Production and Operations Management

Module 3

Facility Location

Facility location involves determining the optimal geographic placement of a

facility or plant where manufacturing, service delivery, or other operational
activities will take place. Facility location decisions can significantly impact an
organization's cost structure, customer service, and overall competitiveness.

Factors Affecting Location Decisions

1. Costs:
• Operating Costs: These include labor costs, transportation costs, and
other variable expenses associated with the facility's location.
• Fixed Costs: These include expenses such as taxes, insurance, and
property ownership costs that are relatively stable regardless of
location.
2. Market Access:
• The proximity to suppliers and customers can affect transportation
costs, lead times, and customer service levels. Access to markets and
distribution networks is crucial.
3. Labor Force:
• The availability, skills, and cost of labor in a particular region are
significant factors. Labor-intensive operations may prefer areas with
a skilled workforce, while labor-cost-sensitive operations may seek
lower-wage regions.
4. Infrastructure:
• Adequate transportation, utilities, and communication infrastructure
are essential for efficient operations. Proximity to highways, ports,
and airports can be crucial.
5. Competitive Factors:
• The competitive landscape and the presence of similar businesses in
an area can impact market access, labor competition, and supplier
choices.
Quantitative Techniques in Facility Location

1. Factor Rating Method:

• The Factor Rating Method is a quantitative technique that assigns
weights to various location factors and evaluates potential sites
based on a weighted score. The site with the highest total score is
considered the most suitable.

NUMERICAL
Suppose a company is considering three potential locations (A, B, and C) for a
new manufacturing facility, and they want to use the Factor Rating Method to
make a decision. The factors they consider are labor cost, transportation cost,
and proximity to suppliers, each with different weightings.
• Labor Cost (Weight: 0.4)
• Location A: $15 per hour
• Location B: $12 per hour
• Location C: $18 per hour
• Transportation Cost (Weight: 0.3)
• Location A: $5,000 per month
• Location B: $6,500 per month
• Location C: $4,800 per month
• Proximity to Suppliers (Weight: 0.3)
• Location A: 20 miles
• Location B: 15 miles
• Location C: 25 miles
Steps:
1. Calculate the weighted scores for each location for each factor.
• Labor Cost Score:
• Location A: 0.4 * $15 = 6
• Location B: 0.4 * $12 = 4.8
• Location C: 0.4 * $18 = 7.2
• Transportation Cost Score:
• Location A: 0.3 * $5,000 = 1,500
• Location B: 0.3 * $6,500 = 1,950
• Location C: 0.3 * $4,800 = 1,440
• Proximity to Suppliers Score (Smaller distance is better):
• Location A: 0.3 * (1 / 20) = 0.015
• Location B: 0.3 * (1 / 15) = 0.02
• Location C: 0.3 * (1 / 25) = 0.012
 2. Calculate the total score for each location by summing the weighted
scores.
• Location A: 6 + 1,500 + 0.015 = 1,506.015
• Location B: 4.8 + 1,950 + 0.02 = 1,954.82
• Location C: 7.2 + 1,440 + 0.012 = 1,447.212

3. Choose the location with the highest total score. In this case, Location B
has the highest score and would be the recommended site.

2. Centre of Gravity Method:

• The Centre of Gravity Method is used primarily for distribution
centres. It calculates the geographic centre of customer demand,
aiming to minimize transportation costs.

NUMERICAL
Suppose a company wants to determine the optimal location for a distribution
centre based on customer demand. The company has three customers, each
with different demand volumes:
• Customer A: 5,000 units (Coordinates: X = 100, Y = 50)
• Customer B: 8,000 units (Coordinates: X = 60, Y = 30)
• Customer C: 6,000 units (Coordinates: X = 80, Y = 40)
Steps:
1. Calculate the weighted sum of the coordinates for each customer.
• Customer A: (5,000 * 100, 5,000 * 50) = (500,000, 250,000)
• Customer B: (8,000 * 60, 8,000 * 30) = (480,000, 240,000)
• Customer C: (6,000 * 80, 6,000 * 40) = (480,000, 240,000)
2. Sum all the weighted coordinates for all customers.
• Total Weighted Sum: (500,000 + 480,000 + 480,000, 250,000 +
240,000 + 240,000) = (1,460,000, 730,000)
3. Divide the total weighted sum by the total demand (Customer A +
Customer B + Customer C = 5,000 + 8,000 + 6,000 = 19,000) to find the
centre of gravity.
• Centre of Gravity: (1,460,000 / 19,000, 730,000 / 19,000) ≈ (76.84,
38.42)

This calculation indicates that the optimal location for the distribution centre is
approximately at coordinates (76.84, 38.42).
The location chosen for the facility would typically be close to the centre of
gravity, as it minimizes transportation costs to serve the customer base
efficiently.

Facility Layout

Facility layout focuses on the physical arrangement of facilities, workspaces, and

equipment within a production or service facility. A well-planned facility layout
can significantly impact operational efficiency, productivity, safety, and overall
performance.
Key Objectives of Facility Layout:
1. Optimizing Space Utilization: Ensure that available space is used
efficiently to accommodate all necessary operations and processes.
2. Minimizing Material Handling: Reduce unnecessary movement of
materials and products to minimize handling costs and improve overall
efficiency.
3. Enhancing Flow and Workflow: Design the layout to support the logical
sequence of activities and ensure a smooth and efficient workflow.
4. Promoting Safety: Ensure a safe working environment by minimizing
potential hazards and optimizing the placement of safety features.
5. Enhancing Productivity: Create an environment that allows workers to
perform their tasks with maximum efficiency.

Factors Influencing Facility Layout Design

1. Workforce: Labor requirements and the interaction between workers play

a role in layout design.
2. Material Handling: The way materials move through the facility affects
layout decisions.
3. Space Availability: The physical space and building constraints can limit
layout options.
4. Equipment and Technology: The type and quantity of equipment
influence the layout.
5. Market Demands: Customer demand and order patterns may influence
layout decisions.
6. Costs: Considerations include capital investment, operational costs, and
return on investment.
Facility layout decisions are crucial in optimizing production and service
operations. A well-designed layout contributes to improved efficiency, reduced
costs, and a safer work environment, ultimately impacting the competitiveness
and success of an organization.

Principles of facility layout

1. Integration: Integrating machinery, workstations, and processes in a well-

coordinated manner can streamline operations and improve productivity.

2. Minimum Distance: The layout should be designed to minimize the

distance between workstations, storage areas, and key operational points
to enhance efficiency.

3. Maximum Space Utilization: Proper space utilization maximizes the

capacity of the facility and minimizes overhead costs associated with
unused or inefficiently used space.

4. Process Flow: The layout should be structured to ensure that materials

and work progress through the facility in an orderly and efficient manner.

5. Maximum Flexibility: Facility layouts should be adaptable to

accommodate changes in production processes, products, and business
requirements. Flexibility allows organizations to respond to market
dynamics and evolving demands.

6. Safety and Satisfaction: Safety and employee satisfaction are paramount.

The layout should minimize hazards, promote a safe work environment,
and consider the well-being and job satisfaction of employees.

7. Minimum Material Handling: This principle emphasizes reducing

unnecessary material handling. Excessive handling increases labor, time,
and costs and can lead to errors and damage.

Types of facility layout

 1. Process Layout (Functional Layout):
In a process layout, also known as a functional layout, similar machines,
equipment, and operations are grouped together based on their functions or
similarities. It is characterized by flexibility, as it can handle a variety of
products or processes.
Key Characteristics:
• Machines or workstations are organized based on their
functions.
• Product variety and customization are possible as different
processes can be accommodated.
• Material handling and flow may involve backtracking and
irregular paths, potentially leading to inefficiencies.
• Common in job shops, hospitals, and small to medium-sized
production facilities with low to medium production volumes.
Advantages:
• High flexibility to accommodate a variety of product or process
requirements.
• Easier adaptation to changes in product mix and production
processes.
• Enhanced utilization of equipment and labor due to flexibility.
Disadvantages:
• Inefficient material handling and longer lead times due to
backtracking.
• Higher material handling and transportation costs.
• Complex planning and scheduling required to optimize the
layout.

2. Product or Line Layout:

In a product or line layout, workstations and machines are arranged in a linear
or U-shaped sequence that reflects the production flow from the start of the
process to the end. It is commonly used for assembly lines and continuous
production processes.
Key Characteristics:
• Workstations are positioned in a sequence that matches the
order of production steps.
• Minimal backtracking, as work progresses linearly from one
workstation to the next.
• Well-suited for high-volume, repetitive manufacturing
processes with uniform product requirements.
Advantages:
• Efficient and high-speed production with reduced material
handling.
• Lower labor requirements and reduced training time for
workers.
• Streamlined workflow, making it easy to monitor and control.
Disadvantages:
• Limited flexibility to accommodate product variations or
process changes.
• Equipment redundancy may be required for different product
types.
• High initial investment in setting up and configuring the line.

3. Fixed Position Layout:

In a fixed position layout, the product remains stationary, and all necessary
materials, tools, and labor are brought to the product. This layout is typical in
construction projects, shipbuilding, aircraft manufacturing, and other large
assembly operations.
Key Characteristics:
• The product or structure is too large or complex to be moved.
• Materials, equipment, and labor are brought to the fixed
position.
• Construction or assembly progresses around the stationary
product.
Advantages:
• Suitable for large, heavy, or complex products or structures.
• Minimizes the need for transporting large products or
assemblies.
• Allows for efficient coordination of labor and resources in a
confined space.
Disadvantages:
• High material and labor costs due to on-site material and
resource management.
• Limited ability to implement traditional production line
efficiencies.
• Challenges in project scheduling and coordination due to the
fixed position.