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

1. Office Layout (information flow).

2. Retail Layout (customer exposure & profitability per sq-ft).

3. Warehouse / Storage Layout (space ↔ handling cost trade-off).

4. Fixed-Position Layout (large, bulky projects).

5. Process-Oriented Layout (job shop, low-volume high-variety).

6. Work-Cell Layout (product families, cellular mfg.).

7. 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:

  1. Information Technology ➜ remote work, hot-desking.

  2. 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:

  1. Locate high-draw items on periphery.

  2. Place high-impulse/high-margin items in prominent spots.

  3. Distribute “power items” along aisle length (both sides).

  4. Utilise end-caps.

  5. 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:

  1. Lower WIP & raw/FG inventory.

  2. Less floor space.

  3. Lower direct labour.

  4. Higher equipment utilisation.

  5. 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

1. Follow demand exactly (labour = variable cost).

2. 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:

  1. Historical data (least accurate).

  2. Time study (stopwatch) – steps: define task, divide elements, sample, rate performance, compute NT & ST ST = \dfrac{NT}{1-AF} where AF = allowance.

  3. Predetermined time systems (MTM tables, TMU conversion 1\,TMU = 0.0006\,min).

  4. 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:

  1. Master Schedule (end-item quantities & dates).

  2. Bill of Materials (BOM) – product structure tree, levels.

  3. 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.