A model for Assessing Cost Effectiveness of Facility Layouts: A case study

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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

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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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DE 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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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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TA B L E O F AB 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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TA B L E O F CO 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

2.5.1VALIDITY...5

2.5.2RELIABILITY...6

2.5.3GENERALISATION 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

3.1.1FLOW ANALYSIS...10

3.1.2MATERIAL HANDLING...11

3.1.3EMPLOYEES SERVICES AND ERGONOMICS...11

3.1.4LAYOUT 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

6.1.1EVALUATE EXISTING FACILITY -PHASE ONE...27

6.1.2CREATE NEW LAYOUTS -PHASE TWO...32

6.1.3EVALUATE CREATED LAYOUTS -PHASE THREE...33

6.1.4CONSIDER EXTRA COSTS FOR REARRANGEMENT -PHASE FOUR...36

6.1.5SELECT THE MOST PREFERABLE ALTERNATIVE -PHASE FIVE...37

6.2 The process of creating and analyse layouts for the case company ... 38

6.2.1CREATE NEW LAYOUTS -PHASE TWO...38

6.2.2EVALUATE CREATED LAYOUTS -PHASE THREE...40

6.2.3CONSIDER EXTRA COSTS FOR REARRANGEMENT -PHASE FOUR...43

6.2.4SELECT 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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LI S T O F AP 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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LI S T O F TA 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 6.13 - 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 6.22 - Costs related to rearrangement of machines for layout 1... 43

Table 6.25 - Costs related to changes of conveyor belts for layout 1... 43

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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LI S T O F FI 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 AS 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 LA Y O U T S IN 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.14 Introduction

Methodology Theory Empirical findings

Analysis

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

Results Conclusions Recommendations

Hand in thesis

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A M O D E L F O R AS 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 LA 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 17^th 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 research

Consistently 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 AS 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 LA Y O U T S TH 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 planning

3.2 Lean manufacturing 3.1.1 Flow analysis

3.1.2 Material handling

3.3 Network planning models 3.1.3 Employee services and ergonomics

3.2.4 Layout procedure

3.4 Life Cycle Costing

3.5 Economic stance 4. Procedure for economic evaluation

F

A

development. 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.

3

Facilities' planning is a s

in 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).

S

solution 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 4

Milling 7 2

Turning 3 4

Press 3 1 1

Plate 3 1 4 3

Assembly 1 7

Warehouse

Stores Milling Turning Press Plate Assembly

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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).

D P M O I D R

LCC= & + + & ± &

9 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.

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

9 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.

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

Total cost of the system

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

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