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8-1

Location Planning and Analysis

Operations Management

William J. Stevenson

8th edition

8-2

Location Planning and Analysis

CHAPTER

8

Location Planning and Analysis

McGraw-Hill/Irwin

Operations Management, Eighth Edition, by William J. Stevenson Copyright 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

8-3

Location Planning and Analysis

Need for Location Decisions

Marketing Strategy Cost of Doing Business Growth Depletion of Resources

8-4

Location Planning and Analysis

Nature of Location DecisionsLong term commitment/costs Impact on investments, revenues, and operations Supply chains Profit potential No single location may be better than others Identify several locations from which to choose Expand existing facilities Add new facilities Move

Strategic Importance

Objectives

Options

8-5

Location Planning and Analysis

Making Location Decisions

Decide on the criteria Identify the important factors Develop location alternatives Evaluate the alternatives Make selection

8-6

Location Planning and Analysis

Location Decision FactorsCommunity Considerations

Regional Factors

Multiple Plant Strategies

Site-related Factors

8-7

Location Planning and Analysis

Regional Factors

Location of raw materials Location of markets Labor factors Climate and taxes

8-8

Location Planning and Analysis

Community Considerations

Quality of life Services Attitudes Taxes Environmental regulations Utilities Developer support

8-9

Location Planning and Analysis

Site Related Factors

Land Transportation Environmental Legal

8-10 Location Planning and Analysis

Multiple Plant Strategies

Product plant strategy Market area plant strategy Process plant strategy

8-11 Location Planning and Analysis

Comparison of Service and Manufacturing ConsiderationsService/RetailRevenue focus Demographics: age,income,etc Population/drawing area Competition Traffic volume/patterns

Table 8.2 Manufacturing/DistributionCost Focus Transportation modes/costs Energy availability, costs Labor cost/availability/skills Building/leasing costs

Customer access/parking

8-12 Location Planning and Analysis

Trends in Locations

Foreign producers locating in U.S.

Made in USA Currency fluctuations

Just-in-time manufacturing techniques Microfactories Information Technology

8-13 Location Planning and Analysis

Table 8.3Foreign Government a. Policies on foreign ownership of production facilities Local Content Import restrictions Currency restrictions Environmental regulations Local product standards b. Stability issues Living circumstances for foreign workers / dependents Religious holidays/traditions Possible buy locally sentiment

Cultural Differences Customer Preferences Labor

Resources

Level of training and education of workers Work practices Possible regulations limiting number of foreign employees Language differences Availability and quality of raw materials, energy, transportation

8-14 Location Planning and Analysis

Evaluating Locations

Cost-Profit-Volume Analysis

Determine fixed and variable costs Plot total costs Determine lowest total costs

8-15 Location Planning and Analysis

Location Cost-Volume Analysis

Assumptions

Fixed costs are constant Variable costs are linear Output can be closely estimated Only one product involved

8-16 Location Planning and Analysis

Example 1: Cost-Volume Analysis

Fixed and variable costs for four potential locationsL o c a tio n A B C D F ix e d C ost $ 2 5 0 ,0 0 1 0 0 ,0 0 1 5 0 ,0 0 2 0 0 ,0 0 V a r ia b le C ost $11 30 20 35

0 0 0 0

8-17 Location Planning and Analysis

Example 1: SolutionVariable Costs $11(10,000) 30(10,000) 20(10,000) 35(10,000) Total Costs $360,000 400,000 350,000 550,000

Fixed Costs A B C D $250,000 100,000 150,000 200,000

8-18 Location Planning and Analysis

Example 1: Solution

$(000) 800 700 600 500 400 300 200 100 0 0

D B C AA Superior C Superior B Superior

2

4

6

8

10

12

14

16

Annual Output (000)

8-19 Location Planning and Analysis

Evaluating Locations

Transportation Model

Decision based on movement costs of raw materials or finished goods Decision based on quantitative and qualitative inputs

Factor Rating

Center of Gravity Method

Decision based on minimum distribution costs

8-20 Location Planning and Analysis

Design/Facility

STA04 Layout choices at St. Alexius Hospital

8-21 Location Planning and Analysis

Flow Charts/Assessment

BP3 Example, Tri State Industries

8-22 Location Planning and Analysis

Team/Visual/System

PI6 Interview at McDonalds