How big should a manufacturing facility be? Operation managers use production forecasts to help estimate the future demand for the company’s products. These forecasts are drawn from past sales as well as current or anticipated sales orders, customer feedback, market research, and industry analyses.

Once a “best guess” for a firm’s future demand is determined and the firm has decided which parts of the product it will make and which it will buy, the company’s operations manager focuses on the next step: capacity planning. Capacity planning is the process of determining how much of a product can be produced to meet demand. Capacity planning requires balancing the maximum amount of product a manufacturing facility is capable of producing with the quantity demanded by its customers. The overall size of a facility, as well as efficient utilization of resources, dictates production capacity.

Capacity can be increased by introducing new technologies or equipment, increasing the number of workers or machines, improving the efficiency of existing workers or machines, or expanding a firm’s production facilities. Conversely, capacity can be decreased by reducing the number of workers and machines.

Warehousing goods is also a key part of capacity planning. For example, most toy makers work throughout the year to produce toys specifically for the holiday season. Therefore, a bulk of production is warehoused until they are needed at the end of the year.

Because services cannot be stored as products can be as inventory, service firms often use marketing tactics to manage their demand. For example, restaurants offer early-bird and after-hour specials to generate business in off-peak hours. Applebee’s campaign of half-price appetizers after 9:00 P.M. increases demand in the after-dinner hours, and hotels offer reduced rates in the off-season, or during low demand periods. Similar to production facilities, capacity management for service businesses includes increasing and decreasing staff to coincide with peak and non-peak demands.

Where do businesses decide where to locate their facilities? Where an organization locates its offices, factories, or retail outlets can have a significant effect on the firm’s overall efficiency, profitability, and success. Beyond the cost and availability of a location, several other factors have to be considered:

• Proximity to the market. Service businesses, such as restaurants, supermarkets, and retail operations, must choose their locations based on how convenient they are to their target customers. A restaurant that is easily accessible to cars and pedestrians can have an advantage over a restaurant tucked away in a remote part of town where few people visit. However, many businesses have found they can use e-commerce and social media to bring attention to their services, making location less of an issue. For example, the ability to offer online and mobile services has made the location decision less critical for education, banking, health care, and other service businesses.

• Proximity to raw materials. To reduce spoilage costs, manufacturing businesses try to locate near sources of necessary raw materials as well near transportation systems. Transportation is a major cost and can be more than 50 percent of the overall cost of production.7 Tata Steel, headquartered in India, is one of the world’s leading steelmakers. One factor that has contributed to Tata’s success is that it has located it facilities in close proximity to raw-materials sources. Tata secured the iron ore mines in India, and its overseas operations in Southeast Asia, Australia, and parts of Africa are focused on securing raw-materials sources at these locations.8

  

• Proximity to utilities. Even if land were cheap, a company that is establishing a large facility, such as a plant or a warehouse, would be reluctant to situate in a remote location that lacks utilities, such as electricity, natural gas, water, and telecommunications lines. The cost to establish this infrastructure if it did not exist could be enormous.

• Proximity to hazardous waste disposal. Many businesses, as part of their day-to-day operations, generate large amounts of hazardous waste that must be disposed of in ways that comply with state, county, and municipal hazardous waste disposal guidelines. Even everyday materials, such as paint and cleaning fluids, are considered hazardous waste and must be disposed of properly. The proper disposal of hazardous waste has ramifications on a business’s location. Responsible organizations must be aware of the disposal options that are available in their areas.

In addition to disposing of hazardous wastes, companies are becoming increasingly more aware of ways to manage other forms of production waste and trash, such as returned, defective, or broken products and leftover scraps. Managing returned products and material so as to add value to them is a process referred to as reverse logistics. BestBuy sells its returned defective products to Genco, a company that specializes in reverse logistics, which then finds buyers for the products. Patagonia recycles used fleece vests that customers return to the company into fiber used to make new vests.9 In addition to adding value to waste, this process helps companies operate in an environmentally friendly way.

How does labor affect location decisions? The availability of qualified labor affects where a company will locate. Additionally, companies also need to be aware of how the communities in which they locate affect the ability to attract employees. Let’s look at some of these factors:

• Skilled labor. Choosing a location for virtually any business requires finding an area with an abundance of workers who possess the necessary skills. California’s famed Silicon Valley is a top hub for the tech industry’s software and hardware manufacturing businesses because of its proximity to Stanford University, its abundance of local engineers, and the area’s history in developing technology.10

• Affordable labor. Seeking skilled workers is only part of the decision-making process. Many businesses need to find employees who are both highly skilled and affordable. India is the primary destination for these types of workers.11 A company need not necessarily locate to India to hire these workers, though. Affordable, skilled labor has become more globally accessible through the use of the Internet and communications technologies. For example, many clinics and radiologists in the United States scan patients during the day and then transmit the scans to specialists in India, where they are analyzed overnight.

• Living conditions. Businesses can alter an area’s living conditions either positively or negatively. A business brings opportunities to a community by creating jobs, and this can result in a higher standard of living. Conversely, a business can have negative effects on a community by exploiting workers, consuming limited resources, or increasing local traffic. Many businesses try to locate in areas where the quality of life is already high (for example, areas with good schools, pleasant weather, or low crime rates) to attract a better caliber of employees. Some social entrepreneurs might take it on themselves to locate their business in impoverished areas to revitalize them.

• Tax incentives. Environmentally aware politicians often try to attract green businesses to their communities precisely for their ability to rejuvenate economically depressed communities. Many U.S. state and local governments offer cash grants, tax credits, tax abatements, and other incentives to entice companies to locate to their areas. For example, Pitt County, North Carolina, offers site and utility improvement grants, funds, and services for employee screening, testing, and training, and low-cost industrial revenue bonds for qualified new and existing manufacturing facilities in the area.

• Laws and regulations. To maintain a balance between business and community interests, governments have created many laws and regulations to protect individuals and the environment. Laws and regulations may vary by state or country; therefore, companies, as part of their location assessment process, must consider how any government intervention will affect the organization.

Why is facility layout important? Facility layout refers to the physical arrangement of resources and people in the production process and how they interact. The design of a facility’s layout is important to maximize efficiency and depends greatly on the processes or tasks to be performed. It involves everything from the arrangement of cubicles in an office space to the position of robotic arms in a manufacturing plant.

When planning facility layouts, operations managers must anticipate and plan for future changes in them, such as how they might be expanded or contracted as demand changes. Additionally, the facility layout should be in accordance with Occupational Safety and Health Administration guidelines to ensure worker safety.

How does facility layout affect production? A facility layout should be designed so that materials are handled efficiently to ensure a smooth flow of production and to maximize the efficiency of employee flow throughout the facility. The distance that a work-in-progress item must travel within a facility must also be taken into account. This is true not only for the production of goods but also in the production of services. For example, the layout of a fast-food restaurant should help the employees involved in the different parts of the operation work quickly an integrated fashion.

What are the different types of facility layouts? Different manufacturing processes require different types of facility layouts. There are four common types: process layouts, product layouts, cellular layouts, and fixed position layouts:

• A process layout groups workstations together according to the activity being performed, regardless of which product each workstation is working on. Fast-food restaurants use process layouts: different processes are done in different workstations. The flow from one to the next is not necessarily uniform and instead varies from order to order.

  

• A product layout groups different workstations together according to the products they work on. Product layout is used generally used for high-volume, standardized products. Garments are often produced in a product layout where there are stations for sewing cloth, sewing on buttons and other garnishes, inspecting seams, and finishing the garment.

Both process and product layouts are organized by function. However, functional arrangements are not always efficient because production can stall if a problem occurs at one station. Workers are also likely to get bored doing repetitive tasks. To overcome the shortcomings of process and product layouts, some manufacturers have adopted cellular and fixed-position layouts:

• In a cellular layout, small teams of workers are grouped together in workstations and handle all aspects of the assembly of a product. Each station is equipped with the parts and tools necessary to produce a product from start to finish, and the worker moves through the workstation as he or she conducts the assembly process.

• A fixed-position layout is used to manufacture large items, such as ships, airplanes, and modular homes. With a fixed-position layout, the product stays in one place, and the workers move around the product to complete its assembly.

What is the role of technology in the production process? Up-to-date technologies can improve any or all aspects of the production process through increased productivity and quality, and reduced costs. Technology can also aid in creating variety which can affect the buying decisions of customers. Customers are more likely to buy a product that is readily available in many varieties as well as being low priced and high quality.

What has helped automate the production process? Humans are sometimes at a disadvantage to maintain precision and accuracy when performing a task repetitively for many hours. This is where industrial robots come in. Not only can robots work around the clock tirelessly and accurately, but they can also work in potentially hazardous conditions, thereby protecting human workers from dangerous environments. The two biggest industries employing robot are the automotive industry, which uses robots to weld, paint, assemble, and handle various materials, and the household appliances industry, which uses robots to assemble, seal, and paint appliances such as microwave ovens. Industrial robots may eliminate some production-related jobs, but the technology has also created many new jobs for technicians and engineers. Companies that can effectively apply robotic technology in their production processes are more likely to gain an economic advantage in the global marketplace.

How does technology improve the design process? Computer-aided design (CAD) refers to using computer software to create two-dimensional or three-dimensional virtual models of parts or products. A product designer first translates the design into a geometric model for the CAD system to display. Once the data for the model are received, the CAD system provides the designer with tools and a flexible environment so the product can be viewed internally, rotated on any axis, and modified in size or shape. CAD also facilitates the testing of parts in simulated environments before they are manufactured. By programming a simple design change into a CAD system, a manufacturer can produce custom-designed products, such as clothing and cars, without incurring extra costs. CAD systems are used to design tools and other small products as well as houses, machinery, and commercial structures.

Some manufacturing processes that are more complicated, such as those for motor vehicles and airplanes, need more than one CAD program to design and incorporate all the different components. For example, the design of a ship may require one CAD application for the steel structure and another CAD program for the propeller. A disadvantage of this method is that it requires knowledge of how to use and integrate the different software applications into one overall product.

How is CAD information incorporated into the manufacturing process? Once a CAD design is approved, computer-aided manufacturing (CAM) uses the design data to control the manufacturing machinery. The integration of CAD and CAM systems in aspects of a production process is referred to as simultaneous engineering. Ford Motor Company’s engine division, for example, successfully integrated all its production and design systems into one database that is accessed by employees and suppliers involved with design and production. This type of facilitated communication is a huge benefit for firms with complex systems. One of the main disadvantages of using CAD/CAM systems is that they require considerable time and investment to set up and to learn the necessary software, hardware, communications, and integration processes.

Can an entire production facility be automated? Computer-integrated manufacturing (CIM) systems combine design and manufacturing functions with other automated functions, such as order taking, shipment, and billing, for the complete automation of a manufacturing plant. The printing company VistaPrint uses CIM not only to manufacture its products but also to help customers create and place orders for custom-designed business cards, brochures, and even T-shirts. Through the use of CIM, the company has expanded its business and is able to serve more customers while continuing to offer affordable prices.

What effect has automation had on overall productivity? CAD, CAM, and CIM have dramatically improved the process of producing goods by reducing the time between design and manufacturing, thus making a significant impact on productivity. These systems have also increased the scope of automated machinery in the production process. Through the rapid pace of technological advancement, CAD, CAM, and CIM systems are not limited to large mass production facilities; they are entering smaller companies as well.