MB202 POM 1 of Unit 2 Gurdeepak Jan 2012

7/31/2019 MB202 POM 1 of Unit 2 Gurdeepak Jan 2012

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1-1

Operations Management

MB 202Production and Operations Management

1 of Unit 2

Location & Capacity Planning, ProductionPlanning & Control, Work Study

Facility & Capacity Planning, PPC and Work StudySlide 1 of Unit 2 MB-202 POM ~Gurdeepak 2011~

William J. Stevenson

8th edition

Gurdeepak Singh

GJIMTMohali


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1-2

OperationsOperations


LocationLocation StrategiesStrategies


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1-4

OutlineOutline -- ContinuedContinued

METHODS OF EVALUATING LOCATION ALTERNATIVES

The Factor-Rating Method Locational Break-Even Analysis

Center-of-Gravity Method


SERVICE LOCATION STRATEGY

How Hotel Chains Select Sites

The Telemarketing Industry

Geographic Information Systems


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1-5

Learning ObjectivesLearning Objectives

When you complete this, you should be able to :

Identify or Define: Objective of location strategy International location issues Clustering Geographic Information Systems

Describe or ex lain:


Three methods of solving the location problem

Factor-rating method

Locational breakeven analysis

Center -of-gravity method

Describe the factors affecting location decisions


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Federal ExpressFederal Express

Stresses hub concept

Advantages: enables service to more locations with fewer aircraft

enables matching of aircraft flights with package loads


re uces m s an ng an e ay n trans t ecause t ere s totacontrol of packages from pickup to delivery


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Objective of Location StrategyObjective of Location Strategy

Maximize the benefit of location

to the firm



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1-8

Industrial Location DecisionsIndustrial Location Decisions

Costfocus

Revenue varies littlebetween locations


oca on s a ma orcost factor Affects shipping &

production costs (e.g., labor) Costs vary greatly between

locations

1995 Corel Corp.


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1-9

Service Location DecisionsService Location Decisions

Revenue focus Costs vary little between market areas

Location is a major


eve ue ac o Affects amount of

customer contact

Affects volume of

business


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1-10

In GeneralIn General -- Location DecisionsLocation Decisions

Long-term decisions

Difficult to reverse

Affect fixed & variable costs


Transportation cost As much as 25% of product price

Other costs: Taxes, wages, rent etc.

Objective:Maximize benefit of location to firm


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1-11

Location Decision SequenceLocation Decision Sequence

Country Region/Community


1995CorelCorp.

1995 Corel Corp.

1995CorelCorp.


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1-12

Factors Affecting CountryFactors Affecting Country

Government rules, attitudes, politicalrisk, incentives

Culture & economy

Market location

Labor availability, attitudes,


Availability of supplies,communications, energy

Exchange rates and currency risks

1995 Corel Corp.


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1-13

Region Location DecisionsRegion Location Decisions

Corporate desires

Attractiveness of region (culture,

taxes, climate, etc.) Labor, availability, costs, attitudes

towards unions


Costs and availability of utilities Environmental regulations of state

and town

Government incentives

Proximity to raw materials &customers

Land/construction costs 1995 Corel Corp.


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1-14

Factors Affecting SiteFactors Affecting Site

Site size and cost

Air, rail, highway,and waterway

s stems


Zoning restrictions

Nearness of

services/supplies

needed Environmental

impact issues

1995 Corel Corp.


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1-15

Location Decision ExampleLocation Decision Example

BMW decided tobuild its firstmajor


manufacturingplant outsideGermany in

Spartanburg,South Carolina.

1995 Corel Corp.


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1-16

Country Decision FactorsCountry Decision Factors

Market location

U.S. is worlds largestluxury car market

Growing (baby boomers)

Other Lower shipping cost($2,500/car less)

New plant & equipmentwould increase productivity


Lower manufacturing laborcosts $17/hr. (U.S.) vs. $27

(Germany)

Higher labor productivity 11 holidays (U.S.) vs.

31 (Germany)

, -


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1-17 Region/Community DecisionRegion/Community DecisionFactorsFactors

Labor Lower wages in South Carolina (SC)

Government incentives


m on n s a e oca ax rea s

Free-trade zone from airport to plant No duties on imported components or on exported cars


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TIPIf you do not understandsomething,

ask me!



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1-19

CSF in Location AnalysisCSF in Location Analysis

Critical Success Factors Country1

Country

2

Country

3

Country

4Technology

Rate of technology change

Innovations in process design

3

55

3

2

11

5Level of education


Number of skilled workersNational education rate

54

41

31

42

Political and Legal Aspects

Stability of governmentProduct liability laws

Export restrictions

54

4

53

3

23

3

55

1


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CSF in Location AnalysisCSF in Location Analysis -- ContinuedContinued

Critical Success Factors Country1

Country2

Country3

Country4Social and Cultural Aspects

Similarity in language

Work ethic

5

4

1

2

5

3

4

1

Economic factors


Total Rating Points 50 43 35 48

Tax rates

Inflation

Availability of raw materials

Interest rates

3

3

2

3

3

5

4

4

2

5

3

2

5

5

5

5


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Global Competitiveness of CountriesGlobal Competitiveness of Countries

Finland... United States ...

Netherlands... Germany... Canada .

12

34

11

2001 Ranking


....

Brazil .. .. Russia .. Ecuador ..... Bangladesh ... Honduras .. Bolivia.....

35

58

72737475


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1-22

Ranking CorruptionRanking Corruption

Rank Score

1 Finland 9.9

2 Denmark 9.53 New Zealand 9.4

4 Singapore 9.2

A score of 10represents

corruption free


srae . .(Tied)

.

21 Japan 7.1

57 China 3.5

79 Russia 2.390 Nigeria 1.0

91 Bangladesh 0.4

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1-23Organizations That Need To BeOrganizations That Need To Be

Close to MarketsClose to Markets

Government agencies Police & fire departments Post Office

Retail Sales and Service


Fast food restaurants, supermarkets, gas stations Drug stores, shopping malls

Bakeries

Services Doctors, lawyers, accountants, barbers

Banks, auto repair, motels

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1-24

Location Evaluation MethodsLocation Evaluation Methods

Factor-rating method

Locational break-even analysis


Center of gravitymethod

Transportation model

1995 Corel Corp.

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FactorFactor--Rating MethodRating Method

Most widely used location technique

Useful for service & industrial locations

Rates locations using factors

Tangible (quantitative) factors


Example: Short-run & long-run costs

Intangible (qualitative) factors

Example: Education quality, labor skills

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Factors Affecting Location SelectionFactors Affecting Location Selection

Labor costs (including wages, unionization,

productivity) Labor availability (including attitudes, age,


,

Proximity to raw materials and suppliers

Proximity to markets

Government fiscal policies (includingincentives, taxes, unemploymentcompensation)

1-27t ff ti ti S l tit ff ti ti S l ti


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1-27Factors Affecting Location SelectionFactors Affecting Location Selection --

ContinuedContinued

Environmental regulations

Utilities (including gas, electric, water, andtheir costs)


e cos s nc u ng an , expans on, par ng,drainage)

Transportation availability (including rail, air,

water, and interstate roads)

1-28F t Aff ti L ti S l tiF t Aff ti L ti S l ti


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1 28Factors Affecting Location SelectionFactors Affecting Location Selection --

ContinuedContinued

Quality-of-life issues in the community

(including all levels of education, cost of living,health care, sports, cultural activities,


, , ,

facilities)

Foreign exchange Including rates and stability

Quality of government (including stability,

honesty, attitudes toward new business - whether

overseas or local)

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1 29

Steps in Factor Rating MethodSteps in Factor Rating Method

List relevant factors

Assign importance weight to each factor (such as 0 1)

Develop scale for each factor (such as 1 100)

Score each location using factor scale


Mu t p y scores y we ghts or each actor & tota Select location with maximum total score

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1 30

Method of cost-volume analysis used for

industrial locations Steps

Determine fixed & variable costs for each

LocationalLocational BreakBreak--Even AnalysisEven Analysis


location Plot total cost for each location (Cost on

vertical axis, Annual Volume on horizontalaxis)

Select location with lowest total cost forexpected production volume Must be above break-even

1-31 LocationalLocational BreakBreak Even AnalysisEven Analysis


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LocationalLocational BreakBreak--Even AnalysisEven AnalysisExampleExample

Youre an analyst for MICO. Youre considering a

new manufacturing plant in Patiala, Ludhiana, orChandigarh. Fixed costs per year are $30k, $60k,& $110k respectively. Variable costs per case are


, , .

$120. What is the best location for an expectedvolume of 2,000 cases per year?

1995 Corel Corp.

1-32Locational BreakLocational Break Even CrossoverEven Crossover


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Locational BreakLocational Break--Even CrossoverEven CrossoverChartChart

100000

150000

200000

ualCost


0

50000

0 500 1000 1500 2000 2500 3000

Volume

A

nn

Ludhianalowest cost

Chandigarhlowest cost

Patialalowest cost

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Center of Gravity MethodCenter of Gravity Method

Finds location ofsingle distribution center

serving several destinations Used primarily for services


ons ers Location of existing destinations

Example: Markets, retailers etc.

Volume to be shipped Shipping distance (or cost)

Shipping cost/unit/mile is constant

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Center of Gravity Method StepsCenter of Gravity Method Steps

Place existing locations on a coordinate grid

Grid has arbitrary origin & scale

Maintains relative distances


CalculateX& Ycoordinates for center ofgravity

Gives location of distribution center

Minimizes transportation cost

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C t f G it M th d E tiC t f G it M th d E ti


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Center of Gravity Method EquationsCenter of Gravity Method Equations

dix = x coordinate of

location i

=

X Coordinate

=

i

iiix

xW

Wd

C


moved to or from location i

diy = y coordinate of

location i

Y Coordinate

=

ii

i

iiy

yW

Wd

C

1-36Coordinate Locations of FourCoordinate Locations of Four QuainsQuains


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Coordinate Locations of FourCoordinate Locations of Four Quain sQuain sDepartment Stores and the Center of GravityDepartment Stores and the Center of Gravity


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Transportation ModelTransportation Model

Finds amount to be shipped from severalsources to several destinations

Used primarily for industrial locations Type of linear programming model


ect ve: n m ze tota pro uct on& shipping costs

Constraints

Production capacity at source (factory) Demand requirement at destination

1-38Worldwide Distribution of VolkswagensWorldwide Distribution of Volkswagens


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Worldwide Distribution of VolkswagensWorldwide Distribution of Volkswagens

and Partsand Parts


1-39Components of Volume and RevenueComponents of Volume and Revenue


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Components of Volume and RevenueComponents of Volume and Revenuefor a Service Firmfor a Service Firm

1. Purchasing power of customer drawing area

2. Service and image compatibility with demographics of thecustomer drawing area

3. Competition in the area


. Qua ty o the compet t on

5. Uniqueness of the firms and competitors locations

6. Physical qualities of facilities and neighboring businesses

7. Operating policies of the firm8. Quality of management

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TIPIf you do not understand

something,

ask me!


1-41Location StrategiesLocation Strategies Service vs.Service vs.


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Location StrategiesLocation Strategies Service vs.Service vs.IndustrialIndustrial

Service/Retail/Professional

Revenue Focus

o Volume/revenueo Drawing area, purchasing powero Competition; advertising/pricing

Goods-Producing LocationCost Focus

Tangible costso Transportation cost of raw

materials

o Shipment cost of finished goods


o Parking/access; security/ lighting;appearance/image

o Cost determinantso Rent

o Management caliber

o Operations policies (hours, wagerates)

o Energy and utility cost; labor; raw

material; taxes, etc.o Intangible and future costs

o Attitude toward union

o Quality of life

o Education expenditures by stateo Quality of state and local

government

1-42Location StrategiesLocation Strategies


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oca o S a eg esoca o S a eg esService vs. IndustrialService vs. Industrial

Service/Retail/ProfessionalTechniques

o Regression models to determineimportance of various factors

o Factor-rating method

Goods Producing LocationTechniques

o Linear Programming(Transportation method)

o Factor-rating method


o ra c coun s

o Demographic analysis of drawingarea

o Purchasing power analysis of

drawing areao Center of gravity method

o Geographic information systems

o Locational breakeven

analysis

o Crossover charts

1-43Location StrategiesLocation Strategies


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ggService vs. IndustrialService vs. Industrial

Service/Retail/ProfessionalAssumptions

o Location is a major determinate ofrevenue

o High customer-contact issues are

Goods-Producing LocationAssumptions

o Location is a majordeterminate of cost

o Most major costs can be


cr t ca

o Costs are relatively constant for a

given area; therefore, the revenue

function is critical

identified explicitly for each

site

o Low customer contact allows

focus on identifiable costs

o Intangible costs can beevaluated

1-44Telemarketing and InternetTelemarketing and Internet


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ggIndustriesIndustries

Require neither face-to-face contact with

customers (or employees) nor movement of

material

Presents a whole new perspective on the location


problem

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Final ThoughtFinal Thought


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Final ThoughtFinal Thought

The ideal location for

many companies in thefuture will be a floating


go from port to port,from country to

country wherevercostper unit is lowest.

1995 Corel Corp.

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MB202 POM 1 of Unit 2 Gurdeepak Jan 2012

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