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Capacity Planning and Facility Location

Capacity Planning and Facility Location. Chapter 9 Pages 304-307, 315 - 322. Overview of Management 326. Operations and Operations Strategy. Done. Designing an Operations System. We are here. Managing an Operations System. Designing an Operations System. Done. Done. We are here.

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Capacity Planning and Facility Location

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  1. Capacity Planning and Facility Location Chapter 9 Pages 304-307, 315 - 322

  2. Overview of Management 326 Operations and Operations Strategy Done Designing an Operations System We are here Managing an Operations System

  3. Designing an Operations System Done Done We are here Project management: A design tool • Product design • Process design • Quality system • Lean systems • Capacity planning • Facility location • Facility layout • Work design

  4. Capacity Planning • Capacityis the maximum output rate of a production or service facility • Capacity planningis 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

  5. 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

  6. 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

  7. 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

  8. 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 StrategiesServices vs. Manufacturing

  9. Region/Community Country Site © 1995 Corel Corp. © 1995 Corel Corp. © 1995 Corel Corp. Location Decision Sequence

  10. © 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

  11. 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. Region Location Decisions

  12. Site size and cost Air, rail, highway, and waterway systems Zoning restrictions Nearness of services/supplies needed Environmental impact issues Factors Affecting Site © 1995 Corel Corp.

  13. Location Decision Example BMW decided to build its first major manufacturing plant outside Germany in Greer, South Carolina. © 1995 Corel Corp.

  14. 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) BMW: Country Decision Factors • Other • Lower shipping cost ($2,500/car less) • New plant & equipment would increase productivity (lower cost/car $2,000-3000)

  15. 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

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