Layout & capacity

LAYOUT
In manufacturing, facility layout consists of configuring the plant site with lines,
buildings, major facilities, work areas, aisles, and other pertinent features such as
department boundaries. While facility layout for services may be similar to that for
manufacturing, it also may be somewhat different—as is the case with offices, retailers,
and warehouses. Because of its relative permanence, facility layout probably is one of the
most crucial elements affecting efficiency. An efficient layout can reduce unnecessary
material handling, help to keep costs low, and maintain product flow through the facility.
Firms in the upper left-hand corner of the product-process matrix have a process structure
known as a jumbled flow or a disconnected or intermittent line flow. Upper-left firms
generally have a process layout. Firms in the lower right-hand corner of the product-
process matrix can have a line or continuous flow. Firms in the lower-right part of the
matrix generally have a product layout. Other types of layouts include fixed-position,
combination, cellular, and certain types of service layouts.
PROCESS LAYOUT
Process layouts are found primarily in job shops, or firms that produce customized, low-
volume products that may require different processing requirements and sequences of
operations. Process layouts are facility configurations in which operations of a similar
nature or function are grouped together. As such, they occasionally are referred to as
functional layouts. Their purpose is to process goods or provide services that involve a
variety of processing requirements. A manufacturing example would be a machine shop.
A machine shop generally has separate departments where general-purpose machines are
grouped together by function (e.g., milling, grinding, drilling, hydraulic presses, and
lathes). Therefore, facilities that are configured according to individual functions or
processes have a process layout. This type of layout gives the firm the flexibility needed
to handle a variety of routes and process requirements. Services that utilize process
layouts include hospitals, banks, auto repair, libraries, and universities.
Improving process layouts involves the minimization of transportation cost, distance, or
time. To accomplish this some firms use what is known as a Muther grid, where
subjective information is summarized on a grid displaying various combinations of
department, work group, or machine pairs. Each combination (pair), represented by an
intersection on the grid, is assigned a letter indicating the importance of the closeness of
the two (A = absolutely necessary; E = very important; I = important; O = ordinary
importance; U = unimportant; X = undesirable). Importance generally is based on the
shared use of facilities, equipment, workers or records, work flow, communication
requirements, or safety requirements. The departments and other elements are then
assigned to clusters in order of importance.
Advantages of process layouts include:

 Flexibility. The firm has the ability to handle a variety of processing
requirements.
 Cost. Sometimes, the general-purpose equipment utilized may be less costly to
purchase and less costly and easier to maintain than specialized equipment.
 Motivation. Employees in this type of layout will probably be able to perform a
variety of tasks on multiple machines, as opposed to the boredom of performing a
repetitive task on an assembly line. A process layout also allows the employer to
use some type of individual incentive system.
 System protection. Since there are multiple machines available, process layouts
are not particularly vulnerable to equipment failures.
Disadvantages of process layouts include:
 Utilization. Equipment utilization rates in process layout are frequently very low,
because machine usage is dependent upon a variety of output requirements.
 Cost. If batch processing is used, in-process inventory costs could be high. Lower
volume means higher per-unit costs. More specialized attention is necessary for
both products and customers. Setups are more frequent, hence higher setup costs.
Material handling is slower and more inefficient. The span of supervision is small
due to job complexities (routing, setups, etc.), so supervisory costs are higher.
Additionally, in this type of layout accounting, inventory control, and purchasing
usually are highly involved.
 Confusion. Constantly changing schedules and routings make juggling process
requirements more difficult.
PRODUCT LAYOUT
Product layouts are found in flow shops (repetitive assembly and process or continuous
flow industries). Flow shops produce high-volume, highly standardized products that
require highly standardized, repetitive processes. In a product layout, resources are
arranged sequentially, based on the routing of the products. In theory, this sequential
layout allows the entire process to be laid out in a straight line, which at times may be
totally dedicated to the production of only one product or product version. The flow of
the line can then be subdivided so that labor and equipment are utilized smoothly
throughout the operation.
Two types of lines are used in product layouts: paced and unpaced. Paced lines can use
some sort of conveyor that moves output along at a continuous rate so that workers can
perform operations on the product as it goes by. For longer operating times, the worker
may have to walk alongside the work as it moves until he or she is finished and can walk
back to the workstation to begin working on another part (this essentially is how
automobile manufacturing works).
On an unpaced line, workers build up queues between workstations to allow a variable
work pace. However, this type of line does not work well with large, bulky products
because too much storage space may be required. Also, it is difficult to balance an

extreme variety of output rates without significant idle time. A technique known as
assembly-line balancing can be used to group the individual tasks performed into
workstations so that there will be a reasonable balance of work among the workstations.
Product layout efficiency is often enhanced through the use of line balancing. Line
balancing is the assignment of tasks to workstations in such a way that workstations have
approximately equal time requirements. This minimizes the amount of time that some
workstations are idle, due to waiting on parts from an upstream process or to avoid
building up an inventory queue in front of a downstream process.
Advantages of product layouts include:
 Output. Product layouts can generate a large volume of products in a short time.
 Cost. Unit cost is low as a result of the high volume. Labor specialization results
in reduced training time and cost. A wider span of supervision also reduces labor
costs. Accounting, purchasing, and inventory control are routine. Because routing
is fixed, less attention is required.
 Utilization. There is a high degree of labor and equipment utilization.
Disadvantages of product layouts include:
 Motivation. The system's inherent division of labor can result in dull, repetitive
jobs that can prove to be quite stressful. Also, assembly-line layouts make it very
hard to administer individual incentive plans.
 Flexibility. Product layouts are inflexible and cannot easily respond to required
system changes—especially changes in product or process design.
 System protection. The system is at risk from equipment breakdown, absenteeism,
and downtime due to preventive maintenance.
FIXED-POSITION LAYOUT
A fixed-position layout is appropriate for a product that is too large or too heavy to move.
For example, battleships are not produced on an assembly line. For services, other
reasons may dictate the fixed position (e.g., a hospital operating room where doctors,
nurses, and medical equipment are brought to the patient). Other fixed-position layout
examples include construction (e.g., buildings, dams, and electric or nuclear power
plants), shipbuilding, aircraft, aerospace, farming, drilling for oil, home repair, and
automated car washes. In order to make this work, required resources must be portable so
that they can be taken to the job for "on the spot" performance.
Due to the nature of the product, the user has little choice in the use of a fixed-position
layout. Disadvantages include:
 Space. For many fixed-position layouts, the work area may be crowded so that
little storage space is available. This also can cause material handling problems.

 Administration. Oftentimes, the administrative burden is higher for fixed-position
layouts. The span of control can be narrow, and coordination difficult.
COMBINATION LAYOUTS
Many situations call for a mixture of the three main layout types. These mixtures are
commonly called combination or hybrid layouts. For example, one firm may utilize a
process layout for the majority of its process along with an assembly in one area.
Alternatively, a firm may utilize a fixed-position layout for the assembly of its final
product, but use assembly lines to produce the components and subassemblies that make
up the final product (e.g., aircraft).
CELLULAR LAYOUT
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. These groups are called cells. Therefore, a cellular layout is an equipment
layout configured to support cellular manufacturing.
Processes are grouped into cells using a technique known as group technology (GT).
Group technology involves identifying parts with similar design characteristics (size,
shape, and function) and similar process characteristics (type of processing required,
available machinery that performs this type of process, and processing sequence).
Workers in cellular layouts are cross-trained so that they can operate all the equipment
within the cell and take responsibility for its output. Sometimes the cells feed into an
assembly line that produces the final product. In some cases a cell is formed by
dedicating certain equipment to the production of a family of parts without actually
moving the equipment into a physical cell (these are called virtual or nominal cells). In
this way, the firm avoids the burden of rearranging its current layout. However, physical
cells are more common.
An automated version of cellular manufacturing is the flexible manufacturing system
(FMS). With an FMS, a computer controls the transfer of parts to the various processes,
enabling manufacturers to achieve some of the benefits of product layouts while
maintaining the flexibility of small batch production.
Some of the advantages of cellular manufacturing include:
 Cost. Cellular manufacturing provides for faster processing time, less material
handling, less work-in-process inventory, and reduced setup time, all of which
reduce costs.
 Flexibility. Cellular manufacturing allows for the production of small batches,
which provides some degree of increased flexibility. This aspect is greatly
enhanced with FMSs.

 Motivation. Since workers are cross-trained to run every machine in the cell,
boredom is less of a factor. Also, since workers are responsible for their cells'
output, more autonomy and job ownership is present.
OTHER LAYOUTS
In addition to the aforementioned layouts, there are others that are more appropriate for
use in service organizations. These include warehouse/storage layouts, retail layouts, and
office layouts.
With warehouse/storage layouts, order frequency is a key factor. Items that are ordered
frequently should be placed close together near the entrance of the facility, while those
ordered less frequently remain in the rear of the facility. Pareto analysis is an excellent
method for determining which items to place near the entrance. Since 20 percent of the
items typically represent 80 percent of the items ordered, it is not difficult to determine
which 20 percent to place in the most convenient location. In this way, order picking is
made more efficient.
While layout design is much simpler for small retail establishments (shoe repair, dry
cleaner, etc.), retail stores, unlike manufacturers, must take into consideration the
presence of customers and the accompanying opportunities to influence sales and
customer attitudes. For example, supermarkets place dairy products near the rear of the
store so that customers who run into the store for a quick gallon of milk must travel
through other sections of the store. This increases the chance of the customer seeing an
item of interest and making an impulse buy. Additionally, expensive items such as meat
are often placed so that the customer will see them frequently (e.g., pass them at the end
of each aisle). Retail chains are able to take advantage of standardized layouts, which
give the customer more familiarity with the store when shopping in a new location.
Office layouts must be configured so that the physical transfer of information
(paperwork) is optimized. Communication also can be enhanced through the use of low-
rise partitions and glass walls.
A number of changes taking in place in manufacturing have had a direct effect on facility
layout. One apparent manufacturing trend is to build smaller and more compact facilities
with more automation and robotics. In these situations, machines need to be placed closer
to each other in order to reduce material handling. Another trend is an increase in
automated material handling systems, including automated storage and retrieval systems
(AS/AR) and automated guided vehicles (AGVs). There also is movement toward the use
of U-shaped lines, which allow workers, material handlers, and supervisors to see the
entire line easily and travel efficiently between workstations. So that the view is not
obstructed, fewer walls and partitions are incorporated into the layout. Finally, thanks to
lean manufacturing and just-in-time production, less space is needed for inventory
storage throughout the layout.

Capacity Planning
Capacity Planning is vital in operations management. Capacity is the rate of
productive capability of a facility. Capacity decisions need acute and careful
attention by concerned persons as almost everything of the operations is related
with capacity. It is important as it determines the optimal level of production and
uninterrupted production run. There are several other important causes, for which
the entrepreneurs and managers must address capacity decisions. In this unit it
has been tried deliberately to introduce important notions regarding these issues.
Therefore this unit includes capacity, capacity planning and importance of
capacity decision; capacity requirement, effective capacity determinants; capacity
strategy.
The most fundamental decision in any organizations related to the products and services
it offers. These decisions are relative to capacity, process, facilities, location and the
likes are governed by product and service choices. Thus a decision to produce high
quality product will necessitate certain types of processing equipment and certain kinds
of labor skills, and it will suggest certain type of arrangement of facilities. It will influence
size and type of building as well as the plant location. In some instances, capacity
choices are made very infrequently; in others, they are made much more regularly, as
part of an ongoing process. Generally, the factors that influence this frequency are the
stability of demand, the rate of technological change in equipment, the rate of change in
product design and competitive factors.
What is Capacity?
The upper limit or ceiling on the load that an operating unit can handle is called its
capacity. Capacity is the rate of productive capability of a facility. The operating unit
might be a plant, department, machine, store, or worker. The load can be specified in
terms of either inputs or outputs. To understand these consider the following examples.
• Capacity in respect of capability: Airlines capacity measures their capacity in Available
Seat Miles (ASMs) over a year. Or hospitals may measure its capacity in number of
beds available. However this measure is incorrect, as it doesn’t consider outpatient
treated by the hospital.
• Capacity in respect of inputs: A machine is able to process 120 pounds of raw materials
in every hour it works, so its input capacity is 120- pounds/hour.
• Capacity in respect of outputs: A machine can produce 20 units of finished goods in
every hour it works, so its output capacity is 20 units/hour.
The definition that has been provided earlier is a working definition of capacity; although
it is functional, it can be refined into three useful definitions:
• Design Capacity: The maximum output that can possibly be attained.

• Effective Capacity: The maximum possible output given a product mix, scheduling
difficulties, machine maintenance, quality factors, and so on.
• Actual Output: The rate of output actually achieved. It cannot exceed effective capacity
and is often less than effective capacity due to breakdowns, defective outputs, shortage
of materials, and similar
factors.
Capacity Planning
Capacity Planning or Aggregate Planning is defined as the process of aggregating (i.e.,
consolidating or grouping) all the requirements for fulfilling capacity requirements for
each period in the intermediate horizon and determining the best way to provide the
needed capacity. The objectives of capacity planning are feasibility i.e., the internal
needs must be within the capability of the operations system and optimality i.e., it is
desirable to determine the least costly way to meet the capacity needs.
Aggregate planning considers the variables that can be used to adjust the capacity
within the intermediate horizon. The most common variables in adjustable
capacity are the work force size, the production rate in terms of the number of
hours worked per day or week (this amounts to the use of overtime work or idle
time), and inventory if it can be used to store capacity in one period so it can
serve demand in later one period (Services usually cannot store inventory of their
output). Sometimes back-ordering and subcontracting are used. If only one
variable is adjusted to deal with a non-uniform demand within the planning
horizon, it is called the pure strategy; the adjustment of more than one variable is
called a mixed strategy.
The capacity of an operating unit is an important piece of information for
planning purposes. It enables managers to quantify production capability in terms
of inputs and outputs, and thereby make other decisions or plans related to those
quantities. There the basic questions in capacity planning of any sort are:
 What kind of capacity is needed?
 How much is needed?
 When is it needed?
The question of what kind of capacity is needed relates to the product and
services that management intends to produce or provide. Hence, in a very real
sense, capacity planning is governed by those choices.
Importance of Capacity Planning
For a number of reasons, capacity decisions are among the most fundamental of
all the design decisions that managers must make. These include:
• The importance of capacity decisions relates to their potential impact on the ability of
the organization to meet future demand for products and services; capacity essentially
limits the rate of output possible.
• The importance of capacity stems from the relationship between capacity and operating
costs. Ideally, capacity and demand requirements will be matched, which will tend to
minimize operating costs.

• The importance of capacity decisions also lies in the initial cost involved, of which
capacity is usually a major determinant. Typically the greater the capacity of a productive
unit, the greater its costs. This does not necessarily imply a one-for-one relationship;
larger units tend to cost proportionately less than smaller units.
• The importance of capacity decisions stems from the often required long term
commitment of resources and the fact that, once they are implemented, it may be
difficult or impossible to modify those decisions without incurring major costs.
Like many other things, managers have to take decisions regarding the capacity
of their operating units and these decisions are very important because:
 In today's competition, any profit-making organization would like to keep its
existing customers and have new ones as well. If capacity decision contains
flaws, the sales team may desperately want to take a particular order, while the
operations team may struggle to meet the demand. Hence it is very easy to loose
customers if their demand is not fulfilled. For example, think of a situation when
you bring your car to a car service center and learn that due to equipment and
staff limitations your car will be serviced in about a week.
 Capacity planning involve different cost considerations. One type of such cost is
operating cost. If, for example, the capacity of ABC footwear factory is 100,000
units per year and demand for their product is 50,000 units for the same period,
then their operating cost will be higher than it would be if the capacity and
demand were the same. Another type of cost is cost of building the operating
unit. Once this cost is decided upon and the unit is built there is no turning back,
it becomes fixed cost. So, if afterwards management finds out that capacity of the
unit is lower or higher than required, any modification is likely to incur major
costs.
It is important to note that the workload required by the Master Production
Schedule (MPS), a summary of planned end product needs for specific future
time periods, is within the capacity of the company and that it makes wise use of
the company’s capacity. Since MPS is developed to fit the production plan, it is
advisable to check the amount of capacity required by the production plan in
certain periods while those periods are far enough in the future to change the
capacity in some departments, if necessary. This is particularly true for business
that has significant seasonal variations in demand.
Capacity Planning Activities
Capacity planning is the first step when an organization decides to produce more of a
new or existing product. Once capacity is evaluated and a need for new or expanded
facilities is determined, facility location and process technology activities occur. Too
much capacity would require exploring ways to reduce capacity, such as temporarily
closing, selling, or consolidating that might involve relocation, combining of technologies,
or a rearrangement of equipment and processes. Capacity planning normally involves
the following activities:
a) Assessing existing capacity
b) Forecasting capacity needs

c) Identifying alternative ways to modify capacity
d) Evaluating financial, economical, and technological capacity alternatives
e) Selecting a capacity alternative most suited to achieve strategic mission
a) Assessing existing capacity & requirements
Assessing starts with measurement. There is no single measurement technique
customized for such decisions, rather a blend of different approaches is utilized when
necessary. As noted, there are two systems of measurements of system effectiveness:
efficiency and utilization. Efficiency is the ratio of actual output to effective capacity and
Utilization is the ratio of actual output to design capacity.
b) Forecasting capacity needs
Capacity requirements can be evaluated from two extreme perspectives – short
term and long-term capacity needs:
• Short-term Requirements: Managers often use forecasts of product demand to estimate
the short-term workload that the facility must handle. By looking ahead up to 12 months,
managers anticipate output requirements for different products or services. Then they
compare requirements with existing capacity and detect when adjustments are
necessary.
• Long-term Requirements: Long-term capacity requirements are more difficult to
determine as future demand and technologies are uncertain. Forecasting five or ten
years ahead is a risky and difficult task. Important questions include what products and
services will the firm produce then for today’s product may not even exist in the future.
Obviously, longterm capacity requirements are dependent on marketing plans, product
development, and the life cycle of products. Changes in process technology must also
be anticipated. Even if products remain unchanged, methods for generating them may
change dramatically. Capacity planning thus must involve forecasts of technology as
well as product demand.
c) Identifying ways to modify capacity
After existing and future capacity requirements are assessed, alternative ways of
modifying capacity either short-term or long term must be identified. Short-term
responses to capacity modification include the Table 8.1.2.

On the other hand to consider the long-term responses to capacity modification
management of any organizations today should not only consider expansion of their
resource bases but also consider optimum approaches to contracting it. The costs,
benefit, and risks of expansion pose an interesting decision problem. By building the
entire addition now, the company avoids higher building costs, the risks of accelerated
inflation (and even higher future construction costs), and the risk of losing additional
future business because of inadequate capacity. But there may also be disadvantages to
this future alternative. First, the organization may not be able to muster the financial
investment. Second, if the organization expands now, it may find later that its demand
forecasts were incorrect; if ultimate demand is lower than expected, the organization has
overbuilt. Finally, even if the forecasted demand is accurate it may not fully materialize
until the end of the five-year planning horizon. If so, the organization will have invested in
an excess-capacity facility on which no return is realized for several years. Since it could
have been invested in other ways, the firm has foregone the opportunity of earning
returns elsewhere on its investment.
Contraction and Constant Capacity: Capacity contraction most often involves selling of
existing facilities, equipment, and inventories, and firing employees. As serious declines
in demand occur, we may gradually terminate operations. Permanent capacity reduction
or shutdown occurs only as a last resort. Instead, new ways are sought to maintain and
use existing capacity otherwise great deals of effort, capital, and human skills used in
producing the particular technologies have become wasted. Often these technology and
skill bases are transferable to other products or services. As one product reaches the
decline phase of its life cycle, it can be replaced with others without increasing capacity

(Table 8.1.2). This phasing in and out of new and old products is not by accident. Staff
for product research and development and market research engages in long-range
planning to determine how existing capacity can be used and adapted to meet future
demand.
d) Evaluating financial, economical, and technological capacity alternatives:
For evaluation purposes of capacity planning activities different modeling
alternatives are available. These are,
• Present Value Analysis, for instance, is helpful whenever the time value of capital
investments, and fund flows are considered.
• Aggregate Planning Models are useful for examining how best to use existing capacity
in the short term.
• Breakeven Analysis can identify the minimum breakeven volumes when comparing
projected costs and revenues. In the short–term capacity utilization: linear programming
and computer simulations are very useful.
• Decision Tree Analysis is useful to the long-term capacity problems of facility
expansion.
e) Selecting a capacity alternative most suited to achieving strategic mission:
As it has been mentioned, the three types of modeling- decision tree analysis, linear
programming, and computer simulation- all needs to be used selectively to determine
the most suited capacity alternatives. The proper choice among them depends on the
type of capacity problem. Other models, too, are sometimes beneficial. Selecting and
using models for managing capacity requires a good understanding of the environment
within which the organization is operating, including current demands on existing
operations, and a vision of future business conditions.

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