Master plan for future layout developments “

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Master plan for future layout developments

“Plant layout 2015”

Hermen van der Wal

Master thesis | Final version | September 2009

University of Groningen

Faculty of economics and business

Research conducted for: Sara Lee Corporation

Coffee treatment & supply, Joure

Supervisor University: Drs. R. R. van der Velde

Dr. ir. D. J. van der Zee Supervisor Sara Lee Joure: Ing. W. Jongsma

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Acknowledgement

This paper is written for my graduation project, part of the MSc. Technology management, studied at the University of Groningen. The assignment is performed during an internship for Douwe Egberts (Sara Lee Corporation), at the Coffee treatment & supply (CT&S) Joure plant. For me, performing a project in a professional, however friendly and supporting setting was valuable and instructive. Therefore I would like to thank the entire Douwe Egberts organization for giving me this opportunity.

Support from all levels of the Douwe Egberts organization has been essential for the successful completion of this project. My gratitude goes out to the steering committee, consisting of department managers and the plant director, which contributed to the end result with providing useful advice, criticizing results and guarding commitment of personnel. Also, my thank goes out to employees throughout the organization, for providing useful insights and inputs during one of the numerous interviews and workshops.

My special gratitude goes out to ing. W. Jongsma (Douwe Egberts), for the personal assistance and support during this project. To Drs. D. H. Eijssen and ing. J. Kanters (Beaufort Business Partners), for the support during workshops and meetings with the steering committee. At last, my gratitude goes out to supervisors of the University of Groningen Drs. R. R. van der Velde and Dr. ir. D. J. van der Zee, for their helpful critiques they provided, the support they gave and their contribution to this paper.

Hermen van der Wal,

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Summary

The coffee treatment & supply plant (CT&S) in Joure is facing a number of projects, due to an expected increase in production volume and issues concerning the current layout efficiency. New projects, resulting in layout adjustments, often reduce efficiency of a layout; therefore a plan has to be developed to reduce efficiency issues caused by individual projects and possibly, to even enhance layout efficienct. The objective for this research is to prepare a master plan, containing a blueprint of the CT&S site in 2015 and a roadmap of projects needed for the CT&S Joure plant, to prepare the plant for developments in the years 2009 to 2015.

To research the plant layout of the CT&S site the factors capacity management, project portfolio and layout planning have to be integrated. Capacity management has to be integrated since investment decisions, made for capacity expansion, are one of the most critical decisions for a manufacturing organization. Often these decisions have an influence on plant layout efficiency. A framework to calculate the resource requirements plan is used to determine which capacity expansion projects are needed. Different projects, for example dealing with changing requirement and issues concerning the current layout have to be integrated since, in this paper, an existing layout has to be planned, instead of building a total new layout in a new construction. Plant layout issues are important since they have significant impact on the efficiency of a manufacturing system. The, in academic research and practice, widely used systematic layout planning procedure, is used to develop plant layout blueprints. The developed blueprints are evaluated by using financial criteria, among which the net present value and the payback period.

The result of the capacity management factor is, that capacity has to be expanded by five projects, one for roasting and two for both extraction and freeze drying, where other work centers have a capacity surplus. Projects in the project portfolio are the building of an office and a central entrance, expanding the instant expedition and packaging material space and in sourcing one instant and one liquid packaging line. These projects influence the square meters needed for departments in the layout, departments to be planned and layout modifications needed. The mentioned projects are integrated in the layout planning factor, where, using the SLP procedure, five blueprints are developed. The five layout blueprints differ in the level of investments, operational costs and savings resulting from projects.

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To be accepted the net present value, for projects on the CT&S site, has to be positive and the payback period has to be three years at most. This does mean that the payback period for the second, above mentioned project is exceeded resulting in the rejection of this project. However, the sensitivity analysis shows that the payback period is shorter than three years when investments appear to be 30% lower or when labour savings appear to be 30% higher. Since investments in this research are based on a 30% confidence interval and savings are based on a first research, the conclusion of this research is to perform a more detailed cost-benefit analysis, before selecting one blueprint.

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1. Introduction

In the near future, a particular plant of the Sara Lee Corporation is facing a number of changes influencing the plant layout. Plant layout evolution and changing requirements can reduce the efficiency of the existing layout (Hill, 1991), what could become a problem for CT&S, since layout design has a significant impact on the performance of a manufacturing system (Tomkins, 1996; Yang, Su & Hsu 2000). To get insight in the situation in this chapter an overview of the organization is provided and products and production processes are introduced. Also, the importance of plant layout design is stressed once again.

1.1. Coffee treatment & supply

Sara Lee Corporation is a global manufacturer and marketer of high-quality, brand-name products for consumers throughout the world, with the mission “To be the first choice of consumers and customers around the world by bringing together innovative ideas, continuous improvement and people who make things happen”. Since 1978 Douwe Egberts, founded in 1753, has been part of the Sara Lee Corporation, responsible for the “household & Body care” and “Coffee & Tea” activities in Europe. Since 2005, after reorganization, Sara Lee Corporation consists of four divisions, SLE Food & Beverage, SLE Foodservice, SLE International and SL Branded Apparel division.

Coffee & Tea is a business segment of the division SLE International. Coffee & Tea consists of a number of production, marketing and sales organizations with brands as Douwe Egberts, Moccona, and Maison du Café. These organizations serve the market with roast & ground coffee, instant coffee and liquid coffee. One of the production locations is coffee treatment & supply (CT&S), producing instant and liquid coffee. On the CT&S site in Joure, the Netherlands, there are working 308 employees. In appendix 1, the organizational chart of CT&S is provided.

1.2. Products

The products produced on the CT&S plant can be divided in instant and liquid products. Freeze dry, agglo and spray dry are instant coffee product groups with a total sales volume of 6,7 million kg. Instants are packaged in jars, sticks, big bags, refill bags and boxes of different sizes. A jar is shown at the right side of figure 1.1.

On the left side of figure 1.1 a liquid coffee pack is shown, this pack can be used in liquid coffee systems (Cafitesse) as known in many canteens and bars. The different Liquid coffee blends have a sales volume of 11,6 million liters. In appendix 2 sales volumes per end product and per packaging unit are shown for instant and liquid products. Sales volumes of instants and liquids are expected to grow in the years 2009 till 2015. In particular the expected growth in freeze dried instant products will have severe impact on the CT&S plant.

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1.3. Production processes

The manufacturing system of CT&S can be seperated into different process steps. A simplified overview of the production process is visualized in figure 1.2. Green beans are roasted and extracted where further processing equipment and techniques differ for product groups.

Roasting green coffee Extraction Freeze dry Spray dry Packaging liquid Agglo Freeze Instant packaging Instant packaging Customer Liquids

Spray & Agglo Freeze dry

Important production steps which could need a further introduction are hot air roasting, extraction, freeze drying, agglomeration and spray drying. “Hot-air roasting forms color and flavor compounds and leads to a complete alteration of the bean microstructure”(Schenker et al., 2008). With coffee extraction dissoluble components are separated from less dissoluble components using hot water as a solvent. Freeze drying is a dehydration process where the coffee is frozen followed by sublimation under vacuum at low temperature. With spray drying liquid droplets are formed into a solid particle form within seconds, sometimes fractions of seconds (Langrish, 2009). “Agglomeration can be defined as the size enlargement process in which fine particles such as dusts or powders join or bind with one another, resulting in an aggregate porous structure much larger in size than the original material, such that the primary particles can still be identified” (Jinapong, Suphantarika & Jamnong, 2008). In appendix 3 a more detailed visualization of the three different processes is shown.

1.4. Plant layout design

Since 1950 the CT&S plant layout evolved caused by a variety of contexts. For example, a new technology for instant coffee production has been employed and equipment has been moved, substituted, expanded or eliminated.

For efficient production systems not only the planning and operational policies should be optimal, but also the design of the facility is important. Facility layout has a significant contribution towards manufacturing productivity, in terms of cost and time, in a manufacturing system (Raman et al., 2009; Allegri, 1984; Yang & Hung, 2007). From twenty to fifty percent of the total operating expenses in manufacturing are attributed to materials handling costs (Francis, McGinnis & White, 1992) and effective facilities planning could reduce these costs by ten to thirty percent annually (Tompkins et al., 1996; Tompkins, 2003). A layout has a direct impact on the operational performance, as measured by manufacturing lead time, throughput rate and work in process (Benjaafar, 2002), as well as effective utilization of manpower, space, infrastructure and the wellbeing and morale of the worker (Gopalakrishnan, Weng &Gupta, 2003).

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2. Research outline

Plant layout issues can result from different motives, can be dealt with by using a large number of methods and outcomes can be evaluated in several ways. In this chapter, a research outline is presented to elaborate the way this particular plant layout issue is researched, what will help to recofnize the relation between different sub problems elaborated in this paper. The research outline contains four paragraphs, respectively dealing with motives initiating this project, the problem definition, the research model and the operational description of this project.

2.1. Research motive

According to Francis et al. (1992), layout problems arise from a variety of motives. Motives making plant layout problems evident are, for example growth in market demand, a change in production capacity, contraction or revision of departments, new technologies, modifications in the product mix, new products and unfavorable costs (Tompkins et al., 1996; Mallick, 1951; Lin, 1999). In this paragraph the specific motives for CT&S triggering this research are provided.

2.1.1. Increase in production volume

The sales forecast of the Coffee & Tea business segment shows a growth in demand for freeze dry coffee and liquid coffee products, where demand stabilizes for spray dry and agglo coffee products. Part of the strategy of the Sara Lee “Coffee & Tea” business segment is that production volumes of CT&S have to increase in the years 2009 to 2015 to a certain upper level. Where the upper level is determined by a strategic management decision due to contingency risks. The growth in production volume in the coming years will have severe impact on the CT&S plant. Therefore, there is a need to detect future operational bottlenecks and to identify projects needed to deal with these bottlenecks.

2.1.2. Issues concerning the current state

The CT&S plant is in use since 1950. In almost 60 years of production, the plant is scaled up several times and new techniques and applications are introduced. Together, the different projects and events have evolved the plant layout. At the moment, the high level of operational handling costs is seen as a problem caused, at least partly, by the plant layout. Also the physical distance between departments is an obstacle for co-operation, resulting in problems with communication and the exchange of workers. Plant layout redesign has to be performed to enhance efficiency of the plant.

2.1.3. Planned projects

Several projects are planned to be performed within a couple of years. For example, projects are the enlargement of the instant expedition center and re-arrangement of the packaging department. These projects can result from efficiency issues, management decisions and changing requirements. The effect these projects will have on plant layout design is not entirely clear, resulting in uncertainties about the plant layout efficiency in coming years.

2.1.4. Need for a master plan

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sub optimal overall plant layout. So, instead of asking the layout question in each project, there is a need for a master plan dealing with layout issues for all projects in advance. This master plan has to contain a plant layout design (blueprint) and a roadmap of projects originating from this design.

2.2. Problem definition

When developing the master plan, several decisions have to be made regarding capacity management, the different projects to be performed and the plant layout. Capacity management and different projects are important since facilities layout can only begin when important decisions have been made concerning production related issues (Hill, 1991). An approach is needed where these decisions are integrated, to develop the blueprint and roadmap. In figure 2.1, the conceptual model for this research is provided, where the factors project portfolio, layout planning and capacity management are integrated. Together, these factors result in the master plan.

Input data Master plan Capacity management Project portfolio Layout planning

In the layout planning factor the arrangement of physical equipment, structures and persons is researched to get an efficient production system (Herroelen, 1977). Capacity management is concerned with matching the capacity of the operating system and the demand placed on that system (Ezingeard & Race, 1995), where capacity can be defined as “the maximum level of value added activity over a period of time” (Julka et al., 2007). The factor project portfolio is defined as the selection of projects, having an influence on the layout. In contrary to the factor capacity management, these projects do not directly result from matching capacity and demand, instead, these projects can result of management decisions, issues with the current layout and other input data. The factors capacity management and project portfolio determine the equipment and space to be added or eliminated or result in the need for layout modifications when planning the layout. Projects in the project portfolio have to facilitate capacity. The factor layout planning determines the costs, investments and savings resulting from capacity expansion and project portfolio. A more exhaustive elaboration of the origins of the conceptual model and the relations in the model are provided in chapter 3.

The challenge for this research is to develop extensive knowledge about the factors in the conceptual model and use this knowledge when developing the master plan containing a blueprint for the layout and a roadmap for projects. Definitions of the roadmap and blueprint are given in paragraph 2.4. In this research a term of 8 years is chosen to ascertain that provisions in the plant layout are made for the long term. The objective for this paper is developing a master plan containing;

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 a blueprint for the CT&S plant in 2015, and

 a roadmap for projects needed in financial years 2009 to 2015.

After describing the objective and motives for this research, the research question can be formulated. The main research question for this project is:

How can the CT&S site be prepared, to successfully facilitate the production plan till 2015?

Where successful means that volumes in the production plan can be supplied with, financially, the most attractive plant layout. Important steps in order to answer the main research question are formulated in sub questions. The sub questions for this project are:

1. What is the current state of factors in the conceptual model?

2. Are there capacity expansion projects resulting from the factor capacity management? 3. Which other planned projects will have impact on plant capacity and/or layout?

4. Which suitable layout blueprints can be developed incorporating projects to be performed? 5. Which blueprint has to be chosen for the CT&S plant?

2.3. Research model

The conceptual model, the research objective and the research questions together result in the research model as presented in figure 2.2. In this model project phases and steps are presented. For each step the chapter number and the sub question dealt with, is presented. The phases in this project are, according to the methodology of De Leeuw (2000), “diagnosis, design and change”.

In the introduction a multiform description of the organization, products and the production processes are given. This information, together with the research outline, theoretical background and the current state are used as an input for other chapters. In chapter 5 and 6 different calculations are performed, decisions are made and views are gathered, in order to present the projects CT&S is facing. These projects are inputs for the design phase. In chapter 7 and 8 blueprints are developed and evaluated. In the last chapter the master plan and discussion are provided.

Capacity

management Other projects

Conclusion & Discussion D ia g n o s is Demand Strategy D e s ig n C h a n g e Production plan Research outline Ch 1 Organization & topic introduction Theoretical background Plant layout redesign Evaluation of blueprints Current state Ch 2 Ch 3 Ch 4, sub question 1

Ch 5, sub question 2 Management

inputs Researched

projects Ch 6, sub question 3

Ch 7, sub question 4 Ch 8, sub question 5

Ch 9

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2.4. Operational description of the project

In this paragraph the operational setting of the project is presented. Including an elaboration of deliverables, the scope of this project and a description of the support, roles and responsibilities in this proejct.

2.4.1. Description of deliverables

The deliverable of this research is the master plan, containing a blueprint and a roadmap. The master plan has to result in a shared vision on long term layout developments for the CT&S site. The blueprint is a presentation of the (re)design of the layout. The blueprints gives an overview of the arrangement of departments, meaning that the arrangement of specific machinery and equipment per department are not visualized. However, this does not mean that an arrangement of specific machinery and equipment is not needed as an inputs for layout planning. The roadmap gives an overview of projects, resulting from the factors capacity management, project portfolio and plant layout. In the roadmap preparation time, building time and testing time per project are presented.

2.4.2. Scope

When developing deliverables the field for research is somewhat demarcated. In scope are process steps from raw material to ‘exit factory’, including materials handling, production, storage, transportation and outsourcing. Out of scope are transport to DE warehouses in different countries (consumers) and distribution to the customer. The supply chain is visualized in figure 2.3. Also the, on the CT&S site located tea production and energy plant, are out of scope.

Supplier Incoming

material Processing Expedition

DE

warehouses Consumer

Outsourced processing steps

In scope

For the factor capacity management, a simplification is made that efficiency improvements for equipment in the coming years are not taken into account, since there is not sufficient knowledge available about these developments. However, if needed, these efficiency improvements are taken into account in the sensitivity analysis for projects. Also the type and size of capacity expansion projects is assumed to be given (“which it typically is”; Olhager, Rudber & Wikner, 2001), where the current technological standard is used to determine type and size.

A simplification for the layout planning factor is that relocation of a specific department is not taken into account, if relocating costs for that department are expected to be high related to the savings resulting from relocation and when expected equipment downtime is not acceptable. Individual projects in the project portfolio are not researched on forehand; however the influence of projects on the base-case will be researched in the sensitivity analysis. At last a simplification is made that the end situation of blueprints is researched, instead of taking into account intermediate situations.

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2.4.3. Roles and progress control

Long range layout planning must have the support of and be co-ordinated by top management (Muther & Haganäs, 1969). Therefore top management is grouped in a steering committee, consisting of the plant director, managers of departments (quality, technology, finance, production and planning & logistics) and the plant change agent. Functions of the steering committee are guarding commitment of personnel, establishment of goals, monitoring progress, making critical decisions and evaluating and criticizing results.

To gather inputs and views, interviews and workshops are organized with employees of different CT&S departments. Involved employees with the description of the discipline is provided in table 2.1. In appendix 4 a complete list of interviews and workshops is provided.

To bring all views of affected departments together an execution team is appointed. This team has to report to the steering committee once every three weeks and during weekly meetings with the initiator of this project, technology department manager ing. W. Jongsma. The execution team consists of ing. J. Kanters, consultant of Beaufort business partners and researcher H. van der Wal. The need for outside supervision is caused by the importance of this project for CT&S and the need for a relatively short project completion. The researcher develops a project plan and executes the steps presented in the project plan. The consultant monitors the progress of the project, facilitates the workshops and assists with presenting results to the steering committee. Beaufort business partners will support in the first two months of this six months lasting project.

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3. Theoretical background

During the development of the master plan, numerous decisions have to be made. Examples are the number of equipment that needs to be added, plant layout modifications needed due to unfavorable costs and the manufacturing processes to be adopted. The origin of these questions, the conceptual model, is elucidated in this chapter. Firstly, an overview of factors and relations in the conceptual model is provided. Secondly, in subsequent paragraphs a more detailed theoretical background is provided for the factors capacity management, project portfolio and layout planning. At last, the evaluation of relations is elaborated.

3.1. Conceptual model

To involve the different decisions, motives and developments for the CT&S plant, an integrated approach is needed for layout planning. According to Askin & Mitwasi (1992), when building a total new layout in a new construction, layout planning has to be integrated with capacity management and process selection. However this project is dealing with re-arranging a layout of a restricted area and adding new departments, spaces and equipment to an existing layout. Therefore some adjustments have to be made concerning the conceptual model of Askin & Mitwasi (1992).

For CT&S the production processes (appendix 3) are specified already and type and size of future capacity expansion, are out of scope. In contrary, projects needed for rearrangement and adding new departments, spaces and equipment have to be integrated with layout planning. Adding new equipment is dealt with by the factor capacity management. Capacity management is needed for plant layout problems, for example to include trends and advances in order that provisions are made in the layout (Mohsen, 2002). The factor project portfolio is needed to integrate projects, resulting in the need for rearrangement, adding spaces and adding departments, with layout planning.

Input data Master plan Capacity management Project portfolio Layout planning Projects for roadmap Projects for roadmap Projects for roadmap & blueprint € per CEP Equipment needed, m required2 € per project m required, modifications needed 2 Product families, production plan & product load profile

data

Already researched projects,

management inputs

CT&S employee inputs, constraints &

limitations Facilitating

€

CEP

Operational costs, savings and investments Capacity expansion project Factor Input/Output 1 2 3 4 5 6 7 8 9 10 11 Legenda

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For the three factors input data is needed ranging from demand forecasts and management decisions, to employee views gathered during workshops (1, 2, 3). The output of the conceptual model, the master plan, consists of projects resulting from each of the three factors (roadmap) and a blueprint, chosen after evaluating a number of blueprints developed with layout planning (9, 10, 11).

Results of the factor “capacity management” are a number of projects for capacity expansion. The factor determines the equipment needed and influences square meters needed per department when planning the layout (8). Results of the factor project portfolio are, square meters per department needed and layout modifications needed, when planning the layout (6). Also, projects project portfolio have to facilitate capacity by, for example, a material handling project (4). With layout planning different blueprints are developed. The placement of departments influences operating costs, savings and investments resulting from capacity expansion projects and other projects (5, 7). In the approach of Askin & Mitwasi (1992), the objective for layout problems is to optimize handling (operational objective; Marcoux et al., 2005). However, in this research also other operational costs, savings and investments are important. For example enhanced co-operation resulting from the replacement of departments cannot be measured in material handling costs, instead it can be measured in labour savings resulting from replacement.

In subsequent paragraphs first the factors capacity management, project portfolio and layout planning are elaborated, followed by the evaluation of blueprints, as developed with the factor layout planning.

3.2. Capacity management

Capacity management is the first factor of the conceptual model to be analyzed. In general capacity management has to be performed to avoid the symptoms of poor capacity planning to occur. Symptoms are, for example, high costs resulting from poor utilization of resources, excess work-in-process inventory, longer cycle time and manufacturing lead times (Greene, 1997). The result of capacity management in this research is the amount of equipment needed. In the first part of this paragraph a technique which can be used to develop the resource requirements plan is provided. In the second part, among others, decisions concerning the timing and sizing of capacity projects are elaborated.

3.2.1. Capacity framework

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when, and by how much the capacity levels should change (Olhager et al., 2001) Long term capacity management is concerned with the big picture, it focuses on overall, or aggregate, capacity, trying to avoid focusing on individual products or services (Pan & Kleiner, 1995).

According to Vollmann et al. (1997), the four procedures for capacity planning are; capacity planning using overall factors, capacity bills, resource profiles and capacity requirements planning, where the first three are applicable to firms with or without MRP systems. The capacity bill procedure is a rough-cut method, providing direct linkage between individual end products in the master production schedule and the capacity required for individual work centers. It takes into account any shifts in product mix. For this procedure the bill of material, routing data and the machine hour data are needed. The capacity bill procedure can be simplified by making a capacity planning using overall factors and a further dimension can be added with incorporating specific timing of capacity requirements (Vollmann et al., 1997). A technique which is comparable to the capacity bill procedure is described by Greene (1997). With this technique a resource requirements planning is prepared, which can be used to determine the amount of production resources needed and the timing of when they are needed for the aggregate production plan (Fliedner, 2000; Berry et al., 2002). The resource requirements plan is the process of establishing, measuring and adjusting limits of long range-capacity and is used to assure that the production plan is achievable before it is passed to the master schedulers (Greene, 1997). The approach of Greene (1997) is felt, by the execution team, to give more instructions and directions, therefore in this project the approach of Greene (1997) is used. The framework for preparing the resource requirements plan is visualized in figure 3.2.

1 2 4 5 3 6 Select product families Define minimum requirements Identify critical work centers Calculate product load profiles Production plan Resource

requirements plan

Demand Management

plan

3.2.2. Capacity actions

For determining the resource requirements plan, a number of decisions have to be made to specify the timing of the expansion, the size of expansion, the product impacted and the production location (Julka et al., 2007). Investment decisions, made for capacity expansion, are one of the most critical decisions for a manufacturing organization with global production facilities (Julka et al., 2007).

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Capacity actions can be roughly divided in two types, those trying to modify demand to match the production constraints and those modifying supply to match the sales plan (Olhager et al., 2001). An action to modify demand is for example accepting loss of orders (Wild, 1989). Modifying supply to match the sales plan can be divided in two techniques, which are efficient adjustment or variation of system capacity and eliminating or reducing the need for system adjustments by maintaining excess system capacity or holding output stocks (Ezingeard & Race, 1995).

A capacity strategy suggests how the amount and timing of capacity changes should relate to long-term changes in demand. The range of possibilities available when demand is expected to grow steadily is shown in figure 3.3. The timing in a capacity strategy is concerned with the balance between the production plan and the supply of capacity. If there is a demand surplus the utilisation will be high, enabling a low cost profile, however with a risk of loosing customers due to e.g. long delivery lead times. A capacity surplus on the other hand creates a higher cost profile however, due to the surplus capacity, it is easier to maintain high delivery reliability and flexibility. The capacity strategy can therefore be expressed as a trade off between high utilisation (low cost profile) and maintaining a capacity cushion (Olhager et al., 2001)

Another important decision related to capacity actions is the sizing of capacity actions. A choice has to be made between adding a large amount of capacity at once or smaller amounts several times. Adding smaller amounts could be expensive considering capital costs, since there are no economies of scale, however this option could have lower operational costs (Karmarkar & Kekre, 1987). For the sizing issue not only capital costs and operational flexibility should be kept in mind, also lot sizes and work in process should be considered (Karmarkar & Kekre, 1987). However important, sizing decisions are out of scope for this research, meaning that the current technology standard and comparable projects are used to determine the sizing actions.

3.3. Project portfolio

The second factor to be analyzed is project portfolio. For this factor projects on the CT&S site are analyzed. Projects, which result in layout modifications or square meters needed, are selected and used as an input for layout planning. The projects in this factor have to facilitate capacity management. This means that capacity may not be hindered by, for example, material handling problems.

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The analysis of projects will be done by first inventorising all projects on the CT&S plant. This can be projects which already planned or projects in the research phase. These projects can results from management inputs, research of work groups and other. After listing all projects, the projects are analyzed using the framework of figure 3.4. Using this framework it is determined if and how projects influence layout planning. Projects can influence the square meters needed for existing departments, can result in a new department to be planned with layout planning, can result in the need for layout modifications or, at last, they can be out of scope.

List of projects Existing department expansion m needed for existing dep. m needed for new department Plant layout Modifications needed 2 2 New department created? Out of scope Resulting in

need for layout modifications? Yes no no no Yes Yes

3.4. Layout planning

The factor layout planning is the third factor to be analyzed. A facility is an entity that facilitates the performance of any job (Heragu, 1997). With facility layout problems the arrangement of physical equipment, structures and persons is researched to get an efficient production system (Herroelen, 1977). In this factor different blueprints for the CT&S plant are going to be developed, where the different blueprints determine the amount of investments, operational costs and savings needed per project, resulting from the factors capacity management and project portfolio.

3.4.1. Method for layout planning

For efficient production systems not only the planning and operational policies should be optimal, however also the design of the facility is important. Ruan & Tuzkaya (2006) mention that optimal design of the physical layout is an important issue in the early stages of the system design. According to Herroelen (1997) the problem is not only important when building a total new layout in a new construction, however also when building a new layout in an existing construction, rearranging a layout of a restricted area and adding new work centers, spaces and equipment to an existing layout.

Existing literature suggests a number of approaches for layout problems. Meller & Gau (1996) for example published a summary of ninety different approaches based on layout models and algorithms. Algorithmic approaches basically involve only quantitative input data, offering solutions in need of further corrections that satisfy requirements for facility design (Chien, 2004). There are two different algorithmic approaches, one is distance based, aimed at minimizing distance between departments. The other is intending to maximize flows between departments adjacent to each other in the new plant layout (Djassemi, 2007). Procedural approaches can link qualitative and quantitative objectives in the design process (Apple, 1977). Typical plant layout procedures determine how to arrange the

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various equipment and departments to achieve minimization of overall production time, maximization of turnover of work in process, and maximization of factory output (Djassemi, 2007). Another approach to plant layout problems is the systems approach. The systems approach originates from a number of drawbacks felt by using piecemeal approaches, not able to handle complexity. A systems approach to problems demands that a piecemeal approach is replaced by an overall approach (Jenkins, 1972).

For this problem the operational objective; optimize handling, often used as the only objective in algorithmic approaches, is not the only objective. For multi-objective decision problems an algorithmic approach may not be adequate in providing a quality solution (Padillo, Meyersdorf & Reshef, 1997; Yang et al., 2000). Another reason not to use algorithmic approaches is that design personnel needs advanced training (Chien, 2004) and that qualitative information cannot be ignored (Herroelen, 1977). The systems approach to facility layout problems is not used in this problem since it is not widely used or extensively elaborated in academic literature and, therefore, does not give extensive support to the researcher in how to handle layout problems.

Input data: P, Q, R, S, T & Activities

Material flow relationship

Relationship diagram

Space requirements Space available

Space relationship diagram

Modifying constraints Practical limitations

Develop layout alternatives

Evaluation

Activity relationship

Instead of algorithmic, approaches procedural approaches can incorporate both qualitative and quantitative objectives in the design process (Muther, 1973; Yang et al., 2000). In production management one of the best-known procedural approaches is systematic layout planning (SLP) (Donk & Gaalman, 2004). The SLP-procedure (Muther, 1973) is a procedural layout design approach. The process involved in performing SLP is relatively straightforward; however, it is a proven tool in providing layout design guidelines in practice in the past few decades (Yang et al., 2000). The SLP procedure as presented in figure 3.5 will be used in this paper.

According to Muther (2005) systematic layout planning consists of four sequential, however overlapping, phases. Phase one is to establish the location of the area to be planned and the second phase deals with planning the arrangement of activity-areas and departments. The third phase deals with planning the arrangement of specific machinery and equipment and in the last phase, drawings

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and specifications are prepared, equipment is obtained and installed and workers are trained. Phases one and four are frequently not part of the planner’s specific role and are often performed by others (Muther, 2005). The four phases are presented in figure 3.6. In this research, in the second phase different blueprints are developed, in the third phase square meters per department is determined.

3.5. Evaluation of blueprints

In this paragraph the relations investments, operational costs and savings per capacity expansion project and projects in the portfolio are analyzed. Different blueprints developed with layout planning result in different investments, costs and savings. In this paragraph the approach to evaluate these differences is elaborated, therefore guidelines for building the base-case are provided followed by evaluation criteria.

For plant layout problems, a division can be made between quantitative and qualitative objectives (Singh & Sharma, 2005). Qualitative factors include plant safety, flexibility of layout for future design changes, noise and aesthetics (Francis & White, 1974). According to Singh & Sharma (2005) and Meller & Gau (1996) the most common objective used in mathematical models is to minimize the materials handling cost, which is a quantitative factor. Other quantitative objectives are minimizing the adjacency score and maximizing material handling vehicle utilization (Ertay et al., 2006).

Marcoux, Riopel & Langevin (2005) classify the objectives in strategic, tactical and operational objectives. The most used strategic objective is to optimize capital investment including fixed costs, start up costs, annual operating costs, maintenance costs, return on investment and payback period. The most used tactical objective is optimize space utilization and the most used operational objectives are optimize flow (information, materials and personnel), optimize handling (e.g. minimize cost of materials handling) and optimize the use of equipment (Marcoux et al., 2005). Appendix 5 shows the extensive list of objectives Marcoux et al. (2005) have derived from literature. In this project the factor layout planning determines the investments, operational costs and savings of different projects, therefore optimize capital investment is used as the objective when evaluating blueprints developed.

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3.5.1. Framework and guidelines for the base-case

The quantitative part of the economic analysis process (Ulrich & Eppinger, 2004) is used to evaluate the different blueprints. Steps in the economic analysis process are first to build a base-case financial model. Secondly, to perform a sensitivity analysis to understand the relationship between financial success and the key assumptions and variables of the model. At last, to use the sensitivity analysis to understand project trade-offs. By developing the base-case unavoidable and sunk costs are not taken into account (Ulrich & Eppinger, 2004). To identify costs that are unavoidable in a particular decision situation, costs and benefits have to be eliminated that do not differ between alternatives and, remaining, (avoidable) costs and benefits, that do differ between alternatives, have to be used in making the decision (Seal et al., 2006).

For internal management accounting, the extensiveness of investments and operational cost estimations can be determined by making a trade-off between costs and benefits of more accurate and precise information (Seal et al., 2006). For this study the extensiveness is determined keeping in mind that estimations have to be repeated by internal CT&S personnel by preparing the capital expenditure request (CER) for the final blueprint. This means that performing more extensive estimations will result in higher costs however no extra benefits can be gained in this phase of the research.

Sensitivity analysis can be defined as “The study of how uncertainty in the output of a model (numerical or otherwise) can be appointed to different sources of uncertainty in the model input” (Saltelli et al., 2004). Sensitivity analysis uses the financial model to answer “what if” questions by calculating the change in project values corresponding to a change in the factors included in the model (Ulrich & Eppinger, 2004). The near linearity of many sensitivity analyses allows computing trade-off rules to inform day-to-day decision making (Ulrich & Eppinger, 2004). These trade-off rules can be used to give priority when developing plans (for example, how to divide research costs; to lower investments, to lower operational costs or to enhance operational savings).

3.5.2. Evaluation criteria

In literature a large amount of criteria can be found to evaluate layout blueprints. Lin (1999) mentions that the criteria used for plant layout problems can be divided in three groups. Groups are cost criteria containing the class’s non-inventory and inventory costs, flow criteria and environment criteria. Evaluation criteria which can be related to optimize capital investment belong to the non inventory cost criterion (Lin, 1999) and are initial costs including land, building production machinery and material handling equipment, annual operation and maintenance costs including labour, utility and maintenance and the future salvage value. These numbers are brought together, in this research, by using the net present value, the internal rate of return and the payback period.

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present values of these cash flows, called the net present value determines whether or not the project is an acceptable investment (Seal, Garrison & Noreen, 2006). The internal rate of return (IRR) is the interest yield promised by an investment project over its useful time (Seal et al., 2006). The payback period is the length of time that it takes for a project to recoup its initial cost out of the cash receipts that it generates (Seal et al., 2006). The payback period method does not take into account, in contrary to the NPV and the IRR method, the time value of money

The NPV, IRR and payback period values are used for making a preference decision between blueprints, developed in the factor layout planning, and for making the screening decision for the preferred blueprint. To calculate the NPV a weighted average cost of capital (WACC) is used. “The weighted average cost of capital (WACC) is a critical input for evaluating investment decisions, it is typically the discount rate for net present value (NPV) calculations, it serves as the benchmark for operating performance, relative to the opportunity cost of capital employed, to create value (Petit, 1999).

3.6. Summary of theoretical background

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4. Description of the current state

In this chapter, current states of factors in the conceptual model are described and information is provided needed for elaborating these factors. The information and current state are used as starting points for subsequent chapters. For layout planning, the first of four phases is elaborated in this chapter and input is provided, needed for phase two. The step, listing all projects, is elaborated for the factor project portfolio. At last, for the factor capacity management information, critical work centers and product families are determined and information is provided, needed for calculating the product load profile.

4.1. Layout planning

Phase one of layout planning is to establish the location of the area to be planned and considers situations and conditions outside our problem area, over which the execution team has little or no control (Muther, 2005). The location to be planned, the CT&S plant, is determined by the steering committee. Available space for the plant is demarcated by a road, water and property size.

(add.) Freeze dryer Extraction dep. Packaging mat. (liq) B B Packaging dep. (liq) Expedition (liq)

Packaging dep. (inst) Freeze Drying Dep. Expedition (inst) Technical dep. Packaging mat (Inst) Rented Rented (add.) Offices Available building space

Location disputable

Building location undisputable Replacement undisputable W a te r R o a d Road Road Property end P ro p e rt y e n d Road (add.) roaster Roasting dep. (add.) Battery (add.) Battery

Before performing the second phase, some restrictions have to be added, since relocation of a specific department is not taken into account when relocating costs for that department are expected to be high, related to the savings resulting from relocation or when expected equipment downtime is not acceptable. In this research, a department is an area where similar activities are grouped. Departments located on the first floor are identified by figure 4.1, a blueprint of the CT&S plant. In this figure it can be seen that locations of the roasting department, extraction department and freeze drying department are undisputable and that space is prepared for the expansion of these departments. On the second floor, one freeze dryer and the departments spray dry and mixing & sieving are located, for which replacement is undisputable. When relocation of a department is undisputable, that department is not planned with SLP, unless the amount of prepared space is not sufficient for the expansion of that department.

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The main data necessary to perform layout planning can be analyzed with the product, quantity, routing, supporting activities and timing (PQRST) analysis. Analysis of different product families is performed in paragraph 4.3.1. Quantity of different product groups are presented in paragraph 5.2. The routing of products is visualized in appendix 6, the different departments are visualized in table 4.1, where similar work centers are grouped in a department. Timing of projects is determined in chapter 5 and 6.

4.2. Project portfolio

In this paragraph, the current state of project is described, done by listing relevant foreseen projects to be performed on the CT&S facility. Inputs for this list are already researched projects, management inputs, projects worked on currently and interviews.

In table 4.2 the list of projects is presented. Several projects to be performed give an indication for the state of the layout. Examples of projects needed to enhance the layout efficiency are the redesign of the instant packaging department and the redesign of the plant layout for enhanced efficiency, where the last project shows the opportunities to enhance work force utilization by improving the co-operation between departments. More exhaustive elaborations of projects and the relations projects have on the factor layout planning are presented in chapter 6.

Table 4.1: Departments with work centers

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Fig 4.2: Product families

4.3. Capacity management

In this paragraph information for the factor capacity management is provided. This is done by performing the steps; define product families, define critical work centers and by providing information used for calculating the product load profile.

4.3.1. Product families

For preparing the resource requirements plan, all products have to be grouped into an aggregated or surrogate product (Nam & Logendran, 2003). Products are grouped since capacity at an aggregated level, needed for long term decisions, deals with forecasts of product families rather than of individual products which are easier to use and provide more acceptable results to management (Olhager et al., 2001). Grouping of products is done by first analysing the production technique and second analysing other causes for differences in load profiles.

Spray dry Agglo Freeze dry

Russia Ex Russia

Instants

Ambient

Liquids

Standard

The first steps, extraction and roasting, of the production process are similar for all products (see appendix 3). For instant products, the extract is concentrated to 98% dry content by using a spray dry or freeze dry technique. Agglomeration is used for size enlargement of spray dried particles. For liquid products the extract is concentrated to 34%. Grouping products based on the production technique gives the groups spray dry, agglo, freeze dry and liquid. However for an aggregated product, groups have to be subdivided in different product families, when they result into different load profiles. Liquids have to be divided in ambient and frozen packed, since ambient liquid is outsource packed. Freeze dry products have to be divided in products packed for Russia and other countries, since, due to import duties, products shipped to Russia are mainly packed in big bags and products shipped to other countries mainly in jars. An overview of the product families is shown in fig 4.2. For the different product families, production volumes have to be determined, resulting in the production plan. Also, product load profiles per critical work center have to be calculated for all product families.

4.3.2. Critical work centers

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In appendix 3 the production processes are given. In these processes, several work centers can be identified. In appendix 7, critical work centers are marked and grouped and in table 4.1 work centers per department are presented. Critical work centers are roasting, extraction, freeze dry, spray dry, liquid packaging (VL08), agglo, mixing & sieving, cup line (VL15(s)), big bag line (VLBB) and the boxes line (VL10). Equipment for roasting, extraction, freeze drying, liquid packaging, agglo, mixing and sieving take over two years to acquire, including time for the capacity expenditure request, preparation, building and testing. The boxes line and the cup line need significant space, thereby influencing the layout planning factor if expansion is needed. The big bag line is expected to become a critical work center, resulting from the forecasted demand growth from Russia, mainly packed in big bags. For the different critical work centers in the resource requirements plan, the product load profile is calculated.

4.3.3. Information needed for calculating the product load profile

For the product load profile, information is needed about the different kinds of capacity and the product structure. For the product load profile, it is important to make a distinction between different kinds of capacity, because setup times (Greene, 1997) and other production related disturbances have to be included in the product load profiles. According to Anupindi et al. (1999) the different kinds of capacity are the theoretical capacity, the effective capacity, the process capacity and the throughput. The relation between the different kinds of capacity is visualized in equation 4.1.

Overall equipment effectiveness (OEE) numbers are used to incorporate the different kinds of capacity in the product load profile. An example of an OEE calculation as used in CT&S is shown in appendix 8. From the OEE calculation, time when there are no activities or jobs to perform, planned maintenance stops and cleaning stops are excluded. Idle time, where no activities are performed, could have been used for production, however planned maintenance stops and cleaning stops not. This means that time available for critical work centers is 8232 hours (49 weeks* 7 days* 24 hours), deducted with planned cleaning and maintenance stops as presented in equation 4.2. Calculating the available time over 49 weeks results from the three week production is stopped at least.

The product structure helps to generate production volumes on different levels by calculating the product load profile. The bill of materials (BOM) can be used to directly derive component volumes from volumes for final products (Fleischmann & Meyr, 2005). In figure 4.3 the BOM, process steps and phases for product 326 are visualized as an example. For components, characters indicate the phase and numbers the kind of component. The mass is the total amount of dry content in each phase.

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Freeze drying

Extraction

Roasting Packaging

Process step BOM Phase name

4.4. Summary of current state

In this chapter the sub question “What is the current state of the factors in the conceptual model?” is elaborated. To answer this question in paragraph 4.1 the location of the facility to be planned is determined and departments are determined. Which departments are planned with the factor layout planning depends on which departments have to be expanded, which departments have to be relocated and for which departments replacement is undisputable. In paragraph 4.2 projects are inventorised. These projects result in the need to expand departments, to relocate departments and to add departments. At last, in paragraph 4.3, information is provided needed to make the resource requirements plan. This chapter is the starting point for further elaboration of different factors.

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5. Capacity management

This chapter deals with the question, “which capacity related projects are needed to anticipate on production volume changes?“ To determine which capacity projects are needed, the framework as presented in figure 3.2 is used in this chapter. The six steps of the framework are, define minimum requirements, select product families, developing the production plan, identify critical work centers, calculate product load profiles and calculate the resource requirements plan. The steps select product families and identify critical work centers are already elaborated in chapter 4. In this step remaining steps are elaborated. After making the resource requirements plan assumptions and calculations are validated by employees of CT&S during a workshop (appendix 9).

5.1. Define minimum requirements

In this step the variety of needs in this project are elaborated, where the variety concerns aggregation level, term and accuracy (Fliedner, 2001). As already indicated in the background, facility layout decisions are part of the long range – strategic planning (Fliedner, 2000; Olhager et al., 2001). Term of long range – strategic planning is generally more than one year in length (Fliedner, 2000). The planning horizon is at least a month and possibly quarters or even longer periods (Olhager et al., 2001). For this project the planning horizon is one year. According to Pan (1995), it is needed to focus on the big picture, trying to avoid focusing on individual products or services in long range – strategic planning. To do this, the 80-20 rule is used to determine which products have to be included and excuded from the load profile. The capacity model has to distinquish between the different extraction techniques (TQL, IQ and standard), what will enable CT&S to duplicate this research to deal with shifts in the product mix. For this project the product mix of financial year 2009 is used. The above mentioned requirements have to be taken into account by preparing the production plan, product load profile and determining which equipment has to be added.

5.2. Production plan

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the production plan is based on the following factors; demand, multifacility, planning strategy and demand management.

5.2.1. Demand

Demand forececasting methods can be classified in qualitative methods or judgmental methods and quantitative methods (Mishra, 2005). Qualitative forecasting methods are particularly useful if there are changes in market conditions and if soft data is in place. Quantitative forecasting methods are particularly effective for generating forecasts on a large number of stock keeping units (SKU), items, planning production schedules, inventory requirements and making other operational decisions. Quantitative forecasting methods “rely on historical data and are not effective when demand conditions unexpectedly change” (Sanders & Ritzman, 2005). The long range planning of the Sara Lee Corporation business segment “Coffee and Tea” is made using qualitative forecasting methods, since quantitative forecasting methods are unreliable because, due to marketing efforts, there will be changes in market conditions. Marketing efforts and the innovation strategy to be performed, are summarized in the (confidential) global instant teams “long range planning strategy” document. The qualitative forecasting numbers are presented in appendix 11.

5.2.2. Multifacility

Luss (1982) states that there are three types of multifacilities, namely multilocation in the same country/area, multilocation global and multitype. Multitype production locations of the Coffee & Tea business segment are for example the roast & ground facility in Utrecht. Multitype locations, not producing liquid and instant coffee, do not directly affect the production volume on the CT&S Joure facility. Instead, issues concerning multilocation global facilities have to be taken into account. In Suffolk (U.S.) there is a facility that makes comparable products. Factors influencing the production volume in each plant are costs (labour, production, logistics, etc.), demand, investment budget, socio-economical factors (human skills, regional growth, risks and tarrifs) and the manufacturing strategy (Julka et al., 2007). The first factor, important for the specific situation, is that logistic costs per product to Russia (largest growth in qualitative forecasts) from CT&S Joure are lower compared to Suffolk. Secondly, human skills on the CT&S Joure site are available to deal with expansion. Thirdly, a strategic management decision for reducing the contingency risk, restricts the volumes to be produced on the CT&S Joure plant. When production is situated on one location mainly, a contingency can disturb supply. This means production volumes on the CT&S plant do not exceed a certain upper level even when demand growth appears to be higher, compared to the qualitative forecasts.

5.2.3. Planning strategy and demand management

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5.2.4. Final production plan

The above mentioned factors and issues are incorporated in the production plan for 2009 to 2015, shown in table 5.1. Volumes in the production plan, together with the product load profile, determine for which critical work centers capacity actions are needed. These capacity actions can result in equipment to be added.

5.3. Product load profile

The product load profile gives, for each critical work centre, the capacity needed to make a certain amount of product. Before making the product load profile, a choice has to be made for the capacity measure. Choice of capacity measure is an important management issue, where alternatives run from machine- or labour hours to physical or monetary units (Vollmann et al., 1997). For CT&S the unit of measure is machine hours. In this paragraph the model used to prepare the product load profile and the final product load profile is provided.

5.3.1. Model to determine the product load profile

To calculate the product load profile, a model is developed using a spreadsheet. Several calculations are performed for different product families and critical work centers. In this sub paragraph an overview of calculations is provided where the critical work center extraction and the demarcated freeze dry production process are used as an example. The critical work center and freeze dry production process is visualized in figure 5.1. Extraction is a batch process, in each batch (cylinder / battery) a certain amount of mass solids (C-phase) is extracted, resulting in the liquid F-phase.

Battery 2/3/4/5/6

F phase C phase

K phase (spray dry)

In appendix 12, volumes (in mass solids) per product are visualized for the C- and F-phase (see fig 5.1). Volumes are calculated by using the BOM (appendix 28), the product mix and volumes of financial year 2009 (appendix 2). In table 5.2 this information is presented per extraction technique (standard, TQL and IQ) instead of per product. The technique used for extraction is important since the technique used influences capacity of batteries. Yield and Cylinder filling in this table are weighted averages. Data is derived from visual fox pro (vfp), a production monitoring program and SAP, an ERP program.

Table 5.1: production plan (*103 kg instant or *103 litre liquid product)

2009 2010 2011 2012 2013 2014 2015

Spray dry 514 514 514 514 514 514 514

Agglo 1.350 1.350 1.350 1.350 1.350 1.350 1.350

Freeze Dry ex Russia 4.292 4.592 4.914 5.258 5.626 6.020 6.441

Freeze Dry Russia 1.800 2.400 3.092 3.928 4.651 5.116 5.628

Instants total 7.956 8.856 9.870 11.050 12.141 13.000 15.948

Liquids Freeze 12.240 13.008 13.810 14.676 15.610 16.471 17.389

Liquids Ambiënt 25 100 200 300 400 500 600

Liquids total 12.265 13.108 14.010 14.976 16.010 16.971 17.989

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In table 5.3 OEE numbers, cylinder filling and available time are presented for each battery. Where the number of cylinders per hour, 2.07, is equal for each battery and the time available results from equation 4.2. By multiplying OEE numbers, the cylinder filling, cylinders per hour and yield, the output capacity in kg/h solids per cylinder, per extraction technique is calculated.

5.3.2. Final product load profile

After determining the output capacity in kg/hr per cylinder, per extraction technique, the product load profile can be calculated. The product load profile is measured in hours needed on a critical work center to produce a certain amount of final product. Again extraction is used to clarify steps performed. First, using the bill of materials, the output capacity in kg/h F-phase solids (as presented in table 5.3), is transformed to kg/h final product solids. With this number the hours needed on a specific battery can be calculated given a certain amount of final product.

Since similar capacities have to be grouped (Olhager et al., 2001), for the critical work center extraction individual cylinders are grouped. To do this first, since output per hour on a relative small battery is low compared to a relative large battery, hours per specific battery are transformed to standard battery hours. With using the product mix and planning rules similar capacities are grouped. Planning rules are for example that liquid products are produced on battery 6 preferably and that products produced with the IQ or TQL technique can not be produced on batteries 2 and 3. The final product load profile is visualized in table 5.4.

Table 5.3: OEE numbers & output capacity in kg/h solids

Master plan for future layout developments “