Data Tech Inc UKM Universiti

Capacity Planning and Facility Location

Case background• Establishment

• Started by Jeff Styles in his two-car garage

• Business function : transferring hard copy of documents, such as invoices, bills, or mailing list, onto CDs

• First customers: two large corporations

• Small garage operation turned into a major business

• Operations function

• First, unpacking and sorting mails received ( usually 10,000 to 30,000 pieces of mail per day are received)

• Next, scanning item to transfer content to disk

• Then, making accuracy check to ensure information is transferred correctly

• Finally, packaging disks and documents and sending back to the costumers

The need for capacity and relocation

• Signing to additional customers

• Ensuring the smoothly operation without any bottlenecks

• Turning into a major business

Data Tech needs to move to a larger facility that could accommodate the larger size of business

Three potential locations• Most important factors considering relocation Proximity to the postal

service

Closeness to the airport

• Three Potential Locations:

• Two locations are larger than needs

• One location would meet current capacity needs but would not immediately be expanded

Q 1 – Part a

• Help Jeff Decide whether he should give greater priority to a smaller facility with possibility for expansion, or move into a large facility immediately.

Decision Tree

Decision

Large Facility

High Deman

d

1,000,000

Low Deman

d

600,000

Small Facility

High Deman

d

800,000

500,000

Low Deman

d

500,000

Probability

• The probability of high demand: 0.70

• The probability of low demand: 0.30

Expected Value of Decision 1

• Decision 1: A smaller facility with possibility of expansion

• EV of potential for expansion =(0.3*$500,000)+(0.7*$800,000)

=$710,000

Expected Value of Decision 2

• Decision 2: Move into a large facility immediately

• EV of excessing capacity

=(0.3*$600,000)+(0.7*$1,000,000)

=$880,000

Large Facility or Small?

• EV of excessing capacity is greater than EV of potential for expansion as

$880,000 > $710,000.

Large Facility

Q 1 – Part b

• Choose weights for the two capacity factors based on your findings.

Data Tech Inc. Information

Factor FactorWeight

Factor score at each location

# 1 # 2 # 3

Proximity to Airport 20 3 4 4

Proximity to postal service 30 4 2 5

Facility with excess capacity ? 4 5 0Facility with potential for future expansion ? 0 1 5

Close to business community 10 5 4 4

Pleasant environment 10 3 4 4

100

Missing Data

• Total Expected Profit :

= 880,000+710,000 = $1,590,000

Facility with excess capacity= 30 * (880,000 / 1,590,000) = 16.6

Facility with potential for future expansion

= 30 * (710,000 / 1,590,000) = 13.4

Factor Weight for “Facility with Excess Capacity” should be more than weight for “Facility with

potential for future expansion”

Question 2

• Once you have selected the factors for the two capacity alternatives, use factor rating to select a new location for Data Tech.

Factor Score at Each Location Weighted Score at

each location

FactorFactorWeigh

t

Factor score at each location

Weighted Scores

# 1 # 2 # 3 # 1 # 2 # 3

Proximity to Airport 20 3 4 4 60 80 80Proximity to postal service 30 4 2 5 120 60 150

Facility with excess capacity 16.6 4 5 0 66.4 83 0

Facility with potential for future expansion 13.4 0 1 5 0 13.4 67

Close to business community 10 5 4 4 50 40 40

Pleasant environment 10 3 4 4 30 40 40

100326.

4316.

4 377

Finding: best new location for Data Tech Inc is the location with the highest weighted score, and that is location #3 with a weighted score of 377.

Question 3

• How would your factor analysis be different if you had selected a different capacity alternative?

Decision Tree and Expected ValueDecision

Large Facility$880,000

High Demand

1,000,000

Low Demand

600,000

Small Facility $710,000

High Demand

800,000

500,000

Low Demand

500,000

EV (Excess capacity) = 0.30($600,000) + 0.70($1,000,000) = $880,000

EV (Potential for expansion) = $800,000 + $150,000 = $950,000

EV =0.3*$500000=150,000

Factor Weight

• Factor weight for excess capacity

= ($880,000 / 1,830,000) * 30 = 14.4

• Factor Weight for potential for expansion

= ($950,000 / 1,830,000) * 30 = 15.6

Factor Score at Each Location Weighted Score at

each location

Factor FactorWeight

Factor score at each location

Weighted Scores

# 1 # 2 # 3 # 1 # 2 # 3

Proximity to Airport 20 3 4 4 60 80 80Proximity to postal service 30 4 2 5 120 60 150

Facility with excess capacity 14.4 4 5 0 57.6 72 0

Facility with potential for future expansion 15.6 0 1 5 0 15.6 78

Close to business community 10 5 4 4 50 40 40

Pleasant environment 10 3 4 4 30 40 40100 317.6 307.6 388

Finding: Location #3 scores even more highly at 388.

THANK YOU