Production Decisions: Location, Capacity and Facility Layout in Production Systems, Apuntes de Administración de Empresas

¡Descarga Production Decisions: Location, Capacity and Facility Layout in Production Systems y más Apuntes en PDF de Administración de Empresas solo en Docsity! Sandra Guillamón Salso – Departamento de Economía TOPIC 11 PRODUCTION DECISIONS Sandra Guillamón Salso sguillam@pa.uc3m.es Office: 9.1.09b Departamento de Economía de la Empresa Sandra Guillamón Salso – Departamento de Economía What was production? • Production is the acquisition and transformation of inputs into outputs. It is one of the main functional areas of the firm.  Is the core of the business, i.e. it is the economic activity that creates value added Sandra Guillamón Salso – Departamento de Economía 11.1. Location What is? It is the place where the productive activity takes place. Therefore, it's the location where the productive factors should be transported and where the final products are obtained and transported to the market Sandra Guillamón Salso – Departamento de Economía 11.1. Location Nowadays is it more o less difficult to choose a location? Why? Sandra Guillamón Salso – Departamento de Economía 11.1. Location Aim of location decision: • What is the best location available? Why it is important? • Long-term commitment (cost of changing is very high) • Impact on costs and revenues Factors that affect the decision • Related to the supply side • Related to the demand side The evalu tion of alternatives Sandra Guillamón Salso – Departamento de Economía 11.1. Location Factors that affect the decision: • Location of raw materials  Constraint or centre of a network of transportation • Location of markets  Attract costumer and sharing information • Labor factors  Cost and quality of labor supply • Other factors  Taxes and financial incentives  Industrial supplier network  Technological clusters Sandra Guillamón Salso – Departamento de Economía 11.1. Location Location Planning: Six Step Process 1. Identify sources of value 2. Identify capabilities needed 3. Assess implications of location decision on development of capabilities 4. Identify potential locations 5. Evaluate locations 6. Develop strategy for building network of locations Sandra Guillamón Salso – Departamento de Economía 11.1. Location Stage 1: Regional-International • Minimize transportation costs and provide acceptable service • Proper supply of labor • Wage rates • Unions (right-to-work laws) • Regional taxes, regulations, trade barriers • Political stability To make the decision of WHERE to produce  Identify potential locations and Evaluate locations  3 stages! Sandra Guillamón Salso – Departamento de Economía 11.1. Location There are some methods to help making the location decision. We are only taking into account one: Factor rating How to make the decision?? A method used to compare the attractiveness of several locations along a number of quantitative & qualitative dimensions. Sandra Guillamón Salso – Departamento de Economía 11.1. Location 1. Identify the factors 2. Assign weights (W) to each factor. The weights sum to 1 (or 100). 3. Determine a score for each factor (S). 4. Multiply the factor score by the weight, then sum the weighted scores 5. The location with the highest total weighted score is the recommended location. FACTOR RATING METHOD Sandra Guillamón Salso – Departamento de Economía 11.1. Location Example 1: We are considering two different cities Richmond and Birmingham for the location of a medium-sized Red Bakery Firm. The bakery will produce bakery goods on site and will sell directly to retail customers as well as to grocery stores, restaurants, etc. First we evaluate the factors: Sandra Guillamón Salso – Departamento de Economía 11.1. Location Conclusions: Production activity should be located where a firm can be most productive, and yield the highest revenues per unit of investment: • Near to the market, so that the demand for units of output (and hence price) is high relative to costs of making that input. • Close to a skilled labor force. The easier it is for the firm to attract labor with appropriate skills the more likely it is to produce high value outputs and low costs per unit of output. • Close to high value raw materials. The further materials have to travel the lower the productivity of the plant will be. Sandra Guillamón Salso – Departamento de Economía 11.1. Location Conclusions: Production activity should be located where a firm can be most productive, and yield the highest revenues per unit of investment: • Away from centers of population - for noisy, environmentally unfriendly plant. • Have room for expansion. • Have good communication links. Sandra Guillamón Salso – Departamento de Economía 11.2. Plant Capacity Capacity is often defined as the capability of an object, whether that is a machine, work center, or operator, to produce output for a specific time period, which can be an hour, a day, etc. Time is very important!! Why?? Sandra Guillamón Salso – Departamento de Economía 11.2. Plant Capacity Sometimes it is difficult to determine the capacity of certain industries EXAMPLES: N. of beds in a hospital  Size of the hospital Max n. of patients per month  Capacity (Actual) n. of patients assisted  (Actual) Volume of production N. of patients if overtime work  Peak capacity CAPACITY? Sandra Guillamón Salso – Departamento de Economía 11.2. Plant Capacity Why it is important??? 1. If we don’t have enough capacity to satisfy demand we can loose customers 2. If we have too much capacity we can be generating useless costs and wasting resources and lowering the business’ flexibility • Satisfying in the most efficient way and timely the amount of product required by the market • Achieve a high capacity to reach economies of scale and develop a strategy of leadership in costs OBJECTIVE Sandra Guillamón Salso – Departamento de Economía 11.2. Plant Capacity How to set the capacity of your business? 1. Demand forecast and % market share.  Estimation of the total demand for the product in the sector.  Then, estimation of the market share of our company.  Multiplying both we obtain the demand of our product in our company.  It has to be taken into account the depreciation of machinery to adjust the estimation of capacity in the future. 2. Determine the necessity  < forecasted: taking into account our resources.  > forecasted: to take advantage of the economies of scale.  We always have to take into account the competitors capacity. Sandra Guillamón Salso – Departamento de Economía 11.3. Facility layout By function or Process The various functions are performed at different locations, and the products circulate through the plant following different paths according to its manufacturing order. Process layout is normally used when the production volume is low. is recommended for batch production. Let’s check example Sandra Guillamón Salso – Departamento de Economía 11.3. Facility layout By function or Process Advantages • Machines are better utilized and fewer machines are required. • Flexibility of equipment and personnel is possible • A high degree of flexibility with regards to work distribution to machineries and workers. • The diversity of tasks and variety of job makes the job challenging and interesting. Limitations • Long movements in the handling of materials  less efficient • Material handling cannot be mechanized which adds to cost. • Process time is prolonged  reduce the inventory turnover  Lowered productivity Sandra Guillamón Salso – Departamento de Economía 11.3. Facility layout By Product Machines and auxiliary services are located according to the processing sequence of the product. If the volume of production of one or more products is large, the facilities can be arranged to achieve efficient flow of materials and lower cost per unit. Specialized machines are used which perform the required function quickly and reliably. It is used when the volume of production of a product is high such that a separate production line to manufacture it can be justified. Machines are not shared by different products. Sandra Guillamón Salso – Departamento de Economía 11.3. Facility layout Fixed position Advantages • Helps in job enlargement and upgrades the skills of the operators. • The workers identify themselves with a product in which they take interest doing the job. • Greater flexibility with this type of layout. Limitations • Large space required • Production period is very long, so capital investment is very heavy • Possibility of confusion or conflicts between projects Sandra Guillamón Salso – Departamento de Economía 11.3. Facility layout Cellular Cellular manufacturing is a type of layout where machines are grouped according to the process requirements for a set of similar items (part families) that require similar processing. Example Sandra Guillamón Salso – Departamento de Economía 11.3. Facility layout Cellular Advantages • Component standardization and rationalization. • Effective machine operation and productivity. Limitations • This type of layout may not be feasible for all situations. If the product mix is completely dissimilar, then we may not have meaningful cell formation.