Design of GT Layout

Guiding Principles

• The objective is one of sub-dividing an universe of machines and components into sub-groups
• Each sub-group of components form a part family and is endowed with a corresponding sub-group of
machines known as machine groups
• Each sub-group is referred to as a cell

• GT layout design is done with a systematic analysis of a machine-component incident matrix

• Number of methods available for identifying sub-groups
• Production Flow Analysis (PFA)
• Clustering techniques
• Matrix manipulation methods
• Graph theory
• Mathematical programming methods
Machine – Component Incident Matrix
Before Grouping
Components
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
A 1 1 1
B 1 1 1
Machines

C 1 1 1 1
D 1 1 1
E 1 1 1 1 1 1
F 1 1 1
G 1 1 1 1 1 1
H 1 1 1 1 1 1
I 1 1 1 1 1 1
J 1 1 1 1 1 1
Machine – Component Incident Matrix
After Grouping

Components
2 3 5 8 1 4 7 20 18 17 15 14 13 6 9 11 12 16 19
B 1 1 1 1
C 1 1 1 1
D 1 1 1
Machines

A 1 1 1
F 1 1 1
E 1 1 1 1 1 1
I 1 1 1 1 1 1
G 1 1 1 1 1 1
H 1 1 1 1 1 1
J 1 1 1 1 1 1
 One man multiple machine layout
An example from Lucas TVS
Old Layout Revised Layout

4 way 4 way
Lathe Drill Drill
Press
SS
  Drill  SS
Press
Drill
Bench 
Lathe
Bench

Source: N Ravichandran, “A Journey Toward Manufacturing Excellence” CII Quality Summit 2000, 61 – 115.
Facility Capacity
Planning
Learning Objectives

1. Define capacity
2. Determine design capacity, effective capacity, and utilization
3. Compute break-even analysis
4. Apply decision trees to capacity decisions
5. Compute net present value
Capacity

• The throughput, or the number of units a facility can hold,

receive, store, or produce in a period of time
• Determines fixed costs
• Determines if demand will be satisfied
• Three-time horizons
Planning Over a Time Horizon

Long-range Add facilities

planning Add long lead time equipment
*
Intermediate- Subcontract Add personnel
range planning Add equipment Build or use inventory
Add shifts

Schedule jobs
Short-range
planning
* Schedule personnel
Allocate machinery

Modify capacity Use capacity

* Limited options exist
Design and Effective Capacity

• Design capacity is the maximum theoretical output of a

system
• Normally expressed as a rate
• Effective capacity is the capacity a firm expects to
achieve given current operating constraints
• Often lower than design capacity
Utilization and Efficiency
Utilization is the percent of design capacity achieved

Utilization = Actual output/Design capacity

Efficiency is the percent of effective capacity achieved

Efficiency = Actual output/Effective capacity

Bakery Example
Actual production last week = 148,000 rolls
Effective capacity = 175,000 rolls
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts

Design capacity = (7 x 3 x 8) x (1,200) = 201,600 rolls

Bakery Example
Actual production last week = 148,000 rolls
Effective capacity = 175,000 rolls
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts

Design capacity = (7 x 3 x 8) x (1,200) = 201,600 rolls

Bakery Example
Actual production last week = 148,000 rolls
Effective capacity = 175,000 rolls
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts

Design capacity = (7 x 3 x 8) x (1,200) = 201,600 rolls

Utilization = 148,000/201,600 = 73.4%

Bakery Example
Actual production last week = 148,000 rolls
Effective capacity = 175,000 rolls
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts

Design capacity = (7 x 3 x 8) x (1,200) = 201,600 rolls

Utilization = 148,000/201,600 = 73.4%

Bakery Example
Actual production last week = 148,000 rolls
Effective capacity = 175,000 rolls
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts

Design capacity = (7 x 3 x 8) x (1,200) = 201,600 rolls

Utilization = 148,000/201,600 = 73.4%

Efficiency = 148,000/175,000 = 84.6%

Bakery Example
Actual production last week = 148,000 rolls
Effective capacity = 175,000 rolls
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts
Efficiency = 84.6%
Efficiency of new line = 75%

Expected Output = (Effective Capacity)(Efficiency)

= (175,000)(.75) = 131,250 rolls

 Capacity and Strategy

 Capacity decisions impact all 10 decisions of operations

management as well as other functional areas of the
organization
 Capacity decisions must be integrated into the
organization’s mission and strategy
Capacity Considerations

 Forecast demand accurately

 Understand the technology and capacity
increments
 Find the optimum
operating level
(volume)
 Build for change
Economies and Diseconomies of Scale

(dollars per room per night)

Average unit cost

25 - room roadside 75 - room

motel 50 - room roadside motel
roadside motel

Economies of Diseconomies of
scale scale
25 50 75
Number of Rooms
Figure S7.2
Build In Flexibility
Percent of North American Vehicles Made
on Flexible Assembly Lines

100% –

80% –

60% –

40% – Chrysler

Toyota
Nissan

Honda

Ford
GM
20% –

Figure S7.3
0–
 Flexibilities
• Machine flexibility: the ease of making changes required to produce a given set of part types
• Process flexibility or mix flexibility: the ability to produce a given set of part types, each
possibly using different materials in several ways
• Product flexibility: the ability to produce a new set of products very economically and quickly
• Routing flexibility: is the ability to handle breakdowns and to continue processing the given set
of part types
• Volume flexibility: is a measure of the ability to operate an FMS profitably at different
production volumes
• Expansion flexibility: is the capability of building a system, and expanding it as need arises,
easily and in a modular fashion
Managing Demand
• Demand exceeds capacity
• Curtail demand by raising prices, scheduling
longer lead time
• Long term solution is to increase capacity
• Capacity exceeds demand
• Stimulate market
• Product changes
• Adjusting to seasonal demands
• Produce products with complementary
demand patterns
 Complementary Demand Patterns

4,000 –
Sales in units

3,000 –

2,000 –
Jet ski
1,000 – engine
sales

J F MAM J JAS O N D J F MAM J JAS O N D J

Time (months)
Figure S7.3
 Complementary Demand Patterns

4,000 –
Sales in units

Snowmobile
3,000 – motor sales

2,000 –
Jet ski
1,000 – engine
sales

J F MAM J JAS O N D J F MAM J JAS O N D J

Time (months)
Figure S7.3
 Complementary Demand Patterns

Combining both
demand patterns
reduces the
variation
4,000 –
Sales in units

Snowmobile
3,000 – motor sales

2,000 –
Jet ski
1,000 – engine
sales

J F MAM J JAS O N D J F MAM J JAS O N D J

Time (months)
Figure S7.3
Tactics for Matching Capacity to
Demand
1. Making staffing changes
2. Adjusting equipment
 Purchasing additional machinery
 Selling or leasing out existing equipment
3. Improving processes to increase throughput
4. Redesigning products to facilitate more
throughput
5. Adding process flexibility to meet changing
product preferences
6. Closing facilities
Demand and Capacity Management in the Service
Sector

 Demand management
 Appointment, reservations, FCFS rule
 Capacity
management
 Full time,
temporary,
part-time
staff
Approaches to Capacity Expansion
(a) Leading demand with (b) Leading demand with
incremental expansion one-step expansion
New New
capacity capacity
Demand Expected

Demand
Expected
demand
demand

(c) Capacity lags demand with (d) Attempts to have an average

incremental expansion capacity with incremental
New
expansion
capacity New
Expected capacity Expected
Demand

Demand
demand demand

Figure S7.5
Approaches to Capacity Expansion
(a) Leading demand with incremental
expansion

New
capacity

Demand
Expected
demand

1 2 3
Time (years)
Figure S7.5
Approaches to Capacity Expansion
(b) Leading demand with one-step
expansion

New
capacity
Demand Expected
demand

1 2 3
Time (years)
Figure S7.5
Approaches to Capacity Expansion
(c) Capacity lags demand with incremental
expansion

New
capacity

Demand Expected
demand

1 2 3
Time (years)
Figure S7.5
Approaches to Capacity Expansion
(d) Attempts to have an average capacity with
incremental expansion

New
capacity

Expected
Demand
demand

1 2 3
Time (years)
Figure S7.5
Break-Even Analysis

 Technique for evaluating process

and equipment alternatives
 Objective is to find the point in
dollars and units at which cost
equals revenue
 Requires estimation of fixed costs,
variable costs, and revenue
Break-Even Analysis
• Fixed costs are costs that continue even if no
units are produced
– Depreciation, taxes, debt, mortgage payments
• Variable costs are costs that vary with the volume
of units produced
– Labor, materials, portion of utilities
– Contribution is the difference between selling price
and variable cost
Break-Even Analysis
Assumptions
• Costs and revenue are linear functions
– Generally not the case in the real world
• We actually know these costs
– Very difficult to accomplish
• There is no time value of money
 Break-Even Analysis
–
Total revenue line
900 –

800 – r
ri do Total cost line
Break-even point or
t c
700 – Total cost = Total revenue
ro fi
P
Cost in dollars

600 –

500 –
Variable cost
400 –

300 –
ss r
200 – Lo rido
r
co
100 – Fixed cost

–| | | | | | | | | | | |
0 100 200 300 400 500 600 700 800 900 1000 1100
Figure S7.6
Volume (units per period)
Break-Even Analysis
BEPx = break- x = number of units
even point in units produced
BEP$ = break- TR = total revenue = Px
even point in dollars F = fixed costs
P = price per unit V = variable cost per
(after all discounts) unit
TC = total costs = F +
Vx
Break-even point occurs when

TR = TC F
or BEPx =
P-V
Px = F + Vx
Break-Even Analysis
BEPx = break- x = number of units
even point in units produced
BEP$ = break- TR = total revenue = Px
even point in dollars F = fixed costs
P = price per unit V = variable cost per
(after all discounts) unit
TC = total costs = F +
Vx
BEP$ = BEPx P
F Profit = TR - TC
= P-V P
= Px - (F + Vx)
F
= (P - V)/P = Px - F - Vx
F = (P - V)x - F
= 1 - V/P
Break-Even
Multiproduct Case

where V = variable cost per unit

P = price per unit
F = fixed costs
W = percent each product is of total dollar sales
i = each product
Decision Trees and
Capacity Decision
Market favorable (.4)
$100,000

Market unfavorable (.6)

n t -$90,000
e pla
g
Lar
Market favorable (.4)
$60,000
Medium plant
Sm Market unfavorable (.6)
all -$10,000
pla
n t
Do Market favorable (.4)
n ot h $40,000
ing
Market unfavorable (.6)
-$5,000

$0
Decision Trees and
Capacity Decision
-$14,000
Market favorable (.4)
$100,000

Market unfavorable (.6)

n t -$90,000
e pla
g
Lar $18,000
Market favorable (.4)
$60,000
Medium plant
Sm Market unfavorable (.6)
all -$10,000
pla
n t $13,000
Do Market favorable (.4)
n ot h $40,000
ing
Market unfavorable (.6)
-$5,000

$0
 Strategy-Driven Investment

 Operations may be responsible for return-on-

investment (ROI)
 Analyzing capacity alternatives should
include capital investment, variable cost,
cash flows, and net present value
Net Present Value (NPV)

F
P=
(1 + i)N

where F = future value

P = present value
i = interest rate
N = number of years