OPERATION MANAGMENT
Submitted By:
M. MOEEN QURESHI
3444-MBA 19(A)
Layout strategy
Lay out is the key decision to determined long term efficiency of the business operation it is
established considering capacity, processes, flexibility and cost and quality of work. It is the
base of organizations strategy. The overall objective of plant layout is to design a physical
arrangement that most economically meets the required output quantity and quality. Layout
ideally involves allocation of space and arrangement of equipment in such a manner that
overall operating costs are minimized.
The Main Advantages of Lay Out

Lower cost of manufacturing per unit

Flexibility

Simple and effective inspection of work and simplified production control

Higher utilization of space, equipment, and people

Improved flow of information, materials, or people
Type of Layout
Office layout: Positions workers, their equipment, and spaces/offices to provide for
movement of information
Retail layout: Allocates shelf space and responds to customer behavior
Warehouse layout: Addresses trade-offs between space and material handling
Fixed-position layout: Addresses the layout requirements of large, bulky projects
such as ships and buildings
Process-oriented layout: Deals with low-volume, high-variety production (also
called job shop or intermittent production)
Work cell layout: Arranges machinery and equipment to focus on production of a
single product or group of related products
Product-oriented layout: Seeks the best personnel and machine utilizations in
repetitive or continuous production
Office layout
Lay out is the key decision to determined long term efficiency of the business
operation it is established considering capacity, processes, flexibility and cost and quality of
work. It is the base of organizations strategy
Layout design must consider the following





high utilization of space, equipments and people
improve flow of information, material and people
improve employee morale, safe working conditions
improve customer/client interaction
flexibility
Types of layout office layout required grouping of worker, their equipment, and space to
provide comfort and information movement. Its main distinction is important place for
follow of information electronic as well as paper information. A useful tool for such analysis
is relationship chart general guidelines allot an average of about 100squire feet per person
and for executive 400 squire fit must be flexible to coming technological changes like
laptop, mobile PDA etc.
Retail layout
Retail layout is based on sales and profitability is vary directly with customer
expose to the product
Five ideas are helpful in retail layout arrangement





Locate the high draw items around the periphery of the store. like dairy and bakery
products opposite to one another
Use end-aisle location because they have a very high exposure rate
Convey the mission of store by carefully selecting the position of the lead-off
department
Use prominent location for high-impulse and high-margin product
Distribute power item that are dominant to both side of aisle, and dispersed them to
increase the viewing of other items
Arrange the entire product and increase profitability per squire feet. The controversial
issue is slotting fee for producer’s product. Retailer now demand $25000 to place an item
in the chain
Services cape
The physical surrounding in which service take place and how they affect customer
and employee the following must be consider for layout

Ambient condition, which are background characteristics such as lighting, sound,
smell and temperature

Spatial layout and functionality, involves customer circulation path planning such
as width, direction angle and shelf spacing and product grouping

Signs, symbols and artifacts, which are characteristics of building design that carry
social significance
Fixed-position layout
Address the layout requirements of stationary projects. The techniques used to address
the fixed –position layout are not well developed and are complicated by three factors


There are limit space at virtually all sites
At different stage of product different material is needed there fore different items
become critical as the project develops
Process oriented layout
The layout that deals with low-volume high variety production like machine and
equipments are grouped together
A big advantage of process oriented layout is its flexibility in equipment and labor
assignment and its disadvantage comes from the general purpose, use of equipment. Order
takes more time to move from the system because of difficult schedule, changing setup
Process oriented facility try to minimize load or trips, time and distance related cost.
Warehousing and storage layout
A design that batter attempts to minimize total cost by addressing trade off between space
and material handling to minimize the cost. This cost includes equipment, people, material
supervision, insurance and depreciation it must decrease damage and spoilage of product.
An important area is unloading and loading area must carefully considered


Cross-docking Avoiding the placing of material or supplies in the storage by
processing them as they are received for shipments.
Random-stocking Used in warehouse to locate stock where ever there is an open
space.
It include the following tasks






Maintaining a list off open location.
Maintain accurate record of existing inventory and its location.
Sequence items on order to minimize the travel time required to pick orders.
Combine orders to minimize picking time.
Assigning certain items or classes of items.
Customization using warehouse to add value to the product through component
modification, repair labeling and packaging.
Work cells
An arrangement, of machines and personnel’s that focus on making a single product or
family of related products. Group technology products that have similar characteristics and
are processed in a particular work cell
Requirements of work cell




Identification of families of products, through the use of family code
High level of training for employee
Staff support to establish work cell initially
Test at each station in the work cell
The advantages of work cell are







Reduce work in process inventory
Less floor required because less space is needed
Reduce raw material and finished good inventory
Reduce direct labor cost
Higher sense of employee participation
Increase use of equipment and material
Reduce investment in machine and equipments
FACTORS OF LAYOUT
While deciding his factory or unit or establishment or store, a small-scale businessman should
keep the following factors in mind:
Factory building:
The nature and size of the building determines the floor space available for layout. While
designing the special requirements, e.g. air conditioning, dust control, humidity control etc.
must be kept in mind.
Repairs and maintenance:
Machines should be so arranged that adequate space is available between them for
movement of equipment and people required for repairing the machines
Human needs:
Adequate arrangement should be made for cloakroom, washroom, lockers, drinking water,
toilets and other employee facilities, proper provision should be made for disposal of effluents,
if any.
Production process:
In assembly line industries, product layout is better. In job order or
intermittent manufacturing on the other hand, process layout is desirable.
*********************************************************************************************
LOCATION STRATEGY
One of the most important strategic decisions made by the companies like federal
express, Daimler Chrysler and hard rock is where to locate their operations. The
international aspect of these decisions is an indication of the global nature of location
decisions So Companies make location decisions relatively infrequently, usually because
demand has out grown the current plant capacity or because of changes in the labor
productivity, exchange rates, cost or local attitudes. Company may also relocate their
manufacturing or service facility because of shift in demand of customers and
demographics may change.
Factors that affect location decisions
By internalizing firm select countries on the basis of country critical success factor. Than it
focus on a region of selected country and a community, the final step is choosing a specific
site with in a community
The number of other factors involving location decision is Labor productivity, Foreign
exchange, culture, changing attitudes towards the industry, proximity to market, supplier
and competitor.
Labor productivity
Employees with poor training, poor education or poor work habits may not be a good buy even
at low wages. By the same token, employees who cannot or will not always reach their places
of work are not much good to the organization, even at low wages. Labor cost per unit is
sometimes called labor content of the product.


Wage rates are not the only cost
Lower productivity may increase total cost
Labor cost per day
Productivity (units per day)
= cost per unit
Attitude:
Attitude include the attitude of the government, management may find that these
attitudes can be influenced by their own leadership.
The attitude of the workers may also differ from the country to country, region to region,
and small town to city. Workers view regarding turnover, unions, absenteeism are all
relevant factors and one of the greatest challenges in globalization is to deal with the
culture of that particular country. Cultural variation in punctuality by employees and
suppliers make a marked difference in production and delivery schedule.
Proximity to markets
It is extremely important to locate near customer. Particularly, service organizations
like drugstores, restaurants, post offices, or barbers find that Proximity to markets is the
primary location factor
Exchange rate
While selection location exchange rate is need to be considered. Many firms take advantage
because of favorable exchange rate. At the same time it becomes disastrous for the firm due
to its ups and down movement.
Cost
There are two categories of location cost
 Tangible cost
Readily identifiable cost that can be measured with some precision i.e. utilities, labor
material, taxes and depreciation these cost can managed by accounting department and
management
 Intangible cost
A category of location cost that can not be quantified such as quality of life and government
Proximity to supplier
Firm need to locate near supplier due to perish ability, transportation cost, and in bulk
purchase. These are barky, dairy etc
Proximity to competitor
Companies need to locate near competitor due to resource at that region, resource include
natural, informational, talent, and venture capital resource. The concept of Clustering is also used.
METHODS OF EVALUATING LOCATION ALTERNATIVES
There are four methods which are used to solve the problem of location.
Factor rating method.
Locational break even analysis.
The centre of gravity method.
Transportation model.
Now These methods are discuss one by one:
The factor rating method
The factor rating method has six steps which are the following:






Develop a list of relevant factors called critical success to reflect its relative
importance
Assign weigh to each factor
multiply each score to the weight by the score taken
Develop a scale to each factor
Have management score for each location
Make a recommendation based on the maximum point score
Location break even analysis
Location break even analysis is the use of cost volume analysis to make an economic
comparison of location alternatives. By identifying fixed and variable cost and graphing
them for each location can determine which location provide the lowest cost.
The three steps in location break even analysis are the following:



Determine fixed and variable cost for each location
Plot the cost on the graph
Select the location which has the lowest cost on the graph
The center of gravity method
The centre of gravity method is a mathematical technique used for finding the location
of distribution center that will minimize distribution cost.
Three aspects in account for distribution center



The location of the market
The volume of goods shipped to that market
Shipping cost of the entity
The transportation model
The objective of the transformation model is to determine the best pattern of shipment
from several points of supply (sources) to several demands (destinations) so as to
minimize total production and transport cost. The transformation model finds an initial
feasible solution and then makes step by step improvement until solution is reached.
Service location strategy
As focus on the industrial sector location strategy to minimize it cost while the main focus
to service on the service sector is to maximize revenues .manufacturing concerns finds that
there is cost benefits on different locations and it can be reduced to minimum level if a
suitable location have selected. Therefore for the service sector there may be revenues
benefits rather than cost. There are eight major components of volume and revenue for the
service companies.








Purchasing power of the customer drawing area
Service and image compatibility with demographics of the customer drawing areas
Competition in the area
Quality of the competition
Uniqueness of the firm’s and competitors location
Physical qualities of facilities and neighboring business
Operating policies of the firm
Quality of management
**************************************************************************************