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LSM733-PRODUCTION OPERATIONS MANAGEMENT

By: OSMAN BIN SAIF

LECTURE 12

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Global Company Profile: FedEx The Strategic Importance of

Location

Summary of last Session

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Factors That Affect Location Decisions Labor ProductivityExchange Rates and Currency RisksCostsPolitical Risk, Values, and CultureProximity to MarketsProximity to SuppliersProximity to Competitors (Clustering)

Summary of last Session (Contd.)

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Methods of Evaluating Location AlternativesThe Factor-Rating Method Locational Break-Even AnalysisCenter-of-Gravity MethodTransportation Model

Summary of last Session (Contd.)

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Service Location StrategyHow Hotel Chains Select SitesThe Call Center IndustryGeographic Information Systems

Summary of last Session Contd.)

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Agenda for this Session

Innovation at Macdonald’s – Case Strategic Importance of Layout Decision Objectives in Layout design

Higher Utilization Improved Flow Improved Employee Improved Customer / Client Flexibility

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Agenda for this Session (Contd.)

Types of Layout

I. Office layout II. Retail layout III. Warehouse layoutIV. Fixed-position layoutV. Process-oriented layoutVI. Work-cell layout

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Chapter : Layout Decision

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Innovations at McDonald’s Indoor seating (1950s) Drive-through window (1970s) Adding breakfast to the menu (1980s) Adding play areas (late 1980s) Redesign of the kitchens (1990s) Self-service kiosk (2004) Now three separate dining sections

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Innovations at McDonald’s Indoor seating (1950s) Drive-through window (1970s) Adding breakfast to the menu (1980s) Adding play areas (late 1980s) Redesign of the kitchens (1990s) Self-service kiosk (2004) Now three separate dining sections

Six out of the seven are layout

decisions!

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30,000 McDonald’s outlets around the world are redesigned to have three separate dining areas:

– The "linger" zone with comfortable armchairs and Wi-Fi connections for young adults who want to socialize and hang out.

– The "grab and go" zone with tall counters and bar stools for customers who eat alone with plasma TVs.

– The "flexible" zone with comfortable and casual setting for families and large groups.

Facility layout is a source of competitive advantage

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Strategic Importance of Layout Decisions

Developing an effective and efficient layout that

will meet the firm’s competitive requirements

will contribute a lot to the profitabilitity of the firm

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Objectives in Layout Design

Higher utilization of space, equipment, and people

Improved flow of information, materials, or people

Improved employee morale and safer working conditions

Improved customer/client interaction Flexibility (to be changed later)

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A good Layout Requires Determining the Following

Material handling equipment (manual hand trucks, conveyors, cranes, AGVs)

Capacity and space requirements Environment and aesthetics (windows,

height and walls of the offices to facilitate air flow, to reduce noise etc.)

Flows of information (open offices versus dividers)

Cost of moving material between work areas

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Types of Layout

1. Office layout 2. Retail layout 3. Warehouse layout4. Fixed-position layout5. Process-oriented layout6. Work-cell layout 7. Product-oriented layout

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1. Office Layout Grouping of workers, their equipment, and spaces

to provide comfort, safety, and movement of information

Movement of information is main distinction

Typically in state of flux due to frequent technological changes

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Relationship Chart: A tool to use in Office Layout Decisions

Figure 9.1

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2. Retail LayoutRetail layouts (as are found in stores, banks, and restaurants) are based on the idea that sales and profitability vary directly with customer exposure to products Objective is to maximize profitability per

square foot of floor space by exposing the customers to as many products as possible

Sales and profitability vary directly with customer exposure

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Some Strategic Decisions in Supermarket Layout

1. High-draw items like dairy products, meat, etc. are located around the periphery of the store

2. For high-impulse and high-margin items prominent locations are used.

3. Mission of the store is conveyed through careful positioning of lead-off department. For instance, positioning the bakery department upon entering the store.

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Store Layout

Figure 9.2

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Retail Slotting Due to the limited shelf space and increasing

number of new products, manufacturers pay fees to retailers to get the retailers to display (slot) their product.

Retailers can demand up to $25000 to provide shelf space for a new product.

Small companies complain about unfair competition.

Wal-Mart is one of the few major retailers that does not demand slotting fees.

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Retail Store Shelf Space, Planogram (computer generated, plan for displaying merchandise, on the shelves of a

supermarket)

Computerized tool for shelf-space management

Generated from store’s scanner data on sales

Often supplied by manufacturer

5 facings

Shampoo

Shampoo

Shampoo

Shampoo

Shampoo

Conditioner

Conditioner

Shampoo

Shampoo

Shampoo

Shampoo

Conditioner

2 ft.

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Service SpaceThe physical surroundings in which a service takes place, and how they affect

customers and employees

1. Ambient conditions - background characteristics such as lighting, sound, smell, and temperature

2. Spatial layout and functionality - which involve customer circulation path planning, aisle characteristics, and product grouping

3. Signs, symbols, and artifacts - characteristics of building design that carry social significance

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3. Warehousing and Storage Layouts

Objective is to optimize trade-offs between handling costs and costs associated with warehouse space

Maximize the total “cube” of the warehouse – utilize its full volume while maintaining low material handling costs

Minimize damage and spoilage

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Warehousing and Storage Layouts

Automated Storage and Retrieval Systems (ASRSs) can significantly improve warehouse productivity.

Random stocking: Typically requires automatic identification systems (AISs) and effective information systems. Allows more efficient use of space

Dedicated Stocking

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Cross-Docking Materials are moved directly from receiving to

shipping and are not placed in storage in the warehouse

Requires tight scheduling and accurate shipments, bar code or RFIDidentification used foradvanced shipmentnotification as materialsare unloaded

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Customizing Value-added activities performed at the

warehouse (warehouse assembly jobs are common nowadays)

Enable low cost and rapid response strategies Assembly of components Loading software Repairs Customized labeling and packaging

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Shipping and receiving docks

Office

Cust

omiz

ation

Conveyor

Storage racks

Staging

Warehouse LayoutTraditional Layout

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Warehouse LayoutCross-Docking Layout

Shipping and receiving docks

Offi

ce

Shipping and receiving docks

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4. Fixed-Position Layout Product remains in one place, workers and equipment come to site Preferred where the size of the job is bulky and heavy. Example of such type

of layout is locomotives, ships, wagon building, aircraft manufacturing, etc. Complicating factors

Limited space at site Different materials required at different

stages of the project Volume of materials needed is dynamic

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5. Process-Oriented Layout

Similar machines and equipment are grouped together

Flexible and capable of handling a wide variety of products or services

Scheduling can be difficult and setup, material handling, and labor costs can be high

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Surgery

Radiology

ER triage room

ER Beds Pharmacy

Emergency room admissions

Billing/exit

Laboratories

Process-Oriented Layout

Patient A - broken leg

Patient B - erratic heart pacemaker

Figure 9.3

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Manufacturing Process Layout

L

L

L

L

L

L

L

L

L

LM

M

M

M

D

D

D

D

D

D

D

D

G

G

G

G

G

G

A A AReceiving andShipping Assembly

Painting Department

Lathe DepartmentMilling

Department Drilling Department

Grinding Department

P

P

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Process-Oriented Layout

Arrange work centers so as to minimize the costs of material handling

Basic cost elements are Number of loads (or people) moving

between centers Distance loads (or people) move

between centers

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Process-Oriented Layout

Minimize cost = ∑ ∑ Xij Cij

n

i = 1

n

j = 1

where n = total number of work centers or departmentsi, j = individual departmentsXij = number of loads moved from department i to department jCij = cost to move a load between department i and department j

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Process Layout Example

1. Construct a “from-to matrix”2. Determine the space requirements3. Develop an initial schematic diagram4. Determine the cost of this layout 5. Try to improve the layout6. Prepare a detailed plan

Arrange six departments in a factory to minimize the material handling costs. Each department is 20 x 20 feet and the building is 60 feet long and 40 feet wide.

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Area 1 Area 2 Area 3

Area 4 Area 5 Area 6

60’

40’

Process Layout Example

Receiving Shipping TestingDepartment Department Department

(4) (5) (6)

Figure 9.5

Assembly Painting Machine ShopDepartment Department Department

(1) (2) (3)

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Department Assembly Painting Machine Receiving Shipping Testing(1) (2) Shop (3) (4) (5) (6)

Assembly (1)

Painting (2)

Machine Shop (3)

Receiving (4)

Shipping (5)

Testing (6)

Number of loads per week

50 100 0 0 20

30 50 10 0

20 0 100

50 0

0

Process Layout Example

Figure 9.4

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Process Layout ExampleInterdepartmental Flow Graph

Figure 9.6

100

50

20

50

50

2010

100

30 Machine Shop (3)

Testing (6)

Shipping (5)

Receiving (4)

Assembly(1)

Painting (2)

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Process Layout Example

• The cost of moving one load between adjacent departments is estimated to be $1.

• Moving a load between nonadjecent departments costs $2.

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Process Layout Example

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

Cost = ∑ ∑ Xij Cij

n

i = 1

n

j = 1

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Process Layout ExampleRevised Interdepartmental Flow Graph

Figure 9.7

30

50

20

50

10 2050 100

100 Machine Shop (3)

Testing (6)

Shipping (5)

Receiving (4)

Painting(2)

Assembly (1)

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Process Layout Example

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

Cost = ∑ ∑ Xij Cij

n

i = 1

n

j = 1

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Area 1 Area 2 Area 3

Area 4 Area 5 Area 6

60’

40’

Process Layout Example

Receiving Shipping TestingDepartment Department Department

(4) (5) (6)

Figure 9.8

Painting Assembly Machine ShopDepartment Department Department

(2) (1) (3)

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Computer Software Graphical approach only works for small

problems Computer programs are available to

solve bigger problems CRAFT ALDEP CORELAP Factory Flow

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CRAFT Example

Figure 9.9

TOTAL COST 20,100EST. COST REDUCTION .00ITERATION 0

(a)

A A A A B B

A A A A B B

D D D D D D

C C D D D D

F F F F F D

E E E E E D

TOTAL COST 14,390EST. COST REDUCTION 70ITERATION 3

(b)

D D D D B B

D D D D B B

D D D E E E

C C D E E F

A A A A A F

A A A F F F

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Computer Software• Three dimensional visualization software

allows managers to view possible layouts and assess process, material handling, efficiency, and safety issues

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6. Work Cells Reorganizes people and machines into groups

to focus on single products or product groups (PART FAMILIES)

Group technology identifies products that have similar characteristics for particular cells

Similarity can be either in shape, size or in manufacturing process

Production Volume must justify cells Cells can be reconfigured as designs or volume

changes

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Part families Part families with

similarity in shape Part families with

similarity in manufacturing process

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Original Process Layout

CA B Raw materials

Assembly

1

2

3

4

5

6 7

8

9

10

11

12

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Part Routing Matrix

MachinesParts 1 2 3 4 5 6 7 8 9 10 11 12

A x x x x xB x x x xC x x xD x x x x xE x x xF x x xG x x x xH x x x

Figure 5.8

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Reordered Routing Matrix

MachinesParts 1 2 4 8 10 3 6 9 5 7 11 12

A x x x x xD x x x x xF x x xC x x xG x x x xB x x x xH x x xE x x x

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Revised Cellular Layout

3

6

9

Assembly

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4

8 10

5

7

11

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A B CRaw materials

Cell 1 Cell 2 Cell 3

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Summary of this Session

Innovation at Macdonald’s – Case Strategic Importance of Layout Decision Objectives in Layout design

Higher Utilization Improved Flow Improved Employee Improved Customer / Client Flexibility

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Summary of this Session (Contd.)

Types of Layout

I. Office layout II. Retail layout III. Warehouse layoutIV. Fixed-position layoutV. Process-oriented layoutVI. Work-cell layout

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THANK YOU