Case Study – HIGHTEC, INC Completed By: Richard Vinhais Stephanie McCathron Jeffrey Schaefer

Case Overview: Hightec was founded 6 years ago by Glenn Moore. It is a manufacturer of transducers, which convert gas or liquid pressure into an electrical signal. It can also convert weight or force into an electrical signal using their device. A typical customer order is for only 3 to 10 units. Since the formation of the company it has experienced a steady increase of approximately 30% annually. This has required the need for additional staff, as well as, new machinery. The growing needs of the company have now begun to present a major operational problem. Currently, the firm rents a 12,000 square foot, L shaped building, housing four basic sections: an office area, engineering area, machine shop, and an assemblers area. The company employs 80 staff members, which is comprised of machinists, engineers, assemblers, secretaries and salespeople. It has also recently hired additional workers for the office. In the early years of the organization, the facility size was adequate for the staff and production levels. However, with the increase in sales, the size of the facility has become problematic to a flourishing work environment. Below is a detailed list of issues that have arisen as a result of the space limations: Specific Hightec, Inc. problems:

• Delayed the purchase of a numerical control machine and a more efficient testing machine.

• Machine shop is overcrowded and machines not in constant use are moved into the inventory storage area.

• More machines are being operated on second and third shifts than would normally be justified.

• Productivity is falling and quality is slipping. • Approximately 10 percent of the workforce’s time is spent moving

materials to and from the inventory storage area, where inventory at all stages of production is kept.

• Supply room is considered chaotic, which makes finding wanted parts difficult and results in considerable time wasted during searching.

• Approximately 1,000 square feet of storage space must be rented outside the plant.

• Forced to forgo bidding on several attractive contracts due to lack of capacity.

• One salesperson is particularly disgruntled because of lost commission. • Several office workers have complained about cramped work quarters and

lack of privacy. • The quality of employee space leaves an unfavorable impression on

prospective customers who visit the plant. • In order to make room for new employee desks, a sentimental plant was

discarded.

The Options: 1. Renew the rental contract on the current facility for another five years and

rent portable units to ease the cramped conditions. *Note: Option discarded within the case study because it is inadequate for a growing

problem. No additional analysis was completed on this option.

2. Purchase land and build a new 19,000 square foot facility. The most attractive site would cost $100,000 for land, and the construction cost is $40/sq. ft. The cost of capital is about 15 percent.

3. Renew the rental contract on the current building for another five years

and rent an adjacent 7,000 square foot building only 30 feet from the current one. The rental cost of both buildings would be $2,800 per month. This choice would necessitate building a $15,000 corridor connecting the buildings. However, Moore estimates the relocation costs (such as for moving and installing the machines and the loss of regular time capacity) to be $20,000 less than with the second alternative.

Other key points of the case:

• Regardless of the chosen option the existing layout must be improved. • Current layout suffers most in terms of materials handling costs and

departmental coordination. • Both new layouts provide 19,000 square feet. This is projected to be

sufficient for the next five years. • The closeness matrix emphasizes materials handling and

communication patterns. • Need a more attractive work environment for the engineering and

materials-management staff to keep and attract creative talent. • Adjacent building is quite drab.

Available Space for Option 2: (585 sq. ft per block)

Available Space for Option 3: (585 sq. ft per block)

Closeness Ratings:

TABLE 7.4 CLOSENESS MATRIX

Closeness Rating Between Departments

Departments 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Area Needed

(blocks*)

1 Administrative office ---- 1 6 5 6 5 3 3 3 3 4 5 3 3 2 Conference room ---- 1

3 Engineering and materials mgt. ---- 4 3 6 5 5 4 5 5 3 2

4 Production manager ---- 6 6 6 6 6 4 4 5 3 6 1 5 Lunch room ---- 2 6 Computer ---- 6 3 4 1 7 Inventory storage ---- 6 3 3 3 3 2 8 Machine shop ---- 6 4 3 4 6 9 Assembly area ---- 6 6 4 4 6 7 10 Cleaning ---- 3 3 1 11 Welding ---- 3 1 12 Electronic ---- 5 1 13 Sales and accounting ---- 3 2 14 Shipping and receiving ---- 1 15 Load test ---- 1

*Each block represents approximately 585 square feet. **Red blocks indicate highest closeness ratings

Total: 32

Analytical approach: Our recommendation is based on the limited information provided in the case study. Our goal in this analysis is to provide a breakdown of all viable possibilities by illustrating the pros and cons of all options. The case does not directly state whether the financial considerations or the aesthetic issues are the most important factors in the overall decision process. However, it does state that there is a 15% cost of capital for the new building and several mentions are made about the customers and employees negative feelings about the current space. We began our analysis by identifying the specific problems stated and applying them to the possible options. From there we analyzed the financials to understand which option was more cost effective. Due to the vagueness and lack of hard financial information in the case some assumptions had to be made. We made a concerted effort to fill those gaps with valid estimates. After the financial analysis, we started the process of laying-out departments and costing each layout. Beginning with option 2, we created a matrix containing each of the department combinations as seen in Chart 1 & 3. We then sorted and color-coded the combinations by closeness factor to denote the most critical relationships (Charts 2 & 4). Beginning with the most important relationships an initial layout was made. From the initial layout we calculated the distances between each of the combinations and listed them in the matrix. *Note: We opted to use the rectilinear approach in calculating the distances between the departments because we felt walls or dividers would make the Euclidian algorithm inaccurate. Finally, we calculated the weighted distance score for each combination by multiplying the closeness factor by the distance. The total weighted distance score for each layout allows comparison of each possible layout; the lower the score, the higher the efficiency. To assist in optimizing the layout we created a table to summarize each department and its most critical relationships, see charts 5 & 6. Using the data in chart 2 and chart 5 we made changes to the layout in an attempt to lower the weighted distances. After several iterations we felt the layout was sufficient given the large number of variables in the equation. The same approach was applied to create an optimal layout for option 3.

Options 2 and 3 Overview:

Options two and three will both provide sufficient space to meet Hightech’s current growth requirements. However, even with the additional space the existing building’s shape still presents significant challenges in optimal layout of the departments. Both options meet the following needs:

• Additional space for the machine shop and assembly o Prevents moving machines in and out of storage o Allows purchase of new machines with automation

• Increased space for inventory and storage o Eliminating outside storage

• Additional office space o Alleviates cramped office conditions

• Production manager can be centrally located to monitor production

OPTION 2

Overview: Option 2 is more or less a fresh start in that the company will have a blank canvas that can be completely restructured in order to create the most optimal layout. This 19,000 square foot layout allows for a much improved layout that addresses many of the current problems.

Benefits:

• Much more attractive work environment which should impress potential customers that may visit the facility.

• Provides additional privacy and more comfortable work quarters for employees.

• Departmental coordination will be improved with new layout that has been developed according to closeness rating.

• Site layout should be more than sufficient for the next five years. • Additional space will allow for the purchase of a numerical control

machine and a more effective testing machine. • The 10% bottleneck of moving materials to and from the inventory

storage area will be addressed as the locations have been reengineered to be adjacent to all stages of production.

• The increased capacity will allow Hightec to take on additional contracts.

• Increased capacity for new hires.

Concerns:

• Cost of construction • Cost of moving • Loss of regular-time work capacity to facilitate moving

Financials: Unit Cost Unit Count Total Cost Land $100,000.00 1 $100,000.00 Construction Cost $40.00 19,000 $760,000.00 Relocation Costs $- 0 $-

Total: $860,000.00 Weighted Distance (Option2): Below is a breakdown on the high level overview of the closeness rating in Figure 1.0. It contains two charts. Chart 1 contains a listing of department pairs along with closeness rating, distance and a total Weight distance score. Chart 2 is the same chart but is sorted by the highest closeness factors. We used this chart to approach our layout effort. Weighted distance total = 481 Chart 1 Chart 2

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1,2 1 1 1 1,3 6 1 6 1,3 6 1 6 1,6 6 3 18 1,4 5 4 20 3,8 6 1 6 1,6 6 3 18 4,6 6 1 6 1,7 5 2 10 4,7 6 1 6 1,8 3 2 6 4,8 6 2 12 1,9 3 4 12 4,9 6 1 6

1,10 3 4 12 4,10 6 2 12 1,11 3 5 15 4,15 6 2 12 1,12 4 2 8 6,7 6 1 6 1,13 5 1 5 7,8 6 1 6 1,14 3 2 6 8,9 6 1 6

3,4 4 3 12 9,10 6 1 6 3,7 3 2 6 9,11 6 1 6 3,8 6 1 6 9,15 6 1 6 3,9 5 4 20 1,4 5 4 20

3,10 5 5 25 1,7 5 2 10 3,11 4 4 16 1,13 5 1 5 3,12 5 1 5 3,9 5 4 20 3,13 5 2 10 3,10 5 5 25 3,15 3 5 15 3,12 5 1 5 4,6 6 1 6 3,13 5 2 10 4,7 6 1 6 4,13 5 3 15 4,8 6 2 12 12,13 5 1 5 4,9 6 1 6 1,12 4 2 8

4,10 6 2 12 3,4 4 3 12 4,11 4 1 4 3,11 4 4 16 4,12 4 2 8 4,11 4 1 4 4,13 5 3 15 4,12 4 2 8 4,14 3 3 9 6,13 4 2 8 4,15 6 2 12 8,11 4 3 12 6,7 6 1 6 8,15 4 4 16

6,12 3 3 9 9,12 4 3 12 6,13 4 2 8 9,14 4 2 8 7,8 6 1 6 1,8 3 2 6 7,9 3 2 6 1,9 3 4 12

7,10 3 2 6 1,10 3 4 12 7,11 3 2 6 1,11 3 5 15 7,12 3 1 3 1,14 3 2 6 8,9 6 1 6 3,7 3 2 6

8,11 4 3 12 3,15 3 5 15 8,12 3 1 3 4,14 3 3 9 8,15 4 4 16 6,12 3 3 9 9,10 6 1 6 7,9 3 2 6 9,11 6 1 6 7,10 3 2 6 9,12 4 3 12 7,11 3 2 6 9,14 4 2 8 7,12 3 1 3 9,15 6 1 6 8,12 3 1 3 10,11 3 1 3 10,11 3 1 3 10,12 3 4 12 10,12 3 4 12 11,12 3 3 9 11,12 3 3 9 12,13 5 1 5 13,14 3 1 3 13,14 3 1 3 1,2 1 1 1

TOTAL = 481 TOTAL = 481

Department Matrix: (Chart 5) # Department Blocks Largest Second Third

1 Administrative Office 3 3,6 4,7,13 12 2 Conference Room 1 3 Engineering and Materials Mgt. 2 8 9,10,12,13 11 4 Production Manager 1 6,7,8,9,10,15 13 11,12 5 Lunch Room 2 6 Computer 1 7 13 7 Inventory Storage 2 8 8 Machine Shop 6 9 11,15 9 Assembly Area 7 10,11,15 12,14

10 Cleaning 1 11 Welding 1 12 Electronic 1 13 13 Sales and Acounting 2 14 Shipping and Receiving 1 15 Load Test 1

Proposed Layout:

Load Test Shipping Recv'ing

Conf. Room

Cleaning Computer

Welding Prod. Mgr. Electr.

Machine ShopAssembly

Assembly

Assem

bly

Offices

Engr. & Mat.

Lunch Rm

.Inventory

Sales &

Accounting

PROS / VERSUS CONS:

• Qualitative Pro’s o New building, not “drab” o Easy access to inventory and storage from all business aspects o Easy access to the computer from production, inventory and

sales/accounting. o Engineering/Materials management is located close to the

machine shop and several other key departments o Machine shop not located near cleaning room

• Qualitative Con’s o Loss of production time to accommodate move o Cost

OPTION 3 Overview: Option 3 presents several new challenges in that is not a new facility and contains an L shaped area that can not be utilized as space. It will end up containing the same 19,000 square feet as Option 2, but has a substantial higher weighted average which indicates a decreased efficiency of handling / communication between departments. Benefits:

• Provides additional privacy and more comfortable work quarters for

employees. Not necessarily a more attractive work environment as the extension according to Moore is “quite drab”.

• Departmental coordination will be improved with new layout that has been developed according to closeness rating.

• Site layout should be more then sufficient for the next five years. • Additional space will allow the purchase of a numerical control

machine and a more effective testing machine. • The 10% bottleneck of moving materials to and from the inventory

storage area will be addressed as the locations have been reengineered to be adjacent to all stages of production.

• The increased capacity will allow Hightec to take on additional contracts.

• Increased capacity for new hires. Concerns:

• Cost of constructing connecting corridor • Cost of moving machines to adjacent facility • Loss of regular-time work capacity to facilitate moving • Constraints of the L-shaped layout • Additional facility is considered ‘drab’ • Workers split among two buildings

Financials: Unit Cost Unit Count Total Cost Rental Cost $2,800.00 60 $168,000.00 Corridor Construction $15,000.00 1 $ 15,000.00 Moving Costs $ - 0 $ -

Total: $183,000.00

Weighted Distance (Option 3): Below is a breakdown on the high level overview of the closeness rating in Figure 1.0. It contains two charts. Chart 3 contains a listing of department pairs along with closeness rating, distance and a total Weight distance score. Chart 4 is the same chart but is sorted by the highest closeness factors. We used this chart to approach our layout effort. It’s apparent that the weighted average for Option 3 is much higher then Option 2 as it contains the issue of an L shaped block in between departments which adds the complexity of the layout. Weighted distance total = 676 Chart 3 Chart 4

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1,2 1 1 1 1,3 6 1 6 1,3 6 1 6 1,6 6 5 30 1,4 5 6 30 3,8 6 5 30 1,6 6 5 30 4,6 6 1 6 1,7 5 3 15 4,7 6 2 12 1,8 3 7 21 4,8 6 1 6 1,9 3 6 18 4,9 6 2 12

1,10 3 4 12 4,10 6 2 12 1,11 3 7 21 4,15 6 1 6 1,12 4 3 12 6,7 6 1 6 1,13 5 1 5 7,8 6 3 18 1,14 3 4 12 8,9 6 1 6 3,4 4 4 16 9,10 6 4 24 3,7 3 2 6 9,11 6 1 6 3,8 6 5 30 9,15 6 1 6 3,9 5 5 25 1,4 5 6 30

3,10 5 2 10 1,7 5 3 15 3,11 4 5 20 1,13 5 1 5 3,12 5 1 5 3,9 5 5 25 3,13 5 1 5 3,10 5 2 10 3,15 3 4 12 3,12 5 1 5 4,6 6 1 6 3,13 5 1 5 4,7 6 2 12 4,13 5 5 25 4,8 6 1 6 12,13 5 1 5 4,9 6 2 12 1,12 4 3 12

4,10 6 2 12 3,4 4 4 16 4,11 4 1 4 3,11 4 5 20 4,12 4 5 20 4,11 4 1 4 4,13 5 5 25 4,12 4 5 20 4,14 3 6 18 6,13 4 4 16 4,15 6 1 6 8,11 4 2 8 6,7 6 1 6 8,15 4 2 8

6,12 3 4 12 9,12 4 5 20 6,13 4 4 16 9,14 4 6 24 7,8 6 3 18 1,8 3 7 21 7,9 3 2 6 1,9 3 6 18

7,10 3 1 3 1,10 3 4 12 7,11 3 3 9 1,11 3 7 21 7,12 3 4 12 1,14 3 4 12 8,9 6 1 6 3,7 3 2 6

8,11 4 2 8 3,15 3 4 12 8,12 3 4 12 4,14 3 6 18 8,15 4 2 8 6,12 3 4 12 9,10 6 4 24 7,9 3 2 6 9,11 6 1 6 7,10 3 1 3 9,12 4 5 20 7,11 3 3 9 9,14 4 6 24 7,12 3 4 12 9,15 6 1 6 8,12 3 4 12 10,11 3 3 9 10,11 3 3 9 10,12 3 3 9 10,12 3 3 9 11,12 3 6 18 11,12 3 6 18 12,13 5 1 5 13,14 3 2 6 13,14 3 2 6 1,2 1 1 1

TOTAL = 676 TOTAL = 676 Department Matrix: (Chart 6) # Department Blocks Largest Second Third

1 Administrative Office 3 3,6 4,7,13 12 2 Conference Room 1 3 Engineering and Materials Mgt. 2 8 9,10,12,13 11 4 Production Manager 1 6,7,8,9,10,15 13 11,12 5 Lunch Room 2 6 Computer 1 7 13 7 Inventory Storage 2 8 8 Machine Shop 6 9 11,15 9 Assembly Area 7 10,11,15 12,14

10 Cleaning 1 11 Welding 1 12 Electronic 1 13 13 Sales and Acounting 2 14 Shipping and Receiving 1 15 Load Test 1

Proposed Layout:

Shipping Recv'ing

Conf. Room Electr.

Cleaning Computer Prod. Mgr. Welding

Load Test

Machine ShopLunch Room

Administrative Offices

Sales &

Accounting

Engr. & Materials

Inventory

Assem

bly

PROS / VERSUS CONS:

• Qualitative Pro’s o Offices are isolated from the manufacturing area o Production Manager centrally located to production activities o Machine shop not located near cleaning room

• Qualitative Con’s o Inventory is not as centrally placed o Engineering/Material Management is far from the machine shop o Administrative offices are far from the computer o Administrative offices and Engineering & Materials are located

in drab building o Production Manager isolated from other office staff o Shipping and receiving is far from assembly and inventory

Recommendations and Conclusions: After completing this analysis, we have been able to come up with the (2) distinct recommendations. The factors involved in these recommendations are based upon the up front financial impacts and the long term operational benefits of the layout designs. Recommendation 1: If Glenn Moore is primarily concerned with short term costs, we recommend option 3, renew the lease with additional 7,000 square foot building. This option has a much lower financial impact on the organization in the short term. The space that will become available for his company will provide adequate square footage to house his current production activities and will allow for further expansion. However, we will like to point out, that in the long-term the company will not have the most efficient layout and productivity due to the distance between certain production areas.

Recommendation 2:

as

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r a creative atmosphere for the staff and a better roduction environment.

If Glenn Moore is focused on long term efficiency and productivity gains, we recommend option 2, building new 19,000 square foot building. This option ha much higher financial impact on the organization in the short term, but will provide a much better atmosphere for a fluid plant layout. The new buildingsspace will provide adequate square footage to house his current producactivities and will allow for further expansion. The proposed layout will accommodate the need fop