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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
12
4
8 10
5
7
11
12
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