ch08- service operation management
TRANSCRIPT
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OperationsOperations
ManagementManagement
Location StrategiesLocation Strategies
Chapter 8Chapter 8
Industrial Location DecisionsIndustrial Location Decisions
Costfocus Revenue varies little
between locations
Location is a major
cost factor Affects shipping &
production costs (e.g., labor)
Costs vary greatly between
locations
1995 Corel Corp.
Service Location DecisionsService Location Decisions
Revenue focus Costs vary little between market areas
Location is a major
revenue factor Affects amount of
customer contact
Affects volume of
business
Location Decision SequenceLocation Decision Sequence
Country
1995CorelCorp.
Region/Community
1995 Corel Corp.
Site
1995CorelCorp.
Factors Affecting CountryFactors Affecting Country
Government rules, attitudes,
political risk, incentives
Culture & economy
Market location
Labor availability, attitudes,
productivity, and cost
Availability of supplies,
communications, energy
Exchange rates and currency
risks
1995 Corel Corp.
Region Location DecisionsRegion Location Decisions 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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Factors Affecting SiteFactors Affecting Site
Site size and cost
Air, rail, highway, and
waterway systems
Zoning restrictions
Nearness of
services/suppliesneeded
Environmental
impact issues
1995 Corel Corp.
Location Evaluation MethodsLocation Evaluation Methods
Factor-rating method
Locational break-even
analysis
Center of gravity method
Transportation model
1995 Corel Corp.
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
Steps in Factor Rating MethodSteps in Factor Rating Method
List relevant factors
Assign importance weight to each factor (suchas 0 1)
Develop scale for each factor (such as 1 100)
Score each location using factor scale
Multiply scores by weights for each factor & total
Select location with maximum total score
Problem 8.9Problem 8.90.15*90=13.5
13.5+9.5+24+9+18+7.5=81.5
Method of cost-volume analysis used for industriallocations
Steps Determine fixed & variable costs for each location
Plot total cost for each location (Cost on vertical axis,Annual Volume on horizontal axis)
Select location with lowest total cost for expectedproduction volume Must be above break-even
Locational BreakLocational Break--Even AnalysisEven Analysis
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Locational BreakLocational Break--Even AnalysisEven AnalysisExampleExample
Youre an analyst for AC Delco. Youreconsidering a new manufacturing plant in Akron,Bowling Green, or Chicago. Fixed costs per yearare $30k, $60k, & $110k respectively. Variablecosts per case are $75, $45, & $25 respectively.
The price per case is $120. What is the bestlocation for an expected volume of 2,000 casesper year?
1995 Corel Corp.
Locational BreakLocational Break--Even CrossoverEven CrossoverChartChart
0
50000
100000
150000
200000
0 500 1000 1500 2000 2500 3000
Volume
AnnualCost
Akron
Chicago
Bowling
Green
Bowling Green
lowest cost
Chicago
lowestcost
Akron
lowest cost
Center of Gravity MethodCenter of Gravity Method
Finds location ofsingle distribution center
serving several destinations
Used primarily for services
Center of Gravity Method StepsCenter of Gravity Method Steps
Place existing locations on a coordinate grid
Grid has arbitrary origin & scale
Maintains relative distances
Calculate X& Ycoordinates for center of gravity
Gives location of distribution center
Minimizes transportation cost
Center of Gravity Method EquationsCenter of Gravity Method Equations
dix = x coordinate of
location i
Wi = Volume of
goods moved to or from
location i
diy = y coordinate of
location i
X Coordinate
Y Coordinate
=
ii
iiix
xW
Wd
C
=
ii
iiiy
yW
Wd
C
Coordinate Locations of FourCoordinate Locations of Four
QuainQuains Department Stores ands Department Stores andthe Center of Gravitythe Center of GravityContainershipped: 2000
1000
1000
2000
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20001000
1000
2000
X coordinate= (30*2000+ 90*1000+130*1000+ 60*2000)/(2000+1000+1000+2000)=66.7
Y coordinate= (120*2000+110*1000+130*1000+40*2000)
/(2000+1000+1000+2000)=93.3