Capacity Planning and Facility Location

Chapter 9Pages 304-307, 315 - 322

Operations and Operations Strategy

Designing an Operations System

Managing an Operations System

Done

We are here

Overview of Management 326

Designing an Operations System

Projectmanagement

:A design

tool

• Product design• Process design • Quality system• Lean systems

• Capacity planning• Facility location• Facility layout• Work design

Done We are hereDone

Capacity Planning

Capacity is the maximum output rate of a production or service facility

Capacity planning is the process of establishing the output rate that may be needed at a facility: Capacity is usually purchased in “chunks” Strategic issues: how much and when to

spend capital for additional facility & equipment

Tactical issues: workforce & inventory levels, & day-to-day use of equipment

Measuring Capacity Examples

There is no one best way to measure capacity Output measures like kegs per day are easier to understand With multiple products, inputs measures work better

Type of BusinessInput Measures of

CapacityOutput Measures

of Capacity

Car manufacturer Labor hours Cars per shift

Hospital Available beds Patients per month

Pizza parlor Labor hours Pizzas per day

Retail storeFloor space in square feet

Revenue per foot

Capacity Information Needed

Design capacity: Maximum output rate under ideal

conditions A bakery can make 30 custom cakes per

day when pushed at holiday time Effective capacity:

Maximum output rate under normal (realistic) conditions

On the average this bakery can make 20 custom cakes per day

See also: pages 306-307, class notes

Importance of Location Decisions

Long-term decisions Difficult to reverse Affect fixed & variable costs

Transportation cost for goods As much as 25% of product price

Other costs: Taxes, wages, rent etc.

Objective: Maximize benefit of location to firm

Location StrategiesServices vs. Manufacturing

Service/Retail/Professional Revenue Focus

Volume/revenue Drawing area,

purchasing power Competition;

advertising/pricing Physical quality

Parking/access; security/ lighting; appearance/image

Cost determinants Rent Management caliber Operations policies

(hours, wage rates)

Goods-Producing Location

Cost Focus Tangible costs

Transportation cost of raw materials

Shipment cost of finished goods

Energy and utility cost; labor; raw material; taxes, etc.

Intangible and future costs Attitude toward union Quality of life Education expenditures

by state Quality of state and

local government

Location Decision Sequence

Country

© 1995 Corel Corp.

Region/Community

© 1995 Corel Corp.

Site

© 1995 Corel Corp.

Factors Affecting Country

Government rules, attitudes, political risk, incentives

Culture & economy Market location Labor availability,

attitudes, productivity, and cost

Availability of supplies, communications, energy

© 1995 Corel Corp.

Region Location Decisions Corporate desires Attractiveness of region

(culture, taxes, climate, etc.) Labor, availability, costs,

attitudes towards unions Costs and availability of

utilities Environmental regulations of

state and town Government incentives Proximity to raw materials &

customers Land/construction costs © 1995 Corel Corp.

Factors Affecting Site

Site size and cost Air, rail, highway,

and waterway systems

Zoning restrictions

Nearness of services/supplies needed

Environmental impact issues © 1995 Corel Corp.

Location Decision Example

BMW decided to build its first major manufacturing plant outside Germany in Greer, South Carolina.

© 1995 Corel Corp.

BMW: Country Decision Factors

Market location U.S. is world’s largest

luxury car market Growing (baby boomers)

Labor Lower manufacturing

labor costs $17/hr. (U.S.) vs. $27

(Germany) Higher labor productivity

11 holidays (U.S.) vs. 31 (Germany)

Other Lower shipping

cost ($2,500/car less)

New plant & equipment would increase productivity (lower cost/car $2,000-3000)

BMW: Region andCommunity Decision Factors

Labor Lower wages in South Carolina (SC)

Government incentives $135 million in state & local tax breaks Free-trade zone from airport to plant

No duties on imported components or on exported cars

State employment security service screened applications

Greenville Technical College trained workers