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Location Planning and Analysis

Operations Management

William J. Stevenson

8th edition

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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.

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Location Planning and Analysis

Need for Location Decisions

Marketing Strategy Cost of Doing Business Growth Depletion of Resources

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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

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Location Planning and Analysis

Making Location Decisions

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

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Location Planning and Analysis

Location Decision Factors

Community Considerations

Regional Factors

Multiple Plant Strategies

Site-related Factors

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Location Planning and Analysis

Regional Factors

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

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Location Planning and Analysis

Community Considerations

Quality of life Services Attitudes Taxes Environmental regulations Utilities Developer support

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Location Planning and Analysis

Site Related Factors

Land Transportation Environmental Legal

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Multiple Plant Strategies

Product plant strategy Market area plant strategy Process plant strategy

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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

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Trends in Locations

Foreign producers locating in U.S.

Made in USA Currency fluctuations

Just-in-time manufacturing techniques Microfactories Information Technology

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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

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Evaluating Locations

Cost-Profit-Volume Analysis

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

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Location Cost-Volume Analysis

Assumptions

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

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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

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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

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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)

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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

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Design/Facility

STA04 Layout choices at St. Alexius Hospital

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Flow Charts/Assessment

BP3 Example, Tri State Industries

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Team/Visual/System

PI6 Interview at McDonalds