COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF MANAGEMENT
MASTER OF BUSINESS ADMINISTRATION

ADVANCED OPERATIONS MANAGEMENT (MBA 6031)

BY:
Mehari H. (PhD, MBA, MA, BA)
E-mail: haileg2003@[Link]
August 2023
Maichew, Tigray

1
 CHAPTER 3
DESIGN OF THE OPERATION SYSTEM
Learning Objectives
After completing this chapter you should be able to;
• Define product and service design and explain its
strategic impact on the organization.
• Describe the steps used to develop a product and
service design.
• Identify different types of processes and explain
their characteristics.
• Understand issues of designing service operations.

2
3.1. What is Product Design?

• The process of defining all of the

product’s characteristics.
• Defines appearance of the product
• Sets standards for performance
• Specifies which materials are to be
used
• Determines dimensions and
tolerances
• Product design is the mother of all
operations processes in an
organization.
3
 Cont’d
• Brings together marketing analysts, art
directors, sales forecasters, engineers, finance
experts, and other members of a company to
think and plan strategically.
• A good product design can ensure customer
satisfaction, quality and production costs.
• On the other hand, if an organization is
offering poor product or service, customer’s
feedback in the form of lack of interest will
result in poor sales.
• Also Quality and production costs are affected
by poor design of the product or service.

4
 The Product Design Process
• Certain steps are common to the
development of most product designs:
• Idea generation,
• Product screening,
• Preliminary design and testing, and
• Final design.

5
Cont’d

6
 1. Idea Development
• To remain competitive, companies
must be innovative and bring out new
products regularly.
• All product designs begin with an idea.
• The idea might come from;
• Company’s own R&D department
• Customer complaints or suggestions
• Marketing research
• Suppliers
• Salespersons in the field
• Factory workers
• New technological developments and
• Competitors (e.g. Benchmarking,
reverse engineering) 7
 2. Product Screening
• After a product idea has been
developed, it is evaluated to
determine its likelihood of success.
This is called product screening.
• The company’s product screening
team evaluates the product design
idea according to the needs of the
major business functions.
• In their evaluation, executives from
each function area may explore
issues such as the following:

8
● Operations
• What are the production needs of the
proposed new product, and how do they
match our existing resources?
• Will we need new facilities and equipment?
• Do we have the labor skills to make the
product?
• Can the material for production be readily
obtained?
● Marketing
• What is the potential size of the market for
the proposed new product?
• How much effort will be needed to develop a
market for the product, and
• what is the long-term product potential?
● Finance
• What is the proposed new product’s
9
financial potential, cost, and return on
• Unfortunately, there is no magic formula for
deciding whether or not to pursue a particular
product idea. Managerial skill and experience,
however, are key.
• A popular decision-making tools that help us
to evaluate new product ideas is break-even
analysis.
• A technique used to compute the amount of
goods a company would need to sell to cover
its costs.
• It computes the quantity of goods a company
needs to sell just to cover its costs, or break
even, called the “break-even” point.
• When evaluating an idea for a new product,
it is helpful to compute its break-even
quantity.
• An assessment can then be made as to how
difficult or easy it will be to cover costs and
10

make a profit.
11
• Total cost = F +(VC)Q
Where;
• F = fixed cost
• VC variable cost per unit
• Q =number of units sold
• Fixed costs
• Costs a company incurs regardless of how
much it produces.
• are related to the fixed factors and do not
vary with output in the short run.
• Examples are rent, insurance, interest
payments, and depreciation (if estimated on
a time basis).
• These costs may vary in the short run, for
example if the interest rate rises, but not
because of a change in output.
• Fixed costs have to be paid even if output is
12
zero for any period, for example when there
• Variable costs
• Costs that vary directly with the
amount of units produced.
• Examples of variable costs are raw
materials, wages, depreciation
related to the use of equipment, and
some fuel costs.
• In practice a clear distinction between
fixed and variable costs is not always
possible; some costs, like fuel above,
may have fixed and variable elements.
Other costs, like administrative
salaries, may be fixed over a certain
output range, but if output exceeds
the range an increase in staff may be 13

required, thus increasing costs.

• Total Revenue= (SP)Q
• SP = selling price per unit
• When Q = 0, revenue is zero.
• As sales increase, so does revenue.
• Remember, however, that to cover all costs we have to sell the
break-even amount.
• This is the quantity QBE, where revenue equals total cost. If
we sell below the break-even point, we incur a loss, since
costs exceed revenue.
• To make a profit, we have to sell above the break-even
point.
• Since revenue equals total cost at the break-even point, we
can use the previous equations to compute the value of the
break-even quantity:
• Total Cost = Total Revenue
• TFC+(UvC)Q = (SP)Q
• Solving for Q, we get the following equation:

• Break-even analysis is useful for more than just deciding

between different products.
• It can be used to make other decisions, such as evaluating
different processes or deciding whether the company should
14
3. Preliminary Design and Testing
• At this stage design engineers translate general
performance specifications into technical
specifications. Prototypes are built and tested.
• Changes are made based on test results, and the
process of revising, rebuilding a prototype, and
testing continues.
• For service companies this may entail testing the
offering on a small scale and working with
customers to refine the service offering.
• Fast-food restaurants are known for this type of
testing, where a new menu item may be tested in
only one particular geographic area.
• Product refinement can be time-consuming, and
the company may want to hurry through this
phase to rush the product to market. However,
rushing creates the risk that all the “bugs” have
not been worked out, which can prove very
costly. 15
 4. Final Design
• Following extensive design testing, the
product moves to the final design stage.
• This is where final product
specifications are drawn up.
• The final specifications are then
translated into specific processing
instructions to manufacture the
product, which include selecting
equipment, outlining jobs that need to
be performed, identifying specific
materials needed and suppliers that will
be used, and all the other aspects of
organizing the process of product
production.
16
FACTORS IMPACTING PRODUCT DESIGN
1. Design for Manufacture (DFM)
• A series of guidelines to follow in order to
produce a product easily and profitably.
• Designing a product so that it can be
produced easily and economically.
DFM guidelines focus on two issues:
• Design simplification means reducing the
number of parts and features of the
product whenever possible. A simpler
product is easier to make, costs less, and
gives higher quality.
• Design standardization refers to the use of
common and interchangeable parts. By
using interchangeable parts, we can make
a greater variety of products with less
inventory and significantly lower cost and17

provide greater flexibility.

Cont’d
2. Product life cycle: A series of stages
that products pass through in their
lifetime, characterized by changing
product demands over time.
• There are typically four stages of the
product life cycle:
• Introduction,
• Growth,
• Maturity, and
• Decline.

18
• Some products do not exhibit life cycle.
(e.g. wooden pencils, paper clips, nails,
knives, forks and spoons; drinking
glasses; and similar items).
• Wide variations exist in the amount of
time a particular product or service
takes to pass through a given phase of
its life cycle;
• Some pass through various stages in a
relatively short period; others take
considerably longer.
• Often it is a matter of the basic need for the
item and the rate of technological change.
• E.g. toys, novelty items and style items have
a life cycle of less than one year. where as
Clothes washers and dryers, may last for
many years before yielding to technological
change. 19
 Product Life Cycle

Introduction Growth Maturity Decline

OM Strategy/Issues

Product design Forecasting Standardization- Little product

and critical extent to which differentiatio
development Product and there is absence n
critical process of variety in a Cost
Frequent reliability product, service minimization
product and or process.
Competitive Overcapacity
process design product Less rapid in the
changes improvements product industry
Short and options changes – more
minor changes Prune line to
production runs Increase eliminate
High production capacity Optimum items not
costs capacity returning
Shift toward
Increasing good margin
DEMAND

Limited models product focus

stability of Reduce
Attention to Enhance process
quality distribution capacity
Long production
runs
Product
improvement
TIME 20
and cost cutting
 3. Concurrent Engineering

• An approach that brings together

multifunction teams in the early phase of
product design in order to simultaneously
design the product and the process.
• This type of approach has been found to
achieve a smooth transition from the design
stage to actual production in a shorter
amount of development time with improved
quality results.
• The purpose is to achieve product designs
that reflect customer wants as well as
manufacturing capabilities.

21
22
 4. Remanufacturing
• Refurbishing used products by replacing
worn-out or defective components and
reselling the products.
• Remanufacturing uses components of old
products in the production of new ones.
• In addition to the environmental benefits,
there are significant cost benefits because
remanufactured products can be half the
price of their new counterparts.
• Among the products that have
Remanufactured components are
computers, televisions, automobiles,
printers, copiers cameras and telephones.

23
 SERVICE DESIGN
• Service- is something that is done to or
for a customer (client, patient etc.).
• It is provided by a service delivery
system which includes the;
• facilities,
• processes and
• skills needed to provide the service.

24
 Overview of Service Design
• Service design-The process of
establishing all the characteristics of
the service, including physical,
sensual, and psychological benefits.
• Two key issues in service design
• The degree of variation in service
requirements and the degree of
customer contact.
• Customer involvement in the
delivery system.

25
 Characteristics of well-designed
service systems
• Being consistent with the organization mission.
• Being user friendly
• Being robust if variability is a factor
• Being easy to sustain
• Being cost-effective
• Having value that is obvious to customers.
• Having effective linkages between back-of-the –
house operations and front- of- the-house
operations
• Front operations- focus on customer service
• Back operations- focus on speed and efficiency
• Having a single, unifying theme, such as
convenience or speed.
• Having a design features and checks that will
ensure service that is reliable and of high quality 26
 How are Services Classified?
• A common way to classify services is based on
the degree of customer contact.

27
• Services with low customer contact are
called “quasi-manufacturing.”
• These firms have a high degree of
service standardization, have higher
sales volumes, and are typically less
labor intensive.
• These firms have almost no face-to-face
contact with customers and are in many
ways similar to manufacturing operations.
• Examples include warehouses, distribution
centers, environmental testing
laboratories, and back-office operations.
• Services with high customer contact are
called “pure services.”
• These firms have high face-to-face contact
and are highly labor intensive. 28
 • There is low product standardization, as each
customer has unique requirements, and sales
volumes tend to be low.
• Pure service firms have an environment of
lowest system efficiency compared to other
service firms. The reason is that the service is
typically customized. As each customer has
unique requirements, there is less predictability
in managing the operating environment.
Examples include hospitals, restaurants, barber
shops, and beauty salons.
• Services that combine elements of both of
these extremes are called “mixed
services.”
• Some parts of their operation have face-to-face
customer contact, though others do not.
• They include offices, banks, and insurance firms.
29
 Approaches to Service Designs
• There is no one model of successful
service design. The design selected
should support the company’s service
concept and provide the features of
the service package that the target
customers want.
• Different service designs have proved
successful in different environments.
In this section we look at three very
different service designs.

30
1. Substitute Technology for People
• The first approach discussed automates
the service and makes it more like
manufacturing.
2. Get the Customer Involved
• approach requires greater participation
and responsibility from the customer.
3. High Customer Attention Approach
• This approach relies on developing a
personal relationship with each
customer and giving the customer
precisely what he or she wants.
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 Service Design Process
•Service concept
• purpose of a service; it defines
target market and customer
experience
•Service package
• mixture of physical items,
sensual benefits, and
psychological benefits
•Service specifications
• performance specifications
• design specifications
• delivery specifications
32
5-33
 3.2. PROCESS SELECTION
• A process is a group of related tasks with specific
inputs and outputs.
• Processes exist to create value for the customer, the
shareholder, or society.
• Process Design defines what tasks need to be
done and how they are to be coordinated
among functions, people, and organizations.
• Processes are planned, analyzed, and redesigned as
required by changes in strategy and emerging technology.
• Process strategy is an organization’s overall
approach for physically producing goods and
providing services.
• Process decisions should reflect how the firm has chosen to
compete in the marketplace, reinforce product decisions,
and facilitate the achievement of corporate goals.

34
•A firm’s process strategy defines
its:
• Vertical integration: The extent to which
the firm will produce the inputs and control
the outputs of each stage of the
production process.
• Capital intensity: The mix of capital (i.e.,
equipment, automation) and labor resources
used in the production process.
• Process flexibility: The ease with which
resources can be adjusted in response to
changes in demand, technology, products or
services, and resource availability.
• Customer involvement: The role of the
customer in the production process.
35
 What is Process selection?
• Process Selection refers to the
way an organization chooses to
produce its good or services.
• It takes into account
• Selection of technology,
• Capacity planning,
• Layout of facilities, and
• Design of work systems.
• Process selection is a natural
extension after selection of new
products and services.
36
 Types of Production Processes
• Production processes can be classified into
• Projects,
• Batch production,
• Mass production, and
• Continuous production.
1. Projects Process
• A type of process used to make a one-at-a-
time product exactly to customer
specifications.
• These processes are used when there is high
customization and low product volume,
because each product is different.
• Examples construction, shipbuilding, medical
procedures, creation of artwork, custom
tailoring, and interior design.
• With project processes the customer is usually
37
 2. Batch Production
• A form of manufacturing in which the job
pass through the functional departments in
lots or batches and each lot may have a
different routing.
• A type of process used to produce a small
quantity of products in groups or batches
based on customer orders or
specifications.
• The volumes of each product produced are
still small, and there can still be a high
degree of customization.
• Examples can be seen in bakeries,
education, and printing shops. The
classes you are taking at the university
use a batch process.
38
 3. Mass process
• A type of process used to produce a
large volume of a standardized
product.
• They are also known as flow shops,
flow lines, or assembly lines.
• With line processes the product that is
produced is made in high volume with
little or no customization.
• Think of a typical assembly line that
produces everything from cars,
computers, television sets, shoes,
candy bars, even food items.

39
 4. Continuous process
• A type of process that operates
continually to produce a high volume of
a fully standardized product and usually
lower variety than mass processes.
• Operates for a longer period of time.
• smooth flow from one part of the
process to another.
This continuous water
treatment plant almost
never stops (it only
stops for maintenance)
and performs only one
task (filtering
impurities). 40
Types of processes based on product
volume and product standardization

41
 Note
• Both project and batch processes have low
product volumes and offer customization.
• The difference is in the volume and degree of
customization. Project processes are more
extreme cases of intermittent (don’t happen
regularly) operations compared to batch
processes.
• Both line and continuous processes primarily
produce large volumes of standardized
products.
• Again, the difference is in the volume and
degree of standardization.
• Continuous processes are more extreme cases
of high volume and product standardization
than are line processes.
42
 3.3. CAPACITY PLANNING
Introduction
• Design of the production system involves
planning for the inputs, conversion process
and outputs of production operation.
• The effective management of capacity is the
most important responsibility of production
management.
• The objective of capacity management (i.e.
planning and control of capacity) is to match
the level of operations to the level of
demand.
• Capacity planning is to be carried out
keeping in mind future growth and expansion
plans, market trends, sales forecasting, etc.
43
 Cont’d
• Capacity
• is the upper limit or ceiling on the
load that an operating unit can
handle.
• is the maximum output rate that can
be achieved by a facility.
• the rate of productive capability of a
facility.
• Capacity is usually expressed as
volume of output per period of time.
• The basic questions in capacity
planning are:
• What kind of capacity is needed?
• How much is needed? 44
 Types of Measuring Capacity

• Each business can measure capacity in

different ways and that capacity can
be measured using either inputs or
outputs.
1. Design /Theoretical Capacity
2. Effective/system capacity
3. Actual/ operating capacity

45
1. Design /Theoretical Capacity
• is the maximum output rate that can
be achieved by a facility under ideal
conditions.
• Can be sustained only for a relatively
short period of time.
• A company achieves this output rate
by using many temporary measures,
such as overtime, overstaffing,
maximum use of equipment, and
subcontracting.

46
2. Effective/System Capacity:
• is the maximum output rate that can
be sustained under normal
conditions considering operational
constraints.
• These constraints that need to be
considered include
• realistic work schedules and breaks,
• regular staff levels,
• scheduled machine maintenance, and
• none of the temporary measures that
are used to achieve design capacity.
• Note that effective capacity is
usually lower than design capacity.
47
3. Actual /Operating Capacity
• The actual output that the company
has already produced or achieved.
• These different measures of capacity
are useful in defining two measures of
system effectiveness: efficiency and
utilization.
• Utilization refers to the percentage of
available working time that a worker
actually works or a machine actually
runs.
• Efficiency refers to how well a
machine or worker performs
compared to a standard output level.
48
 Importance of Capacity
Decisions
1. Impacts ability to meet future
demands
2. Affects operating costs
3. Major determinant of initial costs
4. Involves long-term commitment
5. Affects competitiveness
6. Affects ease of management
7. Globalization adds complexity
8. Impacts long range planning

49
 Determinants of Effective
Capacity

• Facilities
• Product and service factors
• Process factors
• Human factors
• Operational factors
• Supply chain factors
• External factors

50
 Key Decisions of Capacity
Planning
1. Amount of capacity needed
2. Timing of changes
3. Need to maintain balance
4. Extent of flexibility of facilities

51
Steps for Capacity Planning
1. Estimate future capacity requirements
2. Evaluate existing capacity
3. Identify alternatives
4. Conduct financial analysis
5. Assess key qualitative issues
6. Select one alternative
7. Implement alternative chosen
8. Monitor results

52
 Developing Capacity
Alternatives
[Link] flexibility into systems
[Link] stage of life cycle into account
[Link] a “big picture” approach to
capacity changes
[Link] to deal with capacity “chunks”
[Link] to smooth out capacity
requirements
[Link] the optimal operating level

53
 3.4. FACILITY LOCATION AND
LAYOUT
FACILITY LOCATION
• The determination of where to place the plant or
facility.
• is the process of determining a geographic site for a
firm’s operations.
• Before a location for a plant is selected, long range
forecasts should be made anticipating future needs of
the company.
• The plant location should be based on;
• the company’s expansion plan and policy,
• diversification plan for the products,
• changing market conditions,
• the changing sources of raw materials and many
other factors that influence the choice of the
location decision.
• So an improper location of plant may lead to waste of
all the investments made in building, machinery, and
54
equipment.
 Site Selection
• Given a general area for location, a site
within the area must then be chosen. The
following requirements must be met:
•A site zoned for the activity
contemplated.
• A site large enough to accommodate
present floor plan needs and room for
expansion, parking, transportation
facilities, and the like.
• Provision for necessary transportation
facilities, utilities, and waste disposal.

55
• Alternative sites also need to be studied
from the point of view of the relation of
investment versus operating cost effects.
• The concept of break-even analysis can be
used to compare various sites on the basis
of total costs relative to the volume of
operation.
• Thus, a site that may require large capital
expenditure but that makes possible low
operating costs may be a more economical
site than one that has the reverse cost
characteristics.

56
 NEED FOR SELECTING A SUITABLE
LOCATION
• The need for selecting a suitable location
arises because of three situations.
I. When starting a new organization,
i.e., location choice for the first
time.
II. In case of existing organization.
III. In case of Global Location.

57
 I. In Case of Location Choice for the First
Time or New Organizations
• The following are the factors to be considered
while selecting the location for the new
organizations:
1. Identification of region: The organizational
objectives along with the various long-term
considerations about;
• marketing, technology, internal
organizational strengths and weaknesses,
region-specific resources and business
environment, legal-governmental
environment, social environment and
geographical environment suggest a suitable
region for locating the operations facility.
2. Choice of a site within a region: choosing the
best site from an available set.
• Evaluation of alternative sites for their tangible
58
• The problem of location of a site within the
region can be approached with the following
cost-oriented non-interactive model,
i.e., dimensional analysis.
3. Dimensional analysis: If all the costs
were tangible and quantifiable, the
comparison and selection of a site is easy.
• The location with the least cost is
selected.
• In most of the cases intangible costs which
are expressed in relative terms than in
absolute terms.
59
• Dimensional analysis consists in computing the
relative merits (cost ratio) for each of the cost
items for two alternative sites.
• For each of the ratios an appropriate weightage by means
of power is given and multiplying these weighted ratios to
come up with a comprehensive figure on the relative
merit of two alternative sites, i.e.,

60
 SELECTION OF EXACT SITE
• Transportation facilities
• Is the location easily accessible by vehicles from
the main highways?
• Are the railroad facilities sufficient for quick
receipt and shipment of goods?
• Can a railroad siding be made available?
• Availability of water, power, gas and sewerage
• Is water available in sufficient quantity and of
required quality?
• Is adequate power available or not?
• Is gas and sewer system adequate to the plant’s
needs?
• Soil characteristics
• Is the bearing capacity of soil suitable to support
the building and equipment?
• Will the soil provide adequate drainage?
• Drainage
• Will the area drain away all surface water so that 61
the buildings or work area will not be flooded?
• Parking space
• Is adequate space available to provide for
employees and visitors’ vehicles parking?
• Space for expansion
• Is enough space available for future expansion of
the plant?
• Accessibility by workers
• Can the sites be reached by public transport ?
• Is the road and street network suitable for speedy
entrance and exit of employees during rush hours
or emergency?
• Cost of land
• Does the cost of land justify the selected site for
the intended product?
• Can the location be shifted to some cheaper site
with similar facilities?
• Existing buildings
• Are the existing buildings suitable for company’s
operation on rent or final purchase basis?
62
 II. In Case of Location Choice for
Existing Organization
• In this case a manufacturing plant has to fit
into a multi-plant operations strategy.
• That is, additional plant location in the same
premises and elsewhere under following
circumstances:
1. Plant manufacturing distinct products.
2. Manufacturing plant supplying to specific
market area.
3. Plant divided on the basis of the process
or stages in manufacturing.
4. Plants emphasizing flexibility.
The different operations strategies under the
above circumstances could be:
63
 III. In Case of Global Location
• In case of global locations there is scope for virtual
proximity and virtual factory.
• VIRTUAL PROXIMITY
• With the advance in telecommunications
technology, a firm can be in virtual proximity to its
customers.
• For a software services firm much of its logistics is
through the information/ communication pathway.
• Many firms use the communications highway for
conducting a large portion of their business
transactions.
• Logistics is certainly an important factor in deciding
on a location—whether in the home country or
abroad.
• Markets have to be reached. Customers have to be
contacted. Hence, a market presence in the country
of the customers is quite necessary.
64
• VIRTUAL FACTORY
• Many firms in the service sector and in the
manufacturing sector often out sources
part of their business processes to foreign
locations.
• Thus, instead of one’s own operations, a
firm could use its business associates’
operations facilities. So a location could be
one’s own or one’s business associates.
The location decision need not always
necessarily pertain to own operations.

65
 REASONS FOR A GLOBAL/FOREIGN
LOCATION
A. Tangible Reasons
• Reaching the customer: capturing a share
of the market expanding worldwide
• The host country may offer substantial tax
advantages compared to the home country.
• The costs of manufacturing and running
operations may be substantially less in
that foreign country.
• This may be due to lower labor costs,
lower raw material cost, better
availability of the inputs like materials,
energy, water, ores, metals, key
personnel etc.
• The company may overcome the tariff
barriers by setting up a manufacturing
plant in a foreign country rather than
exporting the items to that country. 66
 B. In tangible reasons
1. Customer-related Reasons
(a) Accessibility is an important ‘service quality’
determinant.
(b) The firm may interact more intimately with its
customers and may thus understand their
requirements better. It may also discover other
potential customers in the foreign location.
(c) The firm could hunt for human capital (measurement
of the economic value of an employees skills,
competencies, knowledge, social and personality
attributes, including creativity) in different countries
by having operations in those countries. Thus, the
firm can gather the best of people from across the
globe.
(d) Foreign locations in addition to the domestic locations
would lower the market risks for the firm. If one
market goes slow the other may be doing well, thus
lowering the overall risk.
67
 FACTORS INFLUENCING FACILITY LOCATION
1. General locational factors, which include controllable and
uncontrollable factors for all type of organizations.
2. Specific locational factors, specifically required for
manufacturing and service organizations.
General locational factors
• CONTROLLABLE FACTORS
1. Proximity to markets
2. Supply of materials
3. Transportation facilities
4. Infrastructure availability
5. Labor and wages
6. External economies
7. Capital.
UNCONTROLLABLE FACTORS
8. Government policy
9. Climate conditions
10. Supporting industries and services
11. Community and labor attitudes
12. Community Infrastructure. 68
 Specific Locational Factors for
Manufacturing Organization
• Dominant factors
1. Favorable labor climate: wage rates, training
requirements attitudes toward work, worker
productivity and union strength.
2. Proximity to markets: Locating near markets is
particularly important when the final goods are
bulky or heavy and outbound transportation rates
are high.
3. Quality of life: Good schools, recreational facilities,
cultural events, and an attractive lifestyle contribute
to quality of life. This factor is relatively unimportant
on its own, but it can make the difference in location
decisions.
4. Proximity to suppliers and resources
5. Utilities, taxes, and real estate costs: utility costs
(telephone, energy, and water), local and state
taxes, financing incentives offered by local or state
governments, relocation costs, and land costs. 69
 Secondary Factors
• Other factors needed to be considered,
including
• room for expansion,
• construction costs,
• accessibility to multiple modes of
transportation,
• the cost of shuffling people and
materials between plants,
• competition from other firms for the
workforce, community attitudes, etc.

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 Specific Locational Factors for
Service Organization
1. Dominant Factors
The factors considered for manufacturers
are also applied to service providers.
• Proximity to customers
• Transportation costs and proximity to
markets
• Location of competitors (Avoiding areas
where competitors are already well established
often pays.
• However, in some industries, such as new-
car sales showrooms and fast food chains,
locating near competitors is actually
advantageous).
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 Secondary factors
• Residential density, traffic flow, and
site visibility.
• Traffic flows -businesses customers arrive
in cars.
• Visibility- involves distance from the street
and size of nearby buildings and signs.
• High residential density- ensures night
time and weekend business when the
population in the area fits the firm’s
competitive priorities and target market
segment.

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 FACILITY LAYOUT
• The ‘layout’ of an operation or process means
how its transformed resources are positioned
relative to each other and how its various tasks
are allocated to these transforming resources.
• If the layout proves wrong, it can lead to over-
long or confused flow patterns, customer
queues, long process times, inflexible
operations, unpredictable flow and high cost.

73
 What makes a good layout?
To a large extent the objectives of any layout will depend on the
strategic objectives of the operation, but there are some general
objectives which are relevant to all operations:
● Inherent safety. All processes which might constitute a danger
to either staff or customers should not be accessible to the
unauthorized.
● Length of flow. The flow of materials, information or
customers should be appropriate for the operation.
• This usually means minimizing the distance travelled by transformed
resources. However, this is not always the case (in a supermarket, for
example).
● Clarity of flow. All flow of materials and customers should be
well signposted, clear and evident to staff and customers alike.
● Staff conditions. Staff should be located away from noisy or
unpleasant parts of the operation.
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Management coordination. Supervision and
communication should be assisted by the location of
staff and communication devices.
● Accessibility. All machines and facilities should be
accessible for proper cleaning and maintenance.
●Use of space. All layouts should use space
appropriately. This usually means minimizing the space
used, but sometimes can mean achieving an impression
of spacious luxury, as in the entrance lobby of a high-
class hotel.
● Long-term flexibility. Layouts need to be changed
periodically. A good layout will have been devised with
the possible future needs of the operation in mind.

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• Facility layout refers to the arrangement of
activities, processes, departments,
workstations, storage areas, aisles, and
common areas within an existing or proposed
facility.
• Refers to the physical arrangement of
production facilities.
• It is the configuration of departments, work
centres and equipment in the conversion
process.
• Facility layout is a plan of an optimum
arrangement of facilities including;
 personnel,
 operating equipment,
 storage space,
 material handling equipment and
 all other supporting services along with the design
of best structure to contain all these facilities”. 76
 OBJECTIVES OF FACILITY LAYOUT
• Minimize movement and material handling costs;
• Utilize space efficiently;
• Utilize labor efficiently;
• Eliminate bottlenecks;
• Facilitate communication and interaction
between workers, between workers and their
supervisors, and between workers and customers;
• Reduce manufacturing cycle time and customer
service time;
• Eliminate wasted or redundant movement;

77
• Facilitate the entry, exit, and placement of material,
products, and people;
• Incorporate safety and security measures;
• Promote product and service quality;
• Encourage proper maintenance activities;
• Provide a visual control of activities;
• Provide flexibility to adapt to changing conditions;
• Increase capacity.

78
 Principles of Plant Layout
1. Principle of integration-
• Integrates men, materials, machines and supporting
services and others in order to get the optimum
utilization of resources and maximum effectiveness.
2. Principle of minimum distance
• This principle is concerned with the minimum travel (or
movement) of man and materials.
• The facilities should be arranged such that, the total distance
travelled by the men and materials should be minimum and as
far as possible straight line movement should be preferred.
3. Principle of cubic space utilization
• The good layout is one that utilize both horizontal and
vertical space. It is not only enough if only the floor
space is utilized optimally but the third dimension, i.e., 79
the height is also to be utilized effectively.
4. Principle of flow
• A good layout is one that makes the materials to move in
forward direction towards the completion stage, i.e., there
should not be any backtracking.
5. Principle of maximum flexibility
• The good layout is one that can be altered without much cost
and time, i.e., future requirements should be taken into
account while designing the present layout.
6. Principle of safety, security and satisfaction
• A good layout is one that gives due consideration to workers
safety and satisfaction and safeguards the plant and
machinery against fire, theft, etc.
7. Principle of minimum handling
A good layout is one that reduces the material handling to the
minimum.
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 CLASSIFICATION OF LAYOUT
• Layouts can be classified into the following five
categories:
1. Process layout
2. Product layout
3. Combination/hybrid layout
4. Fixed position layout

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A process Layout in Manufacturing

82
• A hospital is an example of process layout.
Departments are grouped based on their
function, such as cardiology, radiology,
laboratory, oncology, and pediatrics
• A university is another example. Colleges and
departments are grouped based on their
function.

83
 Characteristics of process layout
• Resources used are general purpose. The resources in a process layout
need to be capable of producing many different products.
• Facilities are less capital intensive. Process layouts have less
automation, which is typically devoted to the production of one
product.
• Facilities are more labor intensive. Process layouts typically rely on
higher-skilled workers who can perform different functions.
• Resources have greater flexibility. Process layouts need to have the
ability to easily add or delete products from their existing product line,
depending on market demands.
• Processing rates are slower. Process layouts produce many different
products, and there is greater movement between workstations.
• Material handling costs are higher. It costs more to move goods from
one process to another.
• Scheduling resources is more challenging. Scheduling equipment and
machines is particularly important in this environment.
• Space requirements are higher. This type of layout needs more space
due to higher inventory storage needs. 84
 2. PRODUCT LAYOUTS
• Product layouts, better known as assembly lines, arrange activities in a line
according to the sequence of operations that need to be performed to
assemble a particular product.
• Each product has its own “line” specifically designed to meet its
requirements.
• The flow of work is orderly and efficient, moving from one workstation to
another down the assembly line until a finished product comes off the end
of the line.
• Since the line is set up for one type of product or service, special machines
can be purchased to match a product’s specific processing requirements.
• Product layouts are suitable for mass production or repetitive operations in
which demand is stable and volume is high.
• The product or service is a standard one made for a general market, not for a
particular customer.
• Because of the high level of demand, product layouts are more automated
than process layouts, and the role of the worker is different. Workers
perform narrowly defined assembly tasks that do not demand as high a
wage rate as those of the more versatile workers in a process layout.
85
86
 Characteristics of Product Layout
• Resources are specialized. Product layouts use specialized
resources designed to produce large quantities of a product.
• Facilities are capital intensive. Product layouts make heavy use
of automation, which is specifically designed to increase
production.
• Processing rates are faster. Processing rates are fast, as all
resources are arranged in sequence for efficient production.
• Material handling costs are lower. Due to the arrangement of
work centers in close proximity to one another, material
handling costs are significantly lower.
• Space requirements for inventory storage are lower. Product
layouts have much faster processing rates and less need for
inventory storage.
• Flexibility is low relative to the market. Because all facilities and
resources are specialized, product layouts are locked into 87
producing one type of product.
88
 3. Hybrid Layouts
• combine aspects of both process and product
layouts.
• This is the case in facilities where part of the
operation is performed using an intermittent
processing system and another part is performed
using a continuous processing system.
• Hybrid layouts are often created in an attempt to
bring the efficiencies of a product layout to a process
layout environment.
• To develop a hybrid layout, we can try to identify
parts of the process layout operation that can be
standardized and produce them in a product layout
format.
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 4. Fixed-Position Layouts
• A fixed-position layout is used when the product is
large and cannot be moved due to its size.
• All the resources for producing the product—including
equipment, labor, tools, and all other resources—have
to be brought to the site where the product is located.
• Examples of fixed-position layouts include building
construction, dam or bridge construction,
shipbuilding, or large aircraft manufacture.
• The challenge with a fixed-position layout is
scheduling different work crews and jobs and
managing the project.

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 Job Design and Work
Measurement

•Job design specifies the

work activities of an
individual or a group in
support of an
organization’s objectives.

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• Frederick Herzberg identified several
attributes of good job design, as follows:
• An appropriate degree of repetitiveness
• An appropriate degree of attention and
mental absorption
• Some employee responsibility for
decisions and discretion
• Employee control over their own job
• Goals and achievement feedback
• A perceived contribution to a useful
product or service
• Opportunities for personal relationships
and friendships
• Some influence over the way work is
carried out in groups
• Use of skills
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The Elements of Job Design

93
 Work Measurement
• Work measurement is determining
how long it takes to do a job.
• Without a good idea of how long it
takes to do a job, a company will
not know if it can meet customer
expectations for delivery or service
time.

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Thank You

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