is there another possible warehouse location closer to the C.G. that should be considered?? Why?
10.641
436
l
YlY ; 7.9
41
325
l
XlX
i
iic.g.
i
iic.g.
Computing the Center of Gravity for Matrix ManufacturingCoordinates Load
Location (X,Y) (li) lixi liyi
Cleveland (11,22) 15 165 330Columbus (10,7) 10 165 70Cincinnati (4,1) 12 165 12
Dayton (3,6) 4 165 24Total 41 325 436
© Wiley 2010 26
Break-Even Analysis Break-even analysis computes the amount of goods
required to be sold to just cover costs Break-even analysis includes fixed and variable costs Break-even analysis can be used for location analysis
especially when the costs of each location are known
Step 1: For each location, determine the fixed and variable costsStep 2: Plot the total costs for each location on one
graphStep 3: Identify ranges of output for which each
location has the lowest total costStep 4: Solve algebraically for the break-even points over the identified ranges
© Wiley 2010 27
Break-Even Analysis
Remember the break even equations used for calculation total cost of each location and for calculating the breakeven quantity Q.
Total cost = F + cQ Total revenue = pQ Break-even is where Total Revenue = Total Cost
Q = F/(p-c)Q = break-even quantityp = price/unitc = variable cost/unitF = fixed cost
© Wiley 2010 28
Example using Break-even Analysis: Clean-Clothes Cleaners is considering four possible sites for its new operation. They expect to clean 10,000 garments. The table and graph below are used for the analysis.
Example 9.6 Using Break-Even AnalysisLocation Fixed Cost Variable Cost Total Cost
A $350,000 $ 5(10,000) $400,000B $170,000 $25(10,000) $420,000C $100,000 $40(10,000) $500,000D $250,000 $20(10,000) $450,000
© Wiley 2010 29
The Transportation Method
Can be used to solve specific location problems Is discussed in detail in the supplement to this
text Could be used to evaluate the cost impact of
adding potential location sites to the network of existing facilities
Could also be used to evaluate adding multiple new sites or completely redesigning the network
© Wiley 2010 30
Chapter 9 Highlights Capacity planning is deciding on the maximum output rate of a facility Location analysis is deciding on the best location for a facility Capacity planning and location analysis decision are often made
simultaneously because the location of the facility is usually related to its capacity.
In capacity planning and location analyses, managers must follow three-step process. The steps are assessing needs, developing alternatives, and evaluating alternatives.
To choose between capacity planning alternatives managers may use decision trees.
Key factors in location analysis included proximity to customers, suppliers, source of labor, community attitude, and quality of life issues .
Factor rating is a tool that helps managers evaluate qualitative factors. The load-distance model and center of gravity approach evaluate the location decision based on distance. Break-even analysis is used to evaluate location decisions based on cost values. The transportation method is an excellent tool for evaluating the cost impact of adding sites to the network of current facilities.