8-1
Location Planning and Analysis
Operations Management
William J. Stevenson
8th edition
8-2
Location Planning and Analysis
CHAPTER
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 Decisions
Long 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 Factors
Community 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 Considerations
Service/Retail
Revenue focus Demographics: age,income,etc Population/drawing area Competition Traffic volume/patterns
Table 8.2 Manufacturing/Distribution
Cost 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 8.3
Foreign 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 locations
L 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: Solution
Variable 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 A
A Superior C Superior B Superior
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
