dba1729 facility

FACILITIES LOCATION AND PROCESS DESIGN

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1 ANNA UNIVERSITY CHENNAI

UNIT I

INTRODUCTIONLearning objectives

After studying this lesson, you should be able to:

Describe the concepts of requirement of facilities

Identify the various factors to be considered for selection of layout.

Distinguish among the alternative patterns of plant layout

Discuss the various factors influencing the choice of an initial layout and its

subsequent modification

1.1 INTRODUCTION

The entrepreneur conducts the detailed analysis comprising of technical, financial,economic and market study before laying down a comprehensive business plan. Forimplementation of this plan, he has to take various crucial decisions namely location ofbusiness, layout (the arrangement of physical facilities), designing the product, productionplanning and control and maintaining good quality of product. Investment in analyzing theaspects of plant location and the appropriate plant layout can help an entrepreneur achieveeconomic efficiencies in business operations. These decisions lay the foundation of thebusiness of small entrepreneurs.

1.2 LOCATIONAL ANALYSIS

Locational analysis is a dynamic process where entrepreneur analyses and comparesthe appropriateness or otherwise of alternative sites with the aim of selecting the best sitefor a given enterprise. It consists the following:

(a) Demographic Analysis: It involves study of population in the area in terms of totalpopulation (in no.), age composition, per capita income, educational level,occupational structure etc.

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(b) Trade Area Analysis: It is an analysis of the geographic area that provides continuedclientele to the firm. He would also see the feasibility of accessing the trade areafrom alternative sites.

(c) Competitive Analysis: It helps to judge the nature, location, size and quality ofcompetition in a given trade area.

(d) Traffic analysis: To have a rough idea about the number of potential customerspassing by the proposed site during the working hours of the shop, the trafficanalysis aims at judging the alternative sites in terms of pedestrian and vehiculartraffic passing a site.

(e) Site economics: Alternative sites are evaluated in terms of establishment costs andoperational costs under this. Costs of establishment is basically cost incurred forpermanent physical facilities but operational costs are incurred for running businesson day to day basis, they are also called as running costs.

1.3 SIGNIFICANCE

From the discussion above, we have already learnt that location of a plant is animportant entrepreneurial decision because it influences the cost of production anddistribution to a great extent. In some cases, you will find that location may contribute toeven 10% of cost of manufacturing and marketing. Therefore, an appropriate location isessential to the efficient and economical working of a plant. A firm may fail due to badlocation or its growth and efficiency may be restricted.

1.4 PLANT LAYOUT

The efficiency of production depends on how well the various machines; productionfacilities and employee’s amenities are located in a plant. Only the properly laid out plantcan ensure the smooth and rapid movement of material, from the raw material stage to theend product stage. Plant layout encompasses new layout as well as improvement in theexisting layout. It may be defined as a technique of locating machines, processes and plantservices within the factory so as to achieve the right quantity and quality of output at thelowest possible cost of manufacturing. It involves a judicious arrangement of productionfacilities so that workflow is direct.

1.5 DEFINITION

A plant layout can be defined as follows:

Plant layout refers to the arrangement of physical facilities such as machinery,equipment, furniture etc. with in the factory building in such a manner so as to have quickestflow of material at the lowest cost and with the least amount of handling in processing theproduct from the receipt of material to the shipment of the finished product.


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According to Riggs, “the overall objective of plant layout is to design a physicalarrangement that most economically meets the required output – quantity and quality”.

According to J. L. Zundi, “Plant layout ideally involves allocation of space andarrangement of equipment in such a manner that overall operating costs are minimized.

1.6 IMPORTANCE

Plant layout is an important decision as it represents long-term commitment. An idealplant layout should provide the optimum relationship among output, floor area andmanufacturing process. It facilitates the production process, minimizes material handling,time and cost, and allows flexibility of operations, easy production flow, makes economicuse of the building, promotes effective utilization of manpower, and provides for employee’sconvenience, safety, comfort at work, maximum exposure to natural light and ventilation. Itis also important because it affects the flow of material and processes, labour efficiency,supervision and control, use of space and expansion possibilities etc.

1.7 LAYOUT OBJECTIVES

An efficient plant layout is one that can be instrumental in achieving the followingobjectives:

(a) Proper and efficient utilization of available floor space

(b) To ensure that work proceeds from one point to another point without any delay

(c) Provide enough production capacity.

(d) Reduce material handling costs

(e) Reduce hazards to personnel

(f) Utilise labour efficiently

(g) Increase employee morale

(h) Reduce accidents

(i) Provide for volume and product flexibility

(j) Provide ease of supervision and control

(k) Provide for employee safety and health

(l) Allow ease of maintenance

(m) Allow high machine or equipment utilization

(n) Improve productivity

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1.8 GENERAL PRINCIPLES

Plant layout is often a compromise between a number of factors such as:

The need to keep distances for transfer of materials between plant/storageunits to a minimum to reduce costs and risks;

The geographical limitations of the site;

Interaction with existing or planned facilities on site such as existingroadways, drainage and utilities routings;

Interaction with other plants on site;

The need for plant operability and maintainability;

The need to locate hazardous materials facilities as far as possible from siteboundaries and people living in the local neighbourhood;

The need to prevent confinement where release of flammable substancesmay occur;

The need to provide access for emergency services;

The need to provide emergency escape routes for on-site personnel;

The need to provide acceptable working conditions for operators.

The most important factors of plant layout as far as safety aspects are concerned arethose to:

Prevent, limit and/or mitigate escalation of adjacent events (domino);

Ensure safety within on-site occupied buildings;

Control access of unauthorized personnel;

Facilitate access for emergency services.

1.9 TYPES OF LAYOUT

The plant layout facilitates the arrangement of machines, Equipment and other physicalfacilities in a planned manner within the factory premises. An entrepreneur must possess anexpertise to lay down a proper layout for new or existing plants. It differs from plant toplant, from location to location and from industry to industry. But the basic principlesgoverning plant layout are more or less same. As far as small business is concerned, itrequires a smaller area or space and can be located in any kind of building as long as thespace is available and it is convenient. Plant layout for Small Scale business is closelylinked with the factory building and built up area.


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From the point of view of plant layout, we can classify small business or unit into threecategories:

1. Manufacturing units

2. Traders

3. Service Establishments

1. Manufacturing units

In case of manufacturing unit, plant layout may be of four types:

(a) Product or line layout

(b) Process or functional layout

(c) Fixed position or location layout

(d) Combined or group layout

1.10 PRODUCT OR LINE LAYOUT

Under this, machines and equipments are arranged in one line depending upon thesequence of operations required for the product. The materials move form one workstationto another sequentially without any backtracking or deviation. Under this, machines aregrouped in one sequence. Therefore materials are fed into the first machine and finishedgoods travel automatically from machine to machine, the output of one machine becominginput of the next, e.g. in a paper mill, bamboos are fed into the machine at one end andpaper comes out at the other end. The raw material moves very fast from one workstationto other stations with a minimum work in progress storage and material handling.

The grouping of machines should be done keeping in mind the following generalprinciples.

a. All the machine tools or other items of equipments must be placed at the pointdemanded by the sequence of operations

b. There should no points where one line crossed another line.

c. Materials may be fed where they are required for assembly but not necessarily atone point.

d. All the operations including assembly, testing packing must be included in the line

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1.11 ADVANTAGES OF PRODUCT LAYOUT

a. Smooth and uninterrupted operations

b. Continuous flow of work

c. Lesser investment in inventory and work in progress

d. Optimum use of floor space

e. Shorter processing time or quicker output

f. Less congestion of work in the process

g. Simple and effective inspection of work and simplified production control

h. Lower cost of manufacturing per unit

1.12 DISADVANTAGES

Product layout suffers from following drawbacks:

a. High initial capital investment in special purpose machine

b. Heavy overhead charges

c. Breakdown of one machine will hamper the whole production process

d. Lesser flexibility as specially laid out for particular product.

1.13 SUITABILITY

Product layout is useful under following conditions:

1) Mass production of standardized products

2) Simple and repetitive manufacturing process

3) Operation time for different process is more or less equal

4) Reasonably stable demand for the product

5) Continuous supply of materials

Therefore, the manufacturing units involving continuous manufacturing process,producing few standardized products continuously on the firm’s own specifications and inanticipation of sales would prefer product layout e.g. chemicals, sugar, paper, rubber,refineries, cement, automobiles, food processing and electronics etc.


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1.14 PROCESS LAYOUT

In this type of layout machines of a similar type are arranged together at one place.E.g. Machines performing drilling operations are arranged in the drilling department, machinesperforming casting operations be grouped in the casting department. Therefore the machinesare installed in the plants, which follow the process layout. Hence, such layouts typicallyhave drilling department, milling department, welding department, heating department andpainting department etc. The process or functional layout is followed from historical period.It evolved from the handicraft method of production. The work has to be allocated to eachdepartment in such a way that no machines are chosen to do as many different job aspossible i.e. the emphasis is on general purpose machine. The work, which has to be done,is allocated to the machines according to loading schedules with the object of ensuring thateach machine is fully loaded.

1.15 ADVANTAGES

Process layout provides the following benefits

a) Lower initial capital investment in machines and equipments. There is high degreeof machine utilization, as a machine is not blocked for a single product

b) The overhead costs are relatively low

c) Change in output design and volume can be more easily adapted to the outputof variety of products

d) Breakdown of one machine does not result in complete work stoppage

e) Supervision can be more effective and specialized

f) There is a greater flexibility of scope for expansion.

1.16 DISADVANTAGES

Product layout suffers from following drawbacks

a. Material handling costs are high due to backtracking

b. More skilled labour is required resulting in higher cost.

c. Time gap or lag in production is higher

d. Work in progress inventory is high needing greater storage space

e. More frequent inspection is needed which results in costly supervision

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1.17 SUITABILITY

Process layout is adopted when

1. Products are not standardized

2. Quantity produced is small

3. There are frequent changes in design and style of product

4. Job shop type of work is done

5. Machines are very expensive

Thus, process layout or functional layout is suitable for job order production involvingnon-repetitive processes and customer specifications and non- standardized products,e.g. tailoring, light and heavy engineering products, made to order furniture industries,jewelry.1.18 FIXED POSITION OR LOCATION LAYOUT

In this type of layout, the major product being produced is fixed at one location.Equipment labour and components are moved to that location. All facilities are broughtand arranged around one work center. This type of layout is not relevant for small scaleentrepreneur.

1.19 ADVANTAGES

Fixed position layout provides the following benefits

a) It saves time and cost involved on the movement of work from one workstation toanother.

b) The layout is flexible as change in job design and operation sequence can be easilyincorporated.

c) It is more economical when several orders in different stages of progress are beingexecuted simultaneously.

d) Adjustments can be made to meet shortage of materials or absence of workers bychanging the sequence of operations.

1.20 DISADVANTAGES

Fixed position layout has the following drawbacks

a. Production period being very long, capital investment is very heavy

b. Very large space is required for storage of material and equipment near the product.


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c. As several operations are often carried out simultaneously, there is possibility ofconfusion and conflicts among different workgroups.

Suitability: The fixed position layout is followed in following conditions

1. Manufacture of bulky and heavy products such as locomotives, ships, boilers,generators, wagon building, aircraft manufacturing, etc.

2. Construction of building, flyovers, dams.

3. Hospital, the medicines, doctors and nurses are taken to the patient(product).

1.21 COMBINED LAYOUT

Certain manufacturing units may require all three processes namely intermittent process(job shops), the continuous process (mass production shops) and the representative processcombined process [i.e. miscellaneous shops].

In most of industries, only a product layout or process layout or fixed locationlayout does not exist. Thus, in manufacturing concerns where several products are producedin repeated numbers with no likelihood of continuous production, combined layout isfollowed. Generally, a combination of the product and process layout or other combinationare found, in practice, e.g. for industries involving the fabrication of parts and assembly,fabrication tends to employ the process layout, while the assembly areas often employ theproduct layout. In soap, manufacturing plant, the machinery manufacturing soap is arrangedon the product line principle, but ancillary services such as heating, the manufacturing ofglycerin, the power house, the water treatment plant etc. are arranged on a functionalbasis.1.22 TRADERS

When two outlets carry almost same merchandise, customers usually buy in the onethat is more appealing to them. Thus, customers are attracted and kept by good layout i.e.good lighting, attractive colours, good ventilation, air conditioning, modern design andarrangement and even music. All of these things mean customer convenience, customerappeal and greater business volume. The customer is always impressed by service, efficiencyand quality. Hence, the layout is essential for handling merchandise, which is arranged asper the space available and the type and magnitude of goods to be sold keeping in mindthe convenience of customers.

There are three kinds of layouts in retail operations today.

1. Self service or modified self service layout

2. Full service layout

3. Special layouts

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The self-service layouts, cuts down on sales clerk’s time and allow customers toselect merchandise for themselves. Customers should be led through the store in a waythat will expose them to as much display area as possible, e.g. Grocery Stores or departmentstores. In those stores, necessities or convenience goods should be placed at the rear ofthe store. The use of color and lighting is very important to direct attention to interiordisplays and to make the most of the stores layout.

All operations are not self-service. Certain specialty enterprises sell to fewer numbersof customers or higher priced product, e.g. Apparel, office machines, sporting goods,fashion items, hardware, good quality shoes, jewelry, luggage and accessories, furnitureand appliances are all examples of products that require time and personal attention to besold. These full service layouts provide area and equipment necessary in such cases.

Some layouts depend strictly on the type of special store to be set up, e.g. TV repairshop, soft ice cream store, and drive-in soft drink stores are all examples of businessrequiring special design. Thus, good retail layout should be the one, which saves rent, timeand labour.

1.23 SERVICES CENTERS AND ESTABLISHMENT

Services establishments such as motels, hotels, restaurants, must give due attention toclient convenience, quality of service, efficiency in delivering services and pleasing officeambience. In today’s environment, the clients look for ease in approaching differentdepartments of a service organization and hence the layout should be designed in a fashion,which allows clients quick and convenient access to the facilities offered by a serviceestablishment.

1.24 FACTORS INFLUENCING LAYOUT

While deciding his factory or unit or establishment or store, a small-scale businessmanshould keep the following factors in mind:

a) Factory building: The nature and size of the building determines the floor spaceavailable for layout. While designing the special requirements, e.g. air conditioning,dust control, humidity control etc. must be kept in mind.

b) Nature of product: product layout is suitable for uniform products whereas processlayout is more appropriate for custom-made products.

c) Production process: In assembly line industries, product layout is better. In joborder or intermittent manufacturing on the other hand, process layout is desirable.

d) Type of machinery: General purpose machines are often arranged as per processlayout while special purpose machines are arranged according to product layout


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e) Repairs and maintenance: Machines should be so arranged that adequate spaceis available between them for movement of equipment and people required forrepairing the machines.

f) Human needs: Adequate arrangement should be made for cloakroom, washroom,lockers, drinking water, toilets and other employee facilities, proper provision shouldbe made for disposal of effluents, if any.

g) Plant environment: Heat, light, noise, ventilation and other aspects should be dulyconsidered, e.g. paint shops and plating section should be located in another hallso that dangerous fumes can be removed through proper ventilation etc. Adequatesafety arrangement should also be made.Thus, the layout should be conducive tohealth and safety of employees. It should ensure free and efficient flow of men andmaterials. Future expansion and diversification may also be considered whileplanning factory layout.

1.25 DYNAMICS OF PLANT LAYOUT

Plant layout is a dynamic rather than a static concept meaning thereby if once done itis not permanent in nature rather improvement or revision in the existing plant layout mustbe made by keeping a track with development of new machines or equipment, improvementsin manufacturing process, changes in materials handling devices etc. But, any revision inlayout must be made only when the savings resulting from revision exceed the costs involvedin such revision. Revision in plant layout may become necessary on account of the followingreasons:

a) Increase in the output of the existing product

b) Introduction of a new product and diversification

c) Technological advancements in machinery, material, processes, product

d) design, fuel etc.

e) Deficiencies in the layout unnoticed by the layout engineer in the beginning.

1.26 APPLICABILITY OF PLANT LAYOUT

Plant layout is applicable to all types of industries or plants. Certain plants requirespecial arrangements which, when incorporated make the layout look distinct from thetypes already discussed above. Applicability of plant layout in manufacturing and serviceindustries is discussed below. In case of the manufacturing of detergent powder, a multi-storey building is specially constructed to house the boiler. Materials are stored and pouredinto the boiler at different stages on different floors. Other facilities are also providedaround the boiler at different stations. Another applicability of this layout is the manufactureof talcum powder. Here machinery is arranged vertically i.e. from top to bottom. Thus,

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material is poured into the first machine at the top and powder comes out at the bottom ofthe machinery located on the ground floor. Yet another applicability of this layout is thenewspaper plant, where the time element is of supreme importance, the accomplishmentbeing gapped in seconds. Here plant layout must be simple and direct so as to eliminatedistance, delay and confusion.

There must be a perfect coordination of all departments and machinery or equipments,as materials must never fail. Plant layout is also applicable to five star hotels as well. Herelodging, bar, restaurant, kitchen, stores, swimming pool, laundry, shaving saloons, shoppingarcades, conference hall, parking areas etc. should all find an appropriate place in thelayout. Here importance must be given to cleanliness, elegant appearance, convenienceand compact looks, which attract customers. Similarly plant layout is applicable to a cinemahall, where emphasis is on comfort, and convenience of the cinemagoers. The projector,screen, sound box, fire fighting equipment, ambience etc. should be of utmost importance.

A plant layout applies besides the grouping of machinery, to an arrangement for otherfacilities as well. Such facilities include receiving and dispatching points, inspection facilities,employee facilities, storage etc.

Generally, the receiving and the dispatching departments should be at either end ofthe plant. The storeroom should be located close to the production, receiving and dispatchingcenters in order to minimize handling costs. The inspection should be right next to otherdispatch department as inspections are done finally, before dispatch.

The maintenance department consisting of lighting, safety devices, fire protection,collection and disposal of garbage, scrap etc. should be located in a place which is easilyaccessible to all the other departments in the plant. The other employee facilities like toiletfacilities, drinking water facilities, first aid room, cafeteria etc.

Can be a little away from other departments but should be within easy reach of theemployees. Hence, there are the other industries or plants to which plant layout is applicable.

1.27 MODEL CLASSIFICATION

Model: Definition

A Model is a selected simplified representation of the essential or relevant entities(modules) of some specific reality and their characteristics (fields, factors, features). Inother words “A model is an idealization of part of the real world that helps in the analysis ofa problem”.

Classification

The basic types of Models are:


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-Iconic

-Analogue

- Symbolic

Iconic: Definition

An Iconic Model is a look-alike representation of some specific entity

(e.g. a house)

Classification

Iconic Models can be represented in:

- Two Dimensions : e.g. photos, drawings, etc.

- Three Dimensions : e.g. scale model

Remark: A scale model can be a:

- reduction (scaled down, e.g. the model of a building)

- reproduction (same scale, e.g. copy model, prototype or working model)

- enlargement (scaled up, e.g. the model of an atom) of some specific entity

Analogue

Definition: An Analogue Model is the representation of entities of a system by analogueentities pertaining to the model (e.g. through diagrams).

Classification

An Analogue Model can be built through:

- Two Dimensional Visualization : Charts, Graphs, Diagrams

(e.g. the colour coding of a geographical chart for representing different altitudes)

- Three Dimensional Visualization : Analogue Devices

(e.g. the flow of water in pipes to represent the flow of electricity in wires or the flow ofresources in an economic system)

Symbolic

Definition: A Symbolic Model is the representation of entities of a system through symbols.

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Symbols can be:

- mathematical

- logical

- ad-hoc

Remark

A Symbolic Model is used whenever the reality is:

- too complex or too abstract to be portrayed through an iconic or analogue model

- the factors of the system (variables) can be represented by symbols that can bemanipulated in a meaningful and fruitful way

1.28. CRITERION SELECTION

The important considerations for selecting a suitable location are given as follows:

a. Natural or climatic conditions.

b. Availability and nearness to the sources of raw material.

c. Transport costs-in obtaining raw material and also distribution or marketing finishedproducts to the ultimate users.

d. Access to market: small businesses in retail or wholesale or services should belocated within the vicinity of densely populated areas.

e. Availability of Infrastructural facilities such as developed industrial sheds or sites,link roads, nearness to railway stations, airports or sea ports, availability ofelectricity, water, public utilities, civil amenities and means of communication areimportant, especially for small scale businesses.

f. Availability of skilled and non-skilled labour and technically qualified and trainedmanagers.

g. Banking and financial institutions are located nearby.

h. Locations with links: to develop industrial areas or business centers result in savingsand cost reductions in transport overheads, miscellaneous expenses.

i. Strategic considerations of safety and security should be given due importance.

j. Government influences: Both positive and negative incentives to motivate anentrepreneur to choose a particular location are made available. Positive includescheap overhead facilities like electricity, banking transport, tax relief, subsidiesand liberalization. Negative incentives are in form of restrictions for setting up


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industries in urban areas for reasons of pollution control and decentralization ofindustries.

k. Residence of small business entrepreneurs want to set up nearby their homelandsone study of locational considerations from small-scale units revealed that thenative place or homelands of the entrepreneur was the most important factor.Heavy preference to homeland suggests that small-scale enterprise is not freelymobile. Low preference for Government incentives suggests that concessions andincentives cannot compensate for poor infrastructure.

1.29 MODEL VALIDATION

Model verification and validation (V&V) are essential parts of the model developmentprocess if models to are be accepted and used to support decision making.

One of the very first questions that a person who is promoting a model is likely toencounter is “has your model been validated?”

If the answer to this critical question is No…

Experience has shown that the model is unlikely to be adopted or even tried out ina real-world setting

Often the model is “sent back to the drawing board”

The challenge then becomes one of being able to say “yes” to this critical question

MODEL VERIFICATION:

Does the model perform as intended?

Verification is done to ensure that:

– The model is programmed correctly

– The algorithms have been implemented properly

– The model does not contain errors, oversights, or bugs

Verification ensures that the specification is Complete and that mistakes have notbeen made in implementing the model

Verification does not ensure the model:

– Solves an important problem

– Meets a specified set of model requirements

– Correctly reflects the workings of a real world process

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Practical Verification

No computational model will ever be fully verified, guaranteeing 100% error-freeimplementation

A high degree of statistical certainty is all that can be realized for any model asmore cases are tested

– Statistical certainty is increased as important cases are tested

– In principle, a properly structured testing program increases the level ofcertainty for a verified model to acceptable levels

– Exercise model for all possible cases Automated testing process

Model verification proceeds as more tests are performed, errors are identified,and corrections are made to the underlying model, often resulting in retestingrequirements to ensure code integrity

The end result of verification is technically not a verified model, but rather a modelthat has passed all the verification tests!

1.30 QUESTIONS ABOUT MODEL VALIDATION

How can the model be validated if…

Controlled experiments cannot be performed on the system, for example, if only asingle historical data set exists?

The real-world system being modeled does not exist?

The model is not deterministic (has random elements)?

How can agent-based models be validated?

– Agent behaviors and interaction mechanisms

– Adaptive agent behaviors of emergent organizations

1.31 MODEL VALIDATION

Does the model represent and correctly reproduce the behaviors of the real worldsystem?

Validation ensures that the model meets its intended requirements in terms of themethods employed and the results obtained

The ultimate goal of model validation is to make the model useful in the sense thatthe model addresses the right problem, provides accurate information about thesystem being modeled, and to makes the model actually used


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The World of Model validation

Agent Behavior Validation

Data Validation

Theory Validation

Requirements Validation

Process Validation

Face Validity

Veridicality

Validation of Emergent

Structures and Processes

Calibration

Practical Validation

Validation exercises amount to a series of attempts to invalidate a model

– One recently proposed V&V technique, Active Nonlinear Tests (ANTs),explicitly formulates a series of mathematical test designed to “break themodel”

Presumably, once a model is shown to be invalid, the model is salvageable withfurther work and results in a model having a higher degree of credibility and

confidence

The end result of validation

– Technically not a validated model, but rather a model that has passed allthe validation tests

– A better understanding of the model’s capabilities, limitations, and

appropriateness for addressing a range of important questions

Establishing Credibility

Unlike physical systems, for which there are well-established procedures for modelvalidation, no such guidelines exist for social modeling

In the case of models that contain elements of human decision making, validationbecomes a matter of establishing credibility in the model

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Verification and validation work together by removing barriers and objections tomodel use

The task is to establish an argument that the model produces sound insights andsound data based on a wide range of tests and criteria that “stand in” for comparingmodel results to data from the real system

The process is akin to developing a legal case in which a preponderance of evidenceis compiled about why the model is a valid one for its purported use

1.32 PATHWAYS TO VALIDATION Cases

– Exploration of critical cases

– Exhaustive exploration of cases

Using models as exploratory e-laboratories

– Rapid prototyping

Multiple models

Maximally diverse model ensembles

Using subject matter experts

– Evaluation

– Role playing, participatory simulation

Computational simulations as a special cases of analytical modeling

Validation Case Study:

Deregulated Electric Power Markets Data

– Checking the currency of the data with the original data sources

– Cross-checking data with third parties having a vested interest in the data

Subject Matter Experts (SME)

– Model was developed by a team of experienced domain experts

– Independent electric utility SMEs provided critical industry experience

Participatory Simulation

– Ability to place themselves in the positions of agents in the deregulated markets


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Replication of Special Cases

– Model runs constructed to replicate special case for the previously validated

regulated power market

Comprehensive Model Cases for the Agent Parameter and Strategy Space

– Not possible to draw general conclusions from only a handful of model runs:

non-linear, dynamic aspects of the agent behaviors and interactions

– Extensive cases verified expected model behaviors and discovered model

unexpected model behaviors

– Unexpected cases created focal points for further model runs and in-depth

analysis

– Comprehensive testing of plausible agent strategies

– Extensive use of data visualization techniques

Model-tomodel validation

– Validation of the simplified DC model to the complete and validated ACmodel was done by comparing results for extensive number of cases

Validation Case Study:

Deregulated Electric Power Markets Lessons

– All model results and the answers to the obvious questions pertaining to themodel results had to be explainable in plain English or they would not be usefulto decision makers

– The model validation phase ended up taking as long as the model developmentphase. In the end, however, it was generally accepted that the model was avalid one for answering a wide range of important questions pertaining to electricpower deregulation

The Challenge of Validating Theory

Theory validation relates to the technical details of the model and how it relates tothe relevant disciplines, knowledgeable expertise and underlying theories

V&V is required at multiple scales

– Agent-to-agent interactions

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– Organizations

– Society and culture

Validation of theory

– What theory is used in the models

– How the theory is used in the models

– How the theories are combined in the models

1.33 DESIGNING PROCESS

Design

Design is the process by which the needs of the customer or the marketplace aretransformed into a product satisfying these needs. It is usually carried out a designer orengineer but requires help from other people in the company.

Design essentially is an exercise in problem solving. Typically, the design of a newproduct consists of the following stages:

1.34 TYPICAL STEPS

A design process may include a series of steps followed by designers. Depending onthe product or service, some of these stages may be irrelevant, ignored in real-worldsituations in order to save time, reduce cost, or because they may be redundant in thesituation.


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Typical stages of the design process include:

Pre-production design Design brief - a statement of design goals

Analysis - analysis of current design goals

Research - investigating similar design solutions in the field or related topics

Specification - specifying requirements of a design solution for a product orservice.

Problem solving - conceptualizing and documenting design solutions

Presentation - presenting design solutions

Design during productionDevelopment - continuation and improvement of a designed solution

Testing - in-situ testing a designed solution

Post-production design feedback for future designsImplementation - introducing the designed solution into the environment

Evaluation and conclusion - summary of process and results, including constructive criticism and suggestions for future improvements

Redesign - any or all stages in the design process repeated (with corrections made) atany time before, during, or after production

The development of a new product may also require the development of a prototypeto prove that new technologies work before committing resources to full-scale manufacture.

The traditional view of the design to manufacture process is that it is a sequentialprocess, the outcome of one stage is passed on to the next stage. This tends to lead toiteration in the design. I.e. having to go back to an earlier stage to correct mistakes. Thiscan make products more expensive and delivered to the marketplace late. A better approachis for the designer to consider the stages following design to try and eliminate any potentialproblems. This means that the designer requires help from the other experts in the companyfor example the manufacturing expert to help ensure that any designs the designer comesup with can be made.

So what factors might a designer have to consider in order to eliminate iteration? Manufacture - Can the product be made with our facilities?

Sales - Are we producing a product that the customer wants?

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Purchasing - Are the parts specified in stock, or do why have to order them?

Cost - Is the design going to cost too much to make?

Transport - Is the product the right size for the method of transporting?

Disposal - How will the product be disposed at the end of its life?

1.35 DESIGN BRIEF

The design brief is typically a statement of intent. ie. “We will design and make aFormula One racing car”. Although it states the problem, it isn’t enough information withwhich to start designing.

Product Design Specification (PDS)

This is possibly the most important stage of the design process and yet one of theleast understood stage. It is important that before you produce a ‘solution’ there is a trueunderstanding of the actual problem. The PDS is a document listing the problem in detail.It is important to work with the customer and analyse the marketplace to produce a list ofrequirements necessary to produce a successful product. The designer should constantlyrefer back to this document to ensure designs are appropriate.

To produce the PDS it is likely that you will have to research the problem and analysecompeting products and all important points and discoveries should be included in yourPDS.

Concept Design

Using the PDS as the basis, the designer attempts to produce an outline of a solution.A conceptual design is a usually an outline of key components and their arrangement withthe details of the design left for a later stage. For example, a concept design for a car mightconsist of a sketch showing a car with four wheels and the engine mounted at the front ofthe car. The exact details of the components such as the diameter of the wheels or the sizeof the engine are determined at the detail design stage. However, the degree of detailgenerated at the conceptual design stage will vary depending on the product being designed.

It is important when designing a product that you not only consider the product designspecification but you also consider the activities downstream of the design stage.Downstream activities typically are manufacture, sales, transportation etc. By consideringthese stages early, you can eliminate problems that may occur at these stages.

This stage of the design involves drawing up a number of different viable conceptdesigns which satisfy the requirements of the product outlined in the PDS and then evaluatingthem to decide on the most suitable to develop further. Hence, concept design can be seenas a two-stage process of concept generation and concept evaluation


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Concept generation

Typically, designers capture their ideas by sketching them on paper. Annotation helpsidentify key points so that their ideas can be communicated with other members of thecompany.

There are a number of techniques available to the designer to aid the development ofnew concepts. One of the most popular is brainstorming.

This technique involves generating ideas, typically in small groups, by saying any ideathat comes into your head no matter how silly it may seem. This usually sparks ideas fromother team members. By the end of a brainstorming session there will be a list of ideas,most useless, but some may have the potential to be developed into a concept. Brainstormingworks better if the members of the team have different areas of expertise.

Concept evaluation

Once a suitable number of concepts have been generated, it is necessary to choosethe design most suitable for to fulfil the requirements set out in the PDS. The productdesign specification should be used as the basis of any decision being made. Ideally amultifunction design team should perform this task so that each concept can be evaluatedfrom a number of angles or perspectives. The chosen concept will be developed in detail.

One useful technique for evaluating concepts to decide on which one is the best is touse a technique called ‘matrix evaluation’

With matrix evaluation a table is produced listing important the features required froma product - usually this list is drawn up from the important features described in the productdesign specification. The products are listed across the table. The first concept is thebenchmark concept. The quality of the other concepts are compared against the benchmarkconcept for the required features, to help identify if the concept is better, worse than, or isthe same as the benchmark concept. The design with the most ‘better than’ is likely to bethe best concept to develop further.

Most people who use the matrix technique will assign points, rather than simple,better, worse, same, so that it is easier to identify which concepts are the best. It is alsolikely that some features of the design will be more important than others so a weighting isused.

1.36 DESIGN AND ENGINEERING

Engineering is often viewed as a more rigorous form of design. Contrary views suggestthat design is a component of engineering aside from production and other operationswhich utilize engineering. A neutral view may suggest that both design and engineeringsimply overlap, depending on the discipline of design. The American Heritage Dictionary

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defines design as: “To conceive or fashion in the mind; invent,” and “To formulate aplan”, and defines engineering as: “The application of scientific and mathematicalprinciples to practical ends such as the design, manufacture, and operation of efficientand economical structures, machines, processes, and systems.” [4][5]. Both are formsof problem-solving with a defined distinction being the application of “scientific andmathematical principles”. How much science is applied in a design is a question of what isconsidered “science”. Along with the question of what is considered science, there is socialscience versus natural science.

Design and production

The relationship between design and production is one of planning and executing. Intheory, the plan should anticipate and compensate for potential problems in the executionprocess. Design involves problem-solving and creativity. In contrast, production involvesa routine or pre-planned process. A design may also be a mere plan that does not includea production or engineering process, although a working knowledge of such processes isusually expected of designers. In some cases, it may be unnecessary and/or impractical toexpect a designer with a broad multidisciplinary knowledge required for such designs toalso have a detailed knowledge of how to produce the product.

Design and production are intertwined in many creative professional careers, meaningproblem-solving is part of execution and the reverse. As the cost of rearrangement increases,the need for separating design from production increases as well. For example, a high-budget project, such as a skyscraper, requires separating (design) architecture from(production) construction. A Low-budget project, such as a locally printed office partyinvitation flyer, can be rearranged and printed dozens of times at the low cost of a fewsheets of paper, a few drops of ink, and less than one hour’s pay of a desktop publisher.

This is not to say that production never involves problem-solving or creativity, nordesign always involves creativity. Designs are rarely perfect and are sometimes repetitive.The imperfection of a design may task a production position (e.g. production artist,construction worker) with utilizing creativity or problem-solving skills to compensate forwhat was overlooked in the design process. Likewise, a design may be a simple repetition(copy) of a known preexisting solution, requiring minimal, if any, creativity or problem-

solving skills from the designer.

Process design

“Process design” (in contrast to “design process”) refers to the planning of routinesteps of a process aside from the expected result. Processes (in general) are treated as aproduct of design, not the method of design. The term originated with the industrial designingof chemical processes. With the increasing complexities of the information age, consultants


NOTES


and executives have found the term useful to describe the design of business processes aswell as manufacturing processes.

Detail design

In this stage of the design process, the chosen concept design is designed in detailedwith all the dimensions and specifications necessary to make the design specified on adetailed drawing of the design.

It may be necessary to produce prototypes to test ideas at this stage. The designershould also work closely with manufacture to ensure that the product can be made.

SUMMARY

The efficiency of production depends on how well the various machines; productionfacilities and amenities are located in a plant. An ideal plant layout should provide theoptimum relationship among the output, floor area and manufacturing process. An efficientplant layout is one that aims at achieving various objectives like efficient utilization of availablefloor space, minimizes cost, allows flexibility of operation, provides for employeesconvenience, improves productivity etc. The entrepreneurs must possess the expertise tolay down a proper layout for new or existing plants. It differs from one plant to another.But basic principles to be followed are more or less same. From the point of view of plantlayout, we can classify small business into three categories i.e.

(a) manufacturing units

(b) traders

(c) service establishments.

Designing of layout is different in all above three categories e.g. manufacturing unitmay follow one of Product, Process, and fixed position or combined layout, as the casemay be. Traders might go either for self- service or full service or special layouts whereasservice establishments such as motels, hotels, and restaurants must give due attention tocustomer convenience, quality of service, efficiency in delivering the service etc. Whiledeciding for layout for factory or unit or store, a small entrepreneur has to consider thefactors like the nature of the product, production process, size of factory building, humanneeds etc. Plant layout is applicable to all types of industries or plants. At the end, thelayout should be conducive to health and safety of employees. It should ensure free andefficient flow of men and materials. Future expansion and diversification may also beconsidered while planning factory layout.

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REVIEW QUESTIONS

1. Enumerate the factors that will influence the layout decision?

2. Discuss how the location constraint will affect the layout design?

3. Define the plant layout.

4. What are the various factors influencing the layout of a mall?

5. What are the principles for planning the layout of an existing factory?

6. Explain process layout? State its advantages and disadvantages in brief

7. Distinguish between product layout and process layout?

8. Explain the suitability of fixed position layout

9 Write about any two types of plant layout, Compare them.

10 What is plant layout? Discuss the objectives and advantages of a good

layout


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UNIT II

PLANT LAYOUT

2.1 PLANT LAYOUT PROBLEMS

The objective of the Plant Layout Problem is to design an efficient layout for anexisting plant. A layout is defined efficient if not only the Net Present Value of layout costs,but also service, safety and working conditions are optimized. This all has to be done whileconsidering quantitative and qualitative criteria.

The econometric most interesting part the Plant Layout Problem is the minimizationof the distance dependent costs and moving costs. The biggest part of the distance dependentcosts can be attributed to the variable internal transport costs. Minimizing variable internaltransport costs can therefore be translated to minimizing the frequency of transport betweenplant areas (like machine areas or storage areas) times the cost per unit of transport timesthe distance between plant areas. This implies that the location of all areas should bechosen so that variable internal layout costs are minimized.

The problem of determining the optimal location of areas in a plant falls in the class ofthe Quadratic Set Covering (QSC) problems. Because of the large amount of possiblearea shapes and locations in a plant, there are no computationally feasible optimal orhybrid algorithms available for the QSC problem.

However, relaxing the problem by restricting plant area shapes and locations, givesthe opportunity to design two hybrid solution methods for the particular problem studied inthe thesis.

The first method, called the Quadratic Set Covering (QSC) Approach, relaxes theproblem by assigning (part of) squared blocks to areas and by relaxing restrictions. Areduced gradient method and quasi Newton algorithm are used to solve the layout problemfor a local optimum. Using several tricks, the global optimum among the local optima, issearched for. A proof for global optimality of this relaxed layout, however, can not beprovided. The locally optimal relaxed layout is then transformed into a feasible one by

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reintroducing the restrictions. With the help of an improvement algorithm the feasible layoutis improved. Finally, the system provides the user the possibility to adjust the layoutinteractively.

Layouts produced by the QSC Approach can not be proven to be globally optimaland computation time is too high for producing alternative layouts quickly.

For this reason a second algorithm, called the Branch & Bound Hybrid ConstructionAlgorithm, is designed. To decrease computation time, the area shapes and locations wererestricted even more than for the QSC Approach. A Branch & Bound algorithm producesthe global optimal layout among all feasible relaxed layouts. By applying the feasibility andimprovement algorithm to the global optimal and alternative relaxed layouts and by makinginteractive changes, several good layouts are found.

To choose the layout to be implemented in a real life situation, the layouts producedby both methods have to be compared on qualitative criteria.

Plant layout procedures:

Standardisation of operating procedures:

Medium and large companies should appoint an officer responsible for variousoperational processes

Small businesses may not be able to justify the appointment of a full time officer, butcould designate someone on a part time basis

Safe operations and safety management require systems to address:o Operating procedures and systems of work, including housekeeping and

maintenance

o Training of operators eg in operator hygiene, use of protective clothing

o Emergency procedures

o Accident prevention

o Environmental monitoring

Training of operators

Experience should undertake training

Training should cover:

Housekeeping and maintenance

Need schedules for regular:


NOTES


o cleaning

o maintenance

Good Operator hygiene

Operators must observe basic rules of hygiene:

Emergency procedures

To ensure prompt and appropriate response, site-specific emergency procedures

Safety analysis

To identify possible malfunctions and their consequences

Safety goals

Identification of failure cases

Safety procedures for personnel

Individuals at most risk: hazardous waste

Careless or untrained, or working conditions poor

Safety procedures needed for all aspects

Information needed for all personnel on their own responsibilities

Worker accidents

Accident prevention - general guidelines Heavy articles should be stored on a firm base

Transport accident prevention - guidelines

Appropriate hazard and warning labels should be used

All tailgates, closures and the cargo must be secured

Drivers should not exceed a set number of hours per day

Trucks should be provided with first-aid equipment and an appropriate fireextinguisher for the load, and training should be provided for its use

Medical surveillance

Medical examinations to check:

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o Overall fitness and strength

o Heart condition

o Pulmonary function

Environmental monitoring

Worker protection

Basic requirement:

Additional equipment:

Respiratory protection

For example, collection vehicles regularly experience fires, and and collection crewsare exposed to chemicals and sharp objects when handling wastes.

Landfill workers and scavengers are also exposed to numerous risks, including thosefrom chemical residues in household wastes.

Site safety recommendations

The health and safety of both the plant employees and the public are of primeimportance.

2.2 PLANT LAYOUT

The plant’s layout is a fundamental contributor to site safety.

The careful design of process flow lines, storage areas and work spaces contributesto safe working. Care must also be taken in the positioning of equipment to ensure thatsafety is not jeopardised.

Well-designed work spaces can minimise accidents. A good layout can also facilitatekeeping the workplace clean and well-organised, which in turn reduces risks.

Appropriate work areas should be restricted to authorised personnel. These includestorage areas, support services and decontamination points.

Operating procedures and systems of work

The adoption of standardised working procedures, which are set out in a manual towhich employees have access, can make an important contribution to site safety. Workingprocedures should be established for every function on the site.

The procedures adopted should have been previously tested, reviewed and revisedby competent safety professionals. These standardised procedures should be frequently


NOTES


verified and their use monitored. The equipment used should be modern and well-maintained, and frequently tested.

Employees should be made aware of the standardised operating procedures andhow to use the equipment correctly. They should also be encouraged to consult the manualwhenever appropriate eg for unfamiliar procedures, or when any changes to equipment orprocedures have been made.

The manual should contain detailed information of specific plant activities, such asmaintenance procedures, transfer and pumping of wastes, and processing of waste. Itshould include a summary of the potential hazards associated with the activity; the necessarysafety precautions such as clothing, decontamination and emergency procedures; anddetailed instructions for each procedure.

It is the responsibility of managers to ensure that operators adhere to these procedures,and to regularly update manuals to improve or change information.

Plant safety and training officer

Medium-sized and large companies should appoint a safety and training officer withresponsibility to:

perform regular safety audits;

identify site deficiencies in operating procedures that might result in dangerousincidents;

ensure that operators are properly trained and

that they have adequate protection (impervious clothing, breathing apparatus, etc)which they have been trained to use.

Small businesses may not be able to justify the appointment of a full time officer, butcould designate someone on a part time basis.

Training of operators

Operators should be trained to perform their work tasks as well as possible, and toperform plant functions in a responsible manner, following at all times a specified system ofworking.

Training must cover routine working procedures, including safety aspects, and alsoemergency procedures. Training should be provided for both new and experienced staff.Whenever there is a change in working practices, in materials being handled, or in equipment,additional training must be provided.

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Training must be supported by written material to which personnel can refer: this maybe the working procedures manual or additional topic briefing sheets may be provided.Training must be regularly updated.

Lack of experience or training can cause severe accidents, such as the mixing ofchemicals which could result in explosions or fires.

Housekeeping and maintenance

Good housekeeping is essential to prevent the uncontrolled dispersion of hazardouschemicals.

As has been stated, a well designed plant layout will greatly assist in keeping the areasclean and reducing risk. A planned and regular routine of cleaning and maintenance is alsoimportant.

Immediate clean-up of spills should be undertaken, using established procedures.Adsorbent material should be readily to hand.

Fire prevention measures should also be undertaken, and the appropriate fire-fightingequipment available and properly maintained.

Storm water must be diverted from storage and processing areas.

Lack of good maintenance can result in pollution to the environment or in hazard tothe operators.

Operator hygiene

Operators should be trained to observe basic rules of hygiene, such as changing outof dirty overalls and use of washing facilities before entering the canteen or leaving the site.

Smoking, eating and ingesting alcohol should be prohibited in all work areas.

Keep hands away from the face, minimising eye contact with liquid and solid chemicalsand reducing the risk of ingestion. Emergency procedures

Each site should have in place a set of emergency procedures to enable promptresponse in the event of an incident. These should allow for the evacuation of the sitewhere necessary. The procedures should be practised so that all concerned are aware oftheir responsibilities and of what must be done by whom.

The site should be provided with fire-fighting and first aid equipment, and the conditionand effectiveness of the latter should be frequently checked. Also hydrants, emergencyshowers, protective clothing and breathing apparatus should be maintained and checkedfor performance.


NOTES


Procedures for action in the event of a spill or fire should be clearly displayed atrelevant points. Portable fire extinguishers and materials for absorbing or neutralising spillsmust be to hand.

2.3 SAFETY ANALYSIS

Safety analysis is a technique used for identifying possible malfunctions and theirconsequences, as well as identifying possible actions to reduce the risks. Risk minimisingactions might include improvements to operating procedures, redesign of the site to improvethe process flow or construction of safer storage areas.

Safety analysis involves the steps shown on the slide.

Safety goals

The goals were translated into quantitative fatality risk levels:

Individual risk for nearest neighbours:.

Collective risk for community: probability inversely proportional to the number of facilities.

Occupational risk (employees)

As a supplement to the quantitative goals, good standard practice goals wereestablished to cover factors which have a general background effect on failure probabilities.These included safe systems of work, operating procedures and maintenanceschedules.

2.4 IDENTIFICATION OF FAILURE CASES

The first step towards conducting a risk analysis is to complete a list that covers all possibleaccidents. Three methods may be used:

The check-list method: this method consists of a list of failure cases derivedfrom the experience of previous accidents. An inventory of materials and theirintrinsic hazards (health hazards or physical hazards) is reviewed. The possibleways of migration are then analysed (leaks, spills, volatilisation, etc).

The hazard and operability study: this method consists of a detailed examinationof the facility design, to enable any necessary changes to be made to aspects ofthe physical structure and design that may be seen as a hazard for the employees.

The fault-tree analysis: this method consists of building a tree of each failurecase and identifying all the components that could cause the incident before andafter it happens.

Safety procedures for personnel

Individuals at most risk from exposure to hazardous wastes are those involved inhandling the materials during collection, storage, transportation, treatment and disposal.

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To prevent the exposure of these workers to hazardous agents via inhalation, ingestion orabsorption through skin contact, safety procedures should be introduced as part of the sitesafety programme.

The risks associated with hazardous wastes are increased if the people handling thewaste are not careful, are untrained or if the working conditions are poor.

Safety procedures for personnel should cover protection, personal hygiene, medicalsurveillance and environmental monitoring.

All personnel should be given information regarding the risks involved with differenttypes of wastes and different procedures, including details of routes of exposure, methodsof avoidance and measures to be taken in case of exposure.

Personnel should be made aware of the consequences of not following safetyprocedures and their own responsibilities. Employer responsibilities include keepingemployees up to date with any changes in procedures or waste composition in advance ofthose changes.

Discussion: A blank job safety analysis is provided for trainers to use as a basis forfurther discussion.

Training

Training for workers should be conducted by experienced personnel. Training shouldbe provided for all workers at the start of their employment, and should be updated,particularly when any changes are proposed. Training sessions should be supported bywritten information which workers can refer to after the course.

Training should address all aspects of the working environment including use ofreference manuals on standard procedures, use of equipment and emergency systems. It isimportant to recognise that training is an ongoing process, not a single event.

Worker accidents

Loading, unloading and sorting of hazardous wastes are the work stages that mostcommonly cause accidents, as the slide shows. Lifting, moving or opening of barrels causea large number of injuries (about 30%), and stumbling, slipping or knocking against objectsis also common and causes about 25% of the injuries. Accidents also happen during cleaningof the tanks, using tank hoses and when the wrong compounds are added to a tank.

Occupational accidents resulting from contact with hazardous wastes and otherdangerous products have the highest Kinney figures (Kinney is a mathematical risk evaluationsystem where risk=chance x frequency x severity. See handout.) They also have the mostserious effects on human health.


NOTES


Accident rates tend to be higher in spring and summer, in countries having seasons,because hazardous wastes are most collected during this time, and in the dark periods ofthe winter, because of the lack of light. For countries with no seasons, darker periods aremost propitious for accidents.

2.5 ACCIDENT PREVENTION – GENERAL GUIDELINES

The some of the general guidelines which influence worker safety. Crucial amongthese is the correct early identification of the waste, as without this, later handling, storageand transport decisions cannot be soundly based.

Transport accident prevention - guidelines

The transport safety measure should be adopted during loading and unloading ofhazardous material.

The following additional points should be noted: If any Reactive hazardous material groups should be placed in different parts of

the truck.

Empty containers should be provided for hazardous materials in broken and leakingcontainers.

The lifting equipment should include a container to catch spills.

Explosions can occur as a result of the build up of static electricity during loadingand unloading of inflammable products. The way to limit the risk is to earth theconnection during the loading or unloading process.

Medical surveillance

Personnel working with hazardous material should be given regular medicalexaminations to assess overall fitness and strength, heart condition, pulmonary function,allergies, asthma, vision, hepatic and renal functions.

An immunisation programme should be administered where appropriate. Vaccinationprogrammes for the workers and any population at risk of exposure to wounds or specificbiological hazards (eg rabies, hepatitis, tetanus) should be put in place.

Provision of good nutrition, and use of traditional immune boosters (eg herbs andvitamins reputed to increase immunity, such as vitamins C and E, ginseng, garlic, echinacea)will help to maintain general health and to deal with high levels of stress to which workersmay be exposed. Information should be provided to workers on this.

Necessary first aid equipment and relevant antidotes to toxic substances should alwaysbe close at hand. Skilled personnel, including staff first-aiders and safety representativesshould be designated and made known to personnel.

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Environmental monitoring

Monitoring of employee health is not on its own sufficient. The monitoring of theenvironment is also necessary where ever handling of hazardous material takes place. Thisis to ensure that any contamination is detected and remedial action taken.

Monitoring of the environment should include air monitoring, surface and groundwatersampling and soil sampling.

Monitoring should be carried out by competent personnel, and by the use of techniquesranging from relatively simple ones using detector tubes and hand-held pumps to highlysophisticated operations, which require professionally qualified personnel to operateequipment and to interpret the findings.

Good housekeeping practices eg keeping the work place clean and well-organised,contributes to site safety and employee health. Prompt and effective clean up of spillsshould also be a part of the regime. These measures are low cost (or without any cost) butcan make a significant contribution.

2.6 WORKER PROTECTION

Workers must be protected from harm, and there are a number of ways to do this,depending on the potential hazard.

At the very least, it is important to observe and enforce simple protective measureslike the wearing of overalls, gloves, hard hats and safe footwear. These are suitable for usein an environment where there is no contact with harmful materials eg general warehouseand should always be used. For workers in storage or handling area eg emptying drums,additional protection will be required.

The changing temperatures and seasons should be taken into account when clothingis provided. In hot climates, workers may be reluctant to wear additional clothing orprotective headgear.

More specialised protective clothing and equipment is available in a wide assortmentof forms, including fully-encapsulating body suits. Chemical protective clothing comes in avariety of materials, offering a range of protection against a number of chemicals.

For emergency personnel, selection of which kinds of protective clothing and equipmentto use will depend on the specific chemical and on the specific tasks to be performed. Theproperties of the chemical must be assessed together with the properties of the clothingmaterial and the capabilities of the equipment. Operators must always be trained in the useof protective clothing.


NOTES


2.7 WHAT IS FLOW ANALYSIS?

Considers the operations, transportations, inspections, delays, and storages requiredas a part moves from receiving to shipping in a plant.

What are the goals of Flow Analysis?

to minimize distance traveled

to minimize backtracking

to minimize cross-traffic

to eliminate unnecessary steps in the process

to combine steps in the process

to minimize production costs

What plant flow analysis techniques are used?

Process charts

Flow diagrams

Operations charts

Process Charts

o operations

o transportations

o storages

o inspections

o delays

Analysis of Process Charts

Can I eliminate this step?

Can I automate this step?

Can I combine this step with another?

Can I change the routing to reduce distances traveled?

Can I move workstations closer together?

Can I justify production aids to increase effectiveness?

How much does this part cost to produce?

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Flow Diagram

Graphical diagram which shows the path traveled by each part from receiving tostores to fabrication of each part to final assembly to packout to warehousing to shipping.

Analysis of Flow Diagrams

Is there cross-traffic?

results in congestion and safety hazards

eliminated through proper placement of equipment, services and departments

Is there backtracking?

costs three times as much as correct flow

eliminated through proper location of operations

Are transport distances excessive?

distance traveled costs money

excessive material handling can degrade quality

Operations Charts

Graphically show the raw material, the buyouts, the fabrication sequence, the assemblysequence, the equipment needs, the time standards, and a glimpse of plant layout.

The flow process chart combines the operations chart with the process chart. Effectivetools for summarizing plant activities.

Summary of Flow Analysis

Provides critical information to layout designer including operation requirements,material handling needs, storage needs, inspection requirements, and delay reasons.

With this information, the designer is challenged to eliminate as many steps as possible,combine steps, eliminate backtracking and cross-traffic, reduce distance traveled, reduceproduction costs, improve quality and increase safety

Plant layout procedure

This note is intended to provide guidance on laying out machines in a factory, basedupon decisions about the type of manufacturing process to be accommodated.

Laying out a factory involves deciding where to put all the facilities, machines,equipment and staff in the manufacturing operation.


NOTES


Layout determines the way in which materials and other inputs (like people andinformation) flow through the operation. Relatively small changes in the position of amachine in a factory can affect the flow of materials considerably. This in turn can affectthe costs and effectiveness of the overall manufacturing operation. Getting it wrong canlead to inefficiency, inflexibility, large volumes of inventory and work in progress, highcosts and unhappy customers. Changing a layout can be expensive and difficult, so it isbest to get it right first time.

The first decision is to determine the type of manufacturing operation that must beaccommodated. This depends on product volume and variety. At one extreme, the factorywill produce a wide variety of bespoke products in small volumes, each of which is different(this is called a ‘jobbing’ operation). At the other extreme it will produce a continuousstream of identical products in large volumes. Between the extremes, the factory mightproduce various sized batches of a range of different products.

2.8 BASIC LAYOUT TYPES

As discussed in the earlier chapter once the type of operation has been selected(jobbing, batch or continuous) the basic layout type needs to be selected. There are threebasic types:

Process layout

Cell layout

Product layout

Jobbing operations (high variety/low volume) tend to adopt a process layout.

Batch operations (medium variety and volume) adopt either a cell or process layout.

Continuous operations (low variety/high volume) adopt a product layout.

1. Process layout

In process layout, similar manufacturing processes (cutting, drilling, wiring, etc.) arelocated together to improve utilisation. Different products may require different processesso material flow patterns can be complex.

An example is machining parts for aircraft engines. Some processes (such as heattreatment) need specialist support (e.g. fume extraction), while other processes (e.g.machining centres) need technical support from machine setters/operators. So the factorywill be arranged with heat treatment together in one location and machining centres inanother. Different products will follow different routes around the factory.

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2. Cell layout

In cell layout, the materials and information entering the operation are pre-selected tomove to one part of the operation (or cell) in which all the machines to process theseresources are located. After being processed in the cell, the part-finished products may goon to another cell. In effect the cell layout brings some order to the complexity of flow thatcharacterises process layout.

An example is specialist computer component manufacture. The processing andassembly of some types of computer components may need a dedicated cell formanufacturing parts to the quality requirements of a particular customer.

3. Product layout

Product layout involves locating the machines and equipment so that each productfollows a pre-arranged route through a series of processes. The products flow along a lineof processes, which is clear, predictable and relatively easy to control.

An example is automobile assembly, where almost all variants of the same modelrequire the same sequence of processes.

Another is paper making. Although different types of paper can be manufactured, alltypes have the same processing requirements. First the wood chips are combined withchemicals, water and steam in the ‘cooking’ process to form pulp. The pulp is then puttogether through a cleaning process before being refined to help the fibres lock together.The mixing process combines the refined pulp with more water, fillers, chemicals and dyes,after which it is spread on a fine flexible wire or plastic mesh. This is shaken from side toside as it moves along to lock the fibres into the sheet of paper and to drain away thewater. The press rollers squeeze more water out of the paper and press the fibres closertogether. The drying process continues to reduce the water content in the paper beforefinally it is wound onto large reels.

It makes sense then to locate these processes in the order that they are required(cooking, then cleaning, then mixing, spreading, shaking, squeezing, drying and winding)and to let materials flow through them in a predictable manner.

2.9 SELECTING A LAYOUT TYPE

Table 1 shows some of the more significant advantages and disadvantages of eachlayout type. One significant difference is their association with fixed and variable costs.Process layouts tend to have relatively low fixed costs but high variable costs, as eachproduct is different. By contrast, product layouts have high fixed costs to set up themanufacturing lines, then low variable costs for producing large volumes of the same product.Hence if volume is high and variability low, product layout is likely to be the best option.


NOTES


Table 1: Advantages and disadvantages of different layout types

2.10 DETAILED DESIGN OF THE LAYOUT

Once the basic layout type has been decided, the next step is to decide on the detaileddesign of the layout to determine:

The exact location of all facilities, plant, equipment and staff that constitute the‘work centres’ of the operation.

The space to be devoted to each work centre.

The tasks that will be undertaken by each work centre.

General objectives

The general objectives of detailed design of factory layouts are: Inherent safety. Dangerous processes should not be accessible without

authorisation. Fire exits should be clearly marked with uninhibited access. Pathwaysshould be clearly defined and not cluttered.

Length of flow. The flow of materials and information should be channelled bythe layout to fit best the objectives of the operation. This generally means minimisingthe distance travelled by materials.

Clarity of flow. All flow of materials should be clearly signposted, for exampleusing clearly marked routes.

Staff comfort. The layout should provide for a well ventilated, well lit and, wherepossible, pleasant working environment.

Management coordination. Supervision and communication should be assistedby the location of staff and communication equipment.

Accessibility. All machines, plant and equipment should be easily accessible forcleaning and maintenance.

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Use of space. All layouts should make best use of the total space available (includingheight as well as floor space). This usually means minimising the space for aparticular process.

Long-term flexibility. Layouts need to be changed periodically. Future needs(such as expansion) should be taken into account when designing the layout.

2.11 DETAILED DESIGN IN PROCESS LAYOUT

The detailed design of process layouts is complex, because of the complex workflowpatterns that are associated with this layout to ensure a very wide variety of products canbe made. Optimal solutions are difficult to achieve and most process layouts are designedthrough intuition, common sense and systematic trial and error.

To design a process layout, the designer needs to know: The area required by each work centre.

The constraints on the shape of the area allocated for each work centre.

The degree and direction of flow between each work centre (for example numberof journeys, number of loads, cost of flow per distance travelled).

The desirability of work centres being close together.

The degree and direction of flow are usually shown on a flow record chart, like that inFigure 1(a), which records in this case the number of loads per day transported betweenwork centres. If the direction of flow between work centres makes little difference to thelayout, then the information can be collapsed as shown in Figure 1(b).

In some operations, the cost of moving materials between different work centresvaries considerably. For example in Figure 1(c) the unit cost of moving a load between thefive work centres is shown. The unit cost of moving loads from work centre B is slightlyhigher than from most other centres, perhaps because products need careful handlingbetween these operations. Combining the unit cost and flow data gives the cost per distancetravelled data shown in Figure 1(d). Minimising the distance between B and C and betweenB and E would reduce the overall costs of production with this process layout.


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Figure 1: Collecting information in process layout

The general approach to determining the location of work centres in a process layoutis as follows:

1. Collect information relating to the work centres and flow between them.

2. Draw up a schematic layout showing the work centres and the flow betweenthem, putting the work centres with the greatest flow closest to each other.

3. Adjust the schematic layout to take into account the constraints of the area intowhich the layout must fit.

4. Draw the layout showing the actual work centre areas and distances that materialsmust travel. Calculate the effectiveness measure of the layout either as total distancetravelled or as the cost of movement.

5. Check to see if exchanging any two work centres will reduce the total distancetravelled or the cost of movement. If so, make the exchange and return to step 4.If not, make this the final layout.

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Figure 2 shows a schematic layout for the operation described in Figure 1. The thickestlines represent the highest daily cost of movement.

Figure 2 Preliminary schematic layout

Figure 3 shows this schematic adjusted to fit the building geometry.

Figure 3 Adjusted schematic layout

The effectiveness of different layouts is calculated as

“ Fij Dij C ”ij

Where:Fij is the flow in loads between work centre i and work centre jDij is the distance between work centre i and work centre jCij is cost per distance travelled between work centre i and work centre j


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For the layout schematic shown in Figure 3, the cost effectiveness is £1073/day andit is clear that these costs can be minimised by situating A and E as close to D as ispracticable. From this schematic, the actual plant layout can be drawn, taking into accountthe space needed for each process and any storage space needed for inventory.

2.12 DETAILED DESIGN IN CELL LAYOUT

Cells are a compromise between the flexibility of process layout and the simplicity ofproduct layout (covered next). They are best used when a predictable variety of productshave to be produced. The detailed design involves deciding the extent and nature of thecells to be used and which resources to allocate to which cells.

The extent and nature of cells depends primarily on the processing resources to belocated in each cell. A cell might include for example two machines that are frequentlyneeded to perform a given transformation (like a milling machine and a drill, for facing anddrilling metal blocks); alternatively a cell might provide all specialist equipment and servicesneeded to perform specialised heat treatment.

The detailed design of cell layouts is difficult, because cells are a compromise betweenprocess and product layout. In process layout, the focus is on the location of variousprocesses in the factory. With product layout, the focus is on the requirements of theproduct. Cell layout must consider both.

One method is to find which processes naturally group together. This involves examiningeach process and asking which other processes might also be needed for a typical product.For example, when making furniture, if all parts that need holes drilling in them also needthose holes to be countersunk, then it makes sense to locate drilling and countersinkingmachines in the same cell.

Another method is to design the cells around product families. The families indicatethe characteristics of similar products, such as size, shape and material that determine theirprocessing requirements. Cells can then be designed to co-locate the necessary processesfor different product families.

A popular method of allocating tasks and machines to cells is production flow analysis,which examines both product requirements and process grouping simultaneously. In Figure4(a) a manufacturing operation has grouped the products it makes into eight product families– for example, the products in family 1 require machines 2 and 5. In this state the matrixdoes not exhibit any natural groupings. However, if the order of the rows and columns ischanged to move the crosses as close as possible to the diagonal of the matrix that goesfrom top left to bottom right, then a clearer pattern emerges (Figure 4(b)). This shows thatthe machines could be conveniently grouped together in three cells, identified as cells A, Band C, with each cell covering a distinct group of product families.

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This analysis rarely results in a totally clean division between cells. In this case,product family 8 (allocated to cell A) needs processing by machine 3, which has beenallocated to cell B. There are three ways of dealing with this:

Purchase another machine the same as machine 3 and put it in cell A. This solvesthe problem but requires investing capital in a new machine that might be underutilised.

Send products in family 8 to cell B after they have been processed in cell A. Thisavoids the need to purchase another machine but it results in more complex materialsflow.

If there are several product families that have this problem, devise a special cell forthem including all necessary machines to tackle their processing needs. This involvesextra capital expenditure, but removes the ‘problem’ product families from therest of the operation, leaving it with a more predictable and ordered flow.

(a) Basic product family and machine data

(b) Machines and product families reorganised into cells

Figure 4 Using production flow analysis to allocate machines to cells


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2.13 DETAILED DESIGN IN PRODUCT LAYOUT

Product layout involves arranging the various manufacturing processes to fit thesequence required by the product. Detailed design involves allocating work tasks tolocations. The decisions to be made are:

What cycle time is needed?

How many processing stages are needed?

How should variation in time taken for different tasks be dealt with?

How should the layout be balanced?

How should the stages be arranged?

Cycle time

The cycle time of a product layout is the time between completed products emergingfrom the operation. Cycle time is a vital factor in the design of product layouts and influencesmost other detailed design decisions. It is calculated by considering the likely demand forthe products over a period and the amount of production time available in that period. Forexample, suppose a factory is to process wooden doors. The number of doors to beprocessed is 160 per week and the time available to process the doors is 40 hours perweek.

Cycle time for the layout = time available / number to be processed

In this case, cycle time = 40/160 = ¼ hour = 15 minutes. Therefore the factorylayout must be capable of processing one completed wooden door every fifteen minutes.

Number of stages

The next decision concerns the number of processing stages, where a processingstage is a distinct period of time to carry out part of the door manufacture. The number ofsuch stages can be anything between one and several hundred, depending on the cycletime required and the quantity of work involved in making the product. The latter quantityis called the ‘total work content’ of the product. The larger the total work content andthe smaller the required cycle time, the more stages will be necessary.

For example, suppose the factory calculated that the average work content tomanufacture a wooden door is 60 minutes. The number of stages needed to process awooden door every 15 minutes is then calculated as follows:

Number of stages = total work content / required cycle time

In this case, number of stages = 60/15 = 4 stages. If this number had not been awhole number, then it would have been necessary to round up to the next largest whole

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number, since it is difficult (but not impossible) to hire fractions of people to staff thestages.

Task-time variation

At the moment we can imagine a line of four stages, each contributing a quarter of thetotal work content in processing the door. In practice of course, the flow would not be soregular. Each stage might on average take 15 minutes, but this time would vary for eachdoor processed because:

Products being processed along the line might be a little different, for exampledifferent models of the same basic door.

Products might require slightly different treatment, for example it may take longerto plane the surface of one door than another because of the quality of the wood.

There are usually slight variations in the physical coordination and effort of theperson, or the performance of the machine undertaking the task.

This variation can make the flow of work along the line irregular, which in turn canlead to work-in-progress queues at the stages and lost processing time. This reducesefficiency and may require additional resources (such as more staff time or more storagespace) at additional cost to compensate for this variation.

Balancing work time allocation

The most problematic, detailed design decision in product layout is ensuring the equalallocation of tasks to each stage in the line. This is called line balancing. In the door-processing example, we have assumed that 15 minutes of work content has been allocatedequally to the four stations. This is nearly always impossible to achieve in practice andsome imbalance in the work allocation between stages will inevitably result. This willincrease the effective cycle time of the line.

The effectiveness of line balancing is measured by balancing loss. This is the timewasted through the unequal allocation of work as a percentage of the total time invested inprocessing the product. In Figure 5, the work allocations in a four-stage line are illustrated.The total amount of time invested in producing each product is four times the cycle time.When the work is equally allocated between the stages the total time invested in eachproduct is 4 x 15 minutes = 60 minutes. However when work is unequally allocated asillustrated, the time invested is 20 x 4 = 80 minutes. Hence 20 minutes (25%) of the totalis wasted.


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Figure 5 Balancing loss

Balancing techniques

There are a number of techniques to help with line balancing. Most common is theprecedence diagram. Each element of the total work content is represented by a circle.The circles are connected by arrows that show the ordering of the elements. Two rulesapply when building the diagram:

The circles that represent the elements are drawn as far to the left as possible.

None of the arrows should be vertical.

The general approach to balancing elements is to allocate elements to the first stage,starting from the left, in order of the columns until the work allocated to the stage is as closeto, but less than, the cycle time. When that stage is as full of work as possible, move on to

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the next stage and so on until all work elements are allocated. When more than oneelement could be chosen, select elements using these rules:

Choose the largest that will fit into the time remaining in the stage.

Choose the element with the most ‘followers’: that is the one with the highestnumber of subsequent elements that can only be allocated after that element hasbeen allocated.

2.14 EXAMPLE CAKE FACTORY

A cake factory has been contracted to supply a supermarket chain with a specialitycake. The required volumes warrant a special production line to perform the finishing,decorating and packing of the cake. The elements and the precedence diagram for the jobare shown in Figure 6.

Figure 6: Element listing and precedence diagram for speciality cake production


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The initial order from the supermarket is for 5,000 cakes a week and the number ofhours worked by the factory is 40 per week. From this we can calculate:Required cycle time = 40 hours x 60 minutes / 5000 = 0.48 minutesRequired number of stages = 1.68 mins (total work content) / 0.48 mins = 3.5 stagesIn practice this means that four stages will be needed.

Working from the left on the precedence diagram, elements A and B can be allocatedto stage 1 (since they total 0.42 minutes, which is lower than the cycle time of 0.48 minutes).Allocating element C to stage 1 would exceed the cycle time, so it is allocated to stage 2.In fact only element C can be allocated to stage 2, because including element D wouldagain exceed the cycle time. Element D is therefore allocated to stage 3. Either element Eor element F can also be allocated to stage 3, but not both. Following the ‘largest element’rule, element E is chosen. The remaining elements are allocated to stage 4. Figure 7shows the final allocation and the balancing loss of the line.

Idle time every cycle = (0.48 – 0.42) + (0.48 – 0.36) + (0.48 – 0.42) = 0.24 minutesProportion of idle time per cycle = 0.24 / (4 x 0.48) = 12.5%

Figure 7: Allocation of elements to stages and balancing loss for speciality cake

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Arranging the stages

All the stages do not have to be laid out in a sequential ‘single line’. Some elementscan usually be arranged in parallel. For example with the wooden door example, fourstages must work on the task to achieve a cycle time of one door every 15 minutes. Butthese stages can be arranged in one line of four, 15-minute sequence steps, or in twoparallel lines each of two, 30-minute stages, or in four parallel lines of single, 60-minutestages. This leads to a decision on whether the layout should be arranged as a single,‘long-thin’ line, as several, ‘short-fat’ parallel lines, or somewhere in between (note that‘long’ means the number of stages in the line, while ‘fat’ means the amount of work allocatedto each stage). The advantages of each extreme are as follows.

Advantages of the long-thin arrangement Controlled flow of materials.

Simple materials handling, especially if products are heavy or large.

Lower capital requirements, because fewer machines will be needed.

More efficient operation, since each person and machine will have high utilisationon productive work.

Advantages of the short-fat arrangement

Higher mix flexibility. If several types of product must be produced, each stageor line could specialise in different types.

Higher volume flexibility. As volume varies, stages can be closed down or startedup as required, whereas long-thin lines would need rebalancing every time thecycle time changes.

Higher robustness. If one stage breaks down, parallel stages are unaffected,whereas a long-thin line would stop operating completely.

Less monotonous work, because tasks are repeated less often.

The shape of the line

If the line has some sequential flow between stages, the designer must also decide onthe shape of the line. In Japanese factories, curved lines are commonly used, in ’U’ shapesfor shorter lines or ‘serpentine’ shapes for longer lines (Figure 8).


NOTES


Advantages are

Staffing flexibility and balance. The U-shape enables one person to tend severalworkstations – adjacent or across the U – without much walking. This opens upoptions for balancing work among operators: when demand grows, more labourcan be added until each station has an operator.

Rework. When the line bends around itself, it is easy to return bad work to anearlier station for rework without disruption or the need to travel far.

Handling. From a centre position in the U, a handler (human or vehicle) candeliver materials conveniently.

Passage. Long straight lines make crossing the line difficult. This can hinder therest of the operation. Curved lines reduce this problem.

Teamwork. A semicircular arrangement brings team members into contact witheach other more easily.

Figure 8: Arrangement of stages

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UNIT III

PLANT LOCATION

Learning Objectives:

By learning this unit, the learner will:

Understand the importance of location

Be able to analyse the options on location

Identify the influencing factors and

Gather the knowledge on decisions making

3.1 LOCATIONS STRATEGY AND ITS IMPORTANCE

As you all know, selection implies choice and choice presumes the existence of variousoptions available to a decision maker.

Choosing where to locate new manufacturing facilities, service outlets, or branchoffices is a strategic decision. The location of a business’s facilities has a significant impacton the company’s operating costs, the prices it charges for goods and services, and itsability to compete in the marketplace.

Analyzing location patterns to discover a firm’s underlying strategy is fascinating. Forexample,

Why does McDonald locate restaurants in a posh area?

Why do competing new-car sales showrooms cluster near one another?

McDonald’s target customers are those in high-income group. In contrast, managersof new-car showrooms deliberately locate near one another because customers prefer todo their comparison-shopping in one area. In each case, management’s location decisionreflects a particular strategy.

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There are strategic impacts of location decisions. We will first consider the mostimportant trend in location patterns- the globalization of operations.

3.2 GLOBALIZATIONThe term globalization describes businesses’ deployment of facilities and operations

around the world. Worldwide exports now account for more than 30 percent of worldwidegross national product, up from 12 percent in 1962. Globalization also results in moreexports to and imports from other countries, often called offshore sales and imports.Globalization of services is also widespread. The value of world trade in services is roughly20 percent of total world trade. Banking, law, information services, airlines, education,consulting, and restaurant services are particularly active globally. For example, McDonald’sopened 220 restaurants in foreign countries other than USA in just one year. Steel Authorityof India (SAIL) hired Silver Spring, Maryland, consulting firm to design and implementquality systems for its five major steel plants.

The question that emerges from the ongoing discussion forces us to analyze as towhat globalization is all about. Many see it as a primarily economic phenomenon, involvingthe increasing interaction, or integration, of national economic systems through the growthin international trade, investment and capital flows. However, one can also point to a rapidincrease in cross-border social, cultural and technological exchange as part of thephenomenon of globalisation. The sociologist, Anthony Giddens, defines globalisation as adecoupling of space and time, emphasising that with instantaneous communications,knowledge and culture can be shared around the world simultaneously. Globalisation canalso be defined as a process in which geographic distance becomes a factor of diminishingimportance in the establishment and maintenance of cross border economic, political andsocio-cultural relations

Left critics of globalisation define the word quite differently, presenting it as worldwidedrive toward a globalised economic system dominated by supranational corporate tradeand banking institutions that are not accountable to democratic processes or nationalgovernments.

3.3 REASONS FOR GLOBALIZATION

There are four developments, which have spurred the trend toward globalization.These are:

Improved transportation and communication technologies

Opened financial systems

Increased demand for imports

Reduced import quotas and other trade barriers.


NOTES


3.4 DISADVANTAGES OF GLOBALIZATION

Operations in other countries can have disadvantages. A firm may have to give upproprietary technology if it turns over some of its component manufacturing to offshoresuppliers or if suppliers need the firm’s technology to achieve desired quality and costgoals. There may be political risks. Each nation can exercise its sovereignty over the peopleand property within its borders. The extreme case is nationalization, in which a governmentmay take over a firm’s assts without paying compensation. Also, a firm may alienate customersback home if jobs are lost to offshore operations. Employee skills may be lower in foreigncountries, requiring additional training time. Korean firms moved much of their sports shoeproduction to low-wage Indonesia and China, but they still manufacture hiking shoes andin-line roller skate in Korea because of the greater skills required.

In view of the issues that we have just discussed, it becomes imperative to understandthe intricacies involved in Managing global operations. We would now focus on theseissues.3.5 MANAGING GLOBAL OPERATIONS

When a firm sets up facilities abroad it involve some added complexities in itsoperation. Global markets impose new standards on quality and time. Managers shouldnot think about domestic markets first and then global markets later, rather it could bethink globally and act locally. Also, thy must have a good understanding of their competitors.Some other important challenges of managing multinational operations include otherlanguages and customs, different management style, unfamiliar laws and regulations, anddifferent costs.

In general Managing global operations would focus on the following key issues:-

1. To acquire and properly utilize the following concepts and those related to GlobalOperations, Supply Chain, Logistics, etc.

2. To associate global historical events to key drivers in Global Operations fromdifferent perspectives

3. To develop criteria for conceptualization and evaluation of different GlobalOperations.

4. To associate success and failure cases of Global Operations to Political, Social,Economical and Technological environments

5. To envision trends in Global Operations6. To develop an understanding of the world vision regardless of their country of

origin, residence or studies in a respectful way of perspectives of people fromdifferent races, studies, preferences, religion, politic affiliation, place of origin, etc.

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Let us see what factors in general, affect the location decisions.

3.6 FACTORS AFFECTING LOCATION DECISIONS

Facility location is the process of determining a geographic site for a firm’s operations.Managers of both service and manufacturing organizations must weigh many factors whenassessing the desirability of a particular site, including proximity to customers and suppliers,labour costs, and transportation costs.

Location factors can be divided into two categories: - Dominant factors, and

Secondary factors

Dominant factors are those derived from competitive priorities (cost, quality, time,and flexibility) and have a particularly strong impact on sales or costs. Secondary factorsalso are important, but management may downplay or even ignore some of them if otherfactors are more important. Let us consider the issue of why firms choose to locate newfactories and describes the main factors for their location choice. While location conditionsare widely seen as the differences among locations that exist for all industries, locationfactors refer to the specific importance that is attached to such differences by individualfirms when choosing locations for specific factors.

Let us examine the key location factors:-

Eleven location conditions can be distinguished: Transportation facilities

Materials

Markets

Labor

External Economies

Energy

Community Infrastructure

Capital, Land

Environment and Government policy

Location conditions are complex and each comprises a different characteristic of atangible (i.e. Freight rates, production costs) and non-tangible (i.e. reliability, Frequencysecurity, quality) nature.


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By now, you must have realized that location conditions are hard to measure. Tangiblecost based factors such as wages and products costs can be quantified precisely into whatmakes locations better to compare. On the other hand non tangible features which refer tosuch characteristics as reliability, availability and security can only be measured along anordinal or even nominal scale. Other non tangible features like the percentage of employeesthat are unionized can be measured as well. Generally speaking companies prefer locationwith low taxes and low wages rather than such where high taxes and wages are charged.But by taking these two factors under considerations low taxes are likely to imply lowlevels of community services and poor quality supplies of industrial land. While low wagesmay imply low skills and low purchasing power.

To sum this up non-tangible features are very important for business location decisions.Let us consider the effect of factors such as: Materials, markets and transportation Factorieswhich produce products for different markets usually are threatened by transportationcosts. These costs include procurement costs, i.e. the costs considered for bringing rawmaterials or semi products to the company. On the other hand the finished products needsto be distributed to the markets, which incurs distribution costs. Therefore locations nearinputs lower procurement costs and locations near markets lower distribution costs.Transportation costs comprise direct freight charges, while transfer costs refer to bothdirect costs and indirect costs such as insurance costs and losses resulting from damage intransit. Basically transportation costs are determined by physical characteristics like valueof product and quantity of goods on the one hand and are determined also by freight rateson the other hand. Consequently, average transport costs decline significantly with distance.

All of us have a fair bit of idea about labor as an important constituent in the overallscheme of things. Let us see how.

3.6.1 Labor

Labor costs comprise wages and non-wage benefits, like contributions to medicalplans, vacation time and pay, and pension schemes. Labor costs vary by industry, country,region, unionized and non-unionized sectors. Tremendous differences in labor costs canbe seen between countries with high wages like developed countries on the on hand, anddeveloping countries like China, India and so on, on the other hand. But even among highdeveloped countries labor costs can vary. So American and other strong companies arethreatened by the highest manufacturing wages among the developed countries while wagesand labor costs in Canada or the UK are much lower. This is mainly because of stronginfluence of the unions in the US and Europe compared to other countries.

Even though there are large differences in wages and salaries among countries, Europe,and the US as labor expensive countries have prospered and most of this has occuredwithin recent decades. This fact leads us to another important intangible characteristics ofskilled labor. In a country with high taxes and wages you usually will find sophisticated

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infrastructure and educational system and therefore skilled workers. By focusing on China,India and the US we can recognize how low wages do not necessarily mean highcompetitiveness and high living standards. The main figure which determines competitivenessis productivity.

Another factor of immense importance that all of you must consider is:

3.6.2 External economies of scale

External economies of scale can be described as urbanization and locational economiesof scale. It refers to advantages of a company by setting up operations in a large city whilethe second one refers to the “settling down” among other companies of related Industries.In the case of urbanization economies, firms derive from locating in larger cities rather thanin smaller ones in a search of having access to a large pool of labor, transport facilities, andas well to increase their markets for selling their products and have access to a much widerrange of business services.

Location economies of scale in the manufacturing sector have evolved over time andhave mainly increased competition due to production facilities and lower production costsas a result of lower transportation and logistical costs. This led to manufacturing districtswhere many companies of related industries are located more or less in the same area. Theemergence of agglomeration like in the case of the Manufacturing belt in the United Statescan be explained like this: At the beginning of this century the great bulk of manufacturingwas located in relatively small area in the Northeast of the United States. Even thoughwages were lower in the south of the United States and there were more mineral resourcesin West and Midwest, companies kept staying within the belt as a result of location economiesof scale. Each manufacturing facility stayed there because of having advantages of beingnear other manufacturers. However this did not only take place in the US but other countriesas well such as Germany in the Ruhr area or in Japan - Toyota city. As large corporationshave realized that inventories and warehouses have become a major cost factor, they havetried reducing inventory costs by launching “Just in Time” production system (the so calledKaban System).This high efficient production system was one main factor in the Japanesecar industry for being so successful. Just in time ensures to get spare parts from supplierswithin just a few hours after ordering. To fulfill these criteria corporations have to be locatedin the same area increasing their market and service for large corporations.

Power or energy, as all of us are aware is the commodity that makes the world goround.

3.6.3 Energy

Energy sources were a significant factor of location before the Industrial Revolutions.Companies needed access to water energy, electricity for their operations. Now electricity


NOTES


and other energy sources like oil can be transformed and shipped very easily and cheaplyand therefore Energy as being a main factor of location has decreased in its meaning.

Friends, all of us are a part of the community and society in general. Thus, the factorsgiven below also assume grave significance.

3.6.4 Community infrastructure and amenity

All manufacturing activities require access to a community infrastructure, most notablyeconomic overhead capital, such as roads, railways, port facilities, power lines and servicefacilities and social overhead capital like schools, universities and hospitals.

These factors are also needed to be considered by location decisions as infrastructureis enormously expensive to build and for most manufacturing activities the existing stock ofinfrastructure provides physical restrictions on location possibilities. But on the other handit is worth to mentioning that existing infrastructure does not cause” industry to occur.

3.6.5 Capital

Another issue which we need to examine is the: Capital

By looking at capital as a location condition, it is important to distinguish the physiologyof fixed capital in buildings and equipment from financial capital. Fixed capital costs asbuilding and construction costs vary from region to region. But on the other hand buildingscan also be rented and existing plants can be expanded. Financial capital is highly mobileand does not very much influence decisions. For example, large Multinational Corporationssuch as Coca-Cola operate in many different countries and can raise capital where interestrates are lowest and conditions are most suitable. Capital becomes a main factor when itcomes to venture capital. In that case young, fast growing ( or not) high tech firms areconcerned which usually have not many fixed assets. These firms particularly need accessto financial capital and also skilled educated employees (i.e. Silicon Valley).

Let us now focus our attention to the conduct of operations of MNCs and see howthese have an important bearing on the decisions at hand:-

3.7 MULTINATIONAL COMPANIES OR “MNC”

A MNC is a company which has substantial direct investment in foreign countries, notjust an export business (International company). Being a MNC means that activemanagement is required at any company and holding outlets in a passive financial portfolio.The main relation between a Multinational Corporation and an International company isthat each subsidiary could be run as its own independent company. By definition of theUnited Nations a Multinational company is an enterprise: a. which comprises entities intwo or more countries, regardless of the legal form and fields of activity of those entity. b.

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which operates under a system of decision making permitting different policies and a commonstrategy through one or more decision making centers.

c. In which the entities are so linked, by ownership or otherwise, that one or more ofthem may be able to exercise a significant influence over the activities of the others, and, inparticular, to share knowledge, resources, and responsibilities with others.

In this context let us answer the following basic questions:-

What motivates companies to expand their operations internationally?

Let us probe deeply.

Motivations for Internationalization

We can classify these as follows:-

Traditional Motivations

One of the earliest reasons why companies moved abroad was the need to securekey supplies, especially minerals, energy, and scarce raw material resources.

Another strong trigger of internationalization could be described as a market seekingbehavior. This motivation was particularly strong in companies for which their home marketshave become too small and especially for companies who wanted to use economies ofscale.

Expenses for Research and Development for new High Tech products are so highand the life time so short that companies are forced to meet a sales quota of a certainamount and therefore their home markets have become small.

Another traditional and important trigger of internationalization was the desire to accesslow cost factors of production as cheap labor or lower cost capital (perhaps through agovernment investment subsidy).

3.8 MULTINATIONAL COMPANIES AND NATIONAL STATES

It is generally argued that over the last few decades Multinational companies havebecome extremely powerful and the influence of the home country in which MNC operateshave decreased over time. MNC are very important for Host countries because theyemployee many people and increase GDP of the country. Therefore Host countries try toattract MNC by offering subsidies when they start their operations and providinginfrastructure and as well as tax allowances.

‘MNC work in many countries and have really spread out their home”. This meansthey do not necessarily belong to one host country but they are at home everywhere wherethey have a headquarters.


NOTES


The power of MNC is rooted because of their technological and managerial expertiseand complexity, their financial resources, international marketing channels and differentiatedproducts, reinforced by powerful advertising campaigns.

The power of the host country government is related to the size of the domesticmarkets, resources and skilled labor pools, the availability of infrastructure and the politicalstability in the country.

3.9 DOMINANT FACTORS IN MANUFACTURING

Factors dominating location decisions for new manufacturing plants can be broadlyclassified in six groups. They are listed in the order of their importance as follows.

1. Favorable labour climate

2. Proximity to markets

3. Quality of life

4. Proximity to suppliers and resources

5. Proximity to the parent company’s facilities

6. Utilities, axes, and real estate costs

Let us consider each of these factors one by one.

Favorable labor climate

A favorable labor climate may be the most important factor in location decisions forlabour-intensive firms in industries such as textiles, furniture, and consumer electronics.Labour climate includes wage rates, training requirements, attitudes toward work, workerproductivity, and union strength. Many executives consider weak unions or al low probabilityof union organizing efforts as a distinct advantage.

Proximity to markets

After determining where the demand for goods and services is greatest, managementmust select a location for the facility that will supply that demand. Locating near markets isparticularly important when the final goods are bulky or heavy and outbound transportationrates are high. For example, manufacturers of products such as plastic pipe and heavymetals all emphasize proximity to their markets.

Quality of life

Good schools, recreational facilities, cultural events, and an attractive lifestyle contributeto quality of life. This factor is relatively unimportant on its own, but it can make the differencein location decisions.

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Proximity to suppliers and resources

In many companies, plants supply parts to other facilities or rely on other facilities formanagement and staff support. These require frequent coordination and communication,which can become more difficult as distance increases.

Utilities, taxes, and real estate costs

Other important factors that may emerge include utility costs (telephone, energy, andwater), local and state taxes, financing incentives offered by local or state governments,relocation costs, and land costs.

Other factors

There are some other factors needed to be considered, including room for expansion,construction costs, accessibility to multiple modes of transportation, the cost of shufflingpeople and materials between plants, competition from other firms for the workforce,community attitudes, and many others. For global operations, firms are emphasizing localemployee skills and education and the local infrastructure.

3.10 DOMINANT FACTORS IN SERVICES

The factors considered for manufacturers are also applied to service providers, witone important addition – the impact of location on sales and customer satisfaction. Customersusually look about how close a service facility is, particularly if the process requiresconsiderable customer contact.

Proximity to customers

Location is a key factor in determining how conveniently customers can carry onbusiness with a firm. For example, few people would like to go to remotely located drycleaner or supermarket if another is more convenient. Thus the influence of location onrevenues tends to be the dominant factor.

Transportation costs and proximity to markets

For warehousing and distribution operations, transportation costs and proximity tomarkets are extremely important. With a warehouse nearby, many firms can hold inventorycloser to the customer, thus reducing delivery time and promoting sales.

Location of competitors

One complication in estimating the sales potential at different location is the impact ofcompetitors. Management must not only consider the current location of competitors butalso try to anticipate their reaction to the firm’s new location. Avoiding areas wherecompetitors are already well established often pays. However, in some industries, such as


NOTES


new-car sales showrooms and fast-food chains, locating near competitors is actuallyadvantageous. The strategy is to create a critical mass, whereby several competing firmsclustered in one location attract more customers than the total number who would shop atthe same stores at scattered locations. Recognizing this effect, some firms use a follow –the leader strategy when selecting new sites.

3.11 SITE-SPECIFIC FACTORS

Retailers also must consider the level of retail activity, residential density, traffic flow,and site visibility. Retail activity in the area is important, as shoppers often decide on impulseto go shopping or to eat in a restaurant. Traffic flows and visibility are important becausebusinesses’ customers arrive in cars. Visibility involves distance from the street and size ofnearby buildings and signs. High residential density ensures nighttime and weekend businesswhen the population in the area fits the firm’s competitive priorities and target marketsegment.

Well, you have been following very clearly and must have understood the issues thatwere discussed. The best way, is through a small case study or case-let, as it is commonlyreferred to. So, here we go again.

POM in practice

The Radisson Hotels International, with headquarters in Minneapolis, Minnesota,had become by 1995 one of the world’s fastest-growing upscale hotel companies. Itsglobal expansion program was adding one new location every 10 days, on average. In1991, it opened the four-star Radisson Slavjansksya Hotel in Moscow, which has becomea very successful hospitality oasis for Western business travelers. However, opening theSlavjanskaya forced Radisson to weather many storms and deal with every conceivablemanagerial challenge.

Multiple Languages

There is great diversity in the language of the hotel’s managers, employees, supplies,and customers. Most of the managers are expatriates, and most of the employees areRussians. The customer mix is American (55 percent), Western Europe (20 percent),Eastern European (15 percent), Asian (5 percent), and Russian (5 percent)

Different Norms and Customs

Russian standards of service quality were much lower than those expected bymanagement. To attain and maintain top service quality, employees had to participate inintensive training. Employee attitudes toward work and ethical norms also were different.For example, employees often missed work because of sick leaves, maternal leaves, andvacations. Russian laws allow 24-day vacations and sick leaves of up to four months with

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pay, which can be renewed by returning to work for only a few days. Security requirementswere demanding, with theft being commonplace. Once the entire payroll was lost in aRussian bank. On another occasion, about 500 of the 600 champagne glasses were missing.The nearby train station was said to be controlled by gangs who offered “protection” tothe vendors. Some 70 security guards were employed, many more than at a typical Radissonhotel.

Workforce Management

Staffing and training issues arose unexpectedly. For example, the Russian employeeswere offended by being rotated through various jobs to gain wider experience, viewingrotation as a lack of confidence in their abilities. They believed that Americans were tooquick to punish and too slow to understand cultural differences. An important hiringrequirement was that the applicant had smiled sometime during the interview and hadexpressed a willingness to reject bribes. The notion of linking pay and bonuses withperformance was a radically new idea to Russian employees.

Unfamiliar Laws and Regulations

Communist-era “job-for-life” laws were still in effect, and firing an employee wasdifficult. The housekeeping people were paid for 8 ½ hours per day, regardless of theactual hours worked. Tax laws were extremely complicated and sometimes were changedretroactively. Russian employees were paid in rubles at a time when inflation was 18 percentper month.

Unexpected Cost Mix

Labour productivity was low relative to a comparable Western hotel, but salary rateswere even lower. The net result was a savings because salaries accounted for only 13.5percent of total costs, in contrast to the 35 percent in the United States. However, localsuppliers were unreliable and procurement costs were quite high. About 93 percent of allproducts were imported from the West – shipped to Helsinki or St. Petersburg and thentrucked to Moscow. This importing process was slowed by problems with customs, Russianfuel, truck breakdowns, and the need for “expediting payments”. These uncertainties anddelays created unusually large inventories. The infrastructure, including mail, telephone,banking, and city services, also was inadequate. For example, hot water came from city-run water heating plants. Because this source wasn’t always reliable, Slavjanskaya had topay for the construction of a second hot water pipe to guarantee both heat and hot water.

Let us consider another small case.


NOTES


3.12 POM IN PRACTICE

Call centers are frequently mistaken for telemarketing operations, when in fact theyare not. Most are “inbound” facilities that take reservations and orders or provide customerservice. The industry has boomed during the last decade as more firms decided to outsourcesuch customer service processes. Texas leads the United States in the number of newcenters over the past decade – its number of call centers doubled in the last decade. Byone estimate, 113 centers located there in the 1990s compared with 81 in Florida, therunner-up. In the past, the vast majority of call centers went to the state’s large metropolitanareas, but now smaller cities such as Big Spring, McAllen, and Brownsville are getting inon the act.

Two dominant factors favouring small Texan cities are their ample supply of inexpensivelabour and the incentives that thy are tossing in to land the companies. Before Denver-based StarTek opened a call center in Big Spring, a West Texas town of 23,000 whereunemployment had been about 6 percent, a job fair attracted 1,200 applicants. Employeesstarted at $6.50 per hour, far less than what would be paid in a bigger city. To seal the deal,Big Springs gave StarTek $2.3 million in interest-free loans. Smaller cities are more likelyto get state funds for this type of economic development because the call centers are suchan economic-development bonanza for them. In larger cities, companies usually do notqualify for incentives unless they make a substantial capital investment-and many do not,choosing to lease office space. The smaller cities need the jobs more. Call centers employseveral hundred people, bringing jobs and a level of technical training and giving smallercities a foot in the door to the new high-tech economy. Particularly if labour stays in shortsupply, call centers could be the first step for smaller cities to draw other burgeoningbusiness, such as the distribution centers for e-commerce companies.

Other factors that favour Texas are the central time zone (making it convenient toreach markets on both coasts), the availability of advanced telecommunications structures(such as fiber-optic lines and digital switching systems), and the favourable regulatoryclimate. It is a one-party-consent state, meaning customers do not need to be notified iftheir conversations are being recorded; getting permission slows down the calling process.And the state also does not levy excise or sales taxes on out-of-state long distance calls, assome states do. Border cities also offer a supply of bilingual workers – to take calls fromSpanish-speaking customers. This advantage is particularly important as more companiesexpand their markets into Latin America.

3.13 LOCATION SELECTION MODELS

In this unit , we are continuing on different factors affecting location choices and howto apply load distance and center of gravity method for selecting single-site location problem.

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Decisions regarding site selection

Management must first decide whether to expand on site, build another facility, orrelocate to another site. The advantages of building a new plant or moving to a new retailor office space are that the firm does not have to rely on production from a single plant, canhire new and possibly more productive labour, can modernize with new technology, andcan reduce transportation costs. Most firms that choose to relocate are small. They tend tobe single-location companies overcrowded for space and needing to redesign theirproduction processes and layouts.

Before selecting a site, several issues must be examined from different angles andtheir relative merits and de-merits should be properly examined. Let us now turn ourattention to:-

Comparing several sites

The process of selecting a new facility location involves a series of steps.

1. Identify the important location factors and categorize them as dominant or secondary

2. Consider alternative regions; then narrow the choices to alternative communitiesand finally to specific sites

3. Collect data on the alternatives from location consultants, state developmentagencies, city planning departments, chambers of commerce, land developers,electric power companies, banks, and on-site visits.

4. Analyze the data collected, beginning with the quantitative factors- factors that canbe measured in rupees, such as annual transportation costs or taxes. These rupeesvalues may be broken into separate cost categories (e.g., inbound and outboundtransportation, labour, construction, and utilities) and separate revenue sources(e.g., sales, stock or bond issues, and interest income). These financial factors canthen be converted to a single measure of financial merit and used to compare twoor more sites.

5. Consider qualitative factors pertaining to each site into the evaluation. A qualitativefactor is one that cannot be evaluated in rupees terms, such as quality of life orcommunity attitudes. To merge quantitative and qualitative factors, some managersreview the expected performance of each factor, while others assign each factor aweight of relative importance and calculate a weighted score for each site, using apreference matrix. What is important in one situation may be unimportant or lessimportant in another. The site with the highest weighted score is best.

3.14 PROBLEM

Let us look at an example on calculation of weighted scores in a preference matrix.Let us assume that a new medical facility, Health-Care, is to be located in Delhi. The


NOTES


location factors, weights, and scores (1 = poor, 5 = excellent) for one potential site isshown in the following table. The weights in this case add up to 100 percent. A weightedscore will be calculated for each site. What is the weighted score for this site?

Location factor weight score

Total patient km per month 25 4

Facility utilization 25 3

Average time per emergency trip 25 3

Land and construction costs 15 1

Employee preferences 10 1

Solution

The weighted score for this particular site is calculated by multiplying each factor’sweight by its score and adding the results:

510115325325425×+×+×+×+×=oreweightedsc

= 100 + 75+ 75+ 15+50

= 315

The total weighted score of 315 can be compared with the total weighted scores for othersites being evaluated. Based on it, proper decisions could be made.

Now, we examine the concept of what is known as, the load-distance model.

3.15 LOAD-DISTANCE METHOD

The load-distance method is a mathematical model used to evaluate locations basedon proximity factors. The objective is to select a location that minimizes the total weightedloads moving into and out of the facility. The distance between two points is expressed byassigning the points to grid coordinates on a map. An alternative approach is to use timerather than distance.

3.16 DISTANCE MEASURES

Suppose that a new warehouse is to be located to serve Delhi. It will receive inboundshipments from several suppliers, including one in Ghaziabad. If the new warehouse werelocated at Gurgaon, what would be the distance between the two facilities? If shipmentstravel by truck, the distance depends on the highway system and the specific route taken.Computer software is available for calculating the actual mileage between any two locations

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in the same county. However, for load-distance method, a rough calculation that is eitherEuclidean or rectilinear distance measure may be used.

Euclidean distance is the straight-line distance, or shortest possible path, betweentwo points.

The point A on the grid represents the supplier’s location in Ghaziabad, and the pointB represents the possible warehouse

A(50,185)

y

B(175, 100)

x

location at Gurgaon. The distance between points A and B is the length of the hypotenuseof a right triangle, or

dAB =

()()22ybyaxbxa”+”

where dAB = distance between points A and B

Xa = x-coordinate of point A

Ya = y-coordinate of point A

Xb = x-coordinate of point B

Yb = y-coordinate of point B

Rectilinear distance measures distance between two points with a series of 900

turnsas city blocks. Essentially, this distance is the sum of the two dashed lines representing thebase and side of the triangle . The distance traveled in the x-direction is the absolute valueof the difference in x-coordinates. Adding this result to the absolute value of the differencein the y-coordinates gives

DAB

= |xA

– xB| + |y

A – y

B|

3.17 CALCULATING A LOAD-DISTANCE SCORE

Suppose that a firm planning a new location wants to select a site that minimizes thedistances that loads, particularly the larger ones, must travel to and from the site. Dependingon the industry, a load may be shipments from suppliers, between plants, or to customers,or it may be customers or employees traveling to or from the facility. The firm seeks to


NOTES


minimize its load-distance, generally by choosing a location so that large loads go shortdistances.

To calculate a load-distance for any potential location, we use either of the distancemeasures and simply multiply the loads flowing to and from the facility by the distancestraveled. These loads may be expressed as tones or number of trips per week.

This calls for a practical example to appreciate the relevance of the concept. Let usvisit a new Health-Care facility, once again.

Example- calculating load-distance scores

The new Health-Care facility is targeted to serve seven census tracts in Delhi. Thecoordinates for the center of each census tract, along with the projected populations,measured in thousands. Customers will travel from the seven census tract centers to thenew facility when they need health care. Two locations being considered for the newfacility are at (5.5, 4.5) and (7, 2), which are the centers of census tracts C and F. If weuse the population as the loads and use rectilinear distance, which location is better interms of its total load-distance score?

Solution

We want to calculate the load-distance score for each location. Using the coordinatesfrom figure. , we calculate the load-distance score for each tract.

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Summing the scores for all tracts gives a total load-distance score of 239 when the facilityis located at (5.5, 4.5) versus a load-distance score of 168 at location (7, 2). Therefore,the location in census tract F is a better location.

We now start with the Center of gravity method for selecting location.

3.18 CENTER OF GRAVITY

Center of gravity is based primarily on cost considerations. This method can be usedto assist managers in balancing cost and service objectives. The center of gravity methodtakes into account the locations of plants and markets, the volume of goods moved, andtransportation costs in arriving at the best location for a single intermediate warehouse.

The center of gravity is defined to be the location that minimizes the weighted distancebetween the warehouse and its supply and distribution points, where the distance is weightedby the number of tones supplied or consumed. The first step in this procedure is to placethe locations on a coordinate system. The origin of the coordinate system and scale usedare arbitrary, just as long as the relative distances are correctly represented. This can beeasily done by placing a grid over an ordinary map. The center of gravity is determined byformulae.

Cx = ΣΣiiWidixWi

Cy = ΣΣiiWidiyWi

Where

Cx = x-coordinate of the center of gravity

Cy = y-coordinate of the center of gravity

Dix = x-coordinate of location i

Diy = y-coordinate of location I

An Example

Activity: Finding the center of gravity

Remember the example we discussed previously. Can you find the target area’s centerof gravity for the Health-Care medical facility.

Try using your understanding of the concept. Once you are through, tally your solutionwith that given below.


NOTES


Solution

To calculate the center of gravity, we start with the following information, wherepopulation is given in thousands

Census Tract (x, y) population (l) lx ly

Next we find Cx and Cy.

Cx = 453.5 / 68 = 6.67

Cy = 205.5 / 68 = 3.02

The center of gravity is (6.67, 3.02), which is not necessarily optimal. It is in thegeneral vicinity of location (7, 2), which was found best from the load-distance score.Using the center of gravity as starting point, managers can now search in its vicinity for theoptimal location.

It’s that time of the lecture again. You got it. Good.

So, here is a case study

3.19 AN APPLICATION OF WAREHOUSE LOCATION TO BLOODMOBILEOPERATIONS

Bloodmobile staging areas are warehouses or garages where bloodmobiles areprovisioned, repaired, and maintained between blood collections. The American Red Crosswanted to examine the effects of proposed site changes for their operations. The totaldistance traveled each year to collect blood was determined to be a useful criterion functionfor assessing proposed sites. The proposals considered were either a single central site ora combined of a central site with substitutes having limited facilities.

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In the course of the study, several questions were considered-1. What is the present collection pattern for the existing site?

2. If each collection point were assigned to the nearest staging area, what would bethe effect on distance traveled?

3. How does distance change if a new configuration of staging areas is used?

4. What is the minimum possible distance that must be traveled?

This problem was attacked by using facility-location techniques that have proven tobe useful in locating warehouses. The objective function to be minimized was Min Σ”+”2/1]2)(2)[(ypyixpxiwi Where Wi is the fraction of the total number of trips made to collectionsite I; xi, yi are the coordinates of collection sit I; and xp, yp are the coordinates of theproposed bloodmobile staging area.

The term in brackets represents the straight-line distance between the collection siteand the staging area. Thus the objective is to minimize the sum of distances from collectionsites weighted by the number of trips made to the collection sites. A computer programwas written to solve this problem and permit rapid comparison of potential sites. Theanalysis revealed an improved location in one region studied and also helped to determinehow many collection units should be used. It was noted that the “method used to assist inthe location of bloodmobile staging areas provides useful insight into blood collection patternsand sheds light on a problem that has traditionally been performed by a seat-of-the pantsapproach.”

Locating a facility within a network of facilities

When a firm with a network of existing facilities plans a new facility, one of twoconditions exists- either the facilities operate independently (e.g., a chain of restaurants,health clinics, banks, or retail establishments) or the facilities interact (e.g., componentmanufacturing plants, assembly plants, and warehouses). Independently operating unitscan be located by treating each as a separate single facility, as described. Locating interactingfacilities introduces new issues, such as how to allocate work between the facilities andhow to determine the best capacity for each. In many cases a workable solution can beidentified merely by looking for patterns in the cost, demand, and capacity data. In othercases, more formal approaches are needed. To answer the questions like, what is the bestway to partition work among various facilities- transportation method, linear programmingcan be used.

Locating retail, public service, and emergency facilities

There are some significant differences between manufacturing locations and thoseinvolving retail, public service, and emergency facilities. For a manufacturer, location


NOTES


decisions involve analysis of the costs of distribution and service delivery times. Servicefacilities, on the other hand, are the terminal points in the system at which demand takesplace. Goods are not moved to and from the service location; customers are. Thus thelocation of facilities such as fast food franchises, gasoline stations, and banks depend onthe concentration of demand and the location of competition.

Retail facility location. The major criterion used in locating a retail facility is the volumeof demand. For a grocery store or restaurant, this might be measured by rupees salesrevenue, whereas for an amusement park, this might be the number of visitors each year. Inany case, estimates of demand must be obtained for potential locations.

Public service facility location. Public service facilities include post offices, schools,highways, parks, and so on. One of the major problems in locating such facilities is the lackof easily quantifiable data. How does one define “social cost” or “social benefit”? Some ofthe typical criteria used in public service location problems include the average distance ortime traveled by the users of the facilities and the maximum distance or travel time betweenthe facility and its intended population. Another factor not present in individual locationproblems is that public facilities create demand; one would like to locate facilities to servethe largest segment of the population. In this sense, the problem is similar to locating abank or grocery store, except that profit is not a motivating factor. Cost-benefit analysis isoften used to determine public facility location.

Emergency facility location. The problem of locating emergency facilities such as firestations, ambulance stations, and police substations has the objective of minimizing responsetime from the notification of an emergency to the delivery of service. Usually, the goal is tolocate the facility so that the maximum response time to any point of demand is minimized.

The center of gravity method can often be used to locate service facilities. Retailoutlets, power-generating stations, sewage-treatment plants, and waste-disposal facilitiesare some examples.

Summary

Before finalizing the exact location, lot more introspection is required from the decisionmakers side. Location strategy and its importance has to be felt at the initial stage itself; ifnot will have a long term effect on the organization. Globalisation dictates the locationdecision in certain in a deep routed way. The organizations need to balance their strengthsand weaknesses so that at the end they become successful. Due to globalization the factorsinfluencing the decision do vary widely and has an impact on cost – both positively andnegatively. Balancing act from the side of the managers lays the foundation for success. Togear them up lot more analytical tools are provided.

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REVIEW QUESTIONS

1. Discuss the advantages of the insulated economy on location decision process?

2. Enumerate the merits and demerits of the Globalisation on Indian manufacturingsector?

3. “Deciding on Global Locations need different managerial personality” – Comment.

4. Discuss, using examples, the changing pattern of ‘Economies of Scale’ in IndianContext?

5. Illustrate the ‘Load-Distance Method’, by using your own data?


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UNIT IV

PROCESS MANAGEMENT AND STRATEGY

Learning Objectives:

By learning this unit, the learner will be able to: Have the holistic view of the process

Appreciate the performance metrics

Strategic and Operational view process management

Carry out the product and process trade off

4.1 THE PROCESS VIEW OF ORGANIZATION

The product-development process discussed elsewhere also applies to the designand development of new services; however, there are several important differences. Inplanning manufactured products, a great deal of attention must be paid to technicalspecifications such as size, weight, and engineering specifications. For physicalcharacteristics, standard may be determined and the conformance to these standards canbe monitored for quality assurance. The quality of services, on the other hand, depends onthe skill and training of personnel who produce the services. It is more difficult to setstandards on performance, and consistent quality is more difficult to ensure. For example,all meals on an airline may be of the same quality, but service may vary considerably withdifferent flight crews.

Another important difference between manufactured products and services is thatmanufactured products can be stored for future use, whereas services must be made availableto the customer on demand. This difference is another important consideration for qualityassurance. That is, major quality considerations must be planned and designed into theservice just as it should be with manufactured products; however, finished goods may beinspected prior to being released from the factory. For services, this cannot be done.

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4.2 GENERAL DESIGN PRINCIPLES

The general design principles and procedures, such as simplicity, CE, and prototyping,apply to designing service products as well as goods. However, there are additionalconsiderations of special importance when designing service products. These are:

1. To what extent will the customer be involved in the process? For example, will aretail operation be primarily self-service (Big Bazar)? Will a financial institutionallow customers to execute their own transactions using automatic teller machinesor telephones (Citibank)? Normally, greater customer involvement is incorporatedinto the product either to reduce costs or to provide grater convenience to thecustomer by, for instance, eliminating the need to wait for a salesperson.

2. How quickly will service be provided? Human queuing systems are an importantaspect of product quality for services. The intended speed of service will affectstaffing, job design, scheduling, and facility layout.

3. How standardized or customized will the service be? For example, freight railservice is usually highly standardized: trains are scheduled to run between specificlocations, and if customers want to ship or receive materials, they must be ready atthose times.

4. What variety of services will be offered? If a fast-food restaurant will provide onlycarry-out service, there is no need for seating space in the facility or extra servicepersonnel to clean the tables.

5. What geographical area will be served? American Express Corporation, whichsells its products based on quick worldwide replacement of lost or stolen traveler’schecks and credit cards. This product characteristic requires a large internationalnetwork of American Express offices and agents with a telecommunications systemlinking them.

4.3 DOCUMENTS FOR SERVICES

Because of the high customer interaction for most services, the documents for movingthe product to production are different. The documentation for a service to be producedwill often take the form of the explicit job instructions that specify what is to happen at themoment-of-truth. The moment-of-truth is the moment that exemplifies, enhances, or detractsfrom the customer’s expectations. That moment may be as simple as a smile or having thecheck-out clerk focus on you rather than talking over his shoulder to the clerk at the nextcounter.

Regardless of how good the bank’s products may be in terms of checking, savings,trusts, loans, mortgages, and so forth, if the moment-of-truth is not done well, the productmay be poorly received. Example 4.1 shows the kind of documentation a bank may use tomove a product (drive-up window banking) to “production”.


NOTES


In a telemarketing service the product design and its related payment to productionmay take the form of telephone script, and a “story board” may be used for a motionpicture.

Let us take an example.

Example

Customers who use drive-up teller stations rather than walk-in banks may requiredifferent customer relations techniques. The distance and machinery between you and thecustomer raises communication barriers. Communication tips to improve customer relationsat a drive –up window are:

Be especially discrete when talking to the customer through the microphone

Provide written instructions for customers who must fill out forms you provide

Mark lines to be completed or attach a note with instructions

Always say “please” and “thank you” when speaking through the microphone

Establish eye contact with the customer if the distance allows it

If a transaction requires that the customer park the car and come into the lobby,apologize for the inconvenience

By now you would have understood the basic difference between product and servicedesign.

I would now request you all to pay due attention to the concept of FlexibleManufacturing System (FMS).

4.4 FLEXIBLE MANUFACTURING SYSTEM (FMS)

Let me start by giving you its main outlines:-1. FMS is a computer-controlled system.

2. It contains several work stations, each geared to different operations. Work-stationmachines are automated and programmable.

3. Automated materials-handling equipment move components to the appropriatework station.

4. From the work stations, it is moved onto the preprogrammed machines that select,position, and activate the specific tools for each job.

5. Hundreds of tool options are available. Once the machine has finished one batch,the computer signals the next quantity or component, and the machine automaticallytransferred to the next workstation in its routing.

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Features of FMS

An FMS is a process technology that can produce a moderate variety of products inmodest volumes, and can do so quickly and with high quality. Operating costs, too, can bereduced with an FMS; lower direct labour costs lead to lower manufacturing costs. Thesebenefits, however, are not free; an FMS requires very large capital investments in equipment,planning and control systems and human resources.

An FMS is generally appropriate when: All products are variations of a stable basic design

All products utilize the same family of components

The number of components is only moderate (10 to 50)

The volume of each component is moderate (1000 to 30,000 units annually), butin lot sizes as small as one unit.

An FMS is most often used in manufacturing components that require several machiningoperations. A work station consists of a machine or a robot that performs a particular classof tasks such as drilling holes, bending metal in various directions, and so on. Specializedtools are continuously available for one-at-a time use, and changed automatically bycomputers according to the unique requirements for each component as it progress throughthe system.

The goal of an FMS is to produce a moderate variety of products in moderate,flexible quantities.

Clearly, an FMS is more flexible than conventional high-volume production systems.It is less flexible than a job shop that specializes in one-of-a-kind products. An FMS is a“mid-range” system appropriate for moderate variety/moderate volume markets.

Main advantages of FMS

These are:-1. Improved capital utilization

2. Lower direct labour cost

3. Reduced inventory

4. Consistent quality


NOTES


Disadvantages of FMS

These are:-1. Limited ability to adapt to changes in product

2. Substantial preplanning and capital

3. Tooling and fixture requirements

We will now see how these are practiced.

4.5 PRODUCT ATTRIBUTE AND PROCESS COMPETENCIESEXAMPLE OF ‘BURGER KING’

Simulation in service design for Burger King

Burger King is one of the largest fast-food restaurant chains., having approximately3000 restaurants across the United States and in other nations. At corporate head quartersin Miami, new products, system, and procedures are developed; however, franchises mustbe persuaded to adopt them on a cost/benefit basis.

That is, the Corporation must demonstrate that new products or systems will providean adequate return on investment.

Many changes have occurred over the years since Burger King was founded in 1954,which necessitated new design of their service facilities.

For instance, as the take-out business increased, Burger King was the first system tointroduce the drive-through service lane. The “Have IT You Way” concept introduced in1973 required a change in the kitchen operations from mass production of similar items tofood preparation based upon individual customer specifications.

In addition “specialty sandwiches”, which were introduced in 1978 required newequipment and procedures. As these changes were implemented, the original kitchen andwork designs required redesign in order to maintain effective levels of customer service.

One example where such a redesign was necessary involved the drive-through system.The activities performed by customers and employees in the original drive-through system.Customers enter the system, wait in line to place an order, order at an outside menu board,wait in line again, pay for the order at the pick-up window, and finally leave.

One employee was used to take the order, assemble it, bag it, and collect the money.Burger King had established a standard transaction time of 30 seconds. However, ananalysis of a number of restaurants showed that times were averaging 45 seconds. Duringpeak periods, cars could not even join the end of the line and sales were lost. If thetransaction time were 45 seconds, then 80 cars per hour could be handled.

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With an average check of $2.44 per order, drive-through sales were limited to amaximum of $195 per hour. If the time could be shortened to 30 seconds, maximum salescould rise to $292 per hour.

This represented an annual increase in sales of more than $35,000 per restaurant.The operations research group at corporate headquarters worked with several franchisesand devised new work procedures to decrease the transaction time.

The work procedures were separated into distinct tasks. In the new system, oneemployee does nothing but take orders. A runner / bagger assembles the order, and a thirdemployee acts as a cashier and hands the order to the customer.

This seemingly minor modification has significantly increased the productivity andsales in the Burger King chain.

In view of the number of changes that have taken place and escalation of costs,Burger king management developed a productivity improvement program in 1979. One ofthe outputs of this effort was the development of a general purpose restaurant simulationmodel.

The restaurant was viewed as three interrelated subsystems. The simulation modelwas developed in a modular fashion in order to be flexible and easily modified. This allowsminor changes to be made in the model that reflect variations in individual franchiseoperations or changes in staffing during peak and low demand periods. The stages are:

Enter

Wait in line

Drive orders at

Outside menu board Cashier takes order

Assemble order from sandwich

Wait in line and drink stations

Pay for order at Bag order

Pick-up window

Hand order to customer and

Leave collect money

Customer system Service delivery system

The simulation model has been extensively used in evaluating proposed design changes,introductions of new products, and design of new restaurant configurations.


NOTES


For instance, in many restaurants, the distance between the order station and pickupwindow could only accommodate two or three vehicles. The model was used to determinethe best vehicle capacity, which resulted in a drastic reduction in waiting time and an annualincrease of over $10,000 per restaurant during the lunch hour.

A second application involved the evaluation of a second drive-through window inseries with the first. The model projected a sales benefit of 15 percent during peak lunchhours.

After installation in several restaurants, actual benefit was found to be 14 percent, avery close prediction. A third application of the model was to analyze the effect of introducingsmall specialty sandwiches.

The model indicated that the additional preparation time required would not be cost-effective and would actually result in a loss in total sales. The model has also been

Modular view of Burger King restaurants Receive order

Customer system Transmit to kitchen via CRT

Food Production Drinks

System Sandwich preparation line

Special sandwich-preparation line

Delivery system Assembly order

Make change used to evaluate new restaurant designs. This includes establishing theproper size in a specific location, while emphasizing the human engineering aspects ofwork methods in the kitchen.

Burger King is an example of an organization that provides both manufactured goods(food items) and service as its major products. Productivity, quality, and cost issues areintegrated into the product design and development process.

Computer simulation has proven to be a useful tool in the strategic evaluation of newproducts and facilities for Burger King.

4.6 PROCESS DESIGN

After products and services design now we concentrate on process design. To makeproducts or provide services, a process is a prerequisite.

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PROCESS DECISIONS

Process decisions must be made when:

A new or substantially modified product or service is being offered

Quality must be improved

Competitive priorities have changed

Demand for a product or service is changing

Current performance is inadequate

The cost or availability of inputs has changed

Competitors are gaining by using a new process; or

New technologies are available

Process decisions directly affect the process itself, and indirectly the products andservices that it provides. Let’s focus on the relevant common process decisions. In general,Operations managers must consider five common process decisions. These are:

1. Process choice - whether resources are organized around products or processes.It depends on volume and degree of customization to be provided

2. Vertical integration – backward integration, and forward integration

3. Resource flexibility – ease with which employees and equipment can handle awide variety of products, output levels, duties, and functions

4. Customer involvement

5. Capital intensity – mix of equipment and human skills in a process

4.7 CLASSIFICATION OF PRODUCTION PROCESS STRUCTURES

We often classify processes based on their physical configuration, material and productflow, flexibility, and volume expectation. There are five different process types, which amanager can choose, keeping in mind the relative importance of the following attributes:-Quality, Time, Flexibility, and Cost.

These are:1. Project process

2. Job process

3. Batch process

4. Line process, and

5. Continuous process


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Project process: Selecting location for new plant

Job process : Machining precision metal tubes

Batch process : Producing a batch of textbooks

Line process : Auto assembly

Continuous process : Oil-refining process organizations alike.

In fact, some manufacturer’s processes provide a service and do not involvemanufacturing, as demonstrated with project process examples. A high degree of jobcustomization, the large scope of each project, and the release of substantial resourcescharacterize a project process.

Let’s now focus on the various constituents.

Job process

A job process creates the flexibility needed to produce a variety of products or servicesin significant quantities. Customization is relatively high and volume for any one product orservice is low. A job process primarily organizes all like resources around itself; equipmentand workers capable of certain types of work are located together. These resources processall jobs requiring that type of work. This process choice creates jumbled flows through theoperations as customization is high and most jobs have a different sequence of processingsteps.

After job process, let’s analyze:

Batch process

A batch process (disconnected flow processes) differs from the job process withrespect to volume, variety, and quantity. The primary difference is that volumes are higherbecause the same or similar products or services are provided repeatedly. Another differenceis that a narrower range of products and services is provided.

Then moving over to the:

Line process

A line process (repetitive or discrete flow process) lies between the batch andcontinuous processes on the continuum; volumes are high, and products or services arestandardized, which allows resources to be organized around a product or service. Thereare line flows, with little inventory held between operations. Each operation performs thesame process over and over, with little variability in the products or services provided.

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We would focus now on:

Continuous process

A continuous process is the extreme end of high-volume, standardized productionwith rigid line flows. Its name derives from the way materials move through the process.Usually, the primary material, such as liquid, gas, or powder, moves without stoppingthrough the facility. The processes seem more like separate entities than a series of connectedoperations. The process is often capital-intensive and operated round the clock to maximizeutilization and to avoid expensive shutdowns and start-ups.

Advantages and disadvantages of flow processes

The tightly connected configuration, continuous or repetitive transfer of product, narrowproduct line, and often automated nature of continuous and repetitive flow processes haveseveral advantages over other production structures. The following are the primaryadvantages and disadvantages of continuous and repetitive flow processes.

Advantages:1. Equipment can be specified to perform a narrow range of functions very efficiently

2. Jobs can be specialized, so workers can benefit from repetition of a narrow rangeof tasks performed at any given work station.

3. Material handling can be simplified using efficient but inflexible, fixed location materialhandling methods, such as conveyers, pipes, and gravity slides

4. Work-in-process (WIP) inventories are small because products move betweenwork stations with little or no waiting and storage time in between

5. Space utilization is efficient because there is no need to store in-process inventories,and material handling is performed using conveyors, pipes, or slides, so the wideaisles required by fork lifts and other mobile machines can be reduced or eliminated.

6. Quality conformance is easier to achieve because with the narrow range of productsworkers know the quality requirements and how to achieve them, productchangeovers and equipment setups, which are major causes of quality problems,are infrequent, and repetition improves worker skill, so there is less likelihood oferrors.

7. Production scheduling and coordination are relatively easy because there are fewseparate work orders and only work at the first wok station has to be scheduled;work at the other work stations automatically follows in the same sequence.

8. Costs are easy to monitor because all products undergo the same processing anduse the same resources in consistent amounts.


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Disadvantages1. The primary disadvantage is that continuous and repetitive flow processes are

inflexible. The process can make only products that require the same processingin the same sequence. In addition, once the process has been established, it isexpensive to modify its physical configuration to accommodate new products thatrequire different types of processing or a different sequencing of processing stages.Flow processes are also relatively inflexible in terms of volume changes.

2. Initial costs are high because of the specialized equipment used and the substantialwork required to design, set up, and balance the workload at each workstation.

3. Work can become tedious and boring for workers unless jobs are well designedand workers are allowed some flexibility through job rotation and cross-training.

4. The production system is extremely vulnerable to unplanned work stoppages dueto machine breakdowns, defective components, or worker errors.

Batch flow processes exhibit many of the same advantages, except that equipmentand jobs cannot be as specialized, material flow must be more flexible, inter stage inventoriesare necessary, and greater storage and transport space is needed than for continuous andrepetitive processes. However, the disadvantages are less severe because batch processesare more flexible in both product variety and production volumes, work tends to be lesstedious, and the system is less vulnerable to shutdowns because some work stations canoperate while others are stopped if there are inter stage inventories.

(Advantages and disadvantages of Job process )

Advantages

The advantages and disadvantages of job-shop processes are the opposite of thosefor continuous and repetitive flow processes. The primary advantage of a job shop is itsproduction flexibility. Any product requiring the types of processing that are available in thework centers can be produced. The ability to accommodate different processing timesand lot sizes is an especially crucial aspect of flexibility. The other major advantages of jobshops are low initial costs for general-purpose equipment and greater worker satisfactionbecause of the variety of work performed.

Disadvantages:

The flexibility and lower capital costs for job-shop processes are not free; the followingare some corresponding disadvantages.

1. General-purpose equipment is usually less efficient at processing materials.

2. More skilled, higher-paid employees are needed to set up and operate generalpurpose equipment and to modify work methods to make a variety of products.

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3. Less efficient but more flexible material-handling methods, such as fork lifts andhand trucks, are required.

4. Work-in-process inventories are needed to keep the work centers operating duringequipment setups, as well as to provide the scheduling flexibility needed tocoordinate the variety of products and job processing times.

5. The large in-process inventories and flexible material-handling systems requiremore space than do flow processes.

6. Quality conformance is difficult because workers must be familiar with a widerrange of quality requirements, they perform more product changeovers, and theycannot spend as much time refining their wok methods for any one product.

7. The variability in process sequencing, lot sizes, and processing times, as well aspossible uncertainty about order receipts and due dates, make scheduling andcoordinating jobs and equipment very complex. These factors, along with thelarge in-process inventories, result in long throughput times.

8. The variety of products and their processing requirements make it difficult to assigncosts to each product, so it is more difficult to determine the profitability of individualproducts.

Cellular processes

Organizations often capture some of the efficiencies of flow processes and the flexibilityof job-shop processes by creating hybrids of the two, called cellular processes. A cellularprocess can be thought of as a mixture of mini flow processes, called work cells (or cells),and a job-shop operation. The work cells may perform only two or three activities in aspatially connected flow process, or they may perform several activities connected insequence.

Cellular processes are most commonly used as substitutes for job-shop processesthat need increased productivity. Increasingly, however, they are being used in place offlow processes to obtain greater flexibility. They are also becoming a popular way toorganize service operations.

To create a cellular process, an organization divides its products into families or groupof products that require similar processing steps in the same sequence. A work call is thencreated to perform these steps in the designated sequence for all the products in the family.The output of the cell may be a finished product or a semi finished product that must besent elsewhere for further processing. Some products will not be appropriate for any cell,and many products cannot be made entirely at a single cell, so there will normally be a job-shop subsystem (cell) that can do all the processing steps in any sequence.


NOTES


Advantages and disadvantages of cellular processes

Advantages:1. Material handling and transport are reduced because the work stations (machines)

are spatially close and often are operated as repetitive flow processes.

2. Setup times are reduced because jobs processed at the same cell often have similarcharacteristics that require less changeover from job to job.

3. Throughput time is reduced because the wait between production stages, the waitfor transport, and the transport time are reduced.

4. In-process inventories are smaller because of more efficient scheduling and reducedsetup time disruptions. Also, the shorter throughput times reduce the amount ofsafety stock needed.

5. Less space is needed because the machines in cells are located close together andless in-process inventory must be stored.

6. Although some investment in equipment is often required, total equipment costsoften decrease because the increase in efficiency and machine utilization meansthat less total equipment is needed to produce the same amount of output.

7. Workers enjoy more satisfaction because they have greater job variety than workersin either flow processes or job shops, since their work often involves severalmachines and tasks.

8. Quality improves because of greater job satisfaction, simpler machine setups, andsimilarity of products within cells, which produce fewer mistakes.

Disadvantages:

Successful implementations of a cellular production system requires a considerableamount of work and expertise to characterize and classify products and then design theappropriate work cells and remaining job-shop process.

All of us should appreciate that no organization in this world is self sufficient to run thebusiness independently. It has to depend on others for:

Either raw materials or

For delivering the product.

It is hence time now to introduce the concept of vertical integration.

4.8 PLANNING, AND CONTROL: VERTICAL INTEGRATION

All business buy at least some inputs to their processes, such as professional services,raw materials, or manufactured parts, from other producers. An organization which performs

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more processes in the supply chain by itself, the more vertically integrated it is. If it doesn’tperform some processes itself, it must rely on outsourcing. When managers opt for morevertical integration, there is by definition less outsourcing. These decisions are sometimescalled make-or-buy decisions, with a make decision meaning more integration and a buydecision meaning more outsourcing.

Let’s brush up our knowledge of two other integration processes, i.e. Backward integration

Forward integration

Vertical integration can be in two directions. Backward integration represents movementupstream toward the sources of raw materials and parts, such as a major grocery chainhaving its own plants to produce house brands of ice cream, frozen pizza dough, andpeanut butter.

Forward integration means that the firm acquires more channels of distribution, suchas its own distribution centers (warehouses) and retail stores. It can also mean that the firmgoes even further by acquiring its business customers.

The advantages of vertical integration are the disadvantages of more outsourcing. Similarly,the advantages of more outsourcing are disadvantages of more vertical integration.

More vertical integration can sometimes improve market share and allow a firm toenter foreign markets more easily than it could otherwise. Extensive vertical integration isgenerally attractive when input volumes are high because high volumes allow taskspecialization and greater efficiency.

For performing operations you need equipments as resources. In this regard questionarise – is the equipment needed are general purpose or special-purpose? Should theworkforce flexible enough? To answer these we need to understand resource flexibility.

4.9 RESOURCE FLEXIBILITY

Flexible workforce – operations manager must decide whether to have flexibleworkforce. A flexible workforce means workforce whose members are capable of doingmany tasks, either at their own workstations or as they move from one workstation toanother.

Equipment- When products or services have a short life cycle and a high degree ofcustomization, low volumes mean that process managers should select flexible, general-purpose equipment

Another vital question regarding process design is: how much customer involvementwill be allowed in the process?


NOTES


The amount of customer involvement may range from self-service to customization ofproduct to decide the time and place of the service to be provided.

Customer involvement can be categorized as Self service – self-service is the process decisions of many retailers, particularly

when price is a competitive priority.

Product selection – a business that competes on customization frequently allowscustomers to come up with their own product specifications or even becomeinvolved in designing the product

Time and location – when services cannot be provided in the customer’s absence,customers may determine the time and location that the service is to be provided.If the service is delivered to the customer, client, or patient by appointment,decisions involving

Another question regarding process design is how much should a firm depend onmachinery and automated processes?

The operation manager must determine the amount of capital intensity required.

4.10 CAPITAL INTENSITY

For either the design of a new process or the redesign of an existing one, an operationsmanager must determine the amount of capital intensity required. Capital intensity is themix of equipment and human skills in the process; the greater is the relative cost of equipment,the greater is the capital intensity.

Let us understand now the concept of fixed automation.

FIXED AUTOMATION

Fixed automation is a manufacturing process that produces one type of part or productin a fixed sequence of simple operations. Operations managers favour fixed automationwhen demand volumes are high, product designs are stable, and product life cycles arelong.

These conditions compensate for the process’s two primary drawbacks; large initialinvestment cost and relative inflexibility. The investment cost is particularly high when asingle, complex machine must be capable of handling many operations. However, fixedautomation maximizes efficiency and yields the lowest variable cost per unit volumes arehigh.

Let us ponder over the issue of Flexible automation now.

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FLEXIBLE AUTOMATION

It is a manufacturing process that can be changed easily to handle various products.The ability to reprogram machines is useful for both low customization and high customizationprocesses. In the case of high customization, a machine that makes a variety of products insmall batches can be programmed to alternate between products. When a machine hasbeen dedicated to a particular product or family of products, as in the case of lowcustomization and a line flow, and the product is at the end of its life cycle, the machine cansimply be reprogrammed with a new sequence of operations for a new product.

Before 1970, many firms were willing to endure the additional complexities that camewith size. New products or services were added to a facility as a better utilization of fixedcosts and keeping everything under one roof. The result was a jumble of competitivepriorities, process choices, and technologies.

In the effort to do everything, nothing was done well. Hewlett-Packard, Richo andMitsubishi are some of the firms that have created focused factories splitting large plantsthat produced all the company’s products into several specialized smaller plants. The theoryis that narrowing the range of demands on a facility will lead a workforce toward a singlegoal.

The five main process decisions discussed represent broad strategic issues. The nextissue in process management is determining exactly how each process will be performed.Three techniques – flow diagrams, process charts, and simulation – are widely used tostudy current process and proposed changes. We now focus on these three concepts.

4.11 FLOW DIAGRAM

A flow diagram traces the flow of information, customers, employees, equipment, ormaterials through a process. There is no precise format, and the diagram can be drawnsimply with boxes, lines, and arrows.

4.12 PROCESS CHART

What is a process chart?

A process chart is an organized way of recording all the activities performed by aperson, by a machine, at a workstation, with a customer, or on materials. These activitiescan be grouped to five categories.

Operation: Changes, creates, or adds something.

Transportation: Moves the study’s subject from one place to another. The subjectcan be a person, a material, a tool, or a piece of equipment.

Inspection: Checks or verifies something but does not change it.


NOTES


Delay: Occurs when the subject is held up awaiting further action. Time spentwaiting for materials or equipment, cleanup time, and time that workers, machines,or workstations are idle because there is nothing for them to do are examples ofdelays.

Storage: Occurs when something is put away until a later time. Supplies unloadedand placed in a storeroom as inventory, equipment put away after use, and papersput in a file cabinet are examples of storage.

The third one is simulation model.

4.13 SIMULATION MODEL

Simulation is an act of reproducing the behaviour of a process using a model thatdescribes each step of the process. Once the current process is modeled, the analyst canmake changes in the process to measure the impact on certain performance measures,such as response time, waiting lines, resource utilization, etc.

Flow diagrams, process charts, and simulation models are means to an end –continually improving the process. After a chart has been prepared for either a new orexisting process, brainstorming is needed for improvement ideas. To make a process moreefficient, the analyst should question each delay and then analyze the operation, transportation,inspection, and storage activities to determine whether they can be combined, rearranged,or eliminated. There is always a scope of doing things in better way. Improvements inproductivity, quality, time, and flexibility can be significant.

Once the process is designed next comes to evaluate the process and see is there anyscope for improvement or is there any need to change the process? Process reengineeringaddresses these questions.

What is process reengineering?

4.14 PROCESS REENGINEERING

Process reengineering is the fundamental rethinking and radical redesign of businessprocesses to bring about dramatic improvements in performance. Reengineering asksquestions as:

Is the process designed to create customer value?

Do we achieve competitive advantage in terms of quality, product, speed of delivery,or price?

Does the process help us to win orders?

Does the process maximize the customer’s perception of value?

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Process reengineering means revaluating the purpose of the process and questioningthose purposes and assumptions. Process reengineering only works if the basic processand objectives are reexamined. Often a firm finds that the initial assumptions of its processare no longer valid. Reengineering focuses on dynamic improvements in cost, time, orcustomer service irrespective of how the process is currently being done. Any process canbe considered for radical redesign. It could be a factory layout, a purchasing procedure ora new way of processing credit applications as described in the POM in practice below.

EXAMPLE: IBM credit application

Choosing a service process strategy

Five processes choice considered are applicable to service as well as manufacturing.In process-focused facilities (project and job process) equipment utilization is low – perhapsas low as 5%. This is true not only for manufacturing but also for services. An x-raymachine in a dentist’s office and much of the equipment in a fine dining restaurant have lowutilization. Hospitals can also be expected to be in that range, which would suggest whytheir costs are considered high. Why such low utilization?

In part because excess capacity for peak loads is desirable. Hospital administrators,as well as managers of other service facilities and their patients and customers, expectequipment to be available as needed. Another reason of low utilization is poor scheduling.

The service industry moves to apply continuous process by establishing fast-foodrestaurants, auto lubrication shops, and so on. As the variety of services is reduced, per –unit cost is also expected to drop. The following figure provides more insight into serviceprocesses.


NOTES


We have learnt what products or services are to be offered and how they should bemade. For making these products or for providing such services, men and machines wouldbe required to be properly coordinated. . Hence management must plan the capacity of itsprocesses.

4.15 STRATEGIC POSITIONING AND OPERATIONAL EFFECTIVENESS

What is Capacity?

Capacity is the maximum rate of output for a process. The operations manager mustprovide the capacity to meet current and future demand; otherwise, the organization willmiss opportunities for growth and profits.

Capacity plans are made at two distinct levels:

Long term capacity plan – ( it covers at least two years in future)

(e.g. investment in new facilities and equipments)

Short term capacity – (it covers week-to-week operation)

(e.g. it focuses on workforce size, overtime budgets, inventories, etc)

Please bear in mind that too much capacity can be as agonizing as too little. Searchingfor the optimal balance can often be quite an elusive affair and is one of the strategicdecisions that the management must tackle successfully.

What are the questions that assume significance in this regard?

Well, Questions to be considered –

The relevant questions in this regard are:

How much of cushion is needed to handle variable, uncertain demand?

Should we expand capacity before the demand is there or wait until demand ismore certain?

Measures of capacity –

There are two main methods of measuring capacity. These are expressed as:

Output measures (choice for high volume process)

Input measures (choice for low volume flexible processes)

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Output measures

Output measures are best utilized when the firm provides a relatively small number ofstandardized products and services, or when applied to individual process within the overallfirm. Nissan Motor Company states capacity at its Tennessee plant as 4,50,000 vehiclesper year. That plant produces only one type of vehicle, making capacity easy to measure.However, many organizations produce more than one product or service. For example, arestaurant may be able to handle 50 sit-down or 100 take-out customers per hour. It mightalso handle 25 sit-down and 50 take-out customers or many other combinations of thetwo types of customers. As the amount of customization and variety in the product mixbecomes excessive, output-based capacity measures become less useful.

Input measures

Input measures are useful for low-volume, flexible processes. For example in aphotocopy shop, capacity can be measured in machine hours or number of machines. Justas product mix can complicate output capacity measures, so as demand can complicateinput measures. Demand, which is expressed as an output rate, must be converted to aninput measure. Only after making the conversion can a manager compare demandrequirements and capacity on an equivalent basis. For example, the manager of a copycenter must convert its annual demand for copies from different clients to the number ofmachines required.

When we talk about capacity planning it requires knowledge of the current capacityof a process and its utilization.

Next question would be:-

What is capacity utilization?

Capacity utilization is the degree to which equipment, space, or labour is currentlybeing used. It is expressed as a percent.

Mathematically, it can be expressed as under:

Utilization = %100capacity Maximum rate output Average

The unit of measurement for both Numerator and Denominator should be same.

Utilization indicates the need for adding extra capacity or eliminating unneeded capacity.

Two definitions of maximum capacity, i.e.: Peak capacity and Effective capacity arequite useful.

Let us focus on these aspects.


NOTES


Peak capacity

The maximum output that a process or facility can achieve under ideal conditions iscalled peak capacity. It can be sustained only for a short time, few hours a day or few daysin a month. A process reaches it by using marginal methods of production, such as excessiveovertime, extra shifts, temporarily reduced maintenance activities, overshifts, andsubcontracting.

Effective capacity

The maximum output that a process or firm can economically sustain under normalconditions is its effective capacity. In some organizations, effective capacity implies a one-shift operation; in others, it implies a three-shift operation. For this reason, Census Bureausurveys define capacity as the greatest level of output the firm can reasonably sustain byusing realistic employee work schedules and the equipment currently in place.

When operating close to peak capacity, a firm can make minimal profits or even losemoney despite high sales levels.

Let us now see how to calculate these measures of utilization through an example.

Example

If operated around the clock under ideal conditions, the fabrication department of anengine manufacturer can make 100 engines per day. Management believes that a maximumoutput rate of only 45 engines per day can be sustained economical over a long period oftime. Currently, the department is producing an average of 50 engines per day. What is theutilization of the department relative to peak capacity? Effective capacity?

Solution.

The two utilization measures are

Utilization= peak capacity x Peak rate output Average = 10050×100% = 50%

Effective Utilization = capacity x Effective rate output Average = 4550×100% = 111%

To increase the maximum capacity the process need to be focused more. Mostprocesses involve multiple operations, and often their effective capacities are not identical.A bottleneck is an operation that has the lowest effective capacity of any operation in theprocess and thus limits the system’s output.

A project or job process does not enjoy the simple line flows. Its operations may processmany different items, and the demand on any one operation could vary considerably fromone day to the next. Bottlenecks can still be identified by computing the average utilization

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of each operation. In this situation, management prefers lower utilization rate, which allowgreater slack to absorb unexpected rise in demand.

The long-term capacity of bottleneck operation can be expanded in various ways.Investments can be made in new equipments, The bottleneck’s capacity also can beexpanded by operating it more hour per week, such as going from a one-shift operation tomultiple shifts, or going from five workdays week to six or seven workdays per week.Managers also might relieve the bottleneck by redesigning the process, either throughprocess reengineering or process improvement.

At this point, consider an important fact regarding the Theory of constraints. (TOC)

4.16 STRATEGIC FIT: THEORY OF CONSTRAINTS

TOC refers to an approach that focuses on bottlenecks of a firm’s financialperformance.

Long-term capacity expansions are not the only way to ease bottlenecks. Overtime,temporary or part-time employees, or temporarily outsourcing during peak periods areshort – term options. Managers should also explore ways to increase the effective capacityutilization at bottlenecks, without experiencing the higher costs and poor customer serviceusually associated with maintaining output rates at peak capacity.

The key is to carefully monitor short-term schedules, keeping bottleneck resourcesas busy as practical. They should also minimize the time spent unproductively for setups.When a changeover is made at a bottleneck operation, the number of units or customersprocessed before the next changeover should be large, compared to the number processedat less critical operations. Maximum the number processed per setup means that there willbe fewer setups per year and thus less total time lost to set ups.

The TOC is an approach to management that focuses on whatever hinders progresstoward the goal of maximizing the flow of total value – added funds or sales less salesdiscounts and variable costs. The impediments or bottlenecks might be overloaded processessuch as order entry, new product development, or a manufacturing operation. Thefundamental idea is to focus on the bottlenecks to increase their throughput, therebyincreasing the flow of total value – added funds.

Let us now learn to apply this concept using sequential steps.

Application of TOC involves the following steps

It’s basically a five step process.

1. Identify the system bottleneck

2. Exploit the bottleneck


NOTES


3. Subordinate all other decision to step 2

4. Elevate the bottleneck

5. Do not let inertia set in

FACTORS THAT DETERMINE CAPACITY

Ultimately, the output from a production facility or system is not determined simply bythe physical size of the facility, the sizes or types of machines, or the number of employeesworking. Production capacity, especially effective capacity, is affected by the design of theproducts and processes, the training of employees, the management of quality, and manyother factors. The most important factors affecting production capacity are:

1. Process design. In multistage production processes the maximum rate of outputthat can be achieved is governed by the slowest) lowest capacity stage.

2. Product design. With exactly the same personnel and equipment, the capacity formaking a product that is well designed for production will be greater than for apoorly designed one.

3. Product variety. The fewer types of products made by a production unit and themore similar they are, the more specialized equipment and jobs can be, and theless time lost on product changeovers and machine set-ups.

4. Product quality. The way products are made, tested, and inspected will affectthe rate at which products of acceptable quality can be produced.

5. Production scheduling. Scheduling that keeps product flows well balanced andsynchronized and unproductive time minimized will utilize machines and personnelbetter and result in greater effective capacity.

6. Materials management. Shortages of materials can cause work stoppages, whileexcess inventories can cause congestion and wasted time searching for materials.

7. Maintenance. Equipment breakdowns and defects due to machine wear are twomajors sources of lost production.

8. Job design and personnel management. The amount of output a productionsystem actually produces is greatly determined by the personnel operating thesystem. Inadequate training, poor job design, overwork, and absenteeism all leadto lost production.

We will now look at practical examples of these in the following two POM in practice.

EXAMPLE: The agony of too much – and too little – capacity

Carnival Cruise Line has a fleet of cruise ships that ply the waters off Florida. Thecapacity of these ships is huge. The Destiny is its largest, which displaces 1,00,000 tons

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and can carry over 3,100 passengers. But Carnival has been sailing in choppy seas duringthe last year, plagued by three onboard fires and technical problems. The most pressingproblem, however, is the glut of new ships being added throughout the industry. Carnivalalone is bringing in a cadre of 15 new amenity-filled ships, boosting its fleet to 61. Withother cruise lines also adding to their fleets, the number of available beds jumped by 12percent in 2000. But historically, passenger volume has grown at only about 8 percentannually. Carnival argues that with the baby boomers now approaching their peak cruise-vacation years, the industry has lots of room to grow beyond the 6.5 million people whowill book a cruise this year. “What is important to us is that we are building over the nextfive years $6.5 billion worth of new ships”, says COO Frank. “We are going to continue togrow our business, and we are going to grow it profitably”. Not everyone is convinced.Some experts worry about the overcapacity issue and Carnival’s decreasing return oninvestment. During 2000, the company’s share prices plunged by more than 50 percent.For now, Carnival is filling its berths by slashing prices. After years of rising prices in thisindustry, the capacity glut is causing the steep discounts. For a seven-day cruise, the cheapestfare has dropped from $599 to $549, and discounted tickets have gone as low as $359.Carnival is also adding a variety of shorter and cheaper voyages as a way to expand themarket, because high utilization is a key to success when its resources are so capital-intensive.

The aircraft industry experienced the opposite problem in the late 1980s – not enoughcapacity. The world’s airlines reequipped their fleets to carry more passengers on existingplanes and vie to buy a record number of new commercial passenger jets. Orders receivedby Boeing, Airbus, and McDonnell Douglas surged to more than 2,600 planes. McDonnellDouglas alone had a backlog of some $18 billion in firm orders for its MD-80 and newMD-11 wide body – enough to keep its plant fully utilized for more than three years.Despite the number of orders, Douglas’s commercial aircraft division announced a startlingloss; Airbus struggled to make money, and even mighty Boeing fought to improve sub parmargins. Capacity shortage caused many problems for McDonnell Douglas: Its supplierswere unable to keep pace, its doubled workforce was inexperienced and less productive,and considerable work had to be subcontracted to other plants. The result was that costsskyrocketed and profits plummeted. In 1997, Boeing acquired McDonnell Douglas.

4.17 MATCHING PRODUCTS AND PROCESSES: ECONOMIES OFSCALE

The concept that increasing its output rate can reduce the average unit cost of a goodor service is called economies of scale.

There are four principal reasons to go for economies of scale


NOTES


Fixed costs are spread over more units –

In the short term, certain costs do not vary with changes in the output rate. When theoutput rate – and, therefore, the facility’s utilization rate- increases, the average unit costdrops because fixed costs are spread over more units. As increments of capacity often arerather large, a firm initially might have to buy more capacity than it needs. However, demandincreases in subsequent years can then be absorbed without additional fixed costs.

Construction costs are reduced –

Certain activities and expenses remain same in building small and large facilities alike.Doubling the size of the facility usually does not double construction costs. Industries suchas breweries and oil refineries benefit from strong economies of scale because of thisphenomenon.

Costs of purchased material are cut –

Higher volumes can reduce the costs of purchased materials and services. It gives thepurchaser a better bargaining position and the opportunity to take advantage of quantitydiscounts.

Process advantages are found –

High volume production provides many opportunities for cost reduction. At a higheroutput rate, the process shifts toward a line process, with resources dedicated to individualproducts. Firms may be in a position to justify the dedicating resources to individualproducts. For example, higher volume allow a paper manufacturer to achieve greaterefficiency than manufacturers producing a wide variety of products in small volumes, becausethe mill can set up its machines for one long run of a certain grade of paper and not have tomake as many adjustments for different grades.

Let us now focus our attention on the other issue i.e. the diseconomies of scale.

Diseconomies of scale

The average cost per unit increases as the facility’s size increases. The reason is thatexcessive size can bring complexity, loss of focus, and inefficiencies that raise the averageunit cost of a product or service. There may be too many layers of employees andbureaucracy, and management loses touch with employees and customers. The organizationis less agile and losses the flexibility needed to respond to changing demand. Many largecompanies become so involved in analysis and planning that they innovate less and avoidrisks. The result is that small companies outperform corporate giants in numerous industries.Figure 5.3 illustrates the transition from economies of scale to diseconomies of scale. The500-bed hospital shows economies of scale because the average unit cost at its bestoperating level is less than that of the 250-bed hospital. However, further expansion to a

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750-bed hospital leads to higher average unit costs and diseconomies of scale. One reasonthe 500-bed hospital enjoys greater economies of scale than the 250 –bed hospital is thatthe cost of building and equipping it is less than twice the cost for the smaller hospital. The750-bed facility would enjoy similar savings. Its higher average unit costs can b explainedonly by diseconomies of scale, which outweigh the savings realized in construction costs.

Let us now take an example of estimating requirements

Example

A copy center in an office building prepares bound reports for two clients. The centermakes multiple copies (the lot size) of each report. The processing time to run, collate, andbind each copy depends on, among other factors, the number of pages. The center operates250 days per year, with an eight hours shift. Management believes that a capacity cushionof 15% is best. It currently has 3 copy machines. Based on the following table of information,determine how many machines are needed at the copy center.

Item Client X Client Y

Annual demand forecast (copies) 2000 6000

Standard processing time (hour/copy) 0.5 0.7

Average lot size (copies per report) 20 30

Standard setup time (hours) 0.25 0.40

Solution.

M = C/100]-N[1 ... duct2(D/Q)s]Pro [Dp duct1(D/Q)s]Pro [Dp++++

=

1 0 0 / 1 5 1 ) ( / 8 ) ( / 1 ) ( / 2 5 0 ( ] 4 0 . 0 * ) 3 0 / 6 0 0 0 ( 7 . 0 * 6 0 0 0 [ ] 2 5 . 0 * ) 2 0 /2000(5.0*2000[“+++shifthoursdayshiftyeardaysclientYclientX

= 17005305

= 3.12

Note - If demand continues at the current level or grows, it may be worthwhile toconsider the proposal to acquire a fourth machine

EXAMPLE: ( Production capacity analysis at Champion international )

Champion International Corporation is one of the largest forest products companies in theworld, employing over 41,000 people in the United States, Canada, and Brazil. Championmanages over 3 million acres of timberlands in the United States. Its objective is to maximize


NOTES


the return of the timber base by converting trees into three basic product groups: (1)building materials, such as lumber and plywood; (2) white paper products, including printingand writing grades of white paper; (3) brown paper products, such as linerboard andcorrugated containers. Given the highly competitive markets within the forest productsindustry, survival dictates that Champion must maintain its position as a low-cost producerof quality products. This requires an ambitious capital program to improve the timber baseand to build additional modern, cost-effective timber conversion facilities.

An integral pulp and paper mill is a facility in which wood chips and chemicals areprocessed in order to produce paper products o dried pulp. To begin with, wood chipsare cooked and bleached in the pulp mill; the resulting pulp is piped directly into storagetanks as shown in Figure 5.5. From the storage tanks the pulp is sent to either the papermill or a dryer. In the paper mill, the pulp is routed to one or more paper machines whichproduce the finished paper products. Alternatively, the pulp is sent to a dryer, and the driedpulp is then sold to other paper mills, which do not have the capability of producing theirown pulp. The total system, referred to as an integrated pulp and paper mill, is a largefacility costing several hundred million dollars.

One of Champion’s major pulp and paper facilities is presently comprised of a pulpmill, three paper machines, and a dryer. As the facility developed, it was found that thepulp mill could produce more pulp than the combination of paper machines and the dryercould use. A study was undertaken to determine whether it would be worthwhile to investin improvements to increase the capacity of the dryer. One of the first questions to beanswered in the study was how much additional pulp could be produced and dried, giveneach possible capacity increase on the dryer.

A simple approach to this question is to look at average flows. For example, the pulpmill has a capacity of 940 tons per day (TPD), the three paper machines together average650 TPD of pulp use, and the dryer can handle 200 TPD. Based on average flows foreach ton of increased dryer capacity, we can produce one more ton of pulp in the pulp mill.Note, however, that this is true only until the capacity of the dryer reaches 290 TPD, afterwhich further improvements to the dryer will have no benefit.

The above analysis is inadequate because it ignores the day-to-day deviations fromthe average. That is, all of the equipment in the mill is subject to downtime and to variationsin efficiency. For example, suppose that on one day, the pulp mill is inoperable for morethan the average length of time; on the same day, the paper machines are experiencing lessthan the usual downtime. In this case there will be very little pulp available for the dryer,regardless of its capacity. This lack of pulp will not “average out” on days when the oppositeconditions occur, since there will be far more pulp available than the pulp dryer can handle.Consequently, the pulp storage tanks will become full, and the pulp mill will have to shutdown.

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Based upon the above analysis, we can conclude that in order not too reduce theproduction on the paper machines; the ratio of additional pulp production to the increase indryer capacity will be less than 1. Since the benefits of any investment in the dryer aredirectly proportional to this ratio, a simulation was undertaken in order to estimate thisratio as precisely as possible. The simulation model that was developed had the followingcomponents:

Pulp Mill

The pulp mill was assumed to have an average production rate of 1044TPD when itis operating, with an average of 10 percent downtime. The actual downtime used in themodel in each time period simulated was drawn randomly from a sample of actual downtimesexperienced by the pulp mill over several months. Thus one day the pulp mill might bedown 2 percent of the time, the next day 20 percent and so on.

Paper Machine

The rate of pulp flow to the paper machines in a time period is a function of theparticular type of paper being mad and the amount of downtime on the paper machines. Inthe simulation, the rate of pulp flow was input to the model based on a typical schedule oftypes of paper to be made. The downtime for each machine was drawn from a sample ofactual downtimes.

Pulp Dryer

In each run of the model, downtime on the dryer was drawn from a sample of actualdowntimes. The capacity of the dryer was set at different levels in different runs.

Storage Tanks

The connecting link between the pulp mill, the paper machines, and the dryer is thepulp storage tanks. In the model all pulp produced by the pulp mill is added to the inventoryin these tanks. All pulp drawn by the dryer and paper machines is subtracted from thisinventory. If the storage tanks are empty, the model must shutdown the paper machines. Ifthe tanks are full, the pulp mill must be shut down. The actual rate at which the dryer isoperated at any moment must be set by the model (as it is in the reality) to try to keep thestorage tanks from becoming “too empty” or “too full”.

A computer program was developed to simulate the above process. The simulationprogram was run at various levels of dryer capacity. The simulation results showed that forevery TPD of additional pulp capacity, approximately 0.8 TPD of additional pulp couldactually be dried without reducing the production on the paper machines. This number wasthen used by management in comparing the costs and benefits of the capital investment


NOTES


necessary to increase the pulp dryer capacity. Note that if the “average basis” analysis hadbeen used, the benefits of the project would have been overstated by 25 percent.

Labour planning is another area of great significance. Let’s see how.

Labour planning

Suppose that a company is interested in determining the number of quality controlinspectors to have for a final inspection of a product. If each inspector can work at a rateof “p” minutes per unit at an efficiency “e” (taking into account fatigue, personal time, andso forth), let us see the number of inspectors required in order to meet a required outputrate R.

In service organizations, labour planning represents one of the most important aspectsof capacity planning. Examples include nurse staffing in hospitals, operator staffing at atelephone switchboard, and the number of grocery clerks at check-out counters.

To illustrate this approach in service organizations, suppose that a social workerperforms two major activities. Activity 1 requires 4 hours, while activity 2 requires 1.5hours. Each person is available 40 hours per week and an allowance for personal time andnon-routine activities is 20 percent. Thus the efficiency factor will be 1 - .20 = .80. Theestimated workload is 40 cases per week of type 1 and 60 cases per week of type 2. Welet

p1 = time for activity 1 = 4 hours

p2 = time for activity 2 = 1.5 hours

R1 = 40 cases per week of type 1

R2 = 60 cases per week of type 2

T = 40 hours per week

Then the minimum staff required for this agency is calculated as

N = TeRpRp2211+

= )8(.40)60(5.1)40(4+ = 7.8125

Thus eight workers will be needed to meet the forecasted demand. In general,

N = TepiRikiΣ=1, where k is the number of different activities performed.

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4.18 OPERATIONAL FRONTIER AND TRADE-OFFS: LEARNINGCURVE

All of us have a fair idea of what The Learning curve is all about. As you do often(more), you tend to get better at it. Now, Stop that wide grin. Just don’t get any funnyideas.

If you have ever learned to type or play a musical instrument, you know that thelonger and more often you work at it, the better you become. The same is true in productionand assembly operations. Improvement in productivity and quality of work as a job isrepeated is called the learning effect. This was recognized in the 1920s at Wright-PattersonAir Force Base in the assembly of aircraft. Studies have shown that the number of labour-hours required to produce the fourth plane was about 80 percent of the amount of timespent on the second; the eighth plane took only 80 percent as much as the fourth; thesixteenth plane 80 percent of the time of the eighth, and so on. In other words, as productiondoubles from N units to 2N units, the time per unit of the 2Nth unit is 80 percent of the timeof the Nth unit. This is called an 80 percent learning curve. Such a curve exhibits a steepinitial decline and the levels off as workers become more proficient in their tasks. Thelabour content (in person-hours per unit) required to make a product, expressed as afunction of the cumulative number of units made, is called a learning curve.

Defense industries such as aircraft and electronics which introduce many new andcomplex products, use learning curves to assist managers in estimating labour requirementsand capacity, in determining costs and budget requirements, and in planning and schedulingproduction. Eighty percent curves are generally accepted as a standard, although the ratioof machine work to manual assembly affects the percentage to use. Obviously, no learningtakes place if all assembly is done by machine. As a rule of thumb, if the ratio of manual tomachine work is 3 to 1, then 80 percent is a good value; if the ratio is 1 to 3, then 90percent is often used. An even split of manual and machine work gives an 85 percentcurve. More generally, the amount of time required to make the Nth unit of the product willbe

TN

= T1 . N

a

Where

TN

= time to make the Nth unit (in person-hours)

T1 = time to make the first unit

a = (ln x)/(ln 2)

x = learning rate (expressed as a decimal)

This calls for a practical example.


NOTES


The following example illustrates the use of a learning curve in determining labourrequirements.

Sherly Joseph produces handmade Christmas ornaments. She usually hires severalstudents part-time in order to meet her production requirements. Sherly sells primarily tolocal department stores who need her merchandise by December 1. Their orders are notplaced until September, so Sherly has essentially 8 weeks to make all the items. Since allmanual labour is used, Sherly estimates that a 75 percent learning curve can be used as herpart-time employees are trained. She has observed in the past that it takes an average ofabout 60 minutes for a student to make the first ornament. Each student works 10 hoursper week. Sherly would like to know how many students will be required to meet any levelof forecasted demand.

A 75 percent learning curve has the following characteristics:

Unit Time Required

1 60

2 45 (60 x .75)

4 33.75 (45 x .75)

8 25.31 (33.75 x .75)

16 18.98 (25.31 x .75)

32 14.23 (18.98 x .75)

64 10.68 (14.23 x .75)

The following Table lists the approximately cumulative minutes required to produce agiven number of units at a 75 percent rate of learning.

Table Cumulative Time for 75 percent learning curve

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Design of product and process layouts

This lesson introduces you to the concept of design of product as well as processlayout. You learn to appreciate the meaning and significance of line balancing, cycle timeand the allied concepts. The behavioral dimension is also stressed upon.

By now all of us are familiar with the process of layout planning, which we discussedin the previous lesson. Design of product as well as process layout is an intricate as well asfascinating process, as you shall soon realize. Let’s start now.

Design of product layouts

In product layout, equipment or departments are dedicated to a particular productline, duplicate equipment is employed to avoid backtracking, and a straight-line flow ofmaterial movement is achievable. Adopting a product layout makes sense when the batchsize of a given product or part is large relative to the number of different products or partsproduced

Assembly lines are a special case of product layout. In a general sense, the term assemblyline refers to progressive assembly linked by some material handling device. The usualassumption is that some form of pacing is present and the allowable processing time isequivalent for all workstations. Within this broad definition, there are important differencesamong line types. A few of these are material handling devices (belt or roller conveyor,overhead crane); line configuration (U-shape, straight, branching); pacing (mechanical,human); product mix (one product or multiple products); workstation characteristics(workers may sit, stand, walk with the line, or ride the line); and length of the line (few ormany workers). The range of products partially or completely assembled on lines includestoys, appliances, autos, clothing and a wide variety of electronic components. In fact,virtually any product that has multiple parts and is produced in large volume uses assemblylines to some degree.

A more-challenging problem is the determination of the optimum configuration ofoperators and buffers in a production flow process. A major design consideration inproduction lines is the assignment of operation so that all stages are more or less equallyloaded. Consider the case of traditional assembly lines illustrated . In this example, partsmove along a conveyor at a rate of one part per minute to three groups of workstations.The first operation requires 3 minutes per unit; the second operation requires 1 minute perunit; and the third requires 2 minutes per unit. The first workstation consists of three operators;the second, one operator; and the third, two operators. An operator removes a part fromthe conveyor and performs some assembly task at his or her workstation. The completedpart is returned to the conveyor and transported to the next operation. The number ofoperators at each workstation was chosen so that the line is balanced. Since three operatorswork simultaneously at the first workstation, on the average one part will be completed


NOTES


each minute. This is also true for other two stations. Since the parts arrive at a rate of onepr minute, parts are also completed at this rate.

Assembly-line systems work well when there is a low variance in the times requiredto perform the individual subassemblies. If the tasks are somewhat complex, thus resultingin a higher assembly-time variance, operators down the line may not be able to keep upwith the flow of parts from the preceding work station or may experience excessive idletime. An alternative to a conveyor-paced assembly line is a sequence of workstationslinked by gravity conveyors, which act as buffers between successive operations.

Flow-blocking delay and lack-of-work delay. Flow-blocking delay occurs when aproduction stage completes a unit but cannot release it because the in-process storage atthe next stag is full. This operator must remain idle until storage space becomes available.Lack-of-work delay occurs whenever one stage completes work and no units are awaitingprocessing from the previous stage.

Well, I guess that was quite a eye-opener. But that’s not the end of it. Let us quickly moveover to the concept of line balancing.

Line balancing

Assembly-line balancing often has implications for layout. This would occur when,for balance purposes, workstation size or the number used would have to be physicallymodified.

The most common assembly line is a moving conveyor that passes a series ofworkstations in a uniform time interval called the workstation cycle time (which is alsothe time between successive units coming off the end of the line). At each workstation,work is performed on a product either by adding parts or by completing assemblyoperations. The work performed at each station is made up of many bits of work, termedtasks, elements, and work units. Such tasks are described by motion-time analysis.Generally, they are grouping that cannot be subdivided on the assembly line without payinga penalty in extra motions.

The total work to be performed at a workstation is equal to the sum of the tasksassigned to that workstation. The line balancing problem is one of assigning all tasks to aseries of workstations so that each workstation has no more than can be done in theworkstation cycle time, and so that the unassigned (idle) time across all workstations isminimized. The problem is complicated by the relationships among tasks imposed by productdesign and process technologies. This is called the precedence relationship, which specifiesthe order in which tasks must be performed in the assembly process.

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The steps in balancing an assembly line are:1. Specify the sequential relationships among tasks using a precedence diagram.

2. Determine the required workstation cycle time ©, using the formula

3. C = ) (RePrinunitsutperdayquiredoutpmeperdayoductionti

4. Determine the theoretical minimum number of workstations (Nt) required to satisfy

the workstation cycle time constraint using the formula

5. Nt = ) () (CCycletimeTimesSumoftaskt

6. Select a primary rule by which tasks are to be assigned to workstations, and asecondary rule to break ties.

7. Assign tasks, one at a time, to the first workstation until the sum of the task timesis equal to the workstation cycle time, or no other tasks are feasible because oftime or sequence restrictions. Repeat the process for Workstation 2, Workstation3, and so on until all tasks are assigned.

8. Evaluate the efficiency of the balance derived using the formula

9. Efficiency=) () (ln) (Ceoncycletimx Workstati Nakstationsum berofwor ActuaTimesSumoftaskt

10. If efficiency is unsatisfactory, rebalance using a different decision rule.

It will be clearer if we take an example now.

Example

The MS 800 car is to be assembled on a conveyor belt. Five hundred cars arerequired per day. Production time per day is 420 minutes, and the assembly steps andtimes for the wagon are given below. Find the balance that minimizes the number ofworkstations, subject to cycle time and precedence constraints.


NOTES


2. Determine workstation cycle time. Here we have to convert production time to secondsbecause our task times are in seconds

C = )(RePrinunitsutperdayquiredoutpmeperdayoductionti

= carsx500sec60min420

= 50025200 = 50.4

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3. Determine the theoretical minimum number of workstations required (the actual numbermay be greater)

Nt = CT = ondsondssec4.50sec195 = 3.87 = 4 (rounded up)

4. Select assignment rules.

a. Prioritize tasks in order of the largest number of following tasks

Our secondary rule, to be invoked where ties exist from our primary rule, is

b. Prioritize tasks in order of longest task time. Note that D should be assigned before B,and E assigned before C due to this tiebreaking rule.

5. Make task assignments to form Workstation 1, Workstation 2, and so forth until alltasks are assigned. It is important to meet precedence and cycle time requirements as theassignments are made.

6. Calculate the efficiency.

Efficiency = NaCT = 4.505195x = .77 or 77%

7. Evaluate the solution. An efficiency of 77 percent indicates an imbalance or idle time of23 percent (1.0 - .77) across the entire line.

Is a better balance possible? Try balancing the line with rule b and breaking ties withrule a.

In addition to balancing a line for a given cycle time, managers must also consider fourother options: pacing, behavioural factors, number of models produced, and cycle times.

Pacing is the movement of product from one station to the next after the cycle time haselapsed. Paced lines have no buffer inventory. Unpaced lines require inventory storageareas to be placed between stations.

Let us now focus on the relevant Behavioral aspects.


NOTES


Behavioral factors.

The most controversial aspect of product layout is behavioural response. Studieshave shown that paced production and high specialization lower job satisfaction. Onestudy has shown that productivity increased on unpaced lines.

Many companies are exploring job enlargement and rotation to increase job varietyand reduce excessive specialization. For example, New York Life has redesigned the jobsof workers who process and evaluate claims applications. Instead of using a productionline approach with several workers doing specialized tasks, New York Life has made eachworker solely responsible for an entire application. This approach increased workerresponsibility and raised morale.. In manufacturing, at its plant in Kohda, Japan, SonyCorporation dismantled the conveyor belts on which as many as 50 people assembledcamcorders. It set up tables for workers to assemble an entire camera themselves, doingeverything from soldering to testing. Output per worker is up 10 percent, because theapproach frees efficient assemblers to make more products instead of limiting them toconveyor belt’s speed. And if something goes wrong, only a small section of the plant isaffected. This approach also allows the line to match actual demand better and avoidfrequent shutdown because of inventory buildups.

Number of models produced.

A mixed-model line produces several items belonging to the same family. A single-model line produces one model with no variations. Mixed-model production enables aplant to achieve both high-volume production and product variety. However, it complicatesscheduling and increases the need for good communication about the specific parts to beproduced at each station.

Cycle Times.

A line’s cycle time depends on the desired output rate (or sometimes on the maximumnumber of workstations allowed). In turn, the maximum line efficiency varies considerablywith the cycle time selected. Thus, exploring a range of cycle times makes sense. A managermight go with a particularly efficient solution even if it does not match the output rate. Themanager can compensate for the mismatch by varying the number of hours the line operatesthrough overtime, extending shifts, or adding shifts. Multiple lines might even be the answer.

Dear students, after we have been able to understand and appreciate the productlayout design and the related concepts, now are the time to focus on process lay outdesign.

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Process layout design

The analysis involved in the design of production lines and assembly lines relatesprimarily to timing, coordination, and balance among individual stages in the process. Forprocess layouts, the relative arrangement of departments and machines is the critical factorbecause of the large amount of transportation and handling involved.

Procedure for designing process layouts

Process layout design determines the best relative locations of functional work centers.Work centers that interact frequently, with movement of material or people, should belocated close together, whereas those that have little interaction can be spatially separated.One approach of designing an efficient functional layout is described below.

1. List and describe each functional work center

2. Obtain a drawing and description of the facility being designed

3. Identify and estimate the amount of material and personnel flow among work centers

4. Use structured analytical methods to obtain a good general layout

5. Evaluate and modify the layout, incorporating details such as machine orientation,storage area location, and equipment access.

The first step in the layout process is to identify and describe each work center. Thedescription should include the primary function of the work center )drilling, new accounts,or cashier_; its major components, including equipment and number of personnel; and thespace required. The description should also include any special access needs (such asaccess to running water or an elevator) or restrictions (it must be in a clean area or awayfrom heat).

For a new facility, the spatial configuration of the work centers and the size and shapeof the facility are determined simultaneously. Determining the locations of special structuresand fixtures such as elevators, loading docks, and bathrooms becomes part of the layoutprocess. However, in many cases the facility and its characteristics are a given. In thesesituations, it is necessary to obtain a drawing of the facility being designed, including shapeand dimensions, locations of fixed structures, and restrictions on activities, such as weightlimits on certain parts of a floor or foundation.

To minimize transport times and material-handling costs, we would like to place closetogether those work centers that have the greatest flow of materials and people betweenthem. To estimate the flows between work centers, it is helpful to begin by drawingrelationship diagram as shown in the figure below.


NOTES


For manufacturing systems, material flows and transporting costs can be estimatedreasonably well using historical routings for products or through work sampling techniquesapplied to workers or jobs. The flow of people, especially in a service system such as abusiness office or a university administration building, may be difficult to estimate precisely,although work sampling can be used to obtain rough estimates.

The amounts and/or costs of flows among work centers are usually presented using aflow matrix, a flow-cost matrix, or a proximity chart.

1. Flow Matrix

A flow matrix is a matrix of the estimated amounts of flow between each pair of workcenters. The flow may be materials (expressed as the number of loads transported) orpeople who move between centers. Each work center corresponds to one row and onecolumn, and the element fij designates the amount of flow from work center (row) I towork center (column) j. Normally, the direction of flow between work centers is notimportant, only the total amount, so fij and fji can be combined and the flows representedusing only the upper righ half of a matrix.

Table Flow Matrix

A basic assumption of facility layout is that the cost of moving materials or peoplebetween work centers is a function of distance traveled. Although more complicated costfunctions can be accommodated, often we assume that the per unit cost of material andpersonnel flows between work centers is proportional to the distance between the centers.So for each type of flow between each pair of departments, I and j, we estimate the costper unit per unit distance, cij.

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3. Proximity Chart

Proximity charts (relationship charts) are distinguished from flow and flow-cost matricesby the fact that they describe qualitatively the desirability or need for work centers to beclose together, rather than providing quantitative measures of flow and cost. These chartsare used when it is difficult to measure or estimate precise amounts or costs of flow amongwork centers. This is common when the primary flows involve people and do not have adirect cost but rather an indirect cost, such as when employees in a corporate headquartersmove among departments (payroll, printing, information systems) to carry out their work.

EXAMPLE

Well, now is the time to look back and systematically analyze what we have gatheredfrom the foregoing discussions and there is no better way to do it than with the help of apractical case study. The following case exposes you to the issues involved in processdesign and helps you translate the textbook concept into practical reality.

Design of a University Library Workroom

The workroom in the Southern Technical Institute Library processed about 8000new books each year. All library books must pass through the workroom in order to beprepared for shelving in the library’s stacks. When the library was built, only about 3000books were processed each year. Since no major additions or remodeling changes werepossible, this increase necessitated an evaluation of the existing layout.

As you can see from the flow diagram, there is unnecessary movement back andforth across the workroom. In addition, the main storage shelves constitute a major barrierto the effective low of materials. From these observations, a new layout was propose,which results in a much more orderly flow, shorter distance traveled, and more bookstorage space. By moving the major storage shelves out of the center of the room and offto one side, but the density of books in a rack can be increased by decreasing the shelfheight from 24 to 12 inches. This corresponds to a 367 percent increase in available shelfspace.

Well, now is the time to look back and systematically analyze what we have gatheredfrom the foregoing discussions and there is no better way to do it than with the help of apractical case study. The following case exposes you to the issues involved in processdesign and helps you translate the textbook concept into practical reality.

Design of a University Library Workroom

The workroom in the Southern Technical Institute Library processed about 8000new books each year. All library books must pass through the workroom in order to beprepared for shelving in the library’s stacks. When the library was built, only about 3000


NOTES


books were processed each year. Since no major additions or remodeling changes werepossible, this increase necessitated an evaluation of the existing layout. there is unnecessarymovement back and forth across the workroom. In addition, the main storage shelvesconstitute a major barrier to the effective low of materials. From these observations, a newlayout was propose, which results in a much more orderly flow, shorter distance traveled,and more book storage space. By moving the major storage shelves out of the center ofthe room and off to one side, but the density of books in a rack can be increased bydecreasing the shelf height from 24 to 12 inches. This corresponds to a 367 percent increasein available shelf space.

SUMMARY

The process management involves very many steps and have to be orchestrated forachieving expected results. The organization has to be viewed from process angle to achievethe target. Development of performance metrics ensures the success of the process ofprocess management. Every process has its own performance competencies and have tobe matched with the process attributes. The strategic orientation will help in bringing in atrade off between the product and product characteristics.

REVIEW QUESTIONS

1. Illustrate how the process view of organization is different from that of productview?

2. Explain, using examples, how the errors in performance measuring tools will deterthe scope of performance measurement?

3. Highlight the tools and techniques used in Process planning and control process?

4. Enumerate the strategic and operational issues in ensuring the effectiveness of theprocess? Give examples.

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NOTES


UNIT V

PROCESS FLOWLearning Objectives

By perusing this unit, the reader,

Be able to appreciate the importance and complexity of the Process

Will be able to understand the methods of measurement and the process of it

Balance the Capacity and Process flow

Integrating the organization through Lean Philosophy.

5.1 PROCESS ANALYSIS

An operation is composed of processes designed to add value by transforming inputsinto useful outputs. Inputs may be materials, labor, energy, and capital equipment. Outputsmay be a physical product (possibly used as an input to another process) or a service.Processes can have a significant impact on the performance of a business, and processimprovement can improve a firm’s competitiveness.

The first step to improving a process is to analyze it in order to understand the activities,their relationships, and the values of relevant metrics. Process analysis generally involvesthe following tasks:

Define the process boundaries that mark the entry points of the process inputs andthe exit points of the process outputs.

Construct a process flow diagram that illustrates the various process activities andtheir interrelationships.

Determine the capacity of each step in the process. Calculate other measures ofinterest.

Identify the bottleneck, that is, the step having the lowest capacity.

Evaluate further limitations in order to quantify the impact of the bottleneck.

Use the analysis to make operating decisions and to improve the process.

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5.2 PROCESS FLOW DIAGRAM

The process boundaries are defined by the entry and exit points of inputs and outputs

of the process.

Once the boundaries are defined, the process flow diagram (or process flowchart)

is a valuable tool for understanding the process using graphic elements to represent tasks,

flows, and storage. The following is a flow diagram for a simple process having three

sequential activities:

Process Flow Diagram

The symbols in a process flow diagram are defined as follows:

Rectangles: represent tasks

Arrows: represent flows. Flows include the flow of material and the flow ofinformation. The flow of information may include production orders and instructions.The information flow may take the form of a slip of paper that follows the material,or it may be routed separately, possibly ahead of the material in order to ready theequipment. Material flow usually is represented by a solid line and informationflow by a dashed line.

Inverted triangles: represent storage (inventory). Storage bins commonly are usedto represent raw material inventory, work in process inventory, and finished goodsinventory.

Circles: represent storage of information (not shown in the above diagram).

In a process flow diagram, tasks drawn one after the other in series are performedsequentially. Tasks drawn in parallel are performed simultaneously.

In the above diagram, raw material is held in a storage bin at the beginning of theprocess. After the last task, the output also is stored in a storage bin.

When constructing a flow diagram, care should be taken to avoid pitfalls that mightcause the flow diagram not to represent reality. For example, if the diagram is constructedusing information obtained from employees, the employees may be reluctant to discloserework loops and other potentially embarrassing aspects of the process. Similarly, if thereare illogical aspects of the process flow, employees may tend to portray it as it should beand not as it is. Even if they portray the process as they perceive it, their perception may


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differ from the actual process. For example, they may leave out important activities thatthey deem to be insignificant.

5.3 PROCESS PERFORMANCE MEASURES

Operations managers are interested in process aspects such as cost, quality, flexibility,and speed. Some of the process performance measures that communicate these aspectsinclude:

Capacity utilization - the percentage of the process capacity that actually is being used. Process capacity - The capacity of the process is its maximum output rate, measured

in units produced per unit of time. The capacity of a series of tasks is determinedby the lowest capacity task in the string. The capacity of parallel strings of tasks isthe sum of the capacities of the two strings, except for cases in which the twostrings have different outputs that are combined. In such cases, the capacity of thetwo parallel strings of tasks is that of the lowest capacity parallel string.

Capacity utilization - the percentage of the process capacity that actually is beingused.

Throughput rate (also known as flow rate ) - the average rate at which units flowpast a specific point in the process. The maximum throughput rate is the processcapacity.

Flow time (also known as throughput time or lead time) - the average time that aunit requires to flow through the process from the entry point to the exit point. Theflow time is the length of the longest path through the process. Flow time includesboth processing time and any time the unit spends between steps.

Cycle time - the time between successive units as they are output from the process.Cycle time for the process is equal to the inverse of the throughput rate. Cycletime can be thought of as the time required for a task to repeat itself. Each seriestask in a process must have a cycle time less than or equal to the cycle time for theprocess. Put another way, the cycle time of the process is equal to the longest taskcycle time. The process is said to be in balance if the cycle times are equal for eachactivity in the process. Such balance rarely is achieved.

Process time - the average time that a unit is worked on. Process time is flow timeless idle time.

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Idle time - time when no activity is being performed, for example, when an activityis waiting for work to arrive from the previous activity. The term can be used todescribe both machine idle time and worker idle time.

Work In process - the amount of inventory in the process.

Set-up time - the time required to prepare the equipment to perform an activity ona batch of units. Set-up time usually does not depend strongly on the batch sizeand therefore can be reduced on a per unit basis by increasing the batch size.

Direct labor content - the amount of labor (in units of time) actually contained in theproduct. Excludes idle time when workers are not working directly on the product.Also excludes time spent maintaining machines, transporting materials, etc.

Direct labor utilization - the fraction of labor capacity that actually is utilized asdirect labor.

Little’s Law

The inventory in the process is related to the throughput rate and throughput time bythe following equation:

W.I.P. Inventory = Throughput Rate x Flow Time

This relation is known as Little’s Law, named after John D.C. Little who proved itmathematically in 1961. Since the throughput rate is equal to 1 / cycle time, Little’s Lawcan be written as:

Flow Time = W.I.P. Inventory x Cycle Time

5.4 THE PROCESS BOTTLENECK

The process capacity is determined by the slowest series task in the process; that is,having the slowest throughput rate or longest cycle time. This slowest task is known as thebottleneck. Identification of the bottleneck is a critical aspect of process analysis since itnot only determines the process capacity, but also provides the opportunity to increasethat capacity.

Saving time in the bottleneck activity saves time for the entire process. Saving time ina non-bottleneck activity does not help the process since the throughput rate is limited bythe bottleneck. It is only when the bottleneck is eliminated that another activity will becomethe new bottleneck and present a new opportunity to improve the process.

If the next slowest task is much faster than the bottleneck, then the bottleneck ishaving a major impact on the process capacity. If the next slowest task is only slightly


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faster than the bottleneck, then increasing the throughput of the bottleneck will have alimited impact on the process capacity.

5.5 STARVATION AND BLOCKING

Starvation occurs when a downstream activity is idle with no inputs to process becauseof upstream delays. Blocking occurs when an activity becomes idle because the nextdownstream activity is not ready to take it. Both starvation and blocking can be reducedby adding buffers that hold inventory between activities.

5.6 PROCESS IMPROVEMENT

Improvements in cost, quality, flexibility, and speed are commonly sought. The followinglists some of the ways that processes can be improved.

Reduce work-in-process inventory - reduces lead time.

Add additional resources to increase capacity of the bottleneck. For example, anadditional machine can be added in parallel to increase the capacity.

Improve the efficiency of the bottleneck activity - increases process capacity.

Move work away from bottleneck resources where possible - increases processcapacity.

Increase availability of bottleneck resources, for example, by adding an additionalshift - increases process capacity.

Minimize non-value adding activities - decreases cost, reduces lead time. Non-value adding activities include transport, rework, waiting, testing and inspecting,and support activities.

Redesign the product for better manufacturability - can improve several or allprocess performance measures.

Flexibility can be improved by outsourcing certain activities. Flexibility also can beenhanced by postponement, which shifts customizing activities to the end of theprocess.

In some cases, dramatic improvements can be made at minimal cost when thebottleneck activity is severely limiting the process capacity. On the other hand, in well-optimized processes, significant investment may be required to achieve a marginaloperational improvement. Because of the large investment, the operational gain may notgenerate a sufficient rate of return. A cost-benefit analysis should be performed to determine

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if a process change is worth the investment. Ultimately, net present value will determinewhether a process “improvement” really is an improvement.

5.7 PROCESS FLOW STRUCTURES

The flow structure of the process used to make or deliver a product or service impactsfacility layout, resources, technology decisions, and work methods. The process architecturemay be an important component in the firm’s strategy for building a competitive advantage.

When characterized by its flow structure, a process broadly can be classified eitheras a job shop or a flow shop. A job shop process uses general purpose resources and ishighly flexible. A flow shop process uses specialized resources and the work follows afixed path. Consequently, a flow shop is less flexible than a job shop.

Finer distinctions can be made in the process structure as follows:

Project - Example: building construction Job shop - Example: print shop Batch process - Example: bakery Assembly line - Example: automobile production line Continuous flow - Example: oil refinery These process structures differ in several respects such as: Flow - ranging from a large number of possible sequences of activities to only one

possible sequence. Flexibility - A process is flexible to the extent that the process performance and

cost is independent of changes in the output. Changes may be changes in productionvolume or changes in the product mix.

Number of products - ranging from the capability of producing a multitude ofdifferent products to producing only one specific product.

Capital investment - ranging from using lower cost general purpose equipment toexpensive specialized equipment.

Variable cost - ranging from a high unit cost to a low unit cost. Labor content and skill - ranging from high labor content with high skill to low

content and low skill. Volume - ranging from a quantity of one to large scale mass production. It is interesting to note that these aspects generally increase or decrease

monotonically as one moves between the extremes of process structures. Thefollowing chart illustrates how the process characteristics vary with structure.


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5.8 COMPARISON OF PROCESS STRUCTURES AND CHARACTERISTICS

The following sections describe each of the architectures, highlighting their differentiatingcharacteristics.

5.9 PROJECT

Flow - no flow

Flexibility - very high

Products - unique

Capital investment - very low

Variable cost - very high

Labor content and skill - very high

Volume - one

In a project, the inputs are brought to the project location as they are needed; thereis no flow in the process. Technically, a project is not a process flow structure since thereis no flow of product - the quantity produced usually is equal to one. It is worthwhile,however, to treat it as a process structure here since it represents one extreme of thespectrum.

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Projects are suitable for unique products that are different each time they are produced.The firm brings together the resources as needed, coordinating them using projectmanagement techniques.

Job Shop

Flow - jumbled flow

Flexibility - high

Products - many

Capital investment - low

Variable cost - high

Labor content and skill - high

Volume - low

A job shop is a flexible operation that has several activities through which work canpass. In a job shop, it is not necessary for all activities to be performed on all products, andtheir sequence may be different for different products.

To illustrate the concept of a job shop, consider the case of a machine shop. In amachine shop, a variety of equipment such as drill presses, lathes, and milling machines isarranged in stations. Work is passed only to those machines required by it, and in thesequence required by it. This is a very flexible arrangement that can be used for widevariety of products.

A job shop uses general purpose equipment and relies on the knowledge of workersto produce a wide variety of products. Volume is adjusted by adding or removing labor asneeded. Job shops are low in efficiency but high in flexibility. Rather than selling specificproducts, a job shop often sells its capabilities.

Batch Process

Flow - disconnected, with some dominant flows

Flexibility - moderate

Products - several

Capital investment - moderate

Variable cost - moderate

Labor content and skill - moderate

Volume - moderate


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A batch process is similar to a job shop, except that the sequence of activities tendsto be in a line and is less flexible. In a batch process, dominant flows can be identified. Theactivities, while in-line, are disconnected from one another. Products are produced in batches,for example, to fill specific customer orders.

A batch process executes different production runs for different products. Thedisadvantage is the setup time required to change from one product to the other, but theadvantage is that some flexibility in product mix can be achieved.

Assembly Line Process

Flow - connected line Flexibility - low Products - a few Capital investment - high Variable cost - low Labor content and skill - low Volume - high

Like a batch process, an assembly line processes work in fixed sequence. However,he assembly line connects the activities and paces them, for example, with a conveyor belt.A good example of an assembly line is an automobile plant.

Continuous Flow Process

Flow - continuous Flexibility - very low Products - one Capital investment - very high Variable cost - very low Labor content and skill - very low, but with skilled overseers Volume - very high

Like the assembly line, a continuous flow process has a fixed pace and fixed sequenceof activities. Rather than being processed in discrete steps, the product is processed in acontinuous flow; its quantity tends to be measured in weight or volume. The direct laborcontent and associated skill is low, but the skill level required to oversee the sophisticatedequipment in the process may be high. Petroleum refineries and sugar processing facilitiesuse a continuous flow process.

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5.10 PROCESS SELECTION

The primary determinants of the optimal process are the product variety and volume.The amount of capital that the firm is willing or able to invest also may be an importantdeterminant, and there often is a trade-off between fixed and variable cost.

The choice of process may depend on the firm’s marketing plans and business strategyfor developing a competitive advantage. From a marketing standpoint, a job shop allowsthe firm to sell its capabilities, whereas flow-shop production emphasizes the productitself. From a competitive advantage perspective, a job shop helps a firm to follow adifferentiation strategy, whereas a flow shop is suited for a low cost strategy.

The process choice may depend on the stage of the product life cycle. In 1979Robert H. Hayes and Steven C. Wheelwright put forth a product-process matrix relatingprocess selection to the product life cycle stage. For example, early in a product’s lifecycle, a job shop may be most appropriate structure to rapidly fill the early demand andadjust to changes in the design. When the product reaches maturity, the high volumes mayjustify an assembly line, and in the declining phase a batch process may be more appropriateas product volumes fall and a variety of spare parts is required.

The optimal process also depends on the local economics. The cost of labor, energy,equipment, and transportation all can impact the process selection.

A break-even analysis may be performed to assist in process selection. A break-evenchart relates cost to levels of demand in various processes and the selection is made basedon anticipated demand.

5.11 FLOW CHARTS

Flow chart is defined as a pictorial representation describing a process beingstudied or even used to plan stages of a project. Flow charts tend to providepeople with a common language or reference point when dealing with a project orprocess.

Four particular types of flow charts have proven useful when dealing with a processanalysis: top-down flow chart, detailed flow chart, work flow diagrams, and adeployment chart. Each of the different types of flow charts tend to provide adifferent aspect to a process or a task. Flow charts provide an excellent form ofdocumentation for a process, and quite often are useful when examining how varioussteps in a process work together.

When dealing with a process flow chart, two separate stages of the processshould be considered: the finished product and the making of the product. Inorder to analyze the finished product or how to operate the process, flow chartstend to use simple and easily recognizable symbols. The basic flow chart symbolsbelow are used when analyzing how to operate a process.


NOTES


In order to analyze the second condition for a flow process chart, one should use theANSI standard symbols. The ANSI standard symbols used most often include the following:

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HISTORY AND BACKGROUND

As a whole, flow charting has been around for a very long time. In fact, flow chartshave been used for so long that no one individual is specified as the “father of the flowchart”. The reason for this is obvious. A flow chart can be customized to fit any need orpurpose. For this reason, flow charts can be recognized as a very unique qualityimprovement method.

5.12 INSTRUCTIONS

Step-by-Step process of how to develop a flow chart.

Gather information of how the process flows: use a)conservation, b)experience,or c)product development codes.

Trial process flow. Allow other more familiar personnel to check for accuracy. Make changes if necessary.

Compare final actual flow with best possible flow.

Note: Process should follow the flow of Step1, Step 2, ... , Step N.

Step N= End of Process

5.13 CONSTRUCTION/INTERPRETATION TIP FOR A FLOW CHART.

Define the boundaries of the process clearly. Use the simplest symbols possible. Make sure every feedback loop has an escape. There is usually only one output arrow out of a process box. Otherwise, it may

require a decision diamond.

INTERPRETATION

Analyze flow chart of actual process. Analyze flow chart of best process. Compare both charts, looking for areas where they are different. Most of the time,

the stages where differences occur is considered to be the problem area or process. Take appropriate in-house steps to correct the differences between the two seperate

flows.


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5.14 PROCESS FLOW CHART- FINDING THE BEST WAY HOME

This is a simple case of processes and decisions in finding the best route home at theend of the working day.

The Best Way Home

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5.15 PROCESS FLOW CHART- HOW A PROCESS WORKS

(Assembling a ballpoint pen)


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5.16 FLOW TIME MEASUREMENT

Direct measurement of flow time:1. Observe the process over a specified, extended period of time.

2. Take a random sample of flow units over the specified period.

3. For each flow unit in the sample, measure its flow time from entry to exit.

4. Compute the average of flow times measured.

Indirect measurement of flow time:

Little’s Law: T = I / R

T (average flow time) = I (average inventory) / R (average throughput or

flow rate)

Example (customer flow):

A restaurant processes, on average, 1500 customers per 15-hour work day. At any pointin time, there are, on average, 75 customers in the restaurant.

Given:

Throughput rate = R = 1500/day or 100 customers / hour

Average inventory = I = 75 customers

Derived:

Time = I/R = 75/100 or average customer spends ¾ hour in the restaurant.

Average flow time: we can combine the process flow chart with information

about waiting in its various buffers to study flow time using this procedure:1. Treat waiting in each buffer as an additional (passive) activity with activity time

equal to the amount of time spend in that buffer,

2. Add waiting times in buffers to the theoretical flow time of the appropriate path,and

3. Obtain the average flow time of the process by finding the path whose

4. overall length (activity plus waiting) is maximal.

Theoretical flow time = minimal amount of time required for processing a typical flow unit– without any waiting.

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Flow time = value adding flow time + non value adding flow time

Flow time efficiency = theoretical flow time / average flow time

5.17 FLOW RATE

The average flow rate (throughput) of a stable process can be determined by thefollowing four-step process:

1. Identify a particular entry and exit point in the process.

2. Observe the process over a given, extended period of time.

3. Measure the number of flow units that pass through the selected point

4. over the selected period of time.

5. Compute the average number of flow units per unit of time.

The theoretical capacity of a resource unit is its maximum sustainable flow rate if itwere fully utilized during its scheduled availability.

The theoretical capacity of a resource pool is the sum of the theoretical capacities ofall the resources units in that pool.

The theoretical capacity of a process is the theoretical capacity of its slowest resourcepool. Resource pools with minimum theoretical capacity are called theoretical bottlenecks.

Theoretical capacity of a resource unit:

(1/unit load) x load batch x scheduled availability

5.18 KEY MANAGERIAL LEVERS FOR MANAGING FLOW RATE:1. Manage supply and demand to increase the throughput.

a. Have reliable suppliers; produce better forecasts of demand.

2. Decrease resource idleness to increase process capacity.

a. Synchronize flows within the process to reduce starvation.

b. Set appropriate size buffers to reduce blockage.

3. Increase the net availability of resources to increase process capacity.

a. Improve maintenance policies, perform preventative maintenance outside periodsof scheduled availability, institute effective problem solving measures that reducefrequency and duration of breakdowns.


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b. Institute motivational programs and incentives to reduce

c. absenteeism, increase employee morale.

d. Reduce the frequency of or time required for setups or changeovers

e. for a given product mix or change the product mix.

4. Increase the theoretical capacity.

a. Decrease unit load on the bottleneck resource pool.

i. Work faster, work smarter, do it right the first time, change product mix.

ii. Subcontract or outsource.

iii. Invest in flexible resources.

b Increase the load batch of resources in the bottleneck resource pool (increasescale of resource).

c Increase the number of units in the bottleneck resource pool (increase scale ofprocess).

d Increase scheduled availability of the bottleneck resource pool (work longer).

5.19 MANAGING FLOW VARIABILITY

Example: Henry Ford’s Assembly Line for the Model T

25 A B C Output

ADVANTAGES4.1

Facilitates synchronous flow of information and materials between processingstations

Physical proximity of cells reduce transportation of low units

Moves small batches of flow units quickly

Encourages teamwork & cross functional skill development

Improved communication between stations

Improves synchronization where each station produces parts only if the next stationneeds them

Easier to recognize and report problems

Quicker ability to correct defects

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DISADVANTAGES Resources are dedicated to specific cells

Resources cannot be used by other cells

Lose advantage of resource pooling

Worker incentives must be “team” oriented, not individual performance based

REMEDIES

Use flexible resources that are cross functional

Peer pressure to control productivity of team members

5.20 TWO APPROACHES

PUSH: Input availability triggers production where emphasis is on “keeping busy”

and maximize resource utilization (as long as there is work)

Planning Tool: MRP (Material Requirements Planning)

MRP: End-Product demand forecasts are “exploded” backwards to determine

parts requirements at each station

PUSH works well under these conditions if:

All information is accurate

Forecasts of finished goods are correct

There is no variability in processing times If one of these conditions at any stages is not met will

DISTURB PLANNED FLOW AND DESTROY SYNCHRONIZATIONTHROUGHOUT THE PROCESS!0.4.2 Improving Information & Material Fld

Demand-Pull: Where demand from a customer station triggers production.

Consequences of Demand-Pull — — — Each station produces only on demandfrom its customer station

The demand is actually “downstream”

Two requirements to make a pull system work:

Must have a well-defined customer with a well-defined supplierprocess.

Must produce the quantity needed only when signaled to do so byits customer


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Demand Pull

SUPPLY PUSH: Input availability triggers production

DEMAND PULL: Output need triggers production Operations: Demand Pull

Demand Signaling: Customer needs a way to signal (inform) the supplier of its need. Customer’s demand starts a chain reaction –

For withdrawals and replenishments of intermediate parts

EOQ-ROP system is a “Pull” system where ROP triggers production at the supplierand EOQ determines the quantity produced aterial Flow: Demand Pull

Synchronized Pull: When the delivery of parts are in sequence

[Suppliers must have greater ability and capability to achieve a synchronized pulleffectively]33 10.4.3 Improving Process Flexibility: Batch-Size Reduction

Each station must know HOW MUCH TO PRODUCE AT A TIME

Level Production: where small quantities are produced frequently to machcustomer demand

[i.e., if demand is 10000 sedans and 5000 SUVs, the production would callfor producing 2 sedans and then 1 SUV, and then repeat the sequence]

Changeover Costs and Batch Reduction: Goal of level production is reductionof changeover costs (fixed setup or transportation costs of each batch)

I.E. In auto production expensive parts like seats are produced in batches of one,wipers in larger batches

Study the Changeover process to: use special tools to speed it up, customizesome machines, keep some machines already set up.

Consider “small-batch” production

Defective flow units increase average flow time and cost!!!

WHY? It necessitates inspection and rework!!!

Anticipate and then Compensate for the problem:

Hold extra safety inventory in the buffer

This increases avg. flow time and cost

Plan and control Quality:

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Prevent defects for occurring in the first place

Detect and correct them as soon as they appear

Defect Prevention

Careful design of both product and process

Simplification & standardization

Mistake-proofing (poka yoke)

Parts are designed to halt automatically when defective units are fed into them(parts are designed to minimize chances of incorrect assembly)

Defect Visibility

Early detection/corrections more effective & economical

Defect visibility (cont’d)

Early detection helps tracing to the source

Contribution to better synchronization and lower costs

Early detection requires constant vigilance and monitoring!!

Decentralized Control

Employees must be empowered with authority and the means to identify & correctproblems at the local level

Decentralized Control (cont’d)

In typical plants, line workers don’t feel the responsibility, motivation or security topoint out problems.

BEST STRATEGIES OF LEAN OPERATIONS ARE:

Preventing problems through better planning

Highlighting problems as soon as they occur

Delegating problem solving to the local level

Reduce Variability:

Standardize work at each stage and specify it clearly

Advantages to Standardization:

Reduces variability from changing personnel

Reduces variability from one production cycle to the next

Makes it easier to identify sources of waste that can be eliminated


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5.21 PROCESS INTEGRATION IS A TERM IN CHEMICAL ENGINEERING WHICH HAS TWO POSSIBLE MEANINGS.

1. A holistic approach to process design which considers the interactions betweendifferent unit operations from the outset, rather than optimising them separately.This can also be called integrated process design or process synthesis. An importantfirst step is often product design which develops the specification for the productto fulfil its required purpose.

2. Pinch analysis, a technique for designing a process to minimise energy consumptionand maximise heat recovery, also known as heat integration, energy integration orpinch technology. The technique calculates thermodynamically attainable energytargets for a given process and identifies how to achieve them. A key insight is thepinch temperature, which is the most constrained point in the process.

5.22 LEAN MEANS “MANUFACTURING WITHOUT WASTE.”

Waste (“muda” in Japanese) has many forms. Material, time, idle equipment, andinventory are examples. Most companies waste 70%-90% of their availableresources. Even the best Lean Manufacturers probably waste 30%.

Lean Manufacturing and Cellular Manufacturing improve material handling,inventory, quality, scheduling, personnel and customer satisfaction. For examplesand hard numbers on these improvements see Benefits. The payoff to shareholders issignificant and documented. A history of these developments is at “A Brief History of (JustIn) Time.”

Lean manufacturing or lean production, which is often known simply as “Lean”,is the optimal way of producing goods through the removal of waste and implementingflow, as oppose to batch and queue. Lean manufacturing is a generic process managementphilosophy derived mostly from the Toyota Production System (TPS). It is renowned forits focus on reduction of the original Toyota seven wastes in order to improve overallcustomer value, but there are varying perspectives on how this is best achieved. The steadygrowth of Toyota, from a small company to the world’s largest automaker, has focusedattention upon how it has achieved this.

For many, Lean is the set of “tools” that assist in the identification and steadyelimination of waste (muda). As waste is eliminated quality improves whileproduction time and cost is reduced. The “tools” consist of value stream mapping,5-S, Kan-ban (pull systems), and poka-yoke (error-proofing).

There is a second approach to Lean Manufacturing, which is promoted by Toyota, inwhich the focus is upon improving the “flow” or smoothness of work (thereby steadilyeliminating mura; “unevenness”) through the system and not upon ‘waste reduction’ per se.Techniques to improve flow include production levelling, “pull” production (by means of

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kanban) and the Heijunka box. This is a fundamentally different approach to mostimprovement methodologies which may partially account for its lack of popularity.

The difference between these two approaches is not the goal but the prime approachto achieving it. The implementation of smooth flow exposes quality problems which alreadyexisted and thus waste reduction naturally happens as a consequence. The advantageclaimed for this approach is that it naturally takes a system-wide perspective whereas awaste focus has this perspective, sometimes wrongly, assumed. Some Toyota staff haveexpressed some surprise at the tool-based approach as they see the tools as work-aroundsmade necessary where flow could not be fully implemented and not as aims in themselves.

Both Lean and TPS can be seen as a loosely connected set of potentially competingprinciples whose goal is cost reduction by the elimination of waste. These principles include:Pull processing, Perfect first-time quality, Waste minimization, Continuous improvement,Flexibility, Building and maintaining a long term relationship with suppliers, Automation,Load leveling and Production flow and Visual control. The disconnected nature of some ofthese principles perhaps springs from the fact that the TPS has grown pragmatically since1948 as it responded to the problems it saw within its own production facilities. Thus whatone sees today is the result of a ‘need’ driven learning to improve where each step has builton previous ideas and not something based upon a theoretical framework. Toyota’s viewis that the main method of Lean is not the tools, but the reduction of three types of waste:muda “non-value-adding work”, muri “overburden”, and mura “unevenness”, to exposeproblems systematically and to use the tools where the ideal cannot be achieved. Thus thetools are, in their view, workarounds adapted to different situations, which explains anyapparent incoherence of the principles above.

The TPS has two pillar concepts: Just-in-Time (JIT) or “flow”, and “autonomation”(smart automation). Adherents of the Toyota approach would say that the smooth flowingdelivery of value achieves all these improvements as a side-effect. If production flowsperfectly then there is no inventory, if customer valued features are the only ones producedthen product design is simplified and effort is only expended on features the customervalues. The other of the two TPS pillars is the very human aspect of autonomation, wherebyautomation is achieved with a human touch. This aims to give the machines enoughintelligence to recognise when they are working abnormally and flag this for human attention.Thus humans do not have to monitor normal production and only have to focus on abnormal,or fault, conditions. A reduction in human workload that is probably much desired by allinvolved since it removes much routine and repetitive activity that humans often do notenjoy and where they are therefore not at their most effective.

Lean implementation is therefore focused on getting the right things, to the right place,at the right time, in the right quantity to achieve perfect work flow while minimizing wasteand being flexible and able to change. These concepts of flexibility and change are principally


NOTES


required to allow production levelling, using tools like SMED, but have their analogues inother processes such as research and development (R&D). The flexibility and ability tochange are not open-ended, and therefore often not expensive capability requirements.More importantly, all of these concepts have to be understood, appreciated, and embracedby the actual employees who build the products and therefore own the processes thatdeliver the value. The cultural and managerial aspects of Lean are just as important as, andpossibly more important than, the actual tools or methodologies of production itself. Thereare many examples of Lean tool implementation without sustained benefit and these areoften blamed on weak understanding of Lean in the organization.

Lean aims to make the work simple enough to understand, to do and to manage. Toachieve these three at once there is a belief held by some that Toyota’s mentoring process(loosely called Senpai and Kohai), is one of the best ways to foster Lean Thinking up anddown the organizational structure. This is the process undertaken by Toyota as it helps itssuppliers to improve their own production. The closest equivalent to Toyota’s mentoringprocess is the concept of “Lean Sensei”, which encourages companies, organizations, andteams to seek out outside, third-party experts, who can provide unbiased advice andcoaching,

History of waste reduction thinking

Pre-20th Century

Most of the basic goals of lean manufacturing are common sense and documentedexamples can be seen back to at least Benjamin Franklin. Poor Richard’s Almanack saysof wasted time, “He that idly loses 5s. [[[shilling]]s] worth of time, loses 5s., and might asprudently throw 5s. into the river.” He added that avoiding unnecessary costs could bemore profitable than increasing sales: “A penny saved is two pence clear. A pin a-day is agroat a-year. Save and have.”

Again Franklin’s The Way to Wealth says the following about carrying unnecessaryinventory. “You call them goods; but, if you do not take care, they will prove evils to someof you. You expect they will be sold cheap, and, perhaps, they may [be bought] for lessthan they cost; but, if you have no occasion for them, they must be dear to you. Rememberwhat Poor Richard says, ‘Buy what thou hast no need of, and ere long thou shalt sell thynecessaries.’ In another place he says, ‘Many have been ruined by buying good pennyworths’.” Henry Ford cited Franklin as a major influence on his own business practices,which included Just-in-time manufacturing.

The concept of waste being built into jobs and then taken for granted was noticed bymotion efficiency expert Frank Gilbreth, who saw that masons bent over to pick up bricksfrom the ground. The bricklayer was therefore lowering and raising his entire upper bodyto get a 5 pound (2.3 kg) brick but this inefficiency had been built into the job through long

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practice. Introduction of a non-stooping scaffold, which delivered the bricks at waist level,allowed masons to work about three times as quickly, and with less effort.

20th Century

Frederick Winslow Taylor, the father of scientific management, introduced what arenow called standardization and best practice deployment. In his Principles of ScientificManagement, (1911), Taylor said: “And whenever a workman proposes an improvement,it should be the policy of the management to make a careful analysis of the new method,and if necessary conduct a series of experiments to determine accurately the relative meritof the new suggestion and of the old standard. And whenever the new method is found tobe markedly superior to the old, it should be adopted as the standard for the wholeestablishment.”

Taylor also warned explicitly against cutting piece rates (or, by implication, cuttingwages or discharging workers) when efficiency improvements reduce the need for rawlabor: “…after a workman has had the price per piece of the work he is doing loweredtwo or three times as a result of his having worked harder and increased his output, he islikely entirely to lose sight of his employer’s side of the case and become imbued with agrim determination to have no more cuts if soldiering [marking time, just doing what he istold] can prevent it.”

Shigeo Shingo, the best-known exponent of single minute exchange of die (SMED)and error-proofing or poka-yoke, cites Principles of Scientific Management as his inspiration.

American industrialists recognized the threat of cheap offshore labor to Americanworkers during the 1910s, and explicitly stated the goal of what is now called leanmanufacturing as a countermeasure. Henry Towne, past President of the American Societyof Mechanical Engineers, wrote in the Foreword to Frederick Winslow Taylor’s ShopManagement (1911), “We are justly proud of the high wage rates which prevail throughoutour country, and jealous of any interference with them by the products of the cheaper laborof other countries. To maintain this condition, to strengthen our control of home markets,and, above all, to broaden our opportunities in foreign markets where we must competewith the products of other industrial nations, we should welcome and encourage everyinfluence tending to increase the efficiency of our productive processes.”

Ford starts the ball rolling

Henry Ford continued this focus on waste while developing his mass assemblymanufacturing system. Charles Buxton Going wrote in 1915:

Ford’s success has startled the country, almost the world, financially, industrially,mechanically. It exhibits in higher degree than most persons would have thought possiblethe seemingly contradictory requirements of true efficiency, which are: constant increase of


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quality, great increase of pay to the workers, repeated reduction in cost to the consumer.And with these appears, as at once cause and effect, an absolutely incredible enlargementof output reaching something like one hundredfold in less than ten years, and an enormousprofit to the manufacturer.

Ford, in My Life and Work (1922), provided a single-paragraph description thatencompasses the entire concept of waste:

“I believe that the average farmer puts to a really useful purpose only about 5%. ofthe energy he expends.... Not only is everything done by hand, but seldom is a thoughtgiven to a logical arrangement. A farmer doing his chores will walk up and down a ricketyladder a dozen times. He will carry water for years instead of putting in a few lengths ofpipe. His whole idea, when there is extra work to do, is to hire extra men. He thinks ofputting money into improvements as an expense.... It is waste motion— waste effort—that makes farm prices high and profits low.

Poor arrangement of the workplace—a major focus of the modern kaizen—and doing ajob inefficiently out of habit—are major forms of waste even in modern workplaces”.

Ford also pointed out how easy it was to overlook material waste. A former employee,Harry Bennett, wrote:

“One day when Mr. Ford and I were together he spotted some rust in the slag thatballasted the right of way of the D. T. & I [railroad]. This slag had been dumped there fromour own furnaces. ‘You know,’ Mr. Ford said to me, ‘there’s iron in that slag. You makethe crane crews who put it out there sort it over, and take it back to the plant.”

In other words, Ford saw the rust and realized that the steel plant was not recoveringall of the iron.

Design for Manufacture (DFM) also is a Ford concept. Ford said (in My Life andWork)... “entirely useless parts [may be]—a shoe, a dress, a house, a piece of machinery,a railroad, a steamship, an airplane. As we cut out useless parts and simplify necessaryones, we also cut down the cost of making. ... But also it is to be remembered that all theparts are designed so that they can be most easily made.”

The same reference describes just in time manufacturing very explicitly.

While Ford is renowned for his production line it is often not recognized how mucheffort he put into removing the fitters’ work in order to make the production line possible.Until Ford, a car’s components always had to be fitted or reshaped by a skilled engineerat the point of use, so that they would connect properly. By enforcing very strict specificationand quality criteria on component manufacture, he eliminated this work almost entirely,reducing manufacturing effort by between 60-90%.[9] However, Ford’s mass production

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system failed to incorporate the notion of “pull production” and thus often suffered fromover-production.

5.23 PROCESS SYNCHRONIZATION AT TOYOTA DEVELOPS LEAN THINKING

Toyota’s development of ideas that later became Lean may have started at the turn ofthe 20th century with Sakichi Toyoda, in a textile factory with looms that stopped themselveswhen a thread broke, this became the seed of autonomation and Jidoka. Toyota’s journeywith JIT may have started back in 1934 when it moved from textiles to produce its firstcar. Kiichiro Toyoda, founder of Toyota, directed the engine casting work and discoveredmany problems in their manufacture. He decided he must stop the repairing of poor qualityby intense study of each stage of the process. In 1936, when Toyota won its first truckcontract with the Japanese government, his processes hit new problems and he developedthe “Kaizen” improvement teams.

Levels of demand in the Post War economy of Japan were low and the focus of massproduction on lowest cost per item via economies of scale therefore had little application.Having visited and seen supermarkets in the USA, Taiichi Ohno recognised the schedulingof work should not be driven by sales or production targets but by actual sales. Given thefinancial situation during this period over-production had to be avoided and thus the notionof Pull (build to order rather than target driven Push) came to underpin productionscheduling.

It was with Taiichi Ohno at Toyota that these themes came together. He built on thealready existing internal schools of thought and spread their breadth and use into what hasnow become the Toyota Production System (TPS). It is principally from the TPS, but nowincluding many other sources, that Lean production is developing. Norman Bodek wrotethe following in his foreword to a reprint of Ford’s Today and Tomorrow:

I was first introduced to the concepts of just-in-time (JIT) and the Toyota productionsystem in 1980. Subsequently I had the opportunity to witness its actual application atToyota on one of our numerous Japanese study missions. There I met Mr. Taiichi Ohno,the system’s creator. When bombarded with questions from our group on what inspiredhis thinking, he just laughed and said he learned it all from Henry Ford’s book.” It is thescale, rigour and continuous learning aspects of the TPS which have made it a core ofLean.

Types of wastes

While the elimination of waste seem like a simple and clear subject it is noticeable thatwaste is often very conservatively identified. This then hugely reduces the potential of suchan aim. The elimination of waste is the goal of Lean, and Toyota defined three types ofwaste: muda, muri and mura.


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To illustrate the state of this thinking Shigeo Shingo observed that only the last turn ofa bolt that tightens it—the rest is just movement. This ever finer clarification of waste is keyto establishing distinctions between value-adding activity, waste and non-value-adding work.Non-value adding work is waste that must be done under the present work conditions.One key is to measure, or estimate, the size of these wastes, in order to demonstrate theeffect of the changes achieved and therefore the movement towards the goal.

The “flow” (or smoothness) based approach aims to achieve JIT, by removing thevariation caused by work scheduling and thereby provide a driver, rationale or target andpriorities for implementation, using a variety of techniques. The effort to achieve JIT exposesmany quality problems that are hidden by buffer stocks; by forcing smooth flow of onlyvalue-adding steps, these problems become visible and must be dealt with explicitly.

Muri is all the unreasonable work that management imposes on workers and machinesbecause of poor organization, such as carrying heavy weights, moving things around,dangerous tasks, even working significantly faster than usual. It is pushing a person or amachine beyond its natural limits. This may simply be asking a greater level of performancefrom a process than it can handle without taking shortcuts and informally modifying decisioncriteria. Unreasonable work is almost always a cause of multiple variations.

To link these three concepts is straightforward. Firstly, muri focuses on the preparationand planning of the process, or what work can be avoided proactively by design. Next,mura then focuses on implementation and the elimination of fluctuation at the scheduling oroperations level, such as quality and volume. Muda is discovered after the process is inplace and is dealt with reactively. It is seen through variation in output. It is the role ofmanagement to examine the muda, in the processes and eliminate the deeper causes byconsidering the connections to the muri and mura of the system. The muda and murainconsistencies must be fed back to the muri, or planning, stage for the next project.

A typical example of the interplay of these wastes is the corporate behaviour of “makingthe numbers” as the end of a reporting period approaches. Demand is raised, increasing(mura), when the “numbers” are low which causes production to try to squeeze extracapacity from the process which causes routines and standards to be modified or stretched.This stretch and improvisation leads to muri-style waste which leads to downtime, mistakesand backflows and waiting, thus the muda of waiting, correction and movement.

The original seven muda are:

Overproduction (production ahead of demand)

Transportation (moving products that is not actually required to perform theprocessing)

Waiting (waiting for the next production step)

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Inventory (all components, work-in-progress and finished product not beingprocessed)

Motion (people or equipment moving or walking more than is required to performthe processing)

Over Processing (due to poor tool or product design creating activity)

Defects (the effort involved in inspecting for and fixing defects)

Some of these definitions may seem rather idealistic, but this tough definition is seenas important. The clear identification of non-value-adding work, as distinct from wastedwork, is critical to identifying the assumptions behind the current work process and tochallenging them in due course.[12] Breakthroughs in SMED and other process changingtechniques rely upon clear identification of where untapped opportunities may lie if theprocessing assumptions are challenged.

5.24 PROCESS IMPROVEMENT AND LEAN IMPLEMENTATION

System engineering

Lean is about more than just cutting costs in the factory. One crucial insight is thatmost costs are assigned when a product is designed, Often an engineer will specify familiar,safe materials and processes rather than inexpensive, efficient ones. This reduces projectrisk, that is, the cost to the engineer, while increasing financial risks, and decreasing profits.Good organizations develop and review checklists to review product designs.

Companies must often look beyond the shop-floor to find opportunities for improv-ing overall company cost and performance. At the system engineering level, requirementsare reviewed with marketing and customer representatives to eliminate those requirementswhich are costly. Shared modules may be developed, such as multipurpose power sup-plies or shared mechanical components or fasteners. Requirements are assigned to thecheapest discipline. For example, adjustments may be moved into software, and measure-ments away from a mechanical solution to an electronic solution. Another approach is tochoose connection or power-transport methods that are cheap or that used standardizedcomponents that become available in a competitive market.


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An example program

In summary, an example of a lean implementation program could be:-

Lean Leadership

The role of the leaders within the organization is the fundamental element of sustainingthe progress of lean thinking. Experienced kaizen members at Toyota, for example, oftenbring up the concepts of Senpai, Kohai, and Sensei, because they strongly feel thattransferring of Toyota culture down and across the Toyota can only happen when moreexperienced Toyota Sensei continuously coach and guide the less experienced leanchampions. Unfortunately, most lean practitioners in North America focus on the tools and

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methodologies of lean, versus the philosophy and culture of lean. Some exceptions includeShingijitsu Consulting out of Japan, which is made up of ex-Toyota managers, and LeanSensei International based in North America, which coaches lean through Toyota-stylecultural experience.

One of the dislocative effects of Lean is in the area of key performance indicators(KPI). The KPIs by which a plant/facility are judged will often be driving behaviour, becausethe KPIs themselves assume a particular approach to the work being done. This can be anissue where, for example a truly Lean, Fixed Repeating Schedule (FRS) and JIT approachis adopted, because these KPIs will no longer reflect performance, as the assumptions onwhich they are based become invalid. It is a key leadership challenge to manage the impactof this KPI chaos within the organization. A set of performance metrics which is consideredto fit well in a Lean environment is Overall Equipment Effectiveness, or OEE.

Similarly, commonly-used accounting systems developed to support mass productionare no longer appropriate for companies pursuing Lean. Lean Accounting provides trulyLean approaches to business management and financial reporting.

Key focus areas for leaders are PDCA thinking

Genchi Genbutsu “go and see” philosophy

Process confirmation

5.25 DIFFERENCES FROM TPS

Whilst Lean is seen by many as a generalization of the Toyota Production System intoother industries and contexts there are some acknowledged differences that seem to havedeveloped in implementation.

1. Seeking profit is a relentless focus for Toyota exemplified by the profit maximizationprinciple (Price – Cost = Profit) and the need, therefore, to practice systematiccost reduction (through TPS or otherwise) in order to realize benefit. Leanimplementations can tend to de-emphasise this key measure and thus becomefixated with the implementation of improvement concepts of “flow” or “pull”.

2. Tool orientation is a tendency in many programs to elevate mere tools(standardized work, value stream mapping, visual control, etc.) to an unhealthystatus beyond their pragmatic intent. The tools are just different ways to workaroundcertain types of problems but they don’t solve them for you or always highlight theunderlying cause of many types of problems. The tools employed at Toyota areoften used to expose particular problems that are then dealt with, as each tool’slimitations or blindspots are perhaps better understood. So, for example, ValueStream Mapping focuses upon material and information flow problems (a title


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built into the Toyota title for this activity) but is not strong on Metrics, Man orMethod. Internally they well know the limits of the tool and understood that it wasnever intended as the best way to see and analyze every waste or every problemrelated to quality, downtime, personnel development, cross training related issues,capacity bottlenecks, or anything to do with profits, safety, metrics or morale, etc.No one tool can do all of that. For surfacing these issues other tools are muchmore widely and effectively used.

3. Management technique rather than Change agents has been a principle inToyota from the early 1950’s when they started emphasizing the development ofthe production manager’s and supervisor’s skills set in guiding natural work teamsand did not rely upon staff level change agents to drive improvements. This canmanifest itself as a “Push” implementation of Lean rather than “Pull” by the teamitself. This area of skills development is not that of the change agent specialist, butthat of the natural operations work team leader. Although less prestigious than theTPS specialists, development of work team supervisors in Toyota is consideredan equally, if not more important, topic merely because there are tens of thousandsof these individuals. Specifically, it is these manufacturing leaders that are the mainfocus of training efforts in Toyota since they lead the daily work areas, and theydirectly and dramatically affect quality, cost, productivity, safety, and morale of theteam environment. In many companies implementing Lean the reverse set ofpriorities is true. Emphasis is put on developing the specialist, while the supervisorskill level is expected to somehow develop over time on its own.

5.26 LEAN SERVICES

Lean, as a concept or brand, has captured the imagination of many in different spheresof activity. Examples of these from many sectors are listed below.

Lean principles have been successfully applied to call center services to improve liveagent call handling. By combining Agent-assisted Voice Solutions and Lean’s waste reductionpractices, a company reduced handle time, reduced between agent variablity, reducedaccent bariers, and attained near perfect process adherence.

A study conducted on behalf of the Scottish Executive, by Warwick University, in2005/06 found that Lean methods were applicable to the public sector, but that mostresults had been achieved using a much more restricted range of techniques than Leanprovides.

The challenge in moving Lean to services is the lack of widely available referenceimplementations to allow people to see how it can work and the impact it does have. Thismakes it more difficult to build the level of belief seen as necessary for strong implementation.It is also the case that the manufacturing examples of ‘techniques’ or ‘tools’ need to be‘translated’ into a service context which has not yet received the level of work or publicitythat would give starting points for implementors. The upshot of this is that each implementation

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often ‘feels its way’ along as must the early industrial engineers of Toyota. This places hugeimportance upon sponsorship to encourage and protect these experimental developments.

Just-in-Time

JIT is the most used and recognized lean manufacturing technique. For many yearsjust-in-time has been misused or misunderstood for many American manufacturingcompanies. According to the book, “Running Today’s Factory”, some people think thatJIT means Just Implement Techniques, in other words, use “best practices”. The correctdefinition of just-in-time is having the right part at the right place in the right amount at theright time. This technique shortens cycle times, decreases the amount of inventory that acompany carries, leads to low work-in-process (WIP), and creates a flexible atmospherefor the type or amount of product that a company would like to run and most of all streamlineswork flow through a manufacturing facility.

Problems

A lean process requires reduced variability and uncertainty in the supply chain toreduce needs for raw materials and finished goods inventories.

In order to reduce lot sizes and achieve reduced work in process inventory in an economicalfashion, fixed costs of batching and ordering would have to be reduced first.

Finally, seasonal effects might give incentive to buffer the production process againstknown shifts in demand in order to avoid costly shifts in production levels.

Without a reduction in fixed costs or uncertainty, Lean supply chains are subject to longerflow times and reduced throughput, and potentially reduced economic performance.

SUMMARY

The importance of process and its flow within the organisation plays a key role indetermining the success of the firm. Ill conceived and poorly designed processes can makethe bottom line the a focused area – of course in the negative sense. The metrics used tomeasure the flow and its effect will have a say on the long term health of the organisation.

REVIEW QUESTIONS

1. Using an example, discuss the importance of the process in an organisation?

2. ‘Service process is more important than the process used in manufacturing’ –Comment and Examine.

3. Enumerate the metrics used in the flow time measurement? Highlight one of itsapplication?

4. ‘Lean means shedding extra fat and nothing else’ – Discuss.

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