Operations Management – Comprehensive Layout, HR, Inventory & MRP Notes
Global Company Profile – McDonald’s
World-wide restaurant chain used as running case for layout strategy.
Seven major innovations chronologically linked to layout decisions:
1950s: Indoor seating ➜ introduction of dine-in area.
1970s: Drive-through window ➜ re-design of external traffic flow.
1980s: Breakfast menu ➜ expanded kitchen & storage layout.
Late 1980s: Play areas ➜ zoning of dining space for families.
1990s: Kitchen redesign (assembly‐line style) ➜ reduced service time.
2004: Self-service kiosk ➜ relocation of ordering stations.
Current: Three dining zones (Linger, Grab-&-Go, Flexible) ➜ layout as competitive advantage.
Facility Layout – Concepts & Strategic Importance
Facility layout = physical arrangement of everything inside & around buildings.
Objectives:
Maximise customer satisfaction, utilisation of space/equipment/people.
Promote efficient flow of information, materials & people.
Support employee morale & safety.
Layout strategy aligns with firm’s competitive requirements, influences cost, flexibility & speed.
Design considerations: capacity, material handling, environment/aesthetics, information flow, flexibility, cost of movement.
Seven Fundamental Layout Types
Office Layout (information flow).
Retail Layout (customer exposure & profitability per sq-ft).
Warehouse / Storage Layout (space ↔ handling cost trade-off).
Fixed-Position Layout (large, bulky projects).
Process-Oriented Layout (job shop, low-volume high-variety).
Work-Cell Layout (product families, cellular mfg.).
Product-Oriented Layout (assembly line, high-volume low-variety).
Office Layout
Focuses on grouping workers/equipment to facilitate communication.
Three socio-physical aspects:
Proximity: physical closeness.
Privacy: ability to work without interference.
Permission: cultural norms for accessing/modifying space.
Trends:
Information Technology ➜ remote work, hot-desking.
Dynamic space/service needs ➜ modular furniture, scalable meeting areas.
Relationship (closeness) chart used to plan adjacency; categories A–X.
Retail (Supermarket) Layout
Objective: \text{Maximise profit/ft}^2 via customer exposure.
Five helpful ideas:
Locate high-draw items on periphery.
Place high-impulse/high-margin items in prominent spots.
Distribute “power items” along aisle length (both sides).
Utilise end-caps.
Convey store mission through lead-off departments.
Retail slotting: manufacturers pay for shelf space; driven by limited space, SKU proliferation & POS data.
Servicescapes dimensions:
Ambient conditions
Spatial layout/functionality
Signs, symbols & artefacts
Warehouse & Storage Layout
Objective: optimise trade-off between handling cost & space cost; maximise cube utilisation.
Key elements & tech:
Automated Storage & Retrieval Systems (ASRS) → up to 500 % productivity increase.
Dock location critical.
Cross-docking: receiving → shipping without storage; needs tight scheduling & AIS (barcode/RFID).
Random stocking: AIS + info system keeps open-location file; minimises travel distance.
Value-added services (assembly, software loading, kitting) performed at warehouse.
Fixed-Position Layout
Product remains stationary; resources travel.
Challenges: limited space, dynamic material volume, varied material needs.
Alternative: modular off-site fabrication when multiple similar units.
Process-Oriented Layout (Job Shop)
Departments with similar processes grouped.
Flexible; suitable for low-volume high-variety but entails high scheduling/setup/handling costs.
Goal: minimise material-handling cost \min \sum{i=1}^{n}\sum{j=1}^{n} X{ij}C{ij} where X{ij} = loads & C{ij} = cost/distance.
Procedure (example Walters Co.): build from-to matrix, draft schematic, compute cost, iterate (CRAFT, ALDEP, CORELAP, Proplanner). Example reduced cost from \$570 to \$480.
Work Cells
Rearrange people/machines into self-contained units focusing on a product family (Group Technology).
Requirements:
Product families identified.
Cross-trained, empowered employees.
Dedicated equipment & resources.
Built-in testing / poka-yoke.
Advantages:
Lower WIP & raw/FG inventory.
Less floor space.
Lower direct labour.
Higher equipment utilisation.
Greater employee participation & quality.
Takt time =\dfrac{\text{Available work time}}{\text{Units required}}; Operators = \dfrac{\text{Total operation time}}{\text{Takt}}.
Product-Oriented Layout & Repetitive Systems
Conditions: high volume, stable demand, standardised product, uniform quality supply.
Two line types:
Fabrication line (machine-paced).
Assembly line (task-paced).
Advantages: low unit variable cost, low handling, low WIP, easy training, high throughput.
Disadvantages: high capital, stoppage sensitivity, inflexibility.
Assembly-Line Balancing
Objective: equalise task time per station while meeting output.
Cycle time CT = \dfrac{\text{Production time per day}}{\text{Units/day}}.
Theoretical min stations N{\min}=\lceil \dfrac{\sum ti}{CT} \rceil.
Efficiency E=\dfrac{\sum t_i}{N\times CT}.
Heuristics: Longest task, Most followers, Ranked positional weight, etc.
Big Broadcaster, Wing Component examples illustrate calculations (efficiency 81 % & 90 %).
Human Resource Strategy, Job Design & Work Measurement
Strategic Framework
HR objective: utilise labour effectively & ensure quality of work life.
Interaction among product, process, layout, location & schedules.
Employment-Stability Policies
Follow demand exactly (labour = variable cost).
Hold employment constant (labour = fixed cost).
Work Schedules & Flexibility
Flextime, compressed work-week, part-time.
Job specialization vs. expansion (enlargement, rotation, enrichment, empowerment, self-directed teams).
Ergonomics & Workplace Design
Study of human–machine interface.
Factors: illumination (recommended levels table), noise (decibel chart), temperature, humidity.
Office ergonomic tips (10 rules): arm support, head alignment, monitor placement, etc.
Motion & Time Study
Tools: flow diagram, process chart, activity chart, operation chart.
Visual workplace: low-cost devices (andon, kanban, service clocks) for real-time info.
Work Measurement & Labour Standards
Purposes: labour content, staffing, costing, incentives, balance.
Setting standards:
Historical data (least accurate).
Time study (stopwatch) – steps: define task, divide elements, sample, rate performance, compute NT & ST ST = \dfrac{NT}{1-AF} where AF = allowance.
Predetermined time systems (MTM tables, TMU conversion 1\,TMU = 0.0006\,min).
Work sampling – sample size n=\left(\dfrac{zs}{hx}\right)^2 and proportion formula n=\dfrac{z^2p(1-p)}{h^2}.
Inventory Management (Amazon.com case)
Objective: balance inventory investment & customer service.
Inventory functions: buffer demand fluctuation, decouple operations, quantity discounts, hedge inflation.
Types: Raw Material, WIP, MRO, FG, Goods-in-transit.
ABC Analysis
Classify by annual dollar usage: typically A=~20 % items ≈ 80 % value; B ≈ 30 % items/15 %; C ≈ 50 % items/5 %.
Other criteria: shortage/holding cost, engineering changes, delivery or quality problems.
Policies: supplier development, tight control, accurate forecasting for A items.
Cycle counting schedules based on ABC.
Cost Definitions
Holding (carrying) cost categories (housing, material handling, labour, capital, pilferage) ≈ 26 % inventory value.
Ordering cost S, Setup cost (production context).
Economic Order Quantity (EOQ)
Assumptions: constant demand, constant lead time, instantaneous receipt, no discounts, only S & H variable, no stockouts.
Total cost TC = \frac{Q}{2}H + \frac{D}{Q}S.
Optimal order size Q^*=\sqrt{\frac{2DS}{H}} occurs when holding = ordering.
Number of orders N=\frac{D}{Q^*}; Time between orders T=\frac{\text{Work days}}{N}.
Example: Needles (D=1000, S=10, H=0.5) ➜ Q^*=200 units, 5 orders/yr, TC=\$100.
Reorder Point (ROP)
Without safety stock: ROP = d \times L where d=\frac{D}{\text{work days}}.
With SS: ROP = dL + SS.
Example: iPhones, d=32/day, L=3 days ➜ ROP 96; with 1-day SS (L=4) ➜ 128.
Fixed-Period (P) System
Review inventory every P; order up to target level T.
Order quantity Q=T-I.
Requires larger safety stock; simpler administration.
Material Requirements Planning (MRP) & Enterprise Resource Planning (ERP)
MRP Basics
Converts master production schedule (MPS) into time-phased requirements for components.
Three primary inputs:
Master Schedule (end-item quantities & dates).
Bill of Materials (BOM) – product structure tree, levels.
Inventory Records (on-hand, scheduled receipts, LT, lot sizing).
Lot-sizing rules: FOQ, POQ, L4L.
Outputs:
Planned order releases/receipts.
Changes & exception reports.
MRP Processing Terms
Gross Requirements, Scheduled Receipts, Projected On-Hand, Net Requirements, PORcpt, PORrel.
Example multi-level product (A→B,C; B→D,E etc.) developed through time-phased structure & netting.
MRP II
1980s extension integrating finance, marketing, engineering, etc.; includes rough-cut capacity planning & simulations.
ERP Systems
Company-wide, real-time information integration; modules for finance, HR, logistics.
Major vendors: SAP R/3, Oracle, PeopleSoft, Baan, Manugistics.
Key Equations Reference
Layout cost: \min \sum{i}\sum{j} X{ij}C{ij}
Takt Time: TT = \dfrac{A\,T}{D}
EOQ: Q^*=\sqrt{\dfrac{2DS}{H}}
Total Inventory Cost: TC = \frac{Q}{2}H + \frac{D}{Q}S
ROP: dL \ (+SS)
Line Efficiency: E = \dfrac{\sum t_i}{NCT} \times 100\%
Work Sampling n: n = \dfrac{z^2p(1-p)}{h^2}
Standard Time: ST = \dfrac{NT}{1-AF}
Practical & Ethical Considerations
Layout & HR decisions impact safety, morale, equity (e.g., noise limits, ergonomic mandates, equal pay).
Inventory & MRP accuracy critical to avoid waste, shortages, ethical sourcing issues.
Technology (RFID, ERP) enhances transparency but raises privacy & job-skill implications.