UNIT 2 – Technical Domain of Operations Management

Module 6
Facility and Location Planning

Learning Outcomes:
1. Describe four layout patterns and when they should be used
2. Explain Facility Layout in Service Organizations
3. Determine the factors that affect location decisions
4. Compare and contrast different types of locations

Introduction:
In both goods-producing and service-providing organizations, facility layout and
work design influence the ability to meet customer wants and needs, and provide value.
A poorly designed facility can lock management into a noncompetitive situation, and be
very costly to correct. For many service organizations, the physical facility is a vital part
of service design. In can also play a significant role in creating a satisfying customer
experience, particularly when customer contact is high.
Location decisions represent a key part of the strategic planning process of
virtually every organization. And, although it might appear that location decisions are
one-time problems pertaining to new organizations, existing organizations often have a
bigger stake in these kinds of decisions than new organization.

Content:

⮚ Facility Layout – refers to the specific arrangement of physical facilities. Facility

layout studies are necessary whenever (1) a new facility is constructed; (2) there
is a significant change in demand or throughput volume; (3) a new good or
service is introduced to the customer benefit package; and (4) different
processes, equipment, and/or technology are installed.

“A good layout should support the ability of operations to accomplish its mission.”

The purposes of layout studies are to minimize delays in materials handling and
customer movement, maintain flexibility, use labor and space effectively, promote high
employee morale and customer satisfaction, provide for good housekeeping and
maintenance, and enhance sales as appropriate in manufacturing and service facilities.

⮚ Four Major Layout Patterns

1. Product Layout – is an arrangement based on the sequence of operations that
is performed during the manufacturing of a good or delivery of a service. It
support a smooth and logical flow where all goods or services move in a
continuous path from one process stage to the next using the same sequence of
work tasks and activities. Examples of industries that are using a product-layout
 pattern include winemaking, credit card processing, paper manufacturers,
insurance policy processing, and automobile assembly lines.

Advantages:
1. Lower work-in-process inventories
2. Shorter processing times
3. Less material handling
4. Lower labor skills
5. Simple planning and control systems

Disadvantages:
1. A breakdown of one piece of equipment can cause the entire process to shut
down
2. A change in product design or the introduction of new products may require
major changes in the layout
3. Flexibility can be limited

2. Process Layout – consists of a functional grouping of equipment or activities

that do similar work. Job shops are an example of firms that use process layouts
to provide flexibility in the products that can be made and the utilization of
equipment and labor. Legal offices, shoe manufacturing, jet engine turbine
blades, and hospitals use a process layout.

Advantages:
1. Generally require a lower investment in equipment
2. Equipment is normally more general purpose
3. The diversity of jobs inherent in a process layout can lead to increased worker
satisfaction

Disadvantages:
1. High movement and transportation costs
2. More complicated planning and control systems
3. Longer total processing time and higher worker-skill requirements

3. Cellular Layout – the design is not according to the functional characteristics of

equipment, but rather by self-contained groups of equipment (called cells) needed for
producing a particular set of goods or services. The cellular concept was developed at
the Toyota Motor Company. Cellular layout facilitate the processing of families or parts
with similar processing requirements. The procedure of classifying parts into such
families is called group technology.

Because the workflow is standardized and centrally located in a cellular layout,

materials-handling requirements are reduced, enabling workers to concentrate on
production rather than on moving parts between machines. Quicker response to quality
problems within cells can improve the overall level of quality. Since Machines are
closely linked within a cell, additional floor space becomes available for other productive
uses. Because workers have greater responsibility in a cellular manufacturing system,
they become more aware of their contribution to the final product; this increases morale
and satisfaction and ultimately, quality and productivity.

4. Fixed-Position Layout - consolidates the resources necessary to

manufacture a good or deliver a service, such as people, materials, and equipment, in
one physical location. Rather than moving work-in-process from one work center to
another, it remains stationary. The production of large items such as heavy machine
tools, airplanes, buildings, locomotives, and ships usually accomplished in a fixed-
position layout. The fixed position layout is synonymous with the “project” classification
of process. Service-providing firms also use fixed-position layouts; examples include
major hardware and software installations, sporting events, and concerts.

Comparison of Basic Layout Patterns

Characteristics Product Layout Process Layout Cellular Layout Fixed-Position

Layout
Demand volume High Low Moderate Very low
Equipment
utilization High Low High Moderate
Automation
potential High Moderate High Moderate
Set up/changeover
requirements High Moderate Low High
Flexibility Low High Moderate Moderate
Highly General Moderate Moderate
Type of equipment specialized Purpose specialization specialization

⮚ Facility Layout in Service Organizations

Service organizations use a product, process, cellular, and fixed-position

layouts to organize different type of work. In service organizations, the basic trade-off
between product and process layouts concerns the degree of specialization versus
flexibility. Services must consider:
1. volume of demand;
2. range of the types of services offered;
3. degree of personalization of the service;
4. skills of employees; and
5. cost

Those that need the ability to provide a wide variety of services to customers
with differing requirements usually use a process layout. For example, libraries place
reference materials, serials, and microfilms into separate areas; hospitals group
services by function also, such as maternity, oncology, surgery, and X-ray; and
insurance companies have office layouts in which claims, underwriting, and filing are
individual departments. Service organizations that provide highly standardized services
tend to use product layouts. For example, the layout of the kitchen at a small pizza
restaurant that has both dine-in and delivery.

⮚ Location Strategy
Once management is committed to a specific location, many costs are firmly in
place and difficult to reduce. For instance, if a new factory location is in region with high
energy cost, even good management with an outstanding energy strategy is starting at
a disadvantage. Management is in similar bind with its human resource strategy if labor
in the selected location is expensive, ill-trained or has a poor work ethic.

The location decision often depends on the type of business. For industrial
location decisions, the strategy is usually minimizing cost, whereas for retail and
professional service organizations, the strategy focuses on maximizing revenue.
Companies make location decisions relatively infrequently, usually because demand
has outgrown the current plant’s capacity or because of changes in labor productivity,
exchange rates, costs or local attitudes.

⮚ Factors that Affect Location Decisions

1. Labor productivity
2. Exchange rate and currency risk – although wage rates and productivity may
make a country seem economical, unfavorable exchange rates might negate
savings.
3. Costs
a. Tangible costs are those costs that are readily identifiable and precisely
measured.
b. Intangible costs – a category of location costs that cannot be easily quantified
such as quality of life and government.
4. Attitudes – attitudes of national, state and local governments toward private
property, zoning, pollution and employment stability may be in flux. Work attitudes
may also differ from country to country, region to region, and small town to city.
5. Proximity to markets - for many firms it is extremely important to locate near
customers. Particularly, service organizations, like drugstores, restaurants, post
offices find proximity to market is the primary location factor.
6. Proximity to suppliers – Firms locate near their raw materials and suppliers
because perishability and transportation cost or bulk.
7. Proximity to competitors
Clustering: the location of competing companies near each other, often
because of a critical mass of information, talent, venture capital or natural resources.
Factors affecting country decision
● Government rules, attitudes, stability, incentives
● Labor availability, attitudes, productivity, cost
● Availability of suppliers, communications, energy
● Culture and economy
● Location of markets
● Exchange rate

Factors affecting region/community decision

● Attractiveness of region (culture, taxes, climate, etc.)
● Labor availability, costs, attitudes towards unions
● Environmental regulations of state and town
● Proximity to customers and suppliers
● Corporate desires/costs and availability of utilities
● Government incentives
● Land/construction costs

Factors affecting site decision

● Access to air, rail, highway and waterway systems
● Proximity to needed services/suppliers
● Site size and cost
● Zoning restrictions
● Environmental impact issues

The Value of Location

The growing popularity of mapping web sites and handled GPS (Global
Positioning Satellite) devices is indicative of the continuing recognition of the value of
location. And even with the growth of online shopping and virtual commerce, all
business transactions and events still take place with the parties located at some
physical location. Clearly, the nature of business transactions and events is influenced
by location as well as the associated demographics of the participating parties.

What is Location Intelligence?

Location intelligence blends the analysis of objects (such as people, business,
points of interest, or geographic regions) with their spatial attributes (such as average
age, median income, average driving distance, or average educational attainment) to
inform decision-making for operational efficiencies, revenue growth, or more effective
management. These location intelligence capabilities can be integrated with both
operational and analytical applications to help increase revenues, decrease costs, and
improve productivity and satisfaction.

⮚ Types of Locations
 The type of location you choose depends largely on the type of business
you’re in, but there are enough mixed-use areas and creative applications of space limit
that you should give some thought to each type before making a final decision.

1. Home-based – this is perhaps the trendiest location for a business these

days, and many entrepreneurs start at home, then move into commercial space as their
business grows. You can run a home-based business from an office in a spare
bedroom, the basement, the attic-even the kitchen table.

2. Retail – retail space comes in a variety of shapes and sizes and may be
located in enclosed malls, strip shopping centers, free-standing buildings, downtown
shopping districts or mixed-use facilities. You’ll also find retail space in airports and
other transportation facilities, hotel lobbies, sports stadiums, and a variety of temporary
or special event venues.

3. Mobile – Whether you’re selling to the general public or other businesses, if

you have a product or service that you take to your customers, your ideal location may
be a car, van or truck.

4. Commercial – commercial space includes even more options than retail.

Commercial office buildings and business parks offer traditional office space geared to
business that do not require a significant amount of pedestrian or automobile traffic for
sales. You’ll find commercial office space in downtown business districts, business
parks, and sometimes interspersed among suburban retail facilities.

5. Industrial – If your business involves manufacturing or heavy distribution,

you’ll need a plant or warehouse facility. Light industrial parks typically attract smaller
manufacturers in nonpolluting industries as well as companies that need showrooms in
addition to manufacturing facilities. Heavy industrial areas tend to be older and poorly
planned and usually offer rail and/or water port access.

Activity No. 1
 How will you describe the four layout patterns by giving at least five (5) examples
of industry/business using that layout?
Fixed-Position
Product Layout Process Layout Cellular Layout Layout

Reference: Operations Management: An Asian Perspective, International Edition 2010, W. J. Stevenson, et. al.,
McGraw-Hill Education (Asia) 2 Penn Plaza, New York, NY 10121.

Prepared by:
Albert Q. Clemente, MM
Asst. Prof. III