8-1 Location Planning and Analysis

William J. Stevenson

Operations Management

8th edition

8-2 Location Planning and Analysis

CHAPTER8

Location Planning and Analysis

McGraw-Hill/IrwinOperations Management, Eighth Edition, by William J. StevensonCopyright © 2005 by The McGraw-Hill Companies, Inc. All rights

reserved.

8-3 Location Planning and Analysis

Need for Location DecisionsNeed for Location Decisions Marketing Strategy Cost of Doing Business Growth Depletion of Resources

8-4 Location Planning and Analysis

Nature of Location DecisionsNature of Location Decisions Strategic Importance

Long term commitment/costs Impact on investments, revenues, and operations Supply chains

Objectives Profit potential No single location may be better than others Identify several locations from which to choose

Options Expand existing facilities Add new facilities Move

8-5 Location Planning and Analysis

Making Location DecisionsMaking 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 FactorsLocation Decision Factors

Regional Factors

Site-related Factors

Multiple Plant Strategies

Community Considerations

8-7 Location Planning and Analysis

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

Regional FactorsRegional Factors

8-8 Location Planning and Analysis

Quality of life Services Attitudes Taxes Environmental regulations Utilities Developer support

Community ConsiderationsCommunity Considerations

8-9 Location Planning and Analysis

Land Transportation Environmental Legal

Site Related FactorsSite Related Factors

8-10 Location Planning and Analysis

Product plant strategy Market area plant strategy Process plant strategy

Multiple Plant StrategiesMultiple Plant Strategies

8-11 Location Planning and AnalysisComparison of Service and Comparison of Service and Manufacturing ConsiderationsManufacturing Considerations

Manufacturing/Distribution Service/Retail

Cost Focus Revenue focus

Transportation modes/costs Demographics: age,income,etc

Energy availability, costs Population/drawing area

Labor cost/availability/skills Competition

Building/leasing costs Traffic volume/patterns

Customer access/parking

Table 8.2

8-12 Location Planning and Analysis

Trends in LocationsTrends 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

ForeignGovernment

a. Policies on foreign ownership of production facilitiesLocal ContentImport restrictionsCurrency restrictionsEnvironmental regulationsLocal product standards

b. Stability issuesCulturalDifferences

Living circumstances for foreign workers / dependentsReligious holidays/traditions

CustomerPreferences

Possible buy locally sentiment

Labor Level of training and education of workersWork practicesPossible regulations limiting number of foreign employeesLanguage differences

Resources Availability and quality of raw materials, energy,transportation

Table 8.3

8-14 Location Planning and Analysis

Evaluating LocationsEvaluating 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 AnalysisLocation 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 AnalysisExample 1: Cost-Volume Analysis

Fixed and variable costs for four potential locations

L o c a t i o n F i x e dC o s t

V a r i a b l eC o s t

ABCD

$ 2 5 0 , 0 0 01 0 0 , 0 0 01 5 0 , 0 0 02 0 0 , 0 0 0

$ 1 13 02 03 5

8-17 Location Planning and Analysis

Example 1: SolutionExample 1: Solution

F i x e dC o s t s

V a r i a b l eC o s t s

T o t a lC o s t s

ABCD

$ 2 5 0 , 0 0 01 0 0 , 0 0 01 5 0 , 0 0 02 0 0 , 0 0 0

$ 1 1 ( 1 0 , 0 0 0 )3 0 ( 1 0 , 0 0 0 )2 0 ( 1 0 , 0 0 0 )3 5 ( 1 0 , 0 0 0 )

$ 3 6 0 , 0 0 04 0 0 , 0 0 03 5 0 , 0 0 05 5 0 , 0 0 0

8-18 Location Planning and Analysis

Example 1: SolutionExample 1: Solution

800700600500400300200100

0

Annual Output (000)

$(000)

8 10 12 14 166420

A

BC

B SuperiorC Superior

A Superior

D

8-19 Location Planning and Analysis

Evaluating LocationsEvaluating Locations Transportation Model

Decision based on movement costs of raw materials or finished goods

Factor Rating Decision based on quantitative and qualitative

inputs Center of Gravity Method

Decision based on minimum distribution costs

8-20 Location Planning and Analysis

Design/FacilityDesign/Facility

STA04

Layout choices at St. Alexius Hospital

8-21 Location Planning and Analysis

Flow Charts/AssessmentFlow Charts/Assessment

BP3

Example, Tri State Industries

8-22 Location Planning and Analysis

Team/Visual/SystemTeam/Visual/System

PI6

Interview at McDonalds