LESSON 7

( Facility location and Layout )

OVERVIEW
An important part of operating strategy is deciding where to locate operating
facilities and how to lay out the processes within a facility. These decisions affect
both the effectiveness and the efficiency of the operation. As firms begin to expand
globally. These questions become more complex yet more important. We will look
first at the question of where to locate facilities and then how to arrange departments
and processes within a facility, spending some time looking at service facilities and
their special requirements.

KEYNOTES/OUTLINE

Facility Location

This involves the evaluation of various sites for a new or relocated facility.
Factors influencing the decision include: 1.) the availability, cost and quality of
labor, materials, equipment, land, energy, water, 2.) market considerations, 3.)
infrastructure considerations, including financial institutions, support industries and
services, government, community and social, environment, and transportation, and
4.) competition.

The strategic role of the facility will influence its location. These roles
include:

Offshore. Used for access to local low-cost resources; has a low level of
technical activities.

Source. Used for access to low-cost local resources; has a high level of
technical activities.

Outpost. Uses local technological resources; has a low level of technical

activities.

Lead. Uses local technological resources; has a high level of technical

activities
Server. Is close to market; has a low level of technical activities.

Contributor. Is close to market; has a high level of technical activities.

Quantitative models for location decisions essentially weigh a number

of factors influencing the siting decision. Often, in fact, one criterion heavily
outweighs the others.

Factor rating: Identify the factors to be used for evaluating competing sites.
Then weight each factor according to its importance; the sum of the weights
should be 100. For each site rate each factor, using a score from 0 to 100.
Adjust the scores by weight and then sum the weighted scores. The alternative
with the highest total score is the preferred location.

Cost-Profit-Volume analysis: Used when fixed and variable costs for each site
differ. For each site, calculate the annual fixed operating costs and per unit
variable costs. Then for expected outputs, the total costs can be calculated –
even if each site would have different volumes. The lowest total cost site is
preferred.

Center of Gravity Method: Minimizes the total transportation cost to or from

the facility. The locations of the existing facilities of interest are converted
into grid coordinates; these facilities might be internal shipping and receiving
facilities or customer facilities. The coordinates for the new facility can be
calculated.

Transportation Model: This is a special form of linear programming. For

each location, the technique can determine how many units should be shipped
from each supplying facility and how many units should be sent to each
receiving facility to minimize transportation costs.

Simulation Models: These models work best when the values of variables are
difficult to estimate and subject to change; neither of these conditions can be
factored into other methods.
Facility Layout

This involves the location of departments within a facility as well as the

arrangement of people and equipment within a department. Layout decisions
influence the efficiency and effectiveness of operation; they can also influence
customer satisfaction.

Layout Types:

With a process layout, similar equipment or functions are grouped together.

With a product layout, the equipment required to make a particular product

is grouped together.

With a group technology layout, the equipment required to make a set of

products that have similar shapes or operational requirements is grouped
together.

With a fixed layout, the equipment is brought to the object being processed.
The object does not move.

Layout depends on the firm’s operating strategy, the forecast volume

of production, the physical characteristics of the product, the availability of
resources, and the process technology used. Major changes to existing layouts
are messy and require compromises; greenfield sites are the best.

Quantitative Models for Facility Layout Decisions:

Minimizing communication costs. The information required includes the

daily number of communications between pairs of departments and distances
between these departments in a particular layout alternative. The total daily
distance can be calculated for each alternative; the alternative with the lowest
total daily distance is preferred. Costs can be assigned if what travels between
departments is significantly different among pairs.
Systematic layout planning (SLP). Assess the desirability of locating pairs
of departments near each other, summarize this in an activity relationship
chart, using simple symbols. Then arrange the departments as well as possible
to suit the requirements. Departments that must be close together are sited
first, those which must be kept apart are sited next, and the rest are fitted in.

CRAFT. This is a computer-based algorithm whose goal is to minimize the

total cost of moving items between departments. It is essentially a
computerized version of the communication cost minimization technique.

CORELAP AND ALDEP. These computer techniques are based on SLP

and work with relationships, not costs.

Layout Planning for Distribution Centers:

Self-service retail layouts. Consideration must be given to the movement of

materials and people, the location and allocation of space to particular
merchandise, and the psychology of purchasing. Layout patterns (gridiron or
freeflow), floor space allocations, and product location influence and are
influenced by traffic flow. This is particularly important for impulse
purchases.

Warehouse Layouts. Ease of storage and retrieval is the most important

factor. With automated storage and retrieval systems even lighting is not an
issue. If stock rotation can be achieved, the denser layout, the better.
Minimizing total movement is important. This is a function of product (the
more movement of a product, the closer to the shipping dock) and of the
stockpicking system. The out-and-back system (one trip for one product) is
used in automated retrieval systems and often at service counters. Other
manual systems include the following:

 Route Collection System. The stockpicker picks up a variety of products

to be shipped to one customer, and the order is consolidated by the
stockpicker in the consolidating/shipping area.

 Batch Picking. The stockpicker picks a quantity of a product for a group

of customers shipped to by a common carrier. This systems may be an
aggregated out-and-back or an aggregated route system, depending on the
 amounts involved. In any event, the goods are consolidated in customer
lots before being placed on the vehicle.

 Zone Picking. The stockpicker picks from a specific area of the warehouse
and sends the goods to the shipping area, where the goods are consolidated
by customer. The zone picker has no idea who the customer is or which
carrier is being used.

Office Layouts: The tradeoffs are efficiency of interaction and

privacy. There are four basic types of office layouts.

Traditional Layout. Managers have private offices, while clerical

workers and perhaps first-line managers work in an open area. One key
requirement is that the work of each person in the room or space be
independent from that of others in the same space; another is that the noise
generated from any particular station not distract others in the area. The
high cost of building walls and the reinforced flooring system to support
the walls makes this layout relatively expansive.

Office Landscaping. Everyone in one huge area; plants and low

furniture are used to generate some privacy or screening. However, for
most people the ability to hold private and sensitive conversations is
severely limited.

Activity Settings. Each person has a very small private workstation as

affirm base but is expected to work from a variety of work stations during
the day as the job needs dictate. Each public workstation allows electronic
access to the private electronic files in the personal workstation.

The activity settings include libraries, conference facilities, special shared

graphics areas and terminal areas, and relaxation areas; the private
workstations are grouped around sets of common use settings. This setting
is useful for people who work in official and unofficial groups, and
normally work in more than one group at a time; advertising offices and
accounting consultancies might find this arrangement useful.
Electronic Cottage. People work from their homes without going into
the office for extended periods. This option is suitable for managers who
have wanted the ability to escape commuting and yet stay in touch, and for
secretarial and clerical staffs. This allows travelling managers and the
sales force to keep in touch with the home base without physically
returning.