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Chapters 5 6 8 Best

Why are location decisions strategically important?
Are closely tied to an organization’s strategies
Convenience to attract market share

Effect capacity and flexibility
Represent a long-term commitment of resources
Effect investment requirements, operating costs, revenues, and operations
Impact competitive advantage
Importance to supply chains
What are some supply chain considerations in location choice?
Supply chain management must address supply chain configuration:
Number and location of suppliers, production facilities, warehouses and distribution centers
Centralized vs. decentralized distribution

The importance of such decisions is underscored by their reflection of the basic strategy for accessing customer markets
What are the 4 options in location planning?
Expand an existing facility
Add new locations while retaining existing facilities
Shut down one location and move to another
Do nothing
What are the disadvantages of global locations?
Transportation costs
Security costs
Unskilled labor
Import restrictions
Criticism for locating out-of-country
What are the risks of global locations? (not the same as disadvantages)
Political instability and unrest
Economic instability
Legal regulation
Ethical considerations
Cultural differences
What are the steps of the location decision?
Decide on the criteria to use for evaluating location alternatives
Identify important factors, such as location of markets or raw materials
Develop location alternatives
Identify the country or countries for location
Identify the general region for location
Identify a small number of community alternatives
Identify the site alternatives among the community alternatives
Evaluate the alternatives and make a decision
What the primary factors in identifying a country for locations?
Government, cultural differences, customer preferences for local buying, labor costs (wages, training, language barrier), availability of resources, financial considerations, competition and safety.
What are the factors of identifying a region?
Location of raw materials
Transportation costs
Location of markets

As part of a profit-oriented company’s competitive strategy
So not-for-profits can meet the needs of their service users
Distribution costs and perishability

Labor factors
Cost of labor
Availability of suitably skilled workers
Wage rates in the area
Labor productivity
Attitudes toward work
Whether unions pose a serious potential problem

Other factors
Climate and taxes may play an important role in location decisions
What makes a community attractive to a business?
Quality of life
Environmental regulations
Development support
What are the primary site location considerations?
Other restrictions
What are the 4 Multiple Plant Manufacturing Strategies?
Product plant strategy
Entire products or product lines are produced in separate plants, and each plant usually supplies the entire domestic market

Market area plant strategy
Plants are designated to serve a particular geographic segment of the market
Plants produce most, if not all, of a company’s products

Process plant strategy
Different plants focus on different aspects of a process
automobile manufacturers / engine plant, body stamping plant, etc.
Coordination across the system becomes a significant issue

General-purpose plant strategy
Plants are flexible and capable of handling a range of products
What are the 4 techniques for Evaluating Location Alternatives?
Locational cost-volume-profit analysis
Transportation model
Factor rating
Center of gravity method
What is, and when is it used, Cost-Profit-Volume Analysis?
Technique for evaluating location choices in economic terms
Determine the fixed and variable costs for each alternative
Plot the total-cost lines for all alternatives on the same graph
Determine the location that will have the lowest total cost (or highest profit) for the expected level of output
What is, and when is it used, Cost-Profit-Volume Analysis? What are the assumptions?
Technique for evaluating location choices in economic terms
Determine the fixed and variable costs for each alternative
Plot the total-cost lines for all alternatives on the same graph
Determine the location that will have the lowest total cost (or highest profit) for the expected level of output

Fixed costs are constant for the range of probable output
Variable costs are linear for the range of probable output
The required level of output can be closely estimated
Only one product is involved
What is Factor Rating? What is the procedure?
General approach to evaluating locations that includes quantitative and qualitative inputs
Determine which factors are relevant
Assign a weight to each factor that indicates its relative importance compared with all other factors.
Weights typically sum to 1.00
Decide on a common scale for all factors, and set a minimum acceptable score if necessary
Score each location alternative
Multiply the factor weight by the score for each factor, and sum the results for each location alternative
Choose the alternative that has the highest composite score, unless it fails to meet the minimum acceptable score
What is the Center of Gravity Method? What is the equation for finding the X and Y coordinates?
Method for locating a distribution center that minimizes distribution costs
Treats distribution costs as a linear function of the distance and the quantity shipped
The quantity to be shipped to each destination is assumed to be fixed
The method includes the use of a map that shows the locations of destinations
The map must be accurate and drawn to scale
A coordinate system is overlaid on the map to determine relative locations

X= Sum of x values/number of destinations
Y= Sum of y values/number of destinations
What if the shipments to each destination are not equal in the Center of Gravity Method?
Each X and Y value must be weighted according to the quanity, then divided by the total quantity instead of the number of destinations.
X Y Weekly Quantity
2 2 800
3 5 900
Total: 1,700
When is the Transportation Model used? What are it’s assumptions? What information does it require?
Location decisions
Compare location alternatives in terms of their impact cost on the total distribution costs for the system
Involves working through a separate model for each location being considered

Production planning
Capacity planning

The items to be shipped are homogeneous
Shipping cost per unit is the same regardless of the number of units shipped
There is only one route or mode of transportation being used between each origin and destination

Information requirements
A list of the origins and each one’s capacity or supply quantity per period
A list of the destinations and each one’s demand per period
The unit cost of shipping items from each origin to each destination
What drives Process Selection?
How much?
Equipment flexibility
To what degree?
Expected output?
What drives Process Selection?
How much?
Equipment flexibility
To what degree?
Expected output?
What is Process Selection and for what 4 areas does it have major implications?
Refers to deciding on the way production of goods or services will be organized
It has major implications for
Capacity planning
Layout of facilities
Design of work systems
What are the 4 types of Processing? Give their descriptions as well.
Job Shop- Customized goods, wide variety of production, slow/high cost per unit, complex scheduling

Batch- Semi-standard goods, flexible, moderate cost per unit, moderate scheduling

Repetitive- Standard goods, low per unit cost, efficient, low flexibility

Continuous- Highly standardized, very efficient and very high volume, very rigid, costly to change
What is product/service profiling and what does it involve?
Process selection involves
Substantial investment in equipment
Has a very specific influence on layout
Product or service profiling
Linking key product or service requirements to process capabilities
Key dimensions relate to
Range of products or services that will be processed
Expected order sizes
Pricing strategies
Expected frequency of schedule changes
Order-winning requirements
What is the difference between technology and technological innovation?
Technological Innovation
The discovery and development of new or improved products, services, or processes for producing or providing them
The application of scientific discoveries to the development and improvement of products and services and/or the processes that produce or provide them
What is Programmable Automation?
Involves the use of high-cost, general-purpose equipment controlled by a computer program that provides both the sequence of operations and specific details about each operation
Computer-Aided Manufacturing (CAM)
The use of computers in process control, ranging from robots to automated quality control
Numerically Controlled (N/C) Machines
Machines that perform operations by following mathematical processing instructions
A machine consisting of a mechanical arm, a power supply, and a controller
What is Flexible Automation?
evolved from programmable automation. It uses equipment that is more customized than that of programmable automation. A key difference between the two is that flexible automation requires significantly less changeover time.
FMS (Flexible Manufacturing System)
A group of machines designed to handle intermittent processing requirements and produce a variety of similar products
CIM (Computer Integrated Manufacturing)
A system for linking a broad range of manufacturing activities through an integrated computer system
OVERALL goal is linking to rapidly respond to customer orders, product changes, and reduce indirect labor costs
What are the fundamental blocks of building a Flexible Manufacturing System (FMS)? What is FMS?
Numerical Controlled machines are the blocks because they determine flexibility and capability

A group of machines designed to handle intermittent processing requirements and produce a variety of similar products
Have some of the benefits of automation and some of the flexibility of individual, or stand-alone, machines
Includes supervisory computer control, automatic material handling, and robots or other automated processing equipment
What are the applications of FMS?
Metal-cutting machining
Metal forming
Joining-welding (arc , spot), glueing
Surface treatment
What is Computer Integrated Manufacturing (CIM)?
A system for linking a broad range of manufacturing activities through an integrated computer system
Activities include
Engineering design
Order processing
Production planning and control
The overall goal of CIM is to link various parts of an organization to achieve rapid response to customer orders and/or product changes, to allow rapid production and to reduce indirect labor costs
What are the 3 basic layout types?
Product layout
Process layout
Service layout
What are the 4 basic layout types?
Product layouts
Process layouts
Fixed-Position layout
Combination layouts
What is Product Layout? Advantages and disadvantages?
Product layout
Layout that uses standardized processing operations to achieve smooth, rapid, high-volume flow
Used to repetitive processes
High rate of output
Low unit cost
Labor specialization
Low material handling cost per unit
High utilization of labor and equipment
Established routing and scheduling
Routine accounting, purchasing, and inventory control

Creates dull, repetitive jobs
Poorly skilled workers may not maintain equipment or quality of output
Fairly inflexible to changes in volume or product or process design
Highly susceptible to shutdowns
Preventive maintenance, capacity for quick repair and spare-parts inventories are necessary expenses
Individual incentive plans are impractical
What is Process Layout? Advantages and disadvantages?
Process layouts
Layouts that can handle varied processing requirements
Used for Batch or Job Shop
Can handle a variety of processing requirements
Not particularly vulnerable to equipment failures
General-purpose equipment is often less costly and easier and less costly to maintain
It is possible to use individual incentive systems

In-process inventories can be high
Routing and scheduling pose continual challenges
Equipment utilization rates are low
Material handling is slow and inefficient
Reduced spans of supervision
Special attention necessary for each product or customer
Accounting, inventory control, and purchasing are more involved
What is Fixed Positions Layout?
Fixed Position layout
Layout in which the product or project remains stationary, and workers, materials, and equipment are moved as needed
What are the 2 Combination Layouts?
Cellular production
Layout in which workstations are grouped into a cell that can process items that have similar processing requirements
Groupings are determined by the operations needed to perform the work for a set of similar items, part families, that require similar processing
The cells become, in effect, miniature versions of product layouts

Group technology
The grouping into part families of items with similar design or manufacturing characteristics
Design Characteristics:
Manufacturing or processing characteristics
Type of operations required
Sequence of operations required
Requires a systematic analysis of parts to identify the part families
What is Service Layout?
Service layouts can be categorized as: product, process, or fixed position
Service layout requirements are somewhat different due to such factors as:
Degree of customer contact
Degree of customization
Common service layouts:
Warehouse and storage layouts
Retail layouts
Office layouts

Two key factors:
Customer contact
Degree of customization
Warehouse and storage layouts
Retail layouts
Office layouts
What is Line Balancing?
The process of assigning tasks to workstations in such a way that the workstations have approximately equal time requirements
Obtain task grouping that represent approximately equal time requirements since this minimizes idle time along the line and results in a high utilization of equipment and labor
Why is line balancing important?
It allows us to use labor and equipment more efficiently.
To avoid fairness issues that arise when one workstation must work harder than another.
How are Process Layouts designed?
The main issue in designing process layouts concerns the relative placement of the departments
Measuring effectiveness
A major objective in designing process layouts is to minimize transportation cost, distance, or time

In designing process layouts, the following information is required:
A list of departments to be arranged and their dimensions
A projection of future work flows between the pairs of work centers
The distance between locations and the cost per unit of distance to move loads between them
The amount of money to be invested in the layout
A list of any special considerations
The location of key utilities, access and exit points, etc.
What is the goal of Strategic Capacity Planning?
To achieve a match between the long-term supply capabilities of an organization and the predicted level of long-term demand
Overcapacityïƒ operating costs that are too high
Undercapacityïƒ strained resources and possible loss of customers
Why are capacity decisions important?
impact the ability of the organization to meet future demands
affect operating costs
are a major determinant of initial cost
often involve long-term commitment of resources
can affect competitiveness
affect the ease of management
have become more important and complex due to globalization
need to be planned for in advance due to their consumption of financial and other resources
What are the 3 types of capacity? What are the differences among them?
Design capacity
Maximum output rate or service capacity an operation, process, or facility is designed for

Effective capacity
Design capacity minus allowances such as personal time, maintenance, and scrap

Actual output
Rate of output actually achieved–cannot
exceed effective capacity.
What is the equation for efficiency? Efficiency= Actual Output/Effective Capacity
What is the equation for utilization? Utilization= Actual Output/Design Capacity
Design Capacity = 50 trucks per day
Effective Capacity = 40 trucks per day
Actual Output = 36 trucks per day
What is the efficiency? Utilization?
What assumptions and predictions is strategy based upon?
Long-term demand patterns
Technological change
Competitor behavior
What is a capacity cushion?
Extra capacity used to offset demand uncertainty
Capacity cushion = 100% – Utilization
Capacity cushion strategy
Organizations that have greater demand uncertainty typically have greater capacity cushion
Organizations that have standard products and services generally have greater capacity cushion
What are the steps in Capacity Planning?
Estimate future capacity requirements
Evaluate existing capacity and facilities- identify gaps
Identify alternatives for meeting requirements
Conduct financial analyses
Assess key qualitative issues
Select the best alternative for the long term
Implement alternative chosen
Monitor results
What are the requirements of Capacity Forecasting?
Long-term considerations relate to overall level of capacity requirements
Require forecasting demand over a time horizon and converting those needs into capacity requirements
Short-term considerations relate to probable variations in capacity requirements
Less concerned with cycles and trends than with seasonal variations and other variations from average
What are the challenges related to Service Capacity Planning?
The need to be near customers
The inability to store services
Cannot store services for consumption later
The degree of demand volatility
Volume and timing of demand
Time required to service individual customers
What Demand Management Strategies are used to bring supply and demand closer together?
Other tactics to shift demand from peak periods into slow periods
What can be done to better manage capacity?
Design flexibility into systems
Take stage of life cycle into account
Take a /œbig-picture / approach to capacity changes
Prepare to deal with capacity /œchunks /
Attempt to smooth capacity requirements
Identify the optimal operating level
Choose a strategy if expansion is involved
What are the 3 capacity strategies?
Build capacity in anticipation of future demand increases
Build capacity when demand exceeds current capacity
Similar to the following strategy, but adds capacity in relatively small increments to keep pace with increasing demand
What is Cost-Volume analysis?
Cost-volume analysis
Focuses on the relationship between cost, revenue, and volume of output
Fixed Costs (FC)
tend to remain constant regardless of output volume
Variable Costs (VC)
vary directly with volume of output
VC = Quantity(Q) x variable cost per unit (v)
Total Cost
TC = FC + VC
Total Revenue (TR)
TR = revenue per unit (R) x Q
What is Break-Even Point Analysis?
The volume of output at which total cost and total revenue are equal
Profit (P) = TR / TC = R x Q / (FC +v x Q)
= Q(R / v) /FC
What are the assumptions of Cost-Volume analysis?
Cost-volume analysis is a viable tool for comparing capacity alternatives if certain assumptions are satisfied
One product is involved
Everything produced can be sold
The variable cost per unit is the same regardless of volume
Fixed costs do not change with volume changes, or they are step changes
The revenue per unit is the same regardless of volume
Revenue per unit exceeds variable cost per unit
How do companies do their own SWOT analysis?
Use a weighting system to avoid the common problem of bias
What does calculating Processing Requirements tell you?
The number of machines needed, assuming the same machine type
A basic question in capacity planning is: all of the above
A reason for the importance of capacity decisions is that capacity:
limits the rate of output possible
B. affects operating costs
C. is a major determinant of initial costs
D. is a long-term commitment of resources
E. all of the above

. Utilization is defined as the ratio of:
A. actual output to effective capacity
B. actual output to design capacity
C. design capacity to effective capacity
D. effective capacity to actual output
E. design capacity to actual output

B. actual output to design capacity
Which of the following is a factor that affects service capacity planning?
A. The need to be near customers
B. The inability to store services
C. The degree of volatility of demand
D. The customer’s willingness to wait
E. All of the above

E. All of the above
Capacity in excess of expected demand that is intended to offset uncertainty is a:
A. margin protect
B. line balance
C. capacity cushion
D. timing bubble
E. none of the above

C. capacity cushion
Production units have an optimal rate of output where:
A. total costs are minimum
B. average unit costs are minimum
C. marginal costs are minimum
D. rate of output is maximum
E. total revenue is maximum-

B. average unit costs are minimum
At the break-even point:
A. output equals capacity
B. total cost equals total revenue
C. total cost equals profit
D. variable cost equals fixed cost
E. variable cost equals total revenue

B. total cost equals total revenue

In which type of operations are you likely to see, at most, only minor variations in the product or service being produced using the same process and the same equipment?
A. a project
B. a job shop
C. repetitive production
D. batch processing
E. continuous production

C. repetitive production
The process of assigning tasks to workstations in such a way that the workstations have approximately equal time requirements is called:
A. fair employment practices
B. idle time analysis
C. line balancing
D. cycle time optimization
E. none of the above
4. The advantages of auto

C. line balancing
The advantages of automation include:
(I) Reduced output variability.
(II) Reduced variable costs.
(III) Machines don’t strike or file grievances.
(IV) Machines are always less expensive than human labor.
A. I and IV
B. II and III
C. I, II, and III
D. I and III
E. II and IV

C. I, II, and III
Which type of processing system tends to produce the most product variety?
A. Assembly
B. Job-Shop
C. Batch
D. Continuous
E. Project

B. Job-Shop
In which type of processing system would gasoline be produced from crude oil?
A. Job Shop
B. Batch
C. Assembly
D. Continuous
E. Project

D. Continuous
Which of the following is not a characteristic of layout decisions in system design?
A. substantial investment of both money and effort
B. long-term commitment
C. significant impact on short-term efficiency
D. usually well-received by operative personnel
E. all of the above

D. usually well-received by operative personnel
Which one of the following is not considered an important factor in service layout design?
A. cost minimization and product flow
B. frequency of orders
C. customer attitude and image
D. all are important
E. none are important

A. cost minimization and product flow
The type of layout which features departments or other functional groupings in which similar activities are performed is:
A. process
B. product
C. fixed-position
D. mass
E. Unit

A. process
Which of the following is not an information requirement for the design of a process layout?
A. a list of departments or work centers
B. a projection of work flows between the work centers
C. the distance between locations
D. the cost per unit of distance to move loads
E. a list of product cycle times for every product manufactured

E. a list of product cycle times for every product manufactured
Which of the following is not a location option that management can consider in location planning?
A. expand an existing facility
B. add a new location
C. relocate from one location to another
D. do nothing
E. All are possible options.

E. All are possible options.
Which of the following is the last step in the procedure for making location decisions?
A. determine the evaluation criteria
B. identify important factors
C. develop location alternatives
D. evaluate alternatives and make a selection
E. request input regarding alternatives

D. evaluate alternatives and make a selection
When a location evaluation includes both quantitative and qualitative inputs, a technique that can be used is ___________.
A. Linear programming
B. Consumer surveys
C. Factor rating
D. Transportation models
E. Center of gravity methods

C. Factor rating
The method for evaluating location alternatives which uses their total cost curves is:
A. cost-volume analysis
B. transportation model analysis
C. factor rating analysis
D. linear regression analysis
E. MODI analysis

A. cost-volume analysis
A location analysis has been narrowed down to two locations, Akron and Boston. The main factors in the decision will be the supply of raw materials, which has a weight of .50, transportation cost, which has a weight of .40, and labor cost, which has a weight of .10. The scores for raw materials, transportation, and labor are for Akron 60, 80, and 70, respectively- for Boston 70, 50, and 90, respectively. Given this information and a minimum acceptable composite score of 75, we can say that the manager should:
A. be indifferent between these locations
B. choose Akron
C. choose Boston
D. reject both locations
E. build a plant in both cities


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