Chapter 10: Long-Term Planning

CHAPTER 10: LONG-TERM PLANNING

(FACILITIES, LOCATION AND LAYOUT)

TRUE/FALSE

Regional facilities planning calls upon a wealth of knowledge and great skills.

ANS:T

For facilities planning regarding location and layout, strategic thinking is essential to gain suboptimization.

ANS:F

Location factors can be dealt with in both qualitative and quantitative fashions.

ANS:T

Layout is an exterior design problem that strongly interacts with structure and specific site selection and equipment choice.

ANS:F

To rent, buy, or build requires specialists who know domestic (and sometimes) international real estate markets.

ANS:T

Auto assembly plants benefit from inventory reduction and location is a factor.

ANS:T

Locating close to customers is not a competitive advantage.

ANS:F

Trade agreements and country laws are increasingly important in reaching global location decisions.

ANS:T

In TM (transportation model) terminology, those receiving shipments (producers) are called “sources” and shippers (suppliers) are called “destinations.”

ANS:F

Supply in a TM model is what plants can produce at maximum capacity.

ANS:T

Minimum cost allocation can be determined by the transportation model in a satisfactory way as long as nonlinearity of shipping costs prevails.

ANS:F

Job shops entail large investments in the design of the process.

ANS:F

Technological information and knowledge of real process details are required to reach good decisions.

ANS:T

Continuous-process industries, like petrochemicals, have to build to process specifications.

ANS:T

The costs of moving from one location to another should not have to include temporary production stoppage costs.

ANS:F

Scoring models provide satisfying means for organizing and combining qualitative estimates and hard numbers.

ANS:T

The dimension of community attitude is a good instance of a tangible factor which can be measured in a precise and non-ambiguous way.

ANS:F

Averaging the scores of multiple decision makers increases overall scoring variability.

ANS:F

Facility layout precedes equipment selection. For example, buy the house and then furnish it.

ANS:F

Opportunity costs are the costs of choosing options that are optimal.

ANS:F

Seven measures of layout effectiveness are: Capacity; Balance; Amount of Investment and Operation Costs; Flexibility to Change Layouts; Amount of WIP; Distance that parts Travel; and Storage Space for WIP and handling equipment.

ANS:T

Strategic thinking is essential to avoid suboptimization.

ANS:T

The easiest way to define suboptimization is that it is less good than optimization. It is a result, or a series of results, that strays from achieving the precise objectives that drive strategies. However, it may be close.

ANS:T

MULTIPLE CHOICE

Suboptimization is best described as

a. / results that stray from achieving the objectives that drive strategies.
b. / plans for arranging satisfactory working environments using company facilities.
c. / satisfactory alternative strategies for building a new facility.
d. / the result, or series of results, that achieve the strategic-driven objectives.

ANS:A

Which is not a component of facilities planning?

a. / location / d. / layout of equipment and people
b. / language spoken / e. / structure and site
c. / equipment

ANS:B

Choice of a specific building is often best decided after the

a. / equipment is chosen.
b. / layout of the facility has been created.
c. / location is chosen.
d. / cost is determined.

ANS:C

Choosing the location of a plant is crucial because

a. / labor skills may only be available in certain places.
b. / closeness to market often counts.
c. / closeness to suppliers often counts.
d. / tax laws may be vital.
e. / all of the above

ANS:E

Best location is related to the function of the _____ and the _____ of its products and services.

a. / distance traveled; productivity / c. / plant layout; productivity
b. / facility; characteristics / d. / demand system; supply setup

ANS:B

Which of the following location criteria are not important to customers of service systems?

a. / municipal taxes paid by company / c. / proximity of location
b. / price for services / d. / cost of moving to and from

ANS:A

Services are strongly affected by

a. / layout of facility. / d. / equipment used at the facility.
b. / structure used by facility. / e. / all of the above and more
c. / location of facility.

ANS:E

What factor(s) can affect location decisions?

a. / taxes / c. / personal preferences
b. / process inputs and outputs / d. / all of the above

ANS:D

In TM (transportation model) terminology, _____ are called sources or origins.

a. / sinks / c. / shippers
b. / destinations / d. / marketers

ANS:C

In TM (transportation model) terminology, those that receive shipments are called

a. / shippers. / d. / both a and c
b. / sinks. / e. / both b and c
c. / destinations.

ANS:E

What markets want to buy is known as

a. / supply. / c. / supply and demand.
b. / demand. / d. / none of the above

ANS:B

Which issue is not addressed by the transportation model?

a. / transport cost / c. / supply and demand
b. / renting or building / d. / number of sources

ANS:B

Some explanations for plants producing output units at different costs might be

a. / different type of processes.
b. / tax, tariff, and government regulation differentials.
c. / different labor and material costs.
d. / both a and c
e. / a, b, and c

ANS:E

Location, structure, and site come as a package of tangible and intangible conditions that have costs. What are some of the costs?

a. / opportunity cost of not relocating
b. / temporary production stoppage costs
c. / cost of land
d. / all of the above

ANS:D

_____ permit the simultaneous evaluation of tangible and intangible costs.

a. / Scoring models / c. / Sensitivity analyses
b. / Transportation models / d. / Pure number models

ANS:A

______can be created with the goal of cost minimization or profit maximization.

a. / Scoring models / c. / Systems synthesis and analysis
b. / Transportation models / d. / Pure number models

ANS:B

Which is not an intangible cost?

a. / community attitude
b. / taxes per year
c. / ease of relocating
d. / product quality as a function of operators’ skills and morale

ANS:B

_____ organize a lot of information that is relevant for location decisions.

a. / Scoring models / c. / Assignment models
b. / Transportation models / d. / Flow shop models

ANS:A

_____ is a systems breakeven value for the cost of layout improvement that takes into account quality, productivity, and employees’ health.

a. / CPI / d. / HB
b. / OC / e. / PI
c. / QI

ANS:A

Five basic types of layouts are identified in the text. Which of the following choices is not listed as a type of layout?

a. / job shop process layouts / d. / group technology layouts
b. / improvement layouts / e. / product-oriented layouts
c. / cellular layouts

ANS:B

Group technology cells are associated with all of the following except

a. / continuous process layouts. / d. / hybrid layouts.
b. / product-oriented layouts. / e. / cellular layouts.
c. / families of parts.

ANS:A

One main objective of smart plant layouts is

a. / minimize the total unit-distances traveled.
b. / minimize storage costs.
c. / maximize the return on equity.
d. / maximize modularity.

ANS:A

Factorial computations play a part in determining how many combinations of possible plant layouts need to be considered. How many combinations need to be studied with five work centers?

a. / 25 / c. / 3125
b. / 120 / d. / 60

ANS:B

Heuristics are methods for discovering solutions without computing every possible combination. Heuristics are guides for problem-solving and procedures for experimental learning. One of the most popular heuristics is the _____ technique with feedback to reward steps in the right direction.

a. / matrix iteration / c. / layout factorial
b. / random walk / d. / trial and error

ANS:D

_____ locations are often chosen to be at the center of dense population zones.

a. / Warehouse / c. / Department store
b. / Supermarket / d. / both b and c

ANS:D

Service industries locate close to _____ to achieve the kind of contact that characterizes good service.

a. / suppliers / c. / raw materials
b. / customers / d. / vendors

ANS:B

There are four main components of facilities planning and they strongly interact with each other. Which of the following are included?

a. / Location of facilities
b. / Structure and specific site selection
c. / Equipment choice
d. / all of the above

ANS:D

_____ is an interior design problem that strongly interacts with structure and specific site selection and equipment choice.

a. / Bottlenecks / c. / Transportation Models
b. / Layout / d. / all of the above

ANS:B

_____ are often chosen to be at the center of dense population zones.

a. / Gas stations / c. / both a and b
b. / Restaurants / d. / neither a nor b

ANS:C

The decision to be a nearby just-in-time supplier requires a mutual interchange of _____.

a. / good and services / c. / trust and loyalty
b. / raw materials and WIP / d. / all of the above

ANS:C

Transportation costs are a _____ for a new start-up company or division.

a. / trivial matter / c. / secondary concern
b. / primary concern / d. / none of the above

ANS:B

The _____ can determine minimum cost or maximum profit solutions that specify optimal shipping patterns between many locations.

a. / TM / c. / RP
b. / WIP / d. / CPI

ANS:A

The TM can include much more than just transportation costs. It can reflect price differences in markets that are _____.

a. / regional / c. / international
b. / domestic / d. / all of the above

ANS:D

Continuous-process industries-like petrochemicals-have to build according to

a. / process specification. / c. / location of the plant.
b. / the production line. / d. / all of the above

ANS:A

The scoring model permits:

a. / the simultaneous evaluation of goods and services.
b. / the simultaneous evaluation of tangible and intangible costs.
c. / the comparison among strategic location alternatives.
d. / both b and c

ANS:D

Averaging the scores of multiple decision makers:

a. / reduces variability. / c. / does not affect variability.
b. / increases variability. / d. / none of the above

ANS:A

The effect of life cycle stages (start-up, growth, maturity, and withdrawal) on equipment selection is:

a. / significant.
b. / significant in other areas but not in equipment.
c. / not significantly affected by depreciation.
d. / both b and c

ANS:A

Opportunity costs are:

a. / the costs of doing less than best.
b. / the costs of delaying decisions.
c. / usually helpful in improving layout.
d. / both a and b

ANS:A

Deterioration of worker morale is _____ before it impacts quality/productivity on a measurable level.

a. / not detectable / c. / never hidden
b. / often detectable / d. / none of the above

ANS:B

Which of the following are part of the five basic types of layouts?

a. / Job shop process layout / c. / Cellular layout
b. / Product-oriented layout / d. / all of the above

ANS:D

_____ are graphic methods of trial and error that are used by interior decorators.

a. / Floor plan drawings / c. / Floor plan models
b. / Dimensional plans / d. / all of the above

ANS:A

_____ locate equipment and people together to do specific kinds of jobs.

a. / Work centers / c. / Job shops
b. / Team stations / d. / Work cells

ANS:A

SHORT ANSWER

Discuss how regional planning differs from national and international planning for facilities management. What is expected of P/OM managers?

ANS:

A P/OM manager might have good regional experience, but lack the breadth of vision required for national planning. International planning of facilities is even more demanding. The global supply chain requires cooperation with a team of experts who know the culture and habits for their own part of the world. P/OM managers who are central to corporate planning need to elicit the trust and cooperation of their counterparts from all over the world to operate a successful supply chain system.

List two key roles of P/OM as it applies to facilities management.

ANS:

First, P/OM’s experience, with what succeeds and what fails for facilities planning, adds valuable insights to the planning team. Second, P/OM knows how to use facilities planning models developed by operations researchers, management scientists, and location analysts.

In general, what facility issues are services strongly affected by and why?

ANS:

Services are strongly affected by location, structure, site, equipment, and layout because they all participate in making successful contact with customers. Consider as an example, hospitals as a facility that offers services.

List the six factors that can affect location decision.

ANS:

1. Process inputs

2. Process outputs

3. Process requirements

4. Personal preferences

5. Taxes, tariffs, and trade regulations

6. Site and plant availabilities

Give three reasons why the plants in a TM might produce units at different costs.

ANS:

1. Different type processes and cultural factors

2. Tax, tariffs, and government regulation differentials

3. Different labor and material costs.

How can the many tangible and intangible costs be brought together in a unified way?

ANS:

Scoring models provide a satisfying means for organizing and combining qualitative estimates and hard numbers. A strong scoring model uses pure number ratios to compare tangible and intangible qualities.

List the applications that the scoring model is useful for.

ANS:

The scoring model is useful for a wide range of applications in addition to the location problem. It is appropriate for product-, process-, and service-design decisions, equipment selection, vendor choice, warehouse-location plans, etc.

Explain the meaning of CPI < OC(QI + PI +HB)

ANS:

When the cost of layout plan improvement (CPI) is less than the opportunity costs combined of quality improvements (QI) that could be achieved if a new improved layout is used (and similar reasoning for potential productivity improvements (PI) and health benefits (HB) that are bypassed)—then the improved layout should be approved and expedited. This is like saying when the cost of not doing something that would benefit the system is greater than the cost of doing that thing—do it!

PROBLEM

The cost of improving a plant layout is $200,000. This amount is to be depreciated over a five-year period. The estimated annual improvements in profit are $10,000 from better quality, $8,000 from higher productivity, and $15,000 from health benefits. Is the layout improvement recommended?

ANS:

Straight-line depreciation of $200,000 over five years costs $40,000 per year. The resulting yearly improvements in profit are $10,000 (better quality) + $8,000 (higher productivity) + $15,000 (health benefits) = $33,000. Since the benefits do not exceed the cost, the layout is not recommended. But notice that if you could depreciate the improvement over ten years, then the comparison would be benefits $33,000 and costs $20,000. If the latter plan could be used, some major improvements to health, productivity and quality could be obtained year after year.

The cost of improving the plant layout is $50,000 to be depreciated over a three-year period. The estimated annual improvements in profit are $1,000 from better quality, $2,000 from higher productivity, and $15,000 from health benefits. Is this layout improvement recommended?

ANS:

Straight-line depreciation of $50,000 over three years costs $16,667 per year. The resulting yearly improvements in profit are $1,000 (better quality) + $2,000 (higher productivity) + $15,000 (health benefits) = $18,000. Since these benefits exceed the cost by $1,333.33, the layout improvement is recommended.

The cost of improving the office layout is $27,000 to be treated as a one-time expense. The office manager does not have any way of estimating improved profits resulting from quality changes but says that the new layout will save time and miles of walking for the 40 office employees. She estimates that the new layout will cut the amount of walking for the average employee by 100 miles per year. How much will the layout improvement be worth?

ANS:

First: 40 employees  100 miles = 4,000 total miles of walking per year can be eliminated.

Second, the cost of the improvement will be $27,000/4,000 or $6.75 per mile.

This seems to be a good investment for the following reasons. Four thousand (4,000) miles of non-productive employee walking time are eliminated per year (40 employees  100 miles) by means of a $27,000 one-time investment. Using an average walking speed of 3 miles per hour, this represents 1,333 hours saved. If the average pay per hour if $15.00, the savings is $20,000 per year and $27,000 is paid off in about 1.3 years. Also, people are not as tired and there may be more motivation to talk with each other at tea and coffee breaks about creative improvements for the company.

The cost of improving the office layout is $70,000 to be treated as a one-time expense. The office manager does not have any way of estimating improved profits resulting from quality changes but says that the new layout will save time and miles of walking for the 110 office employees. She estimates that the new layout will cut the amount of walking for the average employee by 150 miles per year. How much will the layout improvement be worth?

ANS:

First: 110 employees  150 miles = 16,500 total miles of walking per year can be eliminated.

Second, the cost of the improvement will be $70,000/16,500 or $4.2424 per mile, which seems like a good investment for the following reasons.

Sixteen thousand, five hundred (16,500) miles of non-productive employee walking time are eliminated per year (110 employees  150 miles) by means of a $70,000 one-time investment.

Using an average walking speed of 4 miles per hour, this represents 4,125 hours saved. If the average pay per hour if $15.00, the savings is $61,875 per year and $70,000 is paid off in a little more than one year. Walking at 4 mph may be true of young and in-shape workers. For the average let us calculate 3 mph below.

Using an average walking speed of 3 miles per hour, this represents 5,500 hours saved. If the average pay per hour if $15.00, the savings is $82,500 per year and $70,000 is paid off in less than a year. Some overweight workers may walk at less than 3 mph but the walking may have a fitness benefit. The entire system should be looked at before making any investment.

A feasible solution for a 3-plant, 3-market problem is given below.

Markets / Supply/Day
Plants / MA / MB / MD
P1 / 40 / 20 / 60
P2 / 40 / 30 / 70
P3 / 60 / 60
Demand/Day / 40 / 60 / 90

The costs of shipping per unit are given in the following table.

Markets
Plants / MA / MB / MD
P1 / $ 20 / $ 32 / $ 21
P2 / $ 18 / $ 29 / $ 19
P3 / $28 / $ 35 / $ 40

What is the total cost associated with this assignment?

Total Cost From Each Plant to Each Market
Markets
Plants / MA / MB / MD
P1 / $800 / $640 / $0
P2 / $0 / $1,160 / $570
P3 / $0 / $0 / $2,400
Grand Total Cost / $5,570

See Excel File “TB: Facilities, Problems 5, 6 and 7” for detailed calculations.

Additional problems can be generated by changing the values of the variables.

The American Company has two factories, A and B, located in Wilmington, Delaware, and San Francisco, California. Each has a production capacity of 650 units per week. American’s markets are centered in Los Angeles, Chicago, and New York City. The demands of these markets are for 300, 600 and 400 units, respectively, in the coming week. A matrix of shipping distances is prepared. Determine the shipping schedule that minimizes total shipping distance. Estimates of shipping distances (in miles) are shown in the following matrix, along with supply and demand.

Matrix of Shipping Distances in Miles