Chapter 4:

Facility Layout and Supply Chain Planning

LIM Soon Chong, Johnson (Ph.D.)

Universiti Tun Hussein Onn Malaysia (UTHM)

BBM 40402, v1.0

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Chapter Objectives

At the end of this chapter, students is able to:

1 explain the objectives of facility planning correctly;
2 differentiate between different facility layout;
3 perform layout analysis and planning;
4 understand the importance of inventory management; and
5 perform inventory analysis planning and control.

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Outline I

1 Facility Planning
Introduction
Objectives of Facility Planning
Factors Influencing Layout
Features of a Good Plant Layout

2 Layout Types
Fixed Position Layout
Product Layout
Process Layout

3 Layout Analysis
Assembly Line Balancing
Process Layout Analysis

4 Digital Layout Planning

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Outline II
5 Inventory Management
Introduction
Importance of Inventory Control
Inventory Costing

6 Inventory Analysis
Basic Economic Order Quantity (EOQ)
EOQ Calculation
Quantity Discount Model

7 References

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 Facility Planning Introduction

Introduction

Why Layout Planning? [1]

Facilities layout planning involves decisions about space planning in
physical facilities for optimized operations.
Process and equipment decisions are translated into physical
arrangements for production.
A good layout minimizes material handling, maximizes worker and
equipment efficiency, and reduces or eliminates hazards.

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 Facility Planning Objectives

Objectives of Facility Planning

Among the objectives are [1]:

1 To enable the plant or the production system to function at peak efficiency
and effectiveness. Thus, layout design is aimed at minimizing machines
and workers idle time which may arise from unnecessary movements,
bottlenecks and uneven utilization of both workers and machines.
2 To minimize in-process inventories, materials handling costs, facilities
operation and maintenance costs.
3 To provide a safe and pleasant place for people to conduct business and
work.

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 Facility Planning Factors

Factors Influencing Layout

The volume of production or the required capacity per time period of the
facility
The nature of the manufacturing process i.e. size, number and sequence
of machines required in the technology of the productive process
The required safety precautions, such as health care provisions, comfort
needs, personal care needs and other forms of accommodations
reserved for employees
Building and site constraints, i.e. the size, shape and topography of site
The expected growth trend of the company and its future plans
The characteristics of materials such as the size, shape, fragility,
bulkiness, weight and so forth

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 Facility Planning Features

Features of a Good Plant Layout

Ease of working, greater safety and reduced health hazards for workers.
In the long run these factors will help increase workers satisfaction and
productivity
Reduced handling of materials. Good layout take into consideration the
various flows of materials inside the plant and thus reducing handling of
materials. Good physical layouts should be able to produce economies in
storage and movements of materials
Reduced damage and spoilage of materials. Damage and spoilage of
materials can be reduced if adequate consideration regarding handling
and storage of materials is given
Reduced congestion of materials, machines and men
Flexibility with regards to changing production conditions. A good
layout should be adaptable or flexible to possible future changes in
volume of production, range or products manufactured and methods /
processes of production
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 Layout Types Fixed Position Layout

Fixed Position Layout I

Product is stationed in fixed positions while materials, employees,

machines are brought to and from the products as needed to perform
their appropriate stages of buildup
Used when the product is heavy, bulky, large, fragile, etc.
Example: aircraft, ships, highways, building, power plant, etc.
Techniques addressing this type of layout are not well developed and are
complicated by three factors [1]:
1 There is limited space at virtually all sites
2 At different stages of production, different materials are needed
3 Volume of materials needed is dynamic

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 Layout Types Fixed Position Layout

Fixed Position Layout II

Figure 1: Boeings 747 Assembly (Boeing Co.)

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 Layout Types Product Layout

Product Layout I

Also known as line layout

Associated with flow / continuous production
A group of machines are in successive operations to produce a
standardized finished product in large volume
Each unit of output undergo the same operations from start to end
Workers perform a narrow range of activities on only a few products
repeatedly. The amount of skills, training and supervision required is low
Location of workers, machines and materials are on the basis of the
sequence of operations

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 Layout Types Product Layout

Product Layout II

Characteristics of Product Layout [1]:

High output volume, reduced unit manufacturing cost.
Balanced work-flow and minimized stock-in-process
Simplified work design via break-down to smaller tasks
Automated machinery are highly utilized
Control of product quality through operator feedback
Minimum material handling due to sequential operations
Highly specialized operator work skill, faster training as less skill required
Minimal work-in-process improvement
Preventive maintenance is necessary as such a layout is highly
susceptible to operation break-down

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 Layout Types Product Layout

Product Layout III

Figure 2: McDonalds Hamburger Assembly Process [1]

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 Layout Types Process Layout

Process Layout I

Also known as functional layout

Similar machines or equipment are grouped together (e.g. in a cell)
Workers in such a layout must change and adapt quickly to the multitude
of operations to be performed on each unique batch of products being
produced
Work flows are not standardized, outputs or products may vary. They may
consist of a variety of different products or one basic type of product with
many variations
Example: printing shops, medical services, furniture factory, etc.

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 Layout Types Process Layout

Process Layout II

Advantages:
Possibility of utilizing very high output machinery which may be employed
on one job in order to manufacture a suitable size of batch and then
changed to another job
Able to accommodate different product routes by using general
purpose machines and are able to change from one type of production to
another with minimum expenditure on tooling and resetting
Greater margin for safety when breakdown occurs. A single breakdown
will only slow down one part of the process
Operators are generally skillful / multi-skilled

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 Layout Types Process Layout

Process Layout III

Figure 3: Example of a process layout flow (Master Control)

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 Layout Analysis Assembly Line Balancing

Assembly Line Balancing I

Objective: to determine the number of workstations to have and which

tasks to assign to each workstation so that the minimum number of
workers and machines are used in providing the required amount of
capacity.
Phasing the assembly line such that work done along the assembly line
are almost equally divided or approximately equal between workstations.

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 Layout Analysis Assembly Line Balancing

Assembly Line Balancing II

Steps in Assembly Line Balancing:
1 Determine cycle time by dividing production time available per day with
the units of product required (a.k.a. demand, production rate). Cycle time
represents the maximum time allowed at each workstation if the
production rate is to be achieved

Cycle Time
Cycle Time = production time available per day / units required per day

2 Calculate theoretical minimum number of workstations by dividing total

task-duration time (time to make the product) by cycle time. Fractions are
rounded up to the next whole number

Number of Workstations
ni=1 Ti
Mininum Workstations = Cycle Time
, Ti = Time for task i

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 Layout Analysis Assembly Line Balancing

Assembly Line Balancing III

3 Balance the line by assigning specific assembly tasks to each

workstation. An efficient balance is one that will complete the required
assembly, follow the specific sequence and keep the idle time at each
station to a minimum
Efficiency
Task Times
Eff. = (actual number of workstations)(Largest assigned cycle time)

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 Layout Analysis Process Layout Analysis

Process Layout Analysis

In designing process layout, the usual concern is the arrangement of
departments or work centers so as to minimize the cost of material
handling (cost here can be monetary, time, etc.)
Process oriented facilities tried to minimize loads or trips, time
distance-related costs.
This approach can be adapted for fixed-position layout as well

Optimum Cost Model

For optimum layout, our objective is to minimize cost, where
n n
Cost = Xij Cij
i =1 j =1

n = total number of work centers of departments

i,j = individual departments
Xij = number of loads moved from dept. i to dept. j
Cij = cost to move a load between dept. i to dept. j
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 Digital Layout Planning

Digital Layout Planning

Figure 4: Autodesk Design Suite (Autodesk Inc.)

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 Inventory Management Intro

Introduction

What is Inventory?
Inventory is any stock or stored resource of any item that are used by an
organization to satisfy current or future needs [1]. They may be items that
are purchased from others or those produced internally.
Represent large investment of financial resources and are considered
as assets and constantly circulates themselves
Types of Inventories [1]:
1 Finished goods inventories: finished products waiting for
shipment/distribution
2 In-process inventories: partially completed goods or goods in transit
during manufacturing process
3 Raw materials and purchased parts inventories
4 Replacement parts, tools and supplies

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 Inventory Management Importance

Importance of Inventory Control

Main purpose of inventory management - to minimize the cost of inventory

without impairing the efficient flow of production and sales activities
Reduced inventories and yet responsive to customer demands, ensuring
finished goods are in sufficient quantities, in the right place and right time
Common Inventory Decisions:
1 Determining the types of inventory to buy
2 Determining the optimum inventory order size
3 Determining the best time to reorder inventory
4 Determining the most efficient ways of storing, handling and using
inventories

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 Inventory Management Costing

Inventory Costing I

Types of inventory costing includes [1]:

1 Inventory ordering costs: they are costs related to the ordering and
receiving inventory, usually expressed as a fixed costs per order
irrespective of order size. These includes the costs of:
Acquiring recent price quotations
Preparing and approving a purchase order-typing invoices etc.
Inspecting receiving shipments and checking against purchase orders for
quality and quantity
Recording the purchase and moving the new inventory into storage
2 Inventory carrying/holding costs are costs related to physically holding
items in storage. Some of them are as follows:
Warehousing costs-electricity, air-conditioning, rental and depreciation on
the storage buildings
Handling costs

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 Inventory Management Costing

Inventory Costing II
Cost of spoilage (perishables), deterioration, breakage (fragile items),
obsolescence, pilferage (small and easily concealed items)
Security
Opportunity cost of money invested in inventory
3 Shortage costs is the cost of not having enough inventory which occur
when demand exceeds the supply of inventory on hand. These costs are
difficult to measure and are estimated subjectively. They include:
Cost of lost sales and customer goodwill
Cost of inefficient production runs
Penalty costs for late changes or late compensation of contracts
Cost of substituting to more expensive raw materials

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 Inventory Analysis EOQ

Basic Economic Order Quantity (EOQ) I

EOQ Model [1]

One of the oldest and most commonly known inventory-control

techniques

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 Inventory Analysis EOQ

Basic Economic Order Quantity (EOQ) II

Several assumptions for basic EOQ model:
1 Demand is known, constant and independent
2 Lead time, the time between placement and receipt of order, is known and
constant
3 Receipt of inventory is instantaneous and complete. Inventory from an
order arrives in one batch at one time
4 Quantity discounts are not possible
5 The only variable costs are the cost of setting up or placing an order (setup
cost) and the cost of holding or storing inventory over time (holding or
carrying cost)
6 Stockouts (shortages) can be completely avoided if orders are placed at
the right time

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 Inventory Analysis EOQ Calculation

Q = number of units per order

Q* = Optimum number of units per order (EOQ)
D = Annual Demand in units for the inventory item
S = Setup ordering cost for each order
H = Holding/carrying cost per unit per year

D
Annual Setup Cost = Number of orders per year * Setup cost per year = Q S
Q
Annual Holding Cost = Average inventory level * Holding cost per year = 2 H

EOQ
q
For EOQ, D
Q
S = Q
2
H, Thus Q = 2DS
H

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 Inventory Analysis Quantity Discount Model

Quantity Discount Model I

Quantity Discount Model

Total annual cost (TC) = Annual setup Cost + Annual holding cost + Product purchase cost

DS
TC = Q
+ QH
2
+ PD

Many companies offer quantity discounts to their customers, where it refers to a

reduced price (P) for an item when it is purchased in larger quantities.

In this model, price and holding costs changes according to quantity

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 Inventory Analysis Quantity Discount Model

Quantity Discount Model II

Holding cost, H = IP, where I = percentage of unit price (P) (unless stated
otherwise). In such a case,

EOQ with percentage holding cost

q
Q = 2DS
H
, H = IP in all calculations

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 References

References I

[1] H EIZER , J., AND R ENDER , B. Operations Management. Prentice Hall, 2008.

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 References

The End

Thank You.

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