UNIT 3: DESIGN OF THE OPERATION SYSTEM

3. PRODUCT AND SERVICE DESIGN

AIMS AND OBJECTIVES

The aim of this unit is to introduce you about the process of product design and the alternative
operations processes.
After studying this unit, you should be able to:
 outline and briefly describe the steps of product design and development
 describe the alternative operations processes
 Understand the factors that affect process design and selection.
INTRODUCTION

The essence of any organization is the products or services it offers. There is an obvious link
between the design of those products or services and the success of the organization that have
well-designed products or services. Firms that have well-designed products or services are more
likely to realize their goals than those with poorly designed products or services. Hence,
organizations have a vital stake in a good product and service design. This unit presents the
major aspects of product and services design and how the process to produce them is designed
and selected.

Product and service design plays a strategic role in the degree to which an organization is able to
achieve its goals. It is a major factor in customer satisfaction, product and service quality, and
production costs (price). Because product design is concerned with the functional (use) and
aesthetic requirements necessary to meet the demands of the market place and at the sometime
achieve an acceptable rate of return. Decisions related to product designs have far reaching effect
on the future of an organization. Therefore, great care must be taken while designing a
product/service.

The objectives of product and service design may vary from situation to situation. Generally,
however, the objectives/reasons are:
1. To introduce new or revised products or service to the market as quickly as possible;
2. To design product or service that have customer appeal;
3. To increase the level of customer satisfaction;
4. To reduce costs and;
5. To increase quality

In a competitive environment getting new or improved products or services to the market a head
of competitors gives an organization a competitive advantage that can lead to increased profits as
well increased market share and can create an image of the organization as a leader.

3. 1 FACTORS AFFECTING PRODUCT DESIGN

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Decision pertaining to the final product design will influence or determine; the firm’s image
profitability, opportunities and the problems it may face in the future.

The product chosen for the firm’s market will also determine:
- The need for capital
- The size and composition of the organizational structure
- The type of quantity of processing equipment
- The type quantity and quality of material and supply used
- The size and skill requirements of its work force.
Product design can require the input of different functional managers. The following discussion
will help you to understand the decisions and roles of the different managers pertaining to
product design.
1. Product design – a production manager’s viewpoint
The production manager makes decision concerning process employed, quality, quantity, and
type of materials that will go into it and the required supervision.

2. Product design - a marketing viewpoint

Marketing’s optimal product design would be an innovative product that leads to high volume of
sales, complements the firm’s general product line, enhance the firms image in the market place,
and available in any desired quantities at an attractive cost.

3. Product design – A Financial manager’s view point

The concern of financial manager is to have a product that help to achieve the maximum return
on investment, maintain the firm’s financial liquidity and assures its survival. The strategic
choice of a design becomes an important decision, which will materially affect the firm’s
profitability, growth and survival.

4. Product design – a top management view point.

The product decision represents one of the major decision top managers must make. However
top managers must make a careful analysis and evaluation of the firm’s strengths, weaknesses,
interests, financial strength, managerial abilities and environment and numerous other factors
prior to making the final product design decision

5. Product design- Quality Control View Point

Quality control, and indirect cost, will often be greatly affected by the product design choice.
Designs will increase both production and quality control cost, if they are difficult to
manufacture and require close process monitoring and numerous quality control checks to
determine whether the product is in conformance with product specifications. These higher costs
may come from a combination of higher reject and rework levels and high quality control costs,
primarily from inspection.
3.1.2 THE STRUCTURE/ PROCESS OF PRODUCT DESIGN

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The three major functions involved in product and service design are marketing, product
development and manufacturing. Marketing has the responsibility for suggesting ideas for new
product and for providing product specification for existing product lines. Product development
has the responsibility for moving the technical concept for the product to its final design and
manufacturing/operation function has the responsibility for selecting and/or configuring the
process by which the product is to be manufactured.

The product development activity provides the link between the customer needs and expectations
and the activity required to manufacturing the product. This will take you to the discussion of
new product design processes.

The design process begins with motivation for design. For a new business or a new product, the
motivation may be obvious to achieve the goals of the organization and realize new
opportunities. However, making them happen /utilized them is a demanding challenge. New
product development entails a complex set of activities that cut across most functions in
business.
There are also specific external factors to consider, such as government regulations, competitive
pressures, customer needs, the appearance of new technologies etc. Ultimately, the customer is
the challenging force for product and service design.

Product or service design follows seven consecutive steps. They are briefly explained as follows.

Step 1. Idea/concept stage

For product design and development the starting point is product idea. It comes from a variety of
sources. The most obvious source is the customer. Marketing can tape this source of ideas in a
number of ways such as the use of focus groups, surveys, and the analyses of buying pattern.
Other sources of idea include:
 concept or creation of an inventor
 a product already conceived and available from outside the firm.
 the results of individual designers or design teams employed by the firms for that specific
purpose(employees)
 research and development department (R&D)
 distribution channel members
 Government agencies such as patent and copyright office
 Competitors or
 Any combination of the above sources
Product design research is the major source of product idea for most firms. It can be applied or
basic. Product design research basically is search for ideas, information or relationships. If its
purpose is the advancement of knowledge irrespective of short- term results, it is generally
referred to as pure or basic research. The term “applied research” has Commercial overtones.
Because it seeks to answer real or anticipated problems, applied research has short range
objectives compared to those of basic research. Applied research projects includes the study of
one’s own product line for functional or aesthetic improvement, the analysis of competitor’s
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product to determine how it was manufactured, the analysis of one’s own manufacturing
processes to improve output or reduce cost, and the analysis of the firm’s organizational structure
to increase efficiency. All of these research projects would be undertaken with the expectation of
increasing profitability.
Innovation is an omnipresent in product development, the continual search for improvement
takes place at each step or phase, from idea to finalize design. Design improvements may include
a new product shape, color or texture while processing improvement may include that make a
product or service economically attractive by increasing process efficiency, eliminating the
number of conversion steps required or change packaging needs.

Step 2. Preliminary product design evaluation /Initial feasibility analysis/

In this stage of the product design process responsible personnel are involved in screening and
evaluation of the product idea and they should:
 ensure that there is market potential or suffices demand
 ensure that the product can be produced with the existing resources and/or check what
additional resources are required
 check financial feasibility implications by estimating the approximate cost and return or
investment
 Finally, it may be necessary to consider the product is appropriate as to the company’s
policy and fulfills legal and environmental requirements.

Step 3 Product development and prototype stage.

The process of converting a set of ideas and invention, or a new product concept into the final
form for manufacturing is called product development. The specification for material, processing
tolerance, functional performance, maintainability, structural shape, reliability and appearance
will be embodied in a set of blue prints, drawings, lists, diagrams to supplement the prototype
and parallel its development through preproduction and production phases. The first physical
embodiment is the prototype. Prototype is a physical model of a proposed product or service and
it should serve many purposes:-
- It demonstrates the functional requirements or its manufacturing feasibility.
- It illustrates or demonstrates some aesthetic or style requirements.
- It allows a firm to determine the need for specific processes or equipment to produce
the products;
- Determine the functional reliability, ship ability, reparability, and packaging
requirement of the proposed product,
- The probable sequence of manufacturing steps
- The feasibility of using standard parts,
- The identification of assembly problems and
- The need for and feasibility of refinement of design features.

Step 4 Economic Evaluation of the design

Designers should develop criteria for evaluation of alternative designs. The following are the
four commonly used criteria
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 - Product performance /how well the product meets customer needs and requirements
- Development speed /how long it takes to get the product to market.
- Product cost/ the total cost to the customer/including manufacturing cost and
- Development program expense /one time development costs for the development project
Step 5 Preparation of product design specification.
The fundamental structure of the production process to be employed in producing a product is
determined largely by the design specifications that are defined is blue prints, drawings,
diagrams and material lists. These describe in detail the required dimensions, tolerances, finishes
and materials of the parts or product.

Step 6. The pilot production Run

Small-scale production run or pilot production run is important for the following reasons. Some
of these are:
1. If the product requires new technology or processes not commonly used by the firm, the
output rate a process lay out envisioned may be less than that anticipated.
2. To reveal problems not anticipated or planned
3. To know yield, the percentage of acceptable product from a specific process step, may be
less than what is required to match the output from another process step.
4. To provide a quantity of product for further studying market acceptance, developing better
production, cost figures, evaluate labor and maintenance requirements, and determining
reject levels more accurately.
5. To provide an opportunity to observe the manufacturing process more or less as they will
occur if the decision for full-scale production is approved.
6. To reveal unidentified process problems, coordination requirements, needed quality control
techniques difficulties in material handling and storage, and physical environmental factors
such as noise or heat and other possible safety hazards.

A pilot run often employees scaled-down or modified equipment or use presently owned
equipment or lease others. Some new product development programs do not include a pilot run if
the product is similar to those already made or if the processes are very similar.

Step 7 Final product design selection decision

Few ideas will reach the final product selection stage. The process of searching ideas and
evaluating their profit potential in light of the limits on the technological ability of the firm, the
required financial investment, and the competitive and market conditions will eliminate all but a
few when the design staff reaches this point, the final decision rests with top management.

Management based on their judgments, experience and additional information that point to better
investment opportunities will accept or reject the design.

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3.1.3 OTHER DESIGN CONSIDERATIONS
1. Consumer Quality level. The design process should be aware of the market segment which
the product is designed to serve and determine tolerance level with its cost implication. Four
specific characteristics are related to quality in product design:
i. Functionality. It is the degree to which a product performs its intended functions /use/.
ii. Maintainability. Maintainability refers to the ease of performing maintenance on the
product such as (lubricating, repairing hoses).
iii. Reliability. It is the ability of a product to perform as expected under normal conditions
without excessive frequency of failure.
iv. Reproducibility. Refers to the ability of the production system to consistently produce
products of the desired quality.
2. Standardization is a means of achieve lower production and assembly costs through
reducing variety. The choice of standardized parts is aimed at reducing unnecessary or
economically unjustifiable variety in a group of products or parts.

Through standardization the hidden costs of unnecessary product controls; additional paper
work, near duplicate designs; and the inefficient use of space, equipment, and tools can be
reduced.

3. Value analysis and value engineering

Value analysis is a systematic organizational effort to reduce the costs of materials and
purchased parts for producing a product, without sacrificing aesthetic or functional requirements,
which is the (responsibility purchasing). Value engineering, closely related to value analysis,
directs efforts at ensuring the functional ability of a product at minimum cost. It is the
responsibility of engineering department.
4. Product Diversification and Simplification
Product diversification is the proliferation of product designs or an increase in the types,
qualities, sizes, and colors of a particular product. There are economic reasons for caution in
expanding product lines. These are:
- Smaller manufacturing runs
- Less efficient use of processes
- Higher labor, material, and set up costs.
- Higher level of inventory for the producer, distributor, and retailer.

Product Simplification on the other hand, is the elimination of the complex features of a product
so that the intended function is performed but with reduced costs, higher quality and more
custom satisfaction.

5. Modular Design /use of modules/ standardized block/

It is used to identify basic functional or aesthetic requirements for one or a number of products
and designs a standard part, component, or subassembly that will meet the specification
requirement of all the products in which it will be used.

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 6. CAD and Robotics
Design and redesign capabilities of such technology computerized design /CAD/ allow
specifications to be tested singly or as part of a system for aesthetic or functional analysis.
1. Use of robots
2. Repetitive assembly
3. Loading and unloading machines
4. Painting and welding operations

3.2 PROCESS PLANNING AND PROCESS DESIGN

Process planning and design is the complete delineation and description of the specific steps in
production. The design and redesign of products and the design or redesign of processes are
interrelated. Process planning and selection also involves choice of technology and related issues
and it has major implications for capacity planning, layout of facilities, equipment, and design of
work systems. This relationship can be best understood by having a look at on the following
figure.

Demand of the Capacity

product planning

Product/service Facilities and

Process Design
Design and Selection equipment

Technology Layout of
advancement facilities

Process selection occurs as a matter of course when new products or services are being planned.
However, it also occurs periodically due to technological changes in equipment as well as
changes in existing product or services.

3. 2.1Types of Processes
At the basic level, the types of process can be categorized into three main categories:

1. Conversion Processes
Under this process the reaction under specific controlled conditions yields products that may
hardly resemble their parents. For example, changing iron ore into steel sheets or making all the
ingredients listed on the box of toothpaste into tooth paste are conversion processes.
2. Fabricating Processes
This process involves changing raw materials into some specific form. For example making
sheet metal into car fender and making chair out of wood are fabricating processes.

3. Assembly processes
Assembly processes brings together necessary raw materials or components that makeup a
product. For examples, assembly automobiles, building construction, house appliances etc.
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3.2.2 Factors affecting choice of process design
Major factors affecting choice of process designs decisions include:
1. Nature of product demand pattern of demand and price-volume relationship. Production
processes must have adequate capacity to produce the volume of the product that
consumers want. Seasonality, growth trends, and other patterns of demand affect the
amount of production capacity needed. /to meet quantities during peak demand seasons/.
Therefore, provisions must be made for expanding or contracting capacity to keep pace
with the growth trends of sales.

Different types of production processes provide a different mix of competitive advantage

therefore the choice of price and the choice of the design of production processes must be
synchronized.

2. Degree of Vertical Integration. Vertical integration is the amount of the production and
distribution chain, from suppliers of components to the delivery of products to customers, that is
brought under the ownership of accompany. There two types of vertical integration, that is
forward and backward integration. Forward integration is expanding ownership of the
production and distribution chain toward the market whereas, backward integration means
expanding ownership of the production and distribution chain backward towards the source of
supply. The degree to which a company decides to be vertically integrated determines now many
production processes need to be planned and designed.

3. Production flexibility. It refers to the ability to respond fast to customer's needs. Flexibility is
of two types. The first is Product flexibility, which refers to the ability of the production system
to quickly change from producing one product to producing another. For such cases, production
process must be designed to include general-purpose equipment and cross-trained employees.
The second type of flexibility is volume flexibility. It is the ability to quickly increase or reduce
the volume of products produced. Volume flexibility is needed when demand is subject to peaks
and valleys and when it is impractical to inventory products in anticipation of customer demands.
In this case production process must be designed with production capacities that can be quickly
and inexpensively expanded and contracted. The fundamental nature of service creates the need
for flexibility.

4. Degree of Automation. Automation is the substitution of machinery for human labor. The
machinery includes sensing, the control devices that enable it to operate automatically. A key
question in process planning is whether to automate or not; and how much to automate, (fully or
partially).

Advantages of Automation
Automation offers a number of advantages over human labor. Some of these are:
1. It has low variability; it is difficult for a human to perform as fast in exactly the same way,
and in the same amount of time on a repetitive basis.
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 2. Machines do not get bored or distracted nor do they go out on strike, ask for higher wages, or
file labor grievances.
3. It is taken as a necessary strategy for competitiveness.

Disadvantages/limitations
1. Automation can be costly because the acquisition of new technology can be expensive
2. Usually, it requires high volumes of output to offset high costs of initial investment.
3. Automation is much less flexible than human beings are.
4. Once process has been automated, there is substantial reason for not changing it
5. It often becomes an emotional issue with workers because of the fear of job loss.

Therefore, the degree of automation must be carefully examined so that its limitation can be
minimized and its benefits can be exploited.

5. Level of Product quality

The choice of design of production processes is certainly affected by the desired level of product
quality.

6. Degree of customer contact

For most services and for some manufacturers, customers are an active part of the process of
producing and delivering products. The extent to which customers become involved in the
production systems has important implications for the design of production processes. In this
case every element of the equipment, employee training, and building must be designed with the
customer in mind. Also courteous attention, comfortable surrounding must be provided to
receive, hold process and release customers.
At the other extreme of customer involvement, the design is little affected by interaction with
customers.

3.2.3 Types of Process Flow Structure

Production system exists to produce product/ services of a kind that customers want and like a
process flow structure refers to how a factory organizes material flow using one or more of the
process technologies.
There are basically, four (4) types of processing systems: continuous, assembly line, intermittent
and project processing. These major operation processes are described briefly as follows:

1. Continues process (product-focused)

A form of production processing organization in which production departments are organized
according to the type of product being produced. All of the production operation required to
produce a product are ordinarily grouped in to one production department. It is also called line
flow production or continuous production because; the product follows a pre-determined
sequence of steps. In line flow production, products tend to follow along direct linear paths
without backtracking or side tracking.

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Continuous processing systems produce high volume of standardized output. The ultimate
continues processing systems produce a single product such as flour, sugar, chemicals, liquid,
powder, detergents, gasoline, oil, and the like. Generally, these products are measured on
continues basis rather than counted as discrete units.
Characteristics of continues or product-focused process
 The system produce highly uniform or standardized output
 uses highly standardized machine/equipment and methods, and operated for 24 hours
to avoid expensive shutdowns and startups.
 the skills requirements of workers are usually fairly low because of division of labor
 equipment tends to be highly specialized which tends to make it expensive relative to
more general purpose equipment, but the high volume of output result in a low
cost per unit
 product of such process are generally made for stock/inventory rather than customer
order
 the process is inflexible, it handles only one product
 Product focused systems usually require high initial investment because it uses
expensive, fixed-position material -handling equipment e.g. Overhead conveyors.
In continuous production products tend to proceed through production without stopping.
This figure shows the flow of raw material from one end of production process to the other end
following a straight line.
1
3

2 4

2. Assembly line process (Repetitive process)

Assembly line process refers to production of discrete parts moving from workstation to
workstation at a controlled rate, following the sequence steps needed to build the product. This
part of continuous process produces output that allows for some variety; products are highly
similar but not identical. Examples include assembly of automobiles, televisions, computers
calculators, cameras, appliances etc. Typically, these products are produced in discrete units.
This form of processing is often referred to as repetitive manufacturing.
The application of this process in service area is less common because services tend to be more
customized on a per-unit basis. But still it can be applied in car washes, mechanical caressers,
mail service, fast-food operations etc.

3. Intermittent Processing (Process-focused)

Intermittent processing is used when systems handle a variety of processing requirements on a
start-and stop basis. This system is characterized by:
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  A low volume of output than continuous process
 Use general-purpose equipment that can satisfy a variety of processing
requirements.
 Require semiskilled or skilled workers who operate the general equipment
 The system is relatively flexible.
 Span of supervision is narrow than the low in the case of continuous process
system.
Intermittent Processing takes two forms:
1. Batch Processing- Produces the same item again and again, usually in a specified lot
sizes. Such system is generally employed when a business has a relatively stable line of
products, each of which is produced in periodic batches, either to customers order or for
inventory.
2. Job shop process- Used to handle/produce small batches/lots of a large number of
different products most of which require a different set or sequence of processing steps.
Examples
 Commercial printing firms, publication
 airplane manufacturers
 Machine tool shops, Educational system
In job shops products do not follow continuous routes through production. On the contrary, the
system is:
1. highly irregular stop and go
2. zigzag type routs with side tracking and backtracking
3. Jobs spend the majority of this time waiting to be processed in production departments.
Process focused production systems include hospitals, automobile repair shop machine
shop and manufacturing plants.

The advantages of job shop

1. Product flexibility /able to produce small batches of a wide variety of products
2. Less initial investment/they use general purpose equipment.
Problems
1. greater employee skill
2. more employee training
3. more supervision
The following flow structure illustrates the process-focused production system.
Founding Rough Fabricating Painting Packaging
Job X
9 1
1 4

3
Job Y 2 5 7
9

What makes this system different from batch process is that the job requirements often vary
considerably from job to job, so that the sequence of processing steps and the job content of the
steps, vary considerably, for example, Auto repair shops.
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 4. Projects
Projects are set up to handle complex jobs consisting of unique sets of activities that must be
completed in a limited time span. Examples of application include large or unusual construction
projects, new product development or promotion and so on. This process in characterized by:
i. high variable cost
ii. fixed costs are negligible or non-existent
iii. High skilled manpower-the process requires manpower who can work independently
without much supervision and guidance.
iv. Involves the manufacture of a single, one-of-a kind product.
Processing Alternative decision
In deciding on a particular type of production processing organizations, several factors must be
considered. Some these factors are:
1. Batch size and product variety. This factor includes the amount of product variety and the
volume to be demanded of each product model
If the demand for a single product is high, product -focused is appropriate because cost/unit is
very low but not flexible. Whereas, if products are many and one-of -kind job shop/ process
focused is appropriate. Because this process flows structure allows companies to take the
advantage of product flexibility.

2. Capital requirements for process Designs

The second factor that affects the choice of production process is capital requirements for the
process design. The amount of capital required for the production system tends to differ for each
type of production processing organization. If a firm has only a little capital available for a
particular product, process focused may be the only type of process design that can be planned.

3. Economic analysis
Commonly used to compare alternative processing plans for the production of products, four (4)
important considerations include:
a. Cost function of processing alternatives. Each type of process design tends to require a
different amount of capital. The greater that initial cost of equipment, buildings, and other
fixed assets, the greater one the fixed costs. The cost function of a job shop usually
exhibits very low fixed cost and very high variable costs.

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 If capital availability is not a factor and annual production costs are the predominate
consideration, the process design that is preferred depends on the production volume of
the product.
Annual Cost Job shop
of Production Cellular hybrid

Automated
assembly

2,250,000

1,110,000

500,000
Number of units
100,000 250,000 produced per year

b. Concept of operating leverage. Operating leverage is a measure of the

relationship between a firm's annual cost and its annual sales. If a high percentage
of a firms total costs are fixed then the firm is said to have a high degree of
operating leverage.
Other things being equal /held constant/, a high degree of operating leverage implies that a
relatively small percentage change in sales will result in a large percentage change in operating
income (the difference between annual sales and annual production costs).
The concept of operating leverage has the following important implications for the choice of
process design.
1. Greater long rage profits can be realized from production processes with greater
operating leverage once the production volume reaches a certain level.
2. Greater long-range losses can result from operation processes with greater operating
leverage if the production volume is less than the break even point.
3. The high the operating leverage of a production process, the greater is uncertainty of
future volume.
4. The great the uncertainty of sales forecasts, the great is the risk of losses using
production processes with high operating leverage.
If there is a substantial amount of uncertainty concerning the forecast of number of
products to be produced, process design with lower levels of operating leverage tend to
be performed.
Sales
(revenue)
Annual
income
(cost)

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 Number of units
BE1 BE2 BEP
produced /Yr

C. Break even Analysis (BEA)

Break Even Analysis (BEA) is commonly used to choose between processing alternatives. It
does have some weaknesses, however, when compared to other methods:
1. A primary weakness is the techniques inability to deal in a direct way with uncertainty.
All of the costs, volumes and other information used in the technique must be assumed to
be known with certainty.
2. The costs are assumed to hold over the entire range of possible volumes.
3. It does not take into account the time value of money.

Example: Three production processes, automated (A), Cellular(C) and job shop (J) have the
following cost structure.

Process Fixed cost per year Variable cost per unit

A 110,000 2
C 80,000 4
T 75,000 5

i. What is the most economical process for a volume of 10,000 units per year?
ii. At what volume would each of processes be preferred?

Solution
P = Price/unit Q = quantity produced and sold/period
V = Variable cost/unit P = Profit/period
Fc = Fixed cost/period TR = total revenue/period
TVC = Total Variable cost/period TC = Total cost/period
C = Contribution /period C = Contribution/unit
At BEP, profit is equal to zero (0)
TR = PQ FC = P.Q – V.Q = Q(P.V)
FC
C = Pu – Vu Q= ( P−V )
C = Q(Po – V) = TR – VQ = Fc + Pp TVC = TR – FC = PQ - FC
TC = FC + TVC
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TVC = VQ
P = TR – TC = PQ – (FC + VQ)
( P+Fc ) TR−TC PuQ−FC FC
= =P−
Q = Pu-Vu V= Q Q Q
TR = FC + TVC = FC + VQ
( FC+VQ ) FC
P= = +Vv
Q Q
a) TC = FC + V(Q)
TCA = FCA + VA(10,000)
= 110,000 + 2(10,000) = 130,000
TCc = FCc + Vc(10,000)
= 80,000 + 4(10,000) = 120,000
TCT = FCT + VT (10,000)
= 75,000 + 5(10,000) = 125,000
The cellular manufacturing production process has the lowest cost when Q = 10,000
b) TCJ = TCc
FCJ + VJ(Q) = FCc + Vc(Q)
75,000 + 5(Q) = 80,000 + 4(Q)
Q = 5,000 units
TCc = TCA
FCc + Vc(Q) = FCA + VA(Q)
80000 + 4(Q) = 110000 + 2(Q)
Q = 15000 units

J
Annual C
cost A

1100

8000
7500

0
50,000 10,000 15,000

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The job shop process would be preferred in the annual volume rate of 0 – 5000 units, cellular
manufacturing in the 5000 – 15000 range and automated at 15000 or above

D Financial Analysis
The great amount of money to be invested in production processing alternative and the length of
time these assets are expected to last make the time value of money an important concept. The
payback period, RPu, IRT and profitability under are aced to analyze POM problems involving
long periods of time.
3.2.4 SERVICE DESIGN

Because of the difference between services and products, the design of services must take in to
account different elements than the design of products. Consider these differences:

1. Products are generally tangible; service is generally intangible. Consequently service

design often focuses more on intangible factors such as peace of mind, ambiance than
does product design.
2. Series are often produced and received at the same time. (e.g. Haircut, a car wash, repair
etc), Because of this there is less latitude in finding and correcting errors before the
customer has a chance to discover them. Consequently, training, process design; the
customer relations are particularly important.
3. Service cannot be inventoried. This posse restriction on flexibility, and makes capacity
design very important.
4. Services are highly visible to customers, and must be designed with that in mind; this
adds an extra dimension to process design usually not present in product design
5. Some services have low barriers to entry and exit. This posse another burden on service
design to continually be aware of what competitors are offering.
6. Location is often important in service design with convenience as a major factor. Hence,
design of services and choice of location are often closely linked.
Table 2.1. Summarizes the difference and similarities of the basic processes.
Types of Product Product Automation Frequency Labor Unit
Production Volume Variety & of Skill Cost
Processes Specialized machine
Equipment set
up &
changes
1. High Low High Low low low
Continuous
2. Assembly Medium medium High Low low low
3. Batch Medium medium Medium Medium medium medium
4. Job Shop Low High High High high high
5. Project Low Low Low Low high high

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3.4. FACILITY LOCATION & LAYOUT

The general objective of facility layout is to locate people, machines, and processes in an optimal
time-saving and money saving relationship that meets the anticipated production level and the
products functional and aesthetic requirements as embodied in the design specification. Layout
refers to the configuration of departments, work centers and equipment with a particular
emphasis on movement of work through the system.

Objectives of Facility layout

The overall objective in designing a layout is to provide a smooth work flow and control;
reducing cost of material through the factory or uncomplicated pattern for both consumers and
workers in a service organization. Specific objectives of layout decision in service and
manufacturing operations are outlined in the following section.

1. For manufacturing firm.

- Provide enough production capacity
- Minimize material handling cost and effort
- Minimize labor requirements
- Provide a smooth flow of materials and product
- Maximize the use of available space
- Provide for volume and product flexibility and avoid bottleneck operations and contested
areas
- Minimize health hazards
- Maximize the uses of machine tools.
- Provide communication opportunities for employees by positioning equipment and
processes appropriately
- Maximize output
- Minimize supervisory and control requirements
- Ease of maintenance
- Provide space for personal – care needs and others

2. For service operations layout serves the following purposes.

- provide for customer comfort and convenience
- allow attractive display
- reduce travel of personnel and customers
- provide for private in work areas
- promote communication
- Provide for stock rotation for shelf life.
Basic Types of Layouts
There are four basic types of plant or facility layouts. The basic difference among these layouts
is in their handling of the flow of materials and product. They are discussed as follows.

18
 1. Process layout /for job-shops/
It is concerned with the grouping of machines, processes or services according to their function
i.e. similar equipment or functions are grouped together. For example, Drilling, milling, routing,
typing, shipping etc.. are activities that require such types of arrangements. The primary
efficiency criterion for evaluating process layout designs is material and product handling cost.
Advantages
a. Process layouts are less vulnerable to breakdowns or absenteeism than other types of
layouts since work can be shifted to other operating machines, and substitute for absent
employees are more readily available because employees have multiple skills.
b. Lower capital costs use. Because this layout uses a general – purpose machines, which are
less likely to become obsolete than special-purpose machines.
c. Lower labor costs /training and scheduling employees to operate more than one type of
machine.
d. Lower installation and maintenance costs since excess capacity is often available.

Disadvantages
a. Work scheduling is complicated by the difficulty of determining process workloads, by the
different processing sequence required for different products, and by bottleneck operations
and conflicts in completion time requirements.
b. Low output rates result from material handling inefficiencies and from the number of
special setups and fear downs necessitated by changes in the pattern of demand.
c. If the number of in-process products is large, process confusion may result as efforts are
made to meet schedule completion dates.
d. Material – handling requirements are a major problem because they are costly and time
consuming. Conveyors are expensive to install and difficult to design since there may be
many destinations for materials or products in process.
Materials used in manufacturing are many, some of these are: raw materials, purchased
components, materials-in-process, finished goods, packing materials, maintenance and repair
supplies, scrap and waste and rejects or reworks.

The layout of these facilities is directly affected by the nature /characteristics/ of materials such
as: Large or bulky materials; heavy materials; solids; fluids or flexible and inflexible.
Special materials for heat, cold, light, humidity, flame, vibration also will affect the layout of
facilities for handling, storing, and processing of these materials.

2. Product or Line Layout

Product layout focuses on the sequence of production or assembly operation required for
producing a part or a product of cement, oil refining, auto assembly and the so on. In contrast to
process layouts, product layouts are not flexible since they are designed specifically for making
one product.

Major Advantages

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 1. If there is adequate output volume, processing and assembly unit costs are low because of
the high utilization rates of plant equipment and processes.
2. Raw materials and parts inventory control requirements are lower because inputs are
required for only one product.
3. Production scheduling is simpler
4. High volume of output and high labor efficiency result when the sequential tasks
performed require approximately the same amount of time.
5. Material – handling costs are low because of the wide use of conveyors and other
mechanical or automated transfer equipment.
6. Supervisory and control costs are low because of the repetitive and routine nature of the
tasks and the uniformity of the processing result.

Disadvantages
1. High volume is required to justify the large investment in special or modified equipment.
2. Product standardization is required with in close limits because of the inflexibility of
specialized equipment and transfer mechanisms.
3. High interchangeability of product parts is required because the time and the space
available to work on a given unit of production are limited.
4. Good maintenance is crucial since the failure of one piece of equipment requires stopping
the entire line while it is being repaired.
5. Quality control inspection must be strategically located and must be capable of detecting
undesirable variances. The inspection system must feed the information ‘upstream’
efficiently to signal the need to correct processing or assembly failures and to prevent the
production of a large volume of nonstandard product.
6. Highly skilled behind-the-scenes labor is required for quick and efficient machine
maintenance.
7. Scheduling and conditioning of materials, parts and subassemblies with line requirements
is crucial because any bottleneck will result in products being incompletely fabricated or
assembled or will require that the line be shut down.
Product and process layouts compared
Product Layout Process Layout
Description A sequence arrangement of A functional arrangement of
personnel &/or equipment personnel &/or equipment designed
designed to provide to handle a variety of processing
standardized processing. requirements.
Focus of layout Balance operation to avoid Arrange equipment or departments
bottlenecks, and attain a smooth to minimize transportation costs
flow of work. and/or congestion.
Processing examples Repetitive or continuous, Job shop or batch, furniture, baked
of; goods services automobiles, video tapes, car goods, auto repair, health care.
wash, cafeteria line.
Product or service Low Moderate to high
variety
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Typical processing Low, semiskilled Semiskilled to highly skilled.
worker skill levels
Flexibility Very low Moderate to High
Volume High Low to moderate
Work-in-process Low High
inventory levels
Material handling Fixed path(e.g., conveyors) Variable path(e.g., forklifts)
Primary approach to Preventive As needed
equipment maintenance
Benefits Low cost per unit, high Can handle a variety of processing
productivity requirements
Cellular Manufacturing (CM) Layouts’
Machines are grouped into cells and the cells function somewhat like a product layout is land
within a larger shop or process layout group dissimilar machines into work centers (or cells) to
work on products that have similar shapes and processing requirements. Since machines are
frequently able to perform more than one operation on a particular part or product they take on
some of the characteristics of a production line but without its rigidity and it is similar to
process layout in that cells are designed to perform a specific set of processes. The reasons why
a CM layout would be attempted are:
- Machine changeovers are simplified.
- Training periods for workers are shortened
- Material handling costs are reduced
- Parts can be made faster and shipped more quickly
- Less-in-process inventory is required
- Production is easier to automate

4. Fixed position Layout

Unlike the three other basic layout options, fixed position layouts require that both people and
machine be brought to the product being made, assembled, or tested. The product by virtue of its
bulk or weight remaining at one location, For example, Shipbuilding, dam construction, power
generating (steam) turbines, bridge etc which are (bulky, large, heavy, and fragile). The fixed
position nature of the layout minimizes the amount of product movement required.

Other service layouts

In addition to the layout already described, there are other layouts found in service environment,
such as warehouse, retail and office layouts.
Warehouse and storage layouts
The design of storage facilities presents a different set of factors than the design of factory
layouts. Frequency of order is an important consideration; items that are ordered frequency
should be placed near the entrance of the facility. Any correlations between items are also
significant (i.e. item A is usually ordered with item B), suggesting that placing those two items
close together would reduce the cost and time of picking (retrieving) those items. Other

21
considerations include the number and widths of aisles, the height of storage racks, rail and/or
truck loading and unloading, and the need to periodically make a physical count of stored items.
Retail layouts
The objectives that guide design of manufacturing layouts often pertain to cost minimization and
product flow. However, with retail layouts such as department stores, supermarkets and specialty
store, designers must take into account the presence of customer, and the opportunity to
influence sales volume and customer attitudes through carefully designed layouts traffic pattern
and traffic flow are important factors to consider.
Office layouts
Office layouts are undergoing transformation as the flow of paperwork is replaced with the
increasing use of electronic communication. That means there is less need to place office
workers in layout that optimize the transfer or information or paper work. Another trend is to
project an image of openness, and office walls are giving way to low-rise partitions and glass
walls.
Designing product layouts: Line Balancing

The processing of deciding how to assign tasks to workstation is referred to as line balancing.
The goal of line balancing is to obtain task grouping that represent approximately equal time
requirements. This minimizes the idle time along the line and results in a high utilization of labor
and equipment. Idle time occurs if task times are not equal among workstations; some stations
are capable of producing at higher rates than others. These “fast” stations will experience
periodic waits for the outputs from slower stations or else be forced into idleness to avoid
buildups of work between stations. Unbalanced line are undesirable in terms of inefficient
utilization of labor and equipment and because they may create morale problems at the slower
stations for workers who must work continuously.
Lines that are perfectly balanced will have a smooth flow of work as activities along the line are
synchronized to achieve maximize utilization of labor and equipment. The major obstacle to
attaining a perfectly balanced line is the difficulty of forming tasks bundles that have the same
duration. One cause of this that it may not be feasible to combine certain activities into the same
bundles, either because of differences in equipment equipment or because the activities are not
compatible (e.g. risk of contamination of paint from sanding). Another cause of difficulty is that
differences among elemental task lengths cannot always be overcome by grouping tasks. A third
cause of an inability to perfectly balance a line is that a required technological sequence may
prohibit otherwise desirable tasks combinations. Consider a series of three operations that have
duration of two minutes, four minutes, and two minutes, as shown in the following diagram.
Ideally, the first and third operations could be combined at one workstation and have a total time
equal to that of the second operation. However, it may not be possible to combine the first and
third operations. In the case of an automatic car wash, scrubbing and drying operations could not
realistically be combined at the same workstation due to the need to rise cars between the two
operations.

Scrubbing Rinsing Drying

2 minutes 4 minutes 2 minutes

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Line balancing involves assigning tasks to work stations. Usually, each workstation has one
worker who handles all of the tasks at that station, although an option is to have several workers
at a single workstation.

3.4.2 FACILITY LOCATION

Choice of location for business organization is an important issue in the design of the production
system. Where should a plant or service facility be located? This is a top question on the strategic
agendas of contemporary manufacturing and service firms, particularly in this age of global
markets and global production. Globalization allows companies greater flexibility in their
location choices. However, in practice, the question of location is very much linked to two
competitive imperatives.
1. The need to produce close to the customer due to time based competition, trade
agreements, and shipment costs.
2. The need to locate near the appropriate resource pool to take advantage of low costs.

Location decision is an integral part of the strategic planning process of every organization.
Although it might appear that location decision are mostly one-time problem pertaining to new
organization, the fact is that existing organization often have a bigger stake in these kinds of
decisions than new organization. In other words, location problems are common to new and
existing businesses.

The Need for location Decisions

Existing organization become involved in location decision for a variety of reasons. The
following are some of the reasons for such decisions (other than the need for greater capacity).
1. Opportunity for expanding market share
From such as banks, fast food chains, supermarkets, and retail stores view location as part of
marketing strategy, and they look for locations that will help them to expand their markets.
Basically, the location decisions in those cases reflect additional new location to existing
suppliers.

2. Business growth in demand

A similar situation occurs when an organization experiences a growth in demand for its
products or service that cannot be satisfied by expansion at an existing location. The
addition of a new location to complement an existing system is often a realistic
alternative.
3. Depletion of Basic resources
Some firms become presented with location decision because of the depletion of basic inputs.
For example fishing and logging operations are forced to relocate due to the temporarily
exhaustions of fish or forest at a given location. Mining and petroleum organization face the
same sort of situation, although usually over a longer time horizon.
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 4. Shift in Market /demand
If the demand for the product does not exist in the existing location, it is a good reason to
consider and find out a better location.

5. Operating Costs
Cost of doing business in a particular location reach a point where other location begin to
look more attractive. In this case, the company may shift to a cost effective location.

6. Merge of companies
Merger of companies changes the ownership titles and may require change in management
and operation of the merging firms, and then leading to location decisions.

7. Introduction of new product.

This may require to a new resource, labor or material which may not exist in the existing
location. Therefore, firms make a location decision to produce a sell their new product.

Characteristics of location decision

1. Location decisions entail a long-term commitment, which makes mistakes difficult
to overcome. In addition, location decision often has an impact on operating costs both
fixed and variables and revenues as well as an operation. Example, a poor choice of
location might result in excessive transportation cost, shortage of qualified labor, loss of
competitive advantage, shortage of raw materials and loss of customer (operation
problem).
2. Location decision requires the selection of location from a number of acceptable location
instead of identifying the “One best” location. If one site is clearly superior to all others in all
respects, the location decision is an easy one. However, several site candidates, each with its
strengths and weaknesses emerge as good choice and the location decision becomes a tradeoff
decision.
3. Location decision involves four options that mangers can consider in location planning. These
are:
A. Expanding an existing facility – These options can be attractive if there is
adequate room for expansion, especially if the location has desirable features that
are not readily available elsewhere. Expansion costs are often less than those of
other alternatives.
B. Add new location. Another option is to add new location while retaining
existing ones, as it is done in many retail operations. The advantage of this
option are: it draws /attracts customers who are already looking for an existing
business, and used as a defensive strategy designed to maintain a market share or
prevent competitors from entering a market.
C. Shutting down. The third option is to shut down at one location and move to
another. An organization must weigh the cost of a move and the resulting
benefits against the costs and benefits of remaining in an existing location. This
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 option is considered when market shifts, exhaustion of raw materials and the cost
of operation often cause firms to seriously consider this option.
D. Doing nothing. If is a detailed analysis of potential locations fails to uncover
benefits that make one of the previous three alternatives attractive, a firm may
decide to maintain a status of at least for the time being

Factors Affecting Location Decisions

Many factors influence location decisions. Managers must identify the relevant factors to make
decisions that involve a sequence of decisions. This sequence can include a national, a regional,
community and site decisions.

First management must decide whether the facility will be located internationally or
domestically. (Where in the world political, military, social and economic instability can make
such decision risky.)

The location
Decision sequence 1 2 3 4
National Regional Community Site
Decision Decision Decision Decision

The national, regional, community and side related factors are briefly all explained in the next
section.

(A) Regional factors

1. Proximity to customers
A location close to the customer is important because of the ever increasing need to be customer
responsive. This enables faster delivery of goods to customers. In addition, it ensures that
customers’ needs are incorporated into the products being developed and built.
2. Business Climate.
A favorable business climate can include the presence of similar sized business, the presence of
companies in the same industry, and in the case of international location, the presence of other
foreign companies. Government legislation and local Government intervention to facilitate
business locating in an area etc. are also factors.
3. Total Costs.
Costs. The objective is to select a site with the lowest total cost. This includes regional
costs, inbound destruction costs, and an outbound distribution costs comprise the regional
costs. In addition, there are hidden costs that are difficult to measure such as loss of customer
responsiveness arising from locating away from the main customer base.
4. Infrastructure
Adequate road, rail, air and sea transportation is vital. Energy & telecommunications
requirements must also be met. In addition, the local government willingness to invest in
upgrading infrastructure to the level required may be an incentive to select a specific location.

5. Quality of Labor

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The educational and skill levels of the labor pool must match the company’s needs. Primary
labor consideration relates to the cost and availability of labor, wage relates in an area, labor
productivity, attitude towards work.
6. Suppliers
A high quality and competitive supplier base makes a given location suitable.

7. Location of raw materials

Firm’s location near or at the source of raw materials for three primary reasons; necessity,
perishability, and transportation costs
For example, mining and frosty firms must locate at the source of necessity. Those firms that
produce short shelf –life products take perishability as primary criteria when consider location.

B. Community Considerations
From a company standpoint, a number of factors determine the desirability of a community as a
peace for its workers and managers to live. They include:
 Facilities for education, shipping, recreation transportation , religious
workshop, entertainment, the quality of policy and medical services
 attitude towards the company
 The size of the community
 Cost and availability of utilities
 Environmental regulations
 Taxes and
 Existence of development support or incentive.

C. Site related factors.

The primary consideration related to site involves land, transpiration, and zoning or other
restrictions, utilities etc.

Service location Vs manufacturing facilities

Service facilities are more common than new factories and warehouses because of their low cost
of establishing a service facility compared to one for manufacturing e.g. restaurants, hotels
entertaining facilities retail shops etc. Typically have multiple sites to maintain close contact
with customers. The location decision is closely tied to the market selection decision. Whereas
manufacturing location decisions are often make by minimizing costs, but profit maximizing for
service location.

Facility Location Methods /Models

Various quantitative models are used to help determine the best location of facilities. Evaluation
of alternative regions, sub regions, and community is termed micro analysis. Evaluation of
specific sites in the selected community is termed micro analysis.
Techniques used to support macro analysis include:
1. Breakeven analysis (cost – profit - volume analysis)
2. Factor rating method
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 3. The Center of gravity method and

1. Cost Profit Volume Analysis

The economic comparison of location alternatives is facilitated by the use of cost-
volume profit analysis. The analysis can be done numerically or graphically.
Graphical assumptions:
1. Fixed costs are constant for the range of probable output.
2. Variable costs are linear for the range of probable output.
3. The required level of output can be closely estimated
4. Only one product is involved.
Graphical procedure
Step 1.
1. Determine the fixed and variable costs associated with each location alternative.
Step 2.
2. Plot the total-cost lines for all location alternatives on the same graph.
Total cost = FC + VC x Q
where
FC = fixed cost
VC = variable cost per unit
Q = quantity or volume of output
Step 3.
3. Determine which location will have the lowest total cost for the expected level of output.
Alternatively, determine which location will have the highest profit.

Example. Fixed (land, property taxes, insurance, building etc) and variable costs (labor, raw
materials, transportation, overhead) for four potential plant locations are shown below.

Location Fixed cost per year Variable cost per year

A $250,000 $11
B 100,000 30
C 150,000 20
D 200,00 35

Required a. Plot the total cost lines for these locations on a single graph
b. Identify a range of output for which each alternative is superior (i.e., has the
lowest total cost)
c. If expected output at the selected location is to be 8,000 units per year, which
location would provide the lowest total cost?
Solution
iii. To plot the total cost-lines, select an output that is approximately equal
to the expected output level (e.g., 10,000 units per year). Compute the
total cost for each location at that level.

Fixed cost + Variable cost = Total cost

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 A --------------$250,000 $11(10,000) $360,000
B --------------100,000 30(10,000) 400,000
C --------------150,000 20(10,000) 350,000
D --------------200,000 35(10,000) 550,000

Plot each location’s fixed cost (at output = 0) and the total cost at 10,000; and connect the two
points with a straight line. See the accompanying graph.

TCD
600

500 TCB

400
Total annual cost (000 Br)

TCC
TCA
300

200 A is superior

100 C is superior
B is best

0 2 4 6 8 10 12 14 16
Total output (000) units

b) the approximate ranges for which the various alternatives will yield the lowest costs are
shown on the graph. Note that location D is never superior. The exact ranges can be
determined by finding the output level at which line B and C and A cross. To do this set their
total cost equations equal and solve for Q, the breakeven output level. Thus, for B and C.
(B) (C)
$100,000 + $30Q = $150,000 + $20Q
Solving, you find Q = 5, 000 units per year.
For C and A:
(C) (A)
$150,000 + $20Q = $250,000 + $11Q
Solving, Q = 11,111 units per year.

C. From the graph, you can see that, 8,000 units per year, location C provides the lowest total
cost.
For a profit analysis, compute total profit using the following formula:
Total profit = QR – (FC + VC x Q) = Q(R – VC) – FC,
28
Where:
R = revenue per unit. FC = total fixed cost
Q = total units of products (quantity)
VC = variable cost per unit

2. Factor rating method

Factor ratings are frequently used to evaluate location alternatives because
1. their simplicity facilitates communication about why one site is better than
another
2. they enable mangers to bring diverse location consideration into the
evaluation process
3. Then faster consistency and judgment about location alternatives.

Procedures:
1. List the most relevant factors in the location decision
2. Assign a weigh to each factor that indicates its relative importance compared with all
other factors. The weight sum should be 1.00
3. Decide on a common scale for all factors. Each factors should be rated, say form 1
(very low ) to 5 (very high) , according to its relative importance
4. Score rate each location alternative (1-100)or (1-10)
5. Multiply factor weight or rate by the score (location rate for each factor , and sum
the results for each location alternatives
6. Choose the location that has the highest composite score. The score indicates
alternative locations are most promising.

Example 1:
1:
ABC shoe factory intends to open a new branch store. The exhibit below contains information on
two potential locations, A and B. Which location is promising?

Factor Location Product of

rating rating rating
Factors A B A B A B
Tax advantage 4 3 8 9 32 27
suitability of labor skills 3 4 2 7 6 28
Proximity to customers 3 4 6 8 18 32
Proximity to suppliers 5 3 2 5 10 15
Adequacy of water 1 2 3 2 3 4
Receptivity of community 5 4 4 8 20 32
Quality of education system 4 1 1 2 4 2
Access to transpiration 3 5 10 3 30 15
Suitability of climate 2 5 7 10 14 50
Availability of power 1 1 6 6 12 6
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 Total Score 149 211

Note: Factor rating scale = 1-5 and location rating scale =1-10
B is better than A because it has the higher composite score (211) mangers sometimes may set a
minimum standard, if it goes below that they can reject all alternatives.

Example 2
Using the following factors ratings, determine which location alternatives should be chosen on
the basis of maximum composite score A, B or C.

Factor Locations (max score 100) Weighted score

(100 pts. each) Weight A B C A B C
1. Convenient 0.15 80 70 60 12.0 10.5 9
2. Parking facilities 0.20 72 76 92 14.4 15.2 18.4
3. Display area 0.18 88 90 90 15.84 16.2 16.2
4. Shopper traffic 0.27 94 86 80 25.38 23.22 21.6
5. Operating costs 0.10 98 90 82 9.8 9 8.2
6. Neighborhood 0.10 96 85 75 9.6 8.5 7.5
Sum 1.00 87.02 79.92 73.6
Decision: - Location A is better because it results in a highest score.

3. Center of gravity method:

For locating single facilities that considers the existing facilities, the distance between them, and
the volumes of goods that need to be shipped.
It is used to locate intermediate or distribution warehouses.

This method begins by locating the existing locations on a coordinate grid system. The purpose
is to establish relative distance between locations. The center of gravity is found by calculating
the X and Y coordinates that will result is the minimal transportation cost. This is given by the
following weighted formula.

Cx = dix Vi where: Cx = X coordinate of the center of gravity

Vi Cy = Y coordinate of the center of gravity

Cy = diyVi Dix = X coordinate of the ith location

v2 Diy = Y coordinate of the ith location

30
 Vi = Volume of goods moved to or from the ith location

Example 1:
A refining company needs to locate an intermediate holding facility between its refining plant
and its major distributors. The coordinate map is the following.

500
T(25,450) 
400  G(350 400) Plant
 L(450 350)
Distributor
300
* C(308 217)
200 
A(400 150)
100 (325, 75)
Plant

100 200 300 400 500

Shipping Volumes and the coordinates of the destinations shown in map is summarized as
follows:
Location X Y Gallons of Gasoline/month (000')
Plant 325 75 1500
A 400 150 250
L 450 350 450
G 350 400 350
T 25 450 450
dix = 325
diy = 75
Vi = 1500
Cx = (325x1500) + (400x250) + (450x450) + (350x350) + (25x450)
1500 + 250 + 450 + 350 + 450

Cx= 925,750 = 307.9

3000

Cy= (75x1500) + (150 +250) + (350x450) + (400x350) + (450x450)

3000

= 216.7

X and Y coordinate are approximately 308 and 217 respectively. Therefore, the location of the
intermediate holding facility should be at (x, y) = (308 217). On the map it is represented by
point C.
Example 2

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A clothing manufacturing produces children's cloth at four locations in northern Ethiopia.
Relative locations have been determined, as shown in the table below. The location of a central
shipping point for bolts of cloth must now be determined. Weekly quantities to be shipped to
each location are shown below. Determine the coordinates of the location that will minimize
distribution costs.
Location (X, Y) Weekly Quantity
A 5, 9 15
B 6, 9 20
C 3, 9 25
D 9, 4 30

Solution
Coordinate point is given by the formula:

( x̄ , ȳ )=
( ∑ xi ∑ di , ∑ yi di
∑ di ∑ di )
X̄ =
∑ xi di = 5×15+6×20+3×25+9×30
∑ di 15+20+25+30
540
= 90 = 6

Ȳ =
∑ Yi di = 9×15+ 9×20+9×25+4×30
∑ di 15+20+25+30
660
= 90 = 7.33
( x̄ ȳ ) = (6 7.33)

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