BUS300 Study Guide

Unit 6: Capacity Planning and Facility Layout

6a. Describe the determinants of effective capacity

  • What are the common strategies used for capacity planning?
  • Among the numerous determinants of effective capacity, which two are the most important?
  • What are the steps in the capacity planning process?

Capacity planning has significant implications for all of a business's operations. Decisions made in this area impact the entire organization. Some of the strategies typically used by an organization for capacity planning include leading capacity, where capacity increases to meet expected demand, following capacity, where companies wait for demand increases to expand, and tracking capacity, where capacity is increased over time to meet demand.

The determinants of effective capacity include facilities, product and service factors, process factors, human factors, policy factors, operational factors, supply chain factors, and external factors.

Among these, the most important factors are process the human element. Processes must be efficient and effective, and workers must be properly trained and possess the skills, knowledge, motivation, and experience to create quality output.

For a capacity planning process strategy to be effective, the following steps should be taken:

  1. Estimate future capacity requirements
  2. Evaluate existing capacity and facilities and identify gaps
  3. Evaluate alternatives for meeting requirements
  4. Conduct a financial analysis of each alternative
  5. Assess key qualitative factors for each alternative
  6. Select optimal long-term alternatives
  7. Monitor results

To review, read Strategic Capacity Planning for Products and Services and Forecasting.


6b. Describe the factors an organization must consider in selecting a facility location

  • Why is the selection of a facility's location essential to business success?
  • What are the key elements an organization should evaluate before choosing a location for their business?
  • What are some of the methods used for evaluation location options?

In choosing a business location, an organization should verify that the location meets its objectives and strategic plans. The requirements can vary for any specific situation or organization, depending on their industry and organizational needs.

Factors to be considered when choosing a location include proximity to resources and raw materials; proximity to customers who are most likely to purchase the company's goods and services; community factors such as climate, access to roads and utilities, as well as tax bases; labor factors, to ensure a sufficient pool of job applicants; outside factors such as the crime rate, access to schools and hospitals, and proximity to competition.

When evaluating location options, there are several methods that companies can use to determine the best choice. The cost-volume-profit analysis requires companies to determine their fixed and variable costs, plot total cost lines on the same graph, and determine the highest and lowest total output costs. This method assumes that fixed costs are constant and that variable costs are linear. It also assumes that only one product is involved and that the required output level can be closely estimated.

The factor rating method requires both qualitative and quantitative inputs, which are each given values. Steps here include determining which factors are relevant and important, assuring that each factor's values total to a weight of 1.0, determining a common scale for all factors, scoring each alternative, adjusting score weights and adding them up, and choosing the alternative with the highest score.

The center of gravity method enables a company to determine locations based on facilities that reduce travel time or lower shipping costs. This enables distribution costs to be viewed as a linear function of distance and quantity. Visual maps are used, with coordinates given a set of numerical values to be evaluated.

To review, read Location Choice and Site Planning and Location Planning and Analysis.


6c. Identify the benefits of four basic layout designs in the physical placement of resources

  • What are the characteristics of the product plant strategy?
  • What are the pros and cons of the market area plant strategy?
  • In what ways is the process plant strategy most useful?
  • What are the benefits of the general-purpose plant strategy?

For companies that have multiple manufacturing locations, they can use different strategies for producing their goods. Each method can offer the company a competitive advantage, but there are also implications for costs and managerial operations.

The product plant strategy is when products, or product lines, are produced at separate locations, each meeting the needs of the entire domestic market. This results in a narrow range of labor, materials, and equipment requirements, with lower operating costs. Plants may be located near each other, making overall distribution more cost-effective, but plants may also be far apart, making logistics more challenging.

With a market area plant strategy, a facility meets the needs of specific geographic locations and is useful when shipping costs to that area are high. This approach enables a plant to supply most of what is needed in a small geographic area. While operating costs may be higher, delivery, and response times for locals' needs are more quickly met. Also, adding or eliminating plants must be coordinated on a centralized basis due to changing local market conditions.

The process plant strategy is when plants each concentrate on a different aspect of the process. This is most beneficial when products have many components, reducing any confusion when there are numerous parts to be assembled. Plants become highly specialized and result in large production quantities that lead to economies of scale.

Plants that are most flexible and able to handle many products are elements of the general-purpose plant strategy. Plants can quickly respond to market changes but may be less productive than one of the strategies with a more focused approach. Also, solutions to problems at one plant can be applied to other facilities using the same strategy, reducing the time it takes to find and implement a solution at different locations.

For more information, review Location Planning and Analysis.


6d. Apply the Line Balancing steps to the design of an appropriate product layout

  • What are some common types of assembly line systems, and what do they have in common?
  • What are the objectives of assembly line balancing?
  • What technical benefits does line balancing provide to the assembly line process?

Some of the more common assembly line systems include the classic, automated, intermittent, and lean manufacturing models. They are each used to make different kinds of products but do have some shared characteristics.

For example, a single model assembly line is when all workers focus on the same product. A mixed-model assembly line results in assembling different product models on the same line and making the integration of components easier as the product moves up the line. This reduces set-up time, as long as the process remains homogeneous.

Multi-Model Assembly lines are present when components go through a line, which results in end items or finished products. This also includes waste and by-products and utilizes a variety of cost and yield methods.

On paced assembly lines, a fixed time is applied to each workstation, with all operations beginning at the same point and passing pieces to the next station at the same rate. In unpaced lines, pieces do not have a specific point in time for transfer and are passed along when their required operations are finished.

Assembly line balancing has several components. These include; the workstation, which is where a specific amount of work is performed; minimal rational work element, which describes the work unit beyond which a work element cannot be divided; and cycle time, which is the ratio between the amount of time available and the production volume for that period.

The objectives of assembly line balancing are to ensure an even distribution over work stations, facilities, and workers to ensure an efficient process for maximum output. In this way, worker delays are minimized, productivity can be improved, and obstacles can be eliminated.

The benefits of ensuring a balance between all technical elements in an assembly line include: minimizing the number of workstations for specific cycles and the cycle time for each station. Balance delays are minimized, and efficiency is maximized. Also, machinery idle time is minimized, as well as the overall length of the line.

To review, read, A Study on Basics of Assembly Line Balancing.


Unit 6 Vocabulary

This vocabulary list includes terms that might help you with the review items above and some terms you should be familiar with to be successful in completing the final exam for the course.

Try to think of the reason why each term is included.

  • leading capacity
  • following capacity
  • tracking capacity
  • steps in the capacity planning process
  • location selection
  • cost-volume-profit analysis
  • factor rating method
  • center of gravity method
  • product plant strategy
  • market area plant strategy
  • process plant strategy
  • general-purpose plant strategy
  • classic assembly line system
  • automated assembly line system
  • intermittent assembly line system
  • lean manufacturing system
  • single model assembly line
  • mixed model assembly line
  • multi-model assembly line
  • paced and unpaced assembly lines
  • line balancing