A model for Assessing Cost Effectiveness of Facility...

Institute for Technology and Design, TD

A model for Assessing Cost

Effectiveness of Facility Layouts -A case study

En modell för att bedöma kostnads-

effektiviteten av fabrikslayouter - En fallstudie

Växjö 30 05 2006 Thesis No: TD 022/2006 Renato Ciganovic Mikael Tates Department of Terotechnology

Organisation/ Organization Författare/Authors VÄXJÖ UNIVERSITET Renato Ciganovic Institutionen för teknik och design Mikael Tates Växjö University School of Technology and Design Dokumenttyp/Type of document Handledare/tutor Examinator/examiner Examensarbete/ Diplomawork Imad Alsyouf Basim Al-Najjar Titel och undertitel/Title and subtitle En modell för att bedöma kostnadseffektiviteten av fabrikslayouter - En fallstudie A model for Assessing Cost Effectiveness of Facility Layouts - A case study Sammanfattning (på svenska) Syftet med denna magisteruppsats är att utveckla en modell för att utvärdera kostnadseffektiviteten av anläggningslayouter. En kritisk litteraturundersökning av tillgängliga relevanta modeller samt teorier genomfördes i enlighet med syftet. Därefter utvecklades en modell för att täcka brister i existerande teorier. Syftet med modellen är att utvärdera olika layouter, från både ett ekonomiskt- och arbetsmiljös- perspektiv. Modellen i sin helhet handlar om att utvärdera, skapa och välja den mest fördelaktiga layouten. En fallstudie har genomförts i denna uppsats för att testa den skapade modellen. Fallföretaget för att testa modellen var Postterminalen i Alvesta, som är en del av Posten Sverige AB. Postterminal tar emot, sorterar och distribuerar posten vidare. Resultatet av denna uppsats är att genom att använda modellen lyckades författarna utvärdera alla layouter och även skapa den mest fördelaktiga layouten. Denna uppsats bidrar med en strukturerad generell model, som främst riktar sig till producerande företag. Fortsatt forskning skulle kunna vara att testa modellen på service baserade företag och att definiera till vilken omfattning man kan generalisera modellen. Nyckelord Anläggningsplanering, utvärdering av layouter, LCCA, Life Cycle Costing, Materialhantering Abstract (in English) The purpose of this master thesis is to develop a model for assessing cost effectiveness of facility layouts. A critical literature review of the available relevant models as well as theories was performed in accordance to this purpose. After this a model was developed in order to cover lacks in existing theories. The aim of the model is to evaluate different facility layouts, from both economical and working environmental aspects. The model as a whole is about evaluating, creating and selecting the most preferable facility layout. In this thesis a case study has been performed for testing the developed model. The case company for this testing was the Mail Terminal in Alvesta, which is a part of Posten Sweden AB. The mail terminal receives, sorts and distributes the mail further. The result of this thesis is that, by following the model the authors were able to evaluate all the layouts and also to create the most preferable one. This thesis provides a general model in a structured way, primary aimed to be used for manufacturing companies. Further researches could be to test the model on service producing companies and to define to what extent the model can be generalised. Key Words Facility planning, layout evaluation, LCCA, Life Cycle Costing, Material Handling Utgivningsår/Year of issue Språk/Language Antal sidor/Number of pages 2006 Engelska/English 51 (102) http://www.vxu.se/td, http://www.vxu.se/bib/diva/uppsatser/

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"The basic economic

question of any design: Do its benefits exceed

its cost? " SULLIVAN, ET AL. (2006)

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ACKNOWLEDGEMENTS

We would sincerely like to thank The Mail Terminal in Alvesta for their contribution. Ingvar Palm – Chief Executive Officer Göran Lindberg – Project manager Magnus Magnusson – Maintenance manager Sten-Ove Lundberg – Economy controller Göran Dellheden – Inbound logistics Jaen Osbäck – Unit manager Ronnie Aronsson – Unit manager Anders Hultman – Works manager Jan Andersson – Works manager Ola Rydberg – Works manager And thanks to all the workers at the mail terminal that kindly have answered our questions.

We would also like to thank our supervisor, Imad Alsyouf, for his support.

________________ ________________

Renato Ciganovic Mikael Tates

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D E F I N I T I O N O F K E Y T E R M S Click-View: Statistical software program used for registering the amounts of mail passing through each machine at the mail terminal. Collection economy: One of four processes at the mail terminal. In this process, economy letters (B-letters) from the mail terminals own collection area are sorted for further sorting at respective destination. Collection normal: One of four processes at the mail terminal. In this process, normal letters (A-letters) from the mail terminals own collection area are sorted for further sorting at respective destination. Critical Path Method: Deterministic network planning model used for calculating the order of activities that takes longest time to complete the project. CPM consists of number of nodes, which are connected with each other by arrows (curves). Nodes are representing the activities, while the arrows are showing in what order the activities are performed, (www.netmba.com). Distribution economy: One of four processes at the mail terminal. In this process, economy letters (B-letters) are sorted out for distribution within the mail terminals area. Distribution normal: One of four processes at the mail terminal. In this process, normal letters (A-letters) are sorted out for distribution within the mail terminals area. Effectiveness: "... the ratio of actual output over the expected output. It measures the degree to which the relevant goals or objectives are achieved.", (Alsyouf, 2006). Efficiency: "... the ratio of the prescribed resources expected to be used, ideally, over resources actually used. It measures how economically the firm's resources are utilised when providing a given level of objective, e.g. output requirements.", (Alsyouf, 2006). Flow chart: Chart used for mapping of the material flow between all the departments. From-to-chart: A from-to chart is chart used for recording and mapping the flow volumes between all departments, (Tompkins et al. 2003). Inventory: Work in progress, raw material, finished goods and suppliers required for creation of a company's goods. Number of units and/or stock value of goods held by a company, (Vitasek, 2005). Lead-time: The total time that elapses between an order's placement and its receipt, (Vitasek, 2005). Life Cycle Cost Analysis: "LCCA may be defined as a systematic analytical process for evaluating various designs or alternative courses of actions with the objective of choosing the best way to employ scarce resources.", (Durairaj, 2002). Material handling: “Material handling means providing the right amount of the right material, in the right condition, at the right place, in the right position, in the right sequence, and for the right cost, by the right methods”, (Tompkins et al. 2003).

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http://www.sciencedirect.com/#vt1

Multiple Criteria Decision Making: An evaluation tool where both economic and non-economic elements are considered, (Fabrycky and Blanchard, 1991). Project Evaluation and Review Technique: Probabilistic network planning model used for calculating the order of activities that takes longest time to complete the project. (www.ne.se, 2006-05-17) CPM consists of number of nodes, which are connected with each other by arrows (curves). Nodes are representing the activities, while the arrows are showing in what order the activities are performed, (www.netmba.com).

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T A B L E O F A B B R E V I A T I O N S ALA :Automatic box Loading robot ALO :Automatic box Unloading robot BFM :Letter Refining Machine C.E :Collection Economy C.N :Collection Normal CPM :Critical Path Method CPA :Critical Path Analysis D.E :Distribution Economy D.N :Distribution Normal GSM :Rough Sorting Machine FSM :Precise Sorting Machine FSU :Pre-Dividing Unit IRM :Integrated sorting and Raising Machine ISM :Integrated Sorting Machine JIT :Just In Time LCC :Life Cycle Costing LCCA :Life Cycle Cost Analysis LTP/ALO :Box Transporting and Automatic Unloading robot MCDM :Multiple Criteria Decision Making PERT :Project Evaluation and Review Technique SEAT :Systematic Economic Analysis Technique SSM :Large letters Sorting Machine WIP :Work In Progress

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T A B L E O F C O N T E N T S Abstract ...................................................................................................................................... i Quotation................................................................................................................................... ii Acknowledgements ..................................................................................................................iii Definition of key terms ............................................................................................................ iv Table of Abbreviations............................................................................................................. vi Table of Contents ....................................................................................................................vii List of Appendixes ................................................................................................................... ix List of Tables............................................................................................................................. x List of Figures .......................................................................................................................... xi

1 . I N T R O D U C T I O N ................................................................................................. 1 1.1 Background ........................................................................................................................... 1 1.2 Problem discussion................................................................................................................ 1 1.3 Presentation of problem ........................................................................................................ 2 1.4 Problem formulation ............................................................................................................. 2 1.5 Purpose .................................................................................................................................. 2 1.6 Relevance .............................................................................................................................. 2 1.7 Limitations and delimitations................................................................................................ 2 1.8 Timeframe ............................................................................................................................. 3

2 . M E T H O D O L O G Y ................................................................................................. 4 2.1 Scientific perspective ............................................................................................................ 4 2.2 Research approach................................................................................................................. 4 2.3 Methods for data collection................................................................................................... 5 2.4 Pre-understanding.................................................................................................................. 5 2.5 Evaluation of results.............................................................................................................. 5

2.5.1 VALIDITY ....................................................................................................................5 2.5.2 RELIABILITY................................................................................................................6 2.5.3 GENERALISATION OF RESULTS.....................................................................................6

2.6 Summary ............................................................................................................................... 7 2.7 Thesis research methods........................................................................................................ 7

3 . T H E O R E T I C A L F R A M E W O R K ............................................................... 9 3.1 Facilities planning ................................................................................................................. 9

3.1.1 FLOW ANALYSIS ........................................................................................................10 3.1.2 MATERIAL HANDLING ...............................................................................................11 3.1.3 EMPLOYEES SERVICES AND ERGONOMICS..................................................................11 3.1.4 LAYOUT PROCEDURE.................................................................................................12

3.2 Lean manufacturing............................................................................................................. 13 3.3 Network planning models ................................................................................................... 13 3.4 Life Cycle Costing .............................................................................................................. 14 3.5 Economic stance.................................................................................................................. 15

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4 . M O D E L D E V E L O P M E N T ............................................................................ 17 4.1 Literature search.................................................................................................................. 17 4.2 Discussion ........................................................................................................................... 17 4.3 Model Development............................................................................................................ 19

5 . E M P I R I C A L F I N D I N G S ............................................................................. 23 5.1 Presentation of Swedish Postal Services, Posten Sweden AB........................................... 23 5.2 Presentation of the Mail Terminal in Alvesta ..................................................................... 23 5.3 Collection- and distribution processes ................................................................................ 24 5.4 Different types of material handling at the mail terminal ................................................... 24 5.5 Rearrangement in the production processes........................................................................ 26

6 . A N A L Y S I S ............................................................................................................... 27 6.1 Test of model....................................................................................................................... 27

6.1.1 EVALUATE EXISTING FACILITY -PHASE ONE ..............................................................27 6.1.2 CREATE NEW LAYOUTS -PHASE TWO .........................................................................32 6.1.3 EVALUATE CREATED LAYOUTS -PHASE THREE ..........................................................33 6.1.4 CONSIDER EXTRA COSTS FOR REARRANGEMENT -PHASE FOUR..................................36 6.1.5 SELECT THE MOST PREFERABLE ALTERNATIVE -PHASE FIVE......................................37

6.2 The process of creating and analyse layouts for the case company .................................... 38 6.2.1 CREATE NEW LAYOUTS -PHASE TWO .........................................................................38 6.2.2 EVALUATE CREATED LAYOUTS -PHASE THREE ..........................................................40 6.2.3 CONSIDER EXTRA COSTS FOR REARRANGEMENT -PHASE FOUR..................................43 6.2.4 SELECT THE MOST PREFERABLE ALTERNATIVE -PHASE FIVE......................................44

7 . R E S U L T S .................................................................................................................. 46 7.1 Results from the analysis with aspect to the model ............................................................ 46 7.2 Results of the test case implementation .............................................................................. 46 7.3 Results of the real case implementation.............................................................................. 47

8 . C O N C L U S I O N S ................................................................................................... 48 8.1 Answer to the problem formulation .................................................................................... 48 8.2 Evaluation of the model ...................................................................................................... 48 8.3 Recommendations ............................................................................................................... 49 8.4 Further researches ............................................................................................................... 49

R E F E R E N C E S ............................................................................................................. 50

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L I S T O F A P P E N D I X E S Appendix I...................................................................................... - History of the Swedish post Appendix II ............................................................... - Different work-areas at the mail terminal Appendix III ......................................................................... - Flow charts for D.N, C.E and D.E Appendix IV.................................................................... - From-to charts for D.E, C.E and D.N Appendix V ..................................................... - Phase one in test, Data needed to perform CPA Appendix VI.............................................................- Critical path graphs for D.N, D.E and C.E Appendix VII............................................... - Phase one in test, Working environmental aspects Appendix VIII ...................................................................... - Relationship diagram for test case Appendix IX.................................................... - Existing layout for the mail terminal in Alvesta Appendix IX.............................................. - Created test layout for the mail terminal in Alvesta Appendix X ..................................................... - Data needed to perform the CPA for test layout Appendix XI........................................ - Data needed for calculating cost for manual movement Appendix XII.................................................................... - Working environment for test layout Appendix XIII ................................................................ - Relationship diagram for the real case Appendix XIV.............................................................- Layout 3, Layout created by the authors Appendix XV .............................................................. - Layout 1, Layout created by Posten AB Appendix XVI .......................................................................... - Data needed for CPA, Layout 1 Appendix XVII ...................................................- Working environmental aspects for Layout 1 Appendix XVIII ........................................................................................ - Phase 3 for Layout 2 Appendix XIX........................................................................................... - Phase 3 for Layout 3

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L I S T O F T A B L E S

Table 1.1 -Timeframe ....................................................................................................................... 3 Table 2.1 -Summarize of positivistic and hermeneutic approach ..................................................... 7 Table 3.1 - Set with three criterion groups, seven criterion classes and 18 criteria ........................ 16 Table 4.1 – Article search ............................................................................................................... 17 Table 4.2 - Comparison and evaluation of models.......................................................................... 18 Table 5.1- Data for handling equipment ......................................................................................... 25 Table 5.2 - Data about costs for rearrangement .............................................................................. 26 Table 6.1- Working areas at the terminal ........................................................................................ 28 Table 6.2 - From-to chart of Collection Normal ............................................................................. 29 Table 6.3- LCCA for material handling alternatives....................................................................... 29 Table 6.4 - LCCA calculations........................................................................................................ 30 Table 6.5 - Critical path analyses of current layout ........................................................................ 31 Table 6.6 - Total cost for manual handling ..................................................................................... 32 Table 6.7 - Weighting of the processes ........................................................................................... 33 Table 6.8 - Merged flow chart......................................................................................................... 33 Table 6.9 - LCCA for new material handling ................................................................................. 34 Table 6.10 - LCCA calculations...................................................................................................... 34 Table 6.11 - Critical path analyses for the new test layout ............................................................. 35 Table 6.12 - Total cost for manual handling ................................................................................... 35 Table 6.13 - Costs related to rearrangement of machines ............................................................... 36 Table 6.14 - Costs related to changes of conveyor belts ................................................................. 36 Table 6.15 - MCDM of the test analysis ......................................................................................... 37 Table 6.16 - From-to chart distribution normal............................................................................... 39 Table 6.17 - LCCA on material handling alternatives for layout 1 ................................................. 40 Table 6.18 - LCCA calculations layout 1........................................................................................ 40 Table 6.19 - Working areas considered........................................................................................... 41 Table 6.20 - Critical path analyses for layout 1 .............................................................................. 42 Table 6.21 - Total cost for manual handling ................................................................................... 42 Table 6.22 - Costs related to rearrangement of machines for layout 1............................................ 43 Table 6.23 - Costs related to rearrangement of machines for layout 2............................................ 43 Table 6.24 - Costs related to rearrangement of machines for layout 3............................................ 43 Table 6.25 - Costs related to changes of conveyor belts for layout 1.............................................. 43 Table 6.26 - Costs related to changes of conveyor belts for layout 2.............................................. 43 Table 6.27 - Costs related to changes of conveyor belts for layout 3.............................................. 44 Table 6.28 - Downtime cost for layout 3 ........................................................................................ 44 Table 6.29 - A summary of costs for all layouts ............................................................................. 44 Table 6.30 - MCDM of the real case alternatives ........................................................................... 45 Table 7.1 - MCDM of test analysis ................................................................................................. 46 Table 7.2 - MCDM of the three layout alternatives ........................................................................ 47

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L I S T O F F I G U R E S Figure 2.1 - Procedure for development of understanding................................................................ 8 Figure 3.1 – Connection between theories ........................................................................................ 9 Figure 3.2 – From-to chart, (Tompkins et al. 2003)........................................................................ 10 Figure 3.3 – Fundamental elements of a layout, (Lee, 1998).......................................................... 12 Figure 3.4 - Network planning chart, (www.ne.se, 2006)............................................................... 14 Figure 3.5 - Cost breakdown structure, (Blanchard, 1986) ............................................................. 14 Figure 4.1 - Overview of the model ................................................................................................ 19 Figure 4.2 - The developed model .................................................................................................. 20 Figure 5.1 - The terminal's organization structure .......................................................................... 23 Figure 6.1 - Flow analysis of collection normal.............................................................................. 28 Figure 6.2 - Critical path graph of collection normal...................................................................... 31 Figure 6.3 - Flow analysis of distribution normal in the future....................................................... 39 Figure 6.4 - Critical path graph for distribution normal.................................................................. 41

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A M O D E L F O R A S S E S S I N G CO S T EF F E C T I V E N E S S O F FA C I L I T Y L A Y O U T S I N T R O D U C T I O N

1 . I n t r o d u c t i o n

This chapter gives an introduction to the thesis. A description of the background, the problem situation and the task developed, are presented which leads to the purpose of this study. Also in this part research clarification takes place by stating a problem formulation. 1.1 Background In today's tough competition in the global market with rapid changes in technology and production demand, it is important to use the full capability of the machines and other equipment used in the production process, Kochhar and Heragu (1999) and Tompkins et al. (2003). To be able to utilize all resources in the right way and to the maximum in a company there are many factors that need to be considered. It is crucial to incorporate material handling system decisions into the layout design Kochhar and Heragu (1999), Tompkins et al. (2003) and Asef-Vaziri and Laporte (2004). Many companies have focus on important factors as maintenance and quality assurance but very often forget to consider the planning of their facilities. Facilities planning have more and more become an important factor and in the past ten years several strategies have been developed. It has gone from simple planning or no plan at all to complex mathematical solutions, (Tompkins et al. 2003). A facility designer attempts either to maximise the capacity of material handling, minimise the total cost of the material handling or try to optimize a combination of these, Kochhar and Heragu (1999). The objective in a design layout problem is generally about minimization of costs related to flow and rearrangement, this is needed for evaluating increased production flow cost of inefficient layouts and additional rearrangement costs Baykasoglu et al. (2004). According to Tompkins et al. (2003) there is a procedure for evaluating and selecting of facility layouts, which are divided into six different steps. A very crucial component of the overall facilities design is the design of the material handling system. This is inseparable with the layout design and must be considered simultaneous, (Tompkins et al. 2003). It is desirable to plan for change in design of existing products, the processing sequences for existing products, quantities of production and associated schedules, and the structure of organization and/or management philosophies. Because of these variables the facility layout should be flexible in order to expand, modify and reduce the production flow, (Baykasoglu et al. 2004). 1.2 Problem discussion The companies ought to care about facilities planning and production management due to the fact that they are important and necessary parts of the entire production and how well the production functions. Due to the fact that a lot of things change within and outside a company over time a facility plan that seems optimal today will probably have a number of shortages after a few years, this means that facilities planning is a continuous work. This depends on that the products or services will probably change in many ways for example the processed amount due to changes in customer demands, the design of the products or services, development of new products/services or ending of products or services etc. Therefore the facilities planning and the production management should be a continuous process and should be viewed from a life cycle perspective, (Tompkins et al. 2003) and (Vollmann, 2005). There are two types of costs according to Kochhar and Heragu (1999), cost for movement of equipment and the downtime in production due to rearrangement. The costs for rearranging the existing layout must be lower than the benefits of the new layout.

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1.3 Presentation of problem There are several approaches to create a facility layout. A general technical way to evaluate layouts is to calculate the lead-times. For economic evaluation of alternative layout designs, material-handling cost is commonly used Baykasoglu et al. (2004). Companies may identify if their new layout has generated reduced or increased lead-times but it is also of interest to identify what impact the new facility layout has on economics i.e. does it generate savings or losses? Since a lot of researches have generated solutions for designing stage of facility layouts and since there is a lack of solutions in evaluation stage, this area is showing an interesting problem, Lin and Sharp (1999). 1.4 Problem formulation The problem formulation is based upon the presentation of the problem and this is:

• How to assess the cost effectiveness of layout improvements' suggestions?

1.5 Purpose The purpose with this thesis is to create a model that enables evaluation of facility layouts from both working environmental and economical point of view. In order to make an economic evaluation, different layouts have to be created, flow-analysis has to be done and at last a procedure for evaluating this will be created. The created procedure should enable to select a cost effective layout. 1.6 Relevance Facilities planning subject has a great impact on a company's effectiveness and profitability, and this is important to work with continuously due to the fact that the conditions changes. To be effective and profitable it is crucial for any company to survive in the long run. All companies can benefit from good facilities planning and production management, and the savings can be great if it is implemented in the right way and therefore this subject is of great relevance to study. It is also of great importance to improve the efficiency and reduce the waste of manufacturing companies in order to prevent the companies from moving production to countries with lower salaries for labour. There is a gap of existing theories, shown in chapter four, when it comes to how to evaluate facility layouts. It is important to evaluate layouts as good as possible, because of its generally long life and its great impact of the production flows. 1.7 Limitations and delimitations The author's focus has been put on a specific case company in order to create different layouts. The developed evaluation model will be tested on created layouts, which is a delimitation. Since the limitation for this report has been set to twenty weeks, both theory and empirical findings are limited by the timeframe. In-bound and out-bound logistics are not considered in this case study thus it affects the location for the facility. Another delimitation is that the facility is fixt and the model will therefore not consider new buildings and locations.

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1.8 Timeframe In table 1.1 the primary time frame for conducting this thesis is shown. Table 1.1 -Timeframe

v.04 v.05 v.06 v.07 v.08 v.09 v.10 v.11 v.12 v.13 v.14Introduction Methodology

TheoryEmpirical findings

Analysis

v.14 v.15 v.16 v.17 v.18 v.19 v.20AnalysisResults

ConclusionsRecommendations

Hand in thesis

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A M O D E L F O R A S S E S S I N G CO S T EF F E C T I V E N E S S O F FA C I L I T Y L A Y O U T S ME T H O D O L O G Y

2 . M e t h o d o l o g y

In this chapter an explanation of different approaches one can use when conducting a scientific report are presented. The chosen one, as well as why this was chosen, is also presented. "Science is the search for truth" (Thurén, 1991). In general when starting with a project, the goal is to reach the objective and to comply with the research strategies. 2.1 Scientific perspective There are two main scientific directions, positivism and hermeneutics. Positivism has its roots in the natural science, while hermeneutics comes from human science, (Thurén, 1991). Hermeneutic direction was developed for interpretations or pre-understanding of texts, mainly theological. The main idea behind the hermeneutic approach is that the scientists that analysis a text, shall interpret it from the same point of view as the author had. The influence factors may be historical and social, Bryman (2001). The hermeneutic approach is characterised by narrow as well as holistic studies, Gummesson (2000). A positivistic research concentrates on description and explanation, Gummesson (2000). This direction is striving for the absolute knowledge and it has its origin from natural science developments during the 17th century. This approach is striving for “solid data” and can be obtained by two types of sources. The first one is by using our senses, and the other one is by using logical way of thinking. Mathematics in this context is a part of the logical approach and therefore should the facts be statistically evaluated, (Thurén, 1991). The positivistic approach is characterised by well-defined and narrow studies, Gummesson (2000). There can be either a quantitative or a qualitative method for creating or evaluating theories. Quantitative method, studies at many different companies, is mainly using deductive reasoning and used for testing theories. It is used mainly in the positivistic approach and is focusing on objectivity. Qualitative method, case study or a few companies, is mainly inductive reasoning and is used for creating theories. It is used mainly in the hermeneutic approach and focus is on construction, (Bryman, 2001). 2.2 Research approach There are different types of research approaches, the two main are induction and deduction. But there is also an approach called "iterative", Thurén (1991). When using induction it means that common and general conclusions are made built upon empirical facts, Thurén (1991). In induction the theory is the result of the researchers, "Theory -> observations/ result", (Bryman, 2001). The deductive approach means that you state a logical conclusion, which is concerned as valid as long as it is logically connected. This process starts with existing theories and then formulates hypothesis that will be examined, Thurén (1991) and Bryman (2001). In deduction the observations and result are the basis for the creation of a theory, "observations/result -> theory", (Bryman, 2001).

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Iterative approach is a hybrid between induction and deduction, which will interact between the two approaches, Bryman (2001). 2.3 Methods for data collection For complying with the research strategies, a number of methods for data collection are needed. The most common methods are interviews, observations and document reviews, Thurén (1991). Other sources will mostly consist of scientific newspapers and articles. There are two major methods for collecting data, quantitative and qualitative. Quantitative data collection is a large range data that can be decided with probability limits and is more reliable then qualitative data. Qualitative data can be collected for searching of causes and effects, (Bryman, 2001). 2.4 Pre-understanding Pre-understanding is a vital concept in the hermeneutic approach. We do not perceive the reality only by our five senses, it is interpret by our brains with help of earlier knowledge (pre-understanding). Pre-understanding is highly affected by our own set of values, the values on the other hand are affected of the social environment and the society. The interplay between pre-understanding and experience arises when experience leads to a deepened understanding, (Thuren, 1991). 2.5 Evaluation of results In this paragraph validity, reliability and generalisation of results will be described briefly. Validity means that you have investigated the right subject and nothing else, Thurén (1991). Reliability concerns the question if a result from an investigation will be the same if the investigation would be made again, Bryman (2001). 2.5.1 Validity Validity has to do with how correct the observations are i.e. how well it shows the actual phenomena. The problem is how to avoid sources of error that will undermine the validity. It is also about how to judge the validity in different situations. An obvious source of error is the environment and these factors have to be evaluated in order to find out if there are any factors that are affecting the validity. If there are any disturbing factors, these can be eliminated/decreased by doing the observations in a laboratory, (Hartman, 2004). Validity is a judgement about the connection between the research and the conclusions, Bryman (2001). There are according to Bryman (2001) several categories of validity; two of them are internal and external validity. Internal validity, from positivistic point of view, is about judging if the correlation used between several factors are valid or not. For example it is stated that x affects y, to be able to know that this is true one have to evaluate if there are any other factor that affects y. Internal validity, from hermeneutic point of view, means that there is a connection between the ideas of the researcher and the theoretical ideas that he/she develops. For example a researcher is able to find a strong connection between the concerned context and the observations when investigating few chosen objects for a longer time, (Bryman, 2001).

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External validity is, from positivistic point of view, about if the results can be generalised beyond the specific research object. One of the reasons behind quantitative researchers is careful when creating representative selection is the focus to reach external validity. External validity, from hermeneutic point of view, means to what extent that the results can be generalised in other social environments and situations. The external validity could be questioned though qualitative researchers are using case studies and limited amount of research objects, (Bryman, 2001). 2.5.2 Reliability Reliability concerns the question if a result from an investigation will be the same if the investigation would be made again, or if it is influenced by random or coincidence conditions. Reliability often is connected with the quantitative investigations thus the quantitative research are probably more interested if a measurement is stable or not. For example if one would like to measure the intelligence by letting a person make an intelligent test and it will give many different results one start to wonder if this measurement really measures the intelligence. One would conclude that the test is a non-reliable measurement and miss credibility, (Bryman, 2001). 2.5.3 Generalisation of results The generalization has two dimensions, quantitative studies and in-depth (qualitative) studies. The quantitative studies are based on big number of observations. In-depth studies are based on comprehensive investigations and analyses in order to identify a certain phenomena, (Gummesson, 2000). Quantitative researches are done in order to generalise a certain phenomena to a greater extent than a qualitative research, Bryman (2001). The correctly devised statistical studies based on big number of observations will lead to significant generalizations. "Generalization from statistical samples is just one type of generalization, however it is not general and it is rarely applicable to case study research. The generalization from case studies has to be approached differently.", (Gummesson, 2000). If case studies are done then the extent of the generalisation is limited because the specific case that is studied can differ from other cases. The good descriptive or analytic language knowledge means that you can understand the relations between different parts of the system and the important features of the system. The generalization is closely related to external validity, Bryman (2001) and Gummesson (2000).

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2.6 Summary In table 2.1 a summary of the chapters 2.1- 2.4 is presented from both positivistic and hermeneutic approach Table 2.1 -Summarize of positivistic and hermeneutic approach

Research concentrates on Description and explaination Understanding and interpretation

Type of study Well-defined and narrow Narrow and holistic

The conclussion is built upon Deductive approach Inductive approach

Research concentrates on Generalisation and abstraction

Use of valuation in research Objectivity Subjectivity

Methods for collecting data Quantitative Qualitative

Object of research Not created by the researchers Partially created by the researchers

Positivistic approach Hermemeutic approach

Specific and concreate but also generalisation

Approach to object of researchConsistently rational, verbal and logical

Preunderstanding and knowledge that are difficult to explain in words

Description

2.7 Thesis research methods The report is written according to the template used at Technique and Design (TD) for writing technical reports. The report will consist of developing a theoretical model, analysis and evaluations of similarities and differences between the theory and the empirical findings. In general the scientific approach for this report will be positivistic. The aspects of positivism that are used through the work are to describe and explain, use well-defined and narrow study, objective valuation and consistently logical approach through the report. The other scientific approach that will be used is hermeneutic. This will mainly be used when generating the model and partly for creating facility layouts. The research approach that is going to be used is a qualitative case study, because there are one case company that will be used for testing the theories. The "iterative" research approach will be used for this report. At first induction will be used for creating a layout. Then the deductive approach will be used for generating the model for economical evaluation of the layouts. Induction will again be used, but now for evaluation of different layouts. Data collection that will be used is through interviews, observations, literature, document reviews, scientific journals and articles. This type of data will mainly be used for the theoretical chapters. Quantitative and qualitative data collection will be used for empirical findings and analysis.

The authors have their roots in terotechnology, four years in the program industrial system economics, of which one year is study within the field of business economics. Courses studied

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that are the basics for this project are mainly facilities planning and life cycle costing. The authors are used to work with problem based learning.

Figure 2.1 - Procedure for development of understanding New understanding

The five senses

Logical conclusions

Discussions

Research reports

Lectures

Text books

Pre-understanding

Personal experience

New understanding

The five senses

Logical conclusions

Discussions

Research reports

Lectures

Text books

Pre-understanding

Personal experience

The procedure in figure 2.1 shows how the authors develop their general understanding of different phenomena. For each issue to investigate there is a pre-understanding, which can be developed theoretically and practically. Practically by observing it with help of the human senses, make logical conclusions and by discussions with relevant people. Theoretically by reading different literature and by attending at lectures. This interaction leads to a new understanding with a higher knowledge of different phenomena's as a result. All data that will be gathered will be analysed in order to evaluate the validity and the reliability. For achieving high validity deviations will be investigated for finding the causes. In order to increase the reliability, the procedures for data gathering will be carefully explained in the report. Since the report is based on a case study the extent of the generalisation has to be carefully investigated.

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A M O D E L F O R A S S E S S I N G CO S T EF F E C T I V E N E S S O F FA C I L I T Y L A Y O U T S T H E O R E T I C A L F R A M E W O R K

3 . T h e o r e t i c a l f r a m e w o r k

In this chapter all necessary theories for conducting this research are presented. This in order to make the reader more acquainted with the subject and also to increase the understanding in the following analysis. In this paragraph different theories are presented together with the connections between them.

igure 3.1 – Connection between theories

t first facilities planning are presented which is the base for conducting the model

.1 Facilities planning trategy and its main goal is to use the company's available resources

trategic facilities' planning is a method for creating a wise, cost-effective, and long-term

3.1 Facilities planning3.2 Lean manufacturing

3.1.1 Flow analysis

3.1.2 Material handling3.3 Network planning models

3.1.3 Employee services and ergonomics

3.2.4 Layout procedure 3.4 Life Cycle Costing

3.5 Economic stance4. Procedure for economic evaluationF Adevelopment. Included in this part are flow analysis, material handling, employee services and ergonomics and layout procedure. Lean manufacturing is a strategy that affects the creation of a layout, while Network planning models, Life Cycle Costing and Economic stance are used for evaluation of facility layouts. Lean manufacturing affects the material flow, work in process, etc. 3Facilities' planning is a sin the most optimal way in order to maximize the return on investment on all capital. The resources are employees, inventories, knowledge, material, energy and others, and these are analysed so one know how to utilise them in the best way. Facilities planning include the whole process, understanding the needs, planning and designing the facilities, building the facilities, implementing the plan and then following up, (Tompkins et al. 2003). Ssolution to the facilities issues. To build new facilities or reconstructing them is expensive and one do not want to forget important aspects, and therefore it is important to gather the right information by asking the right questions to the right persons. Strategic facilities planning is a powerful tool because it can be used in many different situations, for example relocation of the facilities, downsizing, or merger with other companies, but anyway an undervalued tool for today's managers, (Glagola, 2002).

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Layout is the physical disposition of all machines and equipment in the production, workstations, and employees. The layout further shows the location of materials and material handling system. The complexity of a company's product and production process "decides" type of layout and that is why the layouts between manufacturing companies may differ, (Tompkins et al. 2003). 3.1.1 Flow analysis The analysis of the flow is the main part of a company's layout and inception of the material-handling plan. The process flow of a product or a single component is the path that the product or component takes while moving through the plant. Flow analysis consists of an optimal process flow i.e. it tries to minimize the distance travelled, backtracking, cross traffic and production cost. Flow analysis can be divided into the flow within workstations, flow within departments and flow between departments. To be able to make a reasonable flow analysis you need techniques to analyze the production flow within the plant. Some of the techniques are: flow analysis diagram, block diagram, from-to-chart, flow process chart, activity relationship analysis, activity relationship diagram, (Tompkins et al. 2003). Buffering is storage of material between different stages within the production process. Blocking occurs when the buffering area is full and the previous machine has to stop its production. Starving on the other hand occurs when the buffering area is empty and the machine after the area has to stop its production because of no material to process. Much of these problems are generated from so called bottlenecks in the production processes. A bottleneck is a unit that has lower capacity than the other units and therefore it can be a blocking before the bottleneck unit and starving after it, (Chase et al. 2006). All activities in the process can be categorized to either bottleneck or non-bottleneck. Bottleneck work centers (units) must be planned and managed much more carefully than non-bottleneck work centers, (Vollmann et al. 2005) and (Christopher, 2005). A from-to chart is a chart used for recording and mapping the flow volumes between all departments. This matrix consists of departments listed down the row and across the columns. Figure 3.2 is an example of a from-to chart, (Tompkins et al. 2003).

Figure 3.2 – From-to chart, (Tompkins et al. 2003)

To

From Stores 12 6 9 1 4Milling 7 2Turning 3 4Press 3 1 1Plate 3 1 4 3Assembly 1 7Warehouse

War

ehou

se

Sto

res

Milli

ng

Turn

ing

Pre

ss

Pla

te

Ass

embl

y

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3.1.2 Material handling The design of the material handling system is an important part of the facility design and since there are often a host of solutions that could be very good the material handling engineer must have a broad perspective, Tompkins et al. (2003). Of the total production cost in a typical industrial facility, material handling represents 15%-70%. Due to this, material handling is one of the activities where many improvements can be achieved; resulting in significant cost savings, Asef-Vaziri and Laporte (2004) and Tompkins et al. (2003). A from-to-chart showing the material flow between nodes (stations) should be used in order to minimise transportation costs, Asef-Vaziri and Laporte (2004). One of the definitions of material handling is: “Material handling means providing the right amount of the right material, in the right condition, at the right place, in the right position, in the right sequence, and for the right cost, by the right methods”, (Tompkins et al. 2003). From this one can see that the scope of material handling is quite broad. In the material planning you can use push- or pull system. The push system means that the first workstation begins with a product and than the product is "pushed" forward through the facility, this system can give a lot of work in process, which is tied up capital. The pull system works the opposite way of a push system. This means that in a pull system the last station sends a demand of resources backwards in the facility, (Vollmann, 2005). 3.1.3 Employees services and ergonomics What do the employees need for a satisfying working environment? The workers will spend about one third of their lives in the plant. Issues related with employees health and safety has been a major source of motivation behind many of facilities studies, (Adler et al. 1997). Personnel requirements that need to be considered, when making a facility layout, are parking lots, employee entrance, locker rooms, toilets, cafeteria, recreation areas, drinking fountains, aisles, medical services, break areas etc. The question is to how many, which layout and how much area that is required for each service and where to locate it. The same considerations should be taken into the planning of the office, (Tompkins et al. 2003). Today there is more focus on fitting the machines to the workers then it has been before. The understanding of the connection between workers -health and -productivity is depending on the working environment. The public concern of ergonomic problems due to repetitive motions has increased. Many large car factories have agreed to develop comprehensive ergonomics programs designed to reduce repetitive-motion injures, (Adler et al. 1997).

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3.1.4 Layout procedure When making a layout some authors’ state similar procedures for doing the layout, figure 3.3

is a procedure made by Lee (1998). For making a configuration diagram you need two inputs, space plan units and affinities. Space plan units are the basic units (departments, machines etc.) needed for the process. Affinities are the relationship between the units, (Lee, 1998).

The following step is to develop the configuration diagram, which is done by assessing the space requirements for each unit. This developed diagram is called space-plan primitive, Lee (1998). In the last step constraints like the form of the facility, height, certain kind of fundamental for specific machines etc. are taken into consideration when creating the macro space-plan, Lee (1998). These constraints are conditions that will affect the possibility to make the perfect layout, Lee (1997).

Figure 3.3 – Fundamental elements of a layout, (Lee, 1998) According to Tompkins et al. (2003) the facilities planning process can be applied into six steps:

1. Define the problem In this step the objective with the facility should be identified, like time frame, production volumes, and the supply chain. The needed activities and support activities and requirements should also be identified. 2. Analyse the problem When all activates are identified the interrelationship among these should be determined. This should be made by either or both quantitative or qualitative measures. 3. Determine the space requirements for all activities In this step the spaces utilised by, equipment, personnel, material etc should be determined. Generation of alternative facility plans, for different locations, sequences of the equipment and different material handling systems will be created. 4. Evaluate the alternatives Evaluate and rank the different facility plans, created in step three, by certain accepted criteria’s. Determine the factors that are involved and evaluate these.

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5. Select a facility plan The information generated in the previous step should be used when selecting the final facility plan. 6. Implement the selected facility plan Plan how to implement the facility plan, installation, start-up, running and debugging the operations. There is also a need to adept the maintenance to the new plan for maintaining the ability of a smooth flow through the plant. Return to step one and search for potential modifications.

3.2 Lean manufacturing Lean production is a set of activities that is integrated by using a minimum of raw material, work in progress and finished goods. Lean manufacturing was developed in Japan and is a management philosophy for attacking waste (time, inventory and scrap), expose problems and bottlenecks and for achieving streamline production. For being successful in lean manufacturing it requires employee participation, industrial engineering basics, continuous improvements, total quality control and small lot sizes. Among several other approaches just-in-time philosophy is included in the lean concept and used for minimising waste in production. Waste can occur in many parts of the production, for example by overproduction, waiting time, transportation, inventory, processing, motion and product defect, (Chase et al. 2006). Lean manufacturing requires a plant layout that ensures a balanced workflow to be able to have a minimum of work in progress. All workstations shall be a part of a production line even if it exists or not, (Chase et al. 2006).

1. All work shall be highly specified as to content, sequence, timing and outcome. 2. Every customer - supplier connection must be direct, and there must be an

unambiguous yes-or-no way to send requests and receive responds. 3. The pathway for every product and service must be simple and direct. 4. Any improvement must be made in accordance with the scientific method, under the

guidance of a teacher, at the lowest possible level in the organization. 3.3 Network planning models Network planning is a technique used for project planning. A network model consists of number of nodes, which are connected with each other by arrows (curves), see figure 3.4. Nodes are representing the activities, while the arrows are showing in what order the activities are performed. The order of activities that takes longest time to complete the project is critical. This type of information could be useful when controlling the project e.g. redistribution of the resources from non-critical to critical. (www.ne.se, 2006-05-17)

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Figure 3.4 - Network planning chart, (www.ne.se, 2006-05-17) There are two main types of network planning models, Critical Path Method (CPM) and Project Evaluation and Review Technique (PERT). CPM is a deterministic method where a fixed time estimate for each activity is used. This method does not consider the time variations that can have a great impact on the completion time of a complex project. The Pert method is probabilistic, which allows randomness in activity completion times. (www.netmba.com, 2006-05-17) 3.4 Life Cycle Costing In order to be able to make a good and reliable LCC analysis one need to determine all the cost factors. In a general LCC model the total cost can be divided into four different parts, see figure 3.5 (Blanchard, 1986).

DPMOIDRLCC &&& ±++=

R & D = Research and Development cost. Costs of research and development of a machine or a system, including costs for design, equipment, salaries, test, etc.

I = Investment cost. Capital invested in the machine, installation, facility space required, support, etc.

O & M = Operate and Maintenance cost. The cost of operating and maintaining the machine or system. Salaries, power, insurance, etc, are examples of operational costs. Maintenance cost includes maintenance staff, spare parts, storage, etc.

P & D = Phase-out and Disposal cost. Cost for scrapping or income from selling the machine.

Total cost of the system

Research & Development Phase-out & Disposal Operation & Maintenance Investment

Figure 3.5 - Cost breakdown structure, (Blanchard, 1986)

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This cost breakdown structure is depending on each product and it varies in deepness and exposure. A cost breakdown structure is an up-side-down tree, where the total cost of the system is at the top and then the total cost is divided into subclasses. These general parts can then be divided further, (Fabrycky and Blanchard, 1991). Life cycle cost analysis (LCCA), "LCCA may be defined as a systematic analytical process for evaluating various designs or alternative courses of actions with the objective of choosing the best way to employ scarce resources.", (Durairaj, 2002). Life cycle cost analysis is an economic method of project evaluation in which all costs are considered as important for making the decisions. The final objective of the LCCA of any product is to provide a framework for finding the total cost of design/development, production, use and disposal of the product with an intention of reducing the total cost, (Durairaj, 2002). When making LCCA the evaluation is made on the different design alternatives that have different investment-, operating-, maintenance- and repair costs etc. Activities included in LCCA are identifying cost drivers, making life cycle cost breakdown structure, defining an item or product life cycle, determining the relationships between causes and effects and creating accounting breakdown structure, (Fabrycky and Blanchard, 1991). If an implementation of cost analysis model is done at an early stage then it influence the design changes of the product and provides explanations of the relationships between cost and design parameters. This contributes to cost reduction by identifying high cost contributors, (Durairaj, 2002). When a lot of information is gathered and different factors are considered there are different approaches for making the decisions. There are also different approaches for different assumptions such as deterministic future outcome, probabilistic future outcome and stochastic future outcome. Multiple Criteria Decision Making (MCDM) is an evaluating tool where both economic and non-economic elements are considered. This means in other words that evaluation of a number of alternatives could be done including both cost and performance effectiveness. If the effectiveness requirements for the system are known, one can assess subjectively the degree to which each alternative satisfies the effectiveness criteria. Next step in the procedure is to select the alternative with lowest cost and which satisfies most of the effectiveness measures at the same time, (Fabrycky and Blanchard, 1991). 3.5 Economic stance Manufacturing expenses can be, 20% to 50%, attributed to facility layout and material handling, Asef-Vaziri and Laporte (2004) and Tompkins et al. (2003). The cost for rearranging an existing facility can be divided in two kinds of costs, physical movement of equipment and loss of production due the movement, Kochhar and Heragu (1999) and Baykasoglu et al. (2004). Movement of equipment includes costs for planning, dismantling, construction, movement and installation costs. The costs for rearranging the existing layout must be lower than the benefits of the new layout. The benefits may be significantly decreased material handling costs and improved manufacturing efficiency. There is a need to find a balance between the costs and benefits for rearrangement, (Kochhar and Heragu, 1999). According to Tompkins et al. (2003), there are several techniques for evaluating alternative facilities layouts. One of these is economic, where the economic performance of each alternative is determined over a specified time. A technique called Systematic Economic

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http://www.sciencedirect.com/#vt1http://www.sciencedirect.com/#vt1http://www.sciencedirect.com/#vt1


Analysis Technique (SEAT) can be used for this type of evaluation. This evaluation technique is used for material handling. SEAT is containing the steps shown below, Tompkins et al. (2003).

1. Specify the feasible alternatives to be compared. 2. Define planning horizon to be used. 3. Estimate the cash flows for each alternative. 4. Specify the discount rate to be used. 5. Compare the alternatives using a discounted cash flow (DCF) method. 6. Perform supplementary analyses. 7. Select the preferred alternative.

Lin and Sharp (1999), present a two-step procedure for evaluating a plant layout. The first step in the procedure consists of three criterion groups, seven criterion classes and eighteen criteria. Criterion groups are divided into cost, flow and environment. The criterion groups and its contents are shown in table 3.1. Since cost criterion is based on money-value and the other two are measured in non-economically, the second step of procedure is to evaluate flow and environment criterions. Table 3.1 - Set with three criterion groups, seven criterion classes and 18 criteria

Cost Flow EnvironmentNoninventory Inventory Material flow Surrounding

Initial cost: Clearness; Aisle;-Land -Building

-Labour-Utility-Maintenance

Future salvage value

Space relationshipRobustness and flexibility

Environment quality

-Production machinery

Raw materials inventory holding cost;

WIP inventory holding cost;

Robustness of equipment capacity;

Building expansion

Finished goods inventory holding cost;

Space sufficiency and utilization

Distance and volume density

-Material handling equipment

Annual operation and maintenance cost:

Property-related security;

Access for maintenance

Topography and topology;

Community environment

Human-related safety;

Worker-related comfort

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A M O D E L F O R A S S E S S I N G CO S T EF F E C T I V E N E S S O F FA C I L I T Y L A Y O U T S MO D E L D E V E L O P M E N T

4 . M o d e l d e v e l o p m e n t

In this chapter the development of a model for evaluating facility layouts is presented. Search for relevant theories is made and then these theories are evaluated. The last step is creation of a new model. 4.1 Literature search Before developing a model for economic evaluation of facility layouts, a search for existing theories within this area has been done. The search was primary performed in Electronic Library Information Navigator (ELIN). Within this navigator different databases, like Business Source Premier, Science direct and IEEE, were available for scientific articles search. Other searches were performed in books and literature. Keywords used and relevant information is shown in table 4.1. Table 4.1 – Article search

he result achieved from article search was one source, Quantitative and qualitative indices

.2 Discussion n evaluation of existing theories, within the part of economical evaluation of

he criteria's used for evaluating the approaches are:

the model i

the model

he criteria (i) and (ii) are for showing the user how to apply the model, criteria (iii) and (iv)

Key words: Database Reference(s)

Facility planning ELIN 3 0 -Facility evaluation ELIN 4 0 -Layout evaluation ELIN 2 1 Lin and Sharp (1999)Layout design ELIN 0 0 -Layout and economy ELIN 1 0 -

Investigated matches

Relevant matches

Tfor the plant layout evaluation problem by Lin and Sharp (1999), which was taken into consideration when developing the model. The second relevant match was SEAT- technique, which was found in the book Facilities Planning by Tompkins et al. (2003). Same or similar keywords were used. These two sources are the only ones that include some kind of evaluation of facility layouts. In next paragraph thereby the selected theories are evaluated. 4In this chapter afacility layouts, will be conducted. First, criteria's for evaluating the models will be specified, and then an evaluation of the models' content that was found will be presented. Last in this part an evaluation of the models will be conducted. T

i. Easy accessible and understandable model ii. Gives a structured approach for how to use ii. Defined and justified model iv. Application and evaluation of

Tare for showing the idea and main goal with the model. If the model does not fulfil criteria (i) and (ii) there will be problems for the users to apply and or understand the model. Criteria (iii) and (iv) are used for showing the user why these factors are included and that the model actually works in a proper way.

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According to the authors, there are two relevant models with respect to the problem stated. The models were graded with included (I) and empty boxes means that respective issue is not included in the model. Both models are evaluated in table 4.2. Table 4.2 - Comparison and evaluation of models

Authors

Factors

- Life Cycle Costing- Speed of handling- Labor utilisation- Distance of material flows- Equipment utilisation- Aisles

Machines- Life Cycle Costing- Speed of Machine- Labor utilisation

Facility- Location- Size- Costs- Space utilisation

Inventory

- WIP

Environment- Safety- Ergonomics- Security

Lead times

Downtime cost

I

III

I

I

I

II

Rearrangement cost

I I

I

I

I

Material handling

- Raw materials inventory

- Finished goods inventory

I

I

II

I

Quantitative and qualitative indices for the plant layout evaluationSEAT

Tompkins et al. Lin and Sharp

II

Tompkins et al. (2003) recommend the technique called Systematic Economic Analysis Technique (SEAT) for evaluating material handling equipment and machines, which is similar to LCCA. These factors are marked as included in the table 4.2. Lin and Sharp (1999) mention an economic evaluation similar to LCCA, but they do not explain how to evaluate the factors. On the other hand they mention and explain factors that need to be considered with respect to non-economic evaluation. According to set criteria's by the authors (i-iv), both models have fulfilled criteria's (i) and (ii). When it comes to criteria (iii), the both models are decently defined and justified. On the other hand none of the models fulfil criteria (iv).

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Kochhar and Heragu (1999) and Baykasoglu et al. (2004) state that the cost for rearrangement is divided into physical movement of equipment and loss of production due the movement. These costs are not considered in any of the models.

4.3 Model Development In this paragraph a model for economic evaluation of facility layouts is created. This model is developed from lacks in existing theories and models. From table 4.1 the authors found lacks in both models regarding material handling (equipment) utilisation, machines (speed) and lead-times. None of the models considers cost for rearrangement and downtime. The model for evaluation of facility layout consists of five main phases illustrated in figure 4.1. Phase one of the model is to evaluate the current facility. It starts with an if-case, where the user of this model shall decide where to start. Phase one is not necessary if the known future changes, like new process flows, that make the new layouts un-comparable with the existing layout. By analysing the changes in future processes, the decision-maker is able to decide whether phase one is needed or not.

Figure 4.1 - Overview of the model

Are the future layouts comparable with the

current layout?

Phase Oneevaluate current facility

Phase Twocreate new layouts

Phase Threeevaluate created layouts

Phase Fourconsider extra costfor rearrangement

Phase Fiveselect the most

preferable layout

YES

NO

Are the future layouts comparable with the

current layout?

Phase Oneevaluate current facility

Phase Twocreate new layouts

Phase Threeevaluate created layouts

Phase Fourconsider extra costfor rearrangement

Phase Fiveselect the most

preferable layout

YES

NO

Phase one is for evaluating the existing layout, which is done in order to get a foundation for comparison. Then phase two are for enable creations of new layouts, which aims to create a relationship diagram that is a helpful tool for creating layouts from the perspective of the process flow. Third phase is to evaluate created layouts from phase two and also to evaluate layouts that have been created without using phase two in the model. Phase four is to consider additional costs related to rearrangement of the facility and downtime due to rearrangement. The last phase is to put together all economical data and other non-economical factors and select the most preferable layout. The model can be seen in figure 4.2.

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1 .1 Specify criteria's for economical and working environmental aspects

1.2 Collect data

1.4 Make a from-to-chart1.5 Estimate time for

manual material handling

1.8 Calculate total cost for material handling

1.9 Consider working environmental aspects

1.7 Estimate lead-time with criticalpath method (CPM) or PERT Chart

1.3 Make flow chart(s) for the production process

Collection Economy le tters

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SSM Storage forDistribution Econom y lette rs

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D ire ct Rece iv ing


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+

Phase One evaluate

current facility

1.6 Perform LCCA on material handling alternatives


Research & Development Phase-out & DisposalOperation & MaintenanceInvestment

2.1 Analyse changes in the future processes

2.3 Decide the life length for the new layouts

2.4 Collect data

2.8 Create new layouts

2.7 Create a relationship diagram

Has phase one been used?

2.2 Specify criteria's for economical and working environmental aspects

NO

YES

Are there anychanges

in the processes?

YES

NO2.5 Make flow chart(s) for

the production process

2.6 Make a from-to-chart

Phase Twocreate new

layouts

3.2 Estimate time for manual material handling


3.5 Consider environmental aspects

+

3.3 Estimate lead-time with criticalpath method (CPM) or PERT Chart

3.1 Perform new LCCAon material handling

alternatives



Phase Threeevaluate created

layouts

4.2 Consider down-time costs

4.1 Consider costs for rearranging the facility

Phase Fourconsider extra

cost for rearrangement

5.2 Make an MCDM for all alternatives and choose the most preferablefrom both economical and working environmental aspects

5.1 Put together all economical data Phase Five

select the mostpreferable layout

1 .1 Specify criteria's for economical and working environmental aspects

1.2 Collect data

1.4 Make a from-to-chart1.4 Make a from-to-chart1.5 Estimate time for

manual material handling


1.9 Consider working environmental aspects

1.7 Estimate lead-time with criticalpath method (CPM) or PERT Chart1.7 Estimate lead-time with criticalpath method (CPM) or PERT Chart



11.30 am – 04.00 pm

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ALA

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+

Phase One evaluate

current facility







2.1 Analyse changes in the future processes

2.3 Decide the life length for the new layouts

2.4 Collect data

2.8 Create new layouts

2.7 Create a relationship diagram2.7 Create a relationship diagram

Has phase one been used?

2.2 Specify criteria's for economical and working environmental aspects

NO

YES

Are there anychanges

in the processes?

YES

NO2.5 Make flow chart(s) for

the production process2.5 Make flow chart(s) for

the production process

2.6 Make a from-to-chart2.6 Make a from-to-chart

Phase Twocreate new

layouts

3.2 Estimate time for manual material handling


3.5 Consider environmental aspects

+

3.3 Estimate lead-time with criticalpath method (CPM) or PERT Chart3.3 Estimate lead-time with criticalpath method (CPM) or PERT Chart


alternatives




alternatives



Phase Threeevaluate created

layouts

4.2 Consider down-time costs

4.1 Consider costs for rearranging the facility

Phase Fourconsider extra

cost for rearrangement



5.1 Put together all economical data Phase Five

select the mostpreferable layout

Figure 4.2 - The developed model

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In this part a description of each step in the model is presented. • Are the future layouts comparable with the current layout? This needs to be considered before starting to use the model. If the new layouts will be comparable with existing layout phase one to phase five will be conducted. If the existing layout will be incomparable, skip phase one which is evaluation of existing layout because this data cannot be used to full extent. Phase one - Evaluate current facility 1.1 - Specify criteria's for economical and working environmental aspects. The basic

aspects for economical criteria's can be material movement distance, number of movements and what kind of material handling equipment used.

1.2 - Collect Data. Data collection of material handling equipment and movement distance can be found within the daily operations. The amount of movements should be obtained from stored data. It is important to find data for all transports between the work-areas.

1.3 - Make flow chart(s) for the production process. The flow chart is used to structure the material flows.

1.4 - Make a from-to chart. The from-to-chart is used for assessing the material flows with amount of material in the flows.

1.5 - Estimate time for manual material handling. Manual material handling has two aspects, labour cost and working environment. Labour cost is calculated by the time utilized for manual handling in the processes. The other aspect is how the manual handling affects the labour.

1.6 - Perform LCCA on material handling alternatives. For the different material handling equipment an LCCA should be done, this in order to assessing costs to different kinds of handling equipment.

1.7 - Estimate lead-time with Critical Path Method or Pert chart. In some cases the lead-times have economical effects on the production, such as JIT-production and Lean manufacturing where the storage is reduced and the time has a great importance. Short lead-times means better customer-satisfaction if the lead-times are utilised in a good way. CPM is deterministic while PERT is probabilistic and therefore PERT gives a better view of the real case but it also demands more efforts.

1.8 - Calculate total cost for material handling. With help of LCCA, distances, handling equipment and material handling the total cost of material handling can be calculated.

1.9 - Consider working environmental aspects. It is also important to consider non-economical aspects in order to get a more holistic view of the layouts.

Phase two - Create new layouts 2.1 - Analyse changes in the future processes. This analysis of changes in the processes

must be done for making the new layouts durable in a longer perspective. In this analyse, the changes of the material flow should be made for each single process flow.

• Has phase one been used? If phase one not has been used (no) start with step 2.2. If phase one has been used (yes) start with step 2.3. 2.2 - Specify criteria’s for economical an working environmental aspects. As described

before basic aspects for economical criteria's can be material movement distance, number of movements and what kind of material handling equipment used.

2.3 - Decide the life length for the new layouts. This is important for distributing the costs for the facility layout over a feasible time period, it should at least be valid for ten years.

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• Are there any changes in the processes? If there are any changes (yes) start with step 2.4 continue with 2.5 and 2.6. If there are no changes (yes) continue at step 2.7. 2.4 - Collect data. Data collection of material handling equipment and movement distance

has to be estimated/calculated for the future processes. Changes can be increasing or decreasing material flows, new technology that changes the flow of material within the facility and it could also be new products or redesigned products that create a different material flow.

2.5 - Make flow chart(s) for the production process. The flow chart is used to structure the material flows.

2.6 - Make a from-to-chart. The from-to-chart is used for assessing the material flows with amount of material in the flows.

2.7 - Create a relationship diagram. Either you use the from-to-chart of phase one and step four or phase two and step six. With help of this data create a relationship diagram.

2.8 - Create new layouts. With help of the relationship diagram try to make some layouts that fulfill as much as possible of the relationship diagram.

Phase three - Evaluate created layouts 3.1 - Perform LCCA for all material handling equipment. 3.2 - Estimate time for manual material handling. Manual material handling is loading and

unloading time for personnel. It is also about manual dividing and other task related to material movement.

3.3 - Estimate lead-times with critical path method or PERT chart. Metioned earlier. 3.4 - Calculate total cost for material handling. With help of LCCA, distances, handling

equipment and material handling the total cost of material handling can be calculated. 3.5 - Consider working environmental aspects. It is also important to consider non-

economical aspects in order to get a more holistic view of the layo

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