© 2007 Pearson Education Location Chapter 11. © 2007 Pearson Education How Location fits the Operations Management Philosophy Operations As a Competitive

© 2007 Pearson Education

Location

Chapter 11


How Location fits the Operations Management

Philosophy

Operations As a Competitive Weapon

Operations StrategyProject Management Process Strategy

Process AnalysisProcess Performance and Quality

Constraint ManagementProcess LayoutLean Systems

Supply Chain StrategyLocation

Inventory ManagementForecasting

Sales and Operations PlanningResource Planning

Scheduling


BMW

In the late 1980’s fluctuating exchange rates and rising costs convinced BMW that it was time to consider operating a new production facility outside the European borders.

A “blank page” approach was used to compile a list of 250 potential worldwide sites. Analysis pared the list down to 10 options; a location in the United States was preferred due to its proximity to a large market segment for BMW’s automobiles.

BMW spent 3 1/2 years considered the labor climate, port and road access, geographical requirements and constraints, airport access, and its relations with the governments.

The plant was located in Spartanburg, SC, and now employs approximately 4,700 workers who produce more than 500 vehicles a day.


Location Decisions

Facility location is the process of determining geographic sites for a firm’s operations.

Location decisions affect processes throughout the organization. Marketing must assess how the location will appeal to

customers; possibly opening new markets.

Human Resources must be attuned to the firm’s hiring and training needs.

Accounting and Finance must evaluate costing.

Operations needs to be able to meet current customer demand and provide the right amount of customer contact.


Factors Affecting Location Decisions

Managers must weigh many factors when assessing the desirability of particular locations.

The factor must be sensitive to location.

The factor must have a high impact on the company’s ability to meet its goals.


Dominant Factors in Manufacturing

Favorable labor climate. May be most important factor in labor-intensive industries

Proximity to markets. Important when outbound transportation rates are high.

Quality of life. Good schools, recreational facilities, cultural events and attractive lifestyle.

Proximity to suppliers and resources. Important when inbound transportation costs are high.

Proximity to the parent company’s facilities. Important when coordination and communication is critical.

Utilities, taxes, and real estate costs.


Dominant Factors in Services

Proximity to customers. How conveniently customers can carry on business with a firm.

Transportation costs and proximity to markets. Especially for warehousing and distribution

operations. Location of Competitors. Estimating the sales

potential and impact of competition. Critical mass is a situation whereby several competing

firms clustered in one location attract more customers than the total number who would shop at the same stores at scattered locations.

Site-Specific Factors. Including residential density, traffic flow, and site visibility.


Geographical Information Systems and Location Decisions

Geographical information system (GIS) is a system of computer software, hardware, and data that the firm’s personnel can use to manipulate, analyze, and present information relevant to a location decision. It can be used to: Store databases Display maps Create models that can take information from existing

datasets, apply analytic functions, and write results into new derived datasets.

Together, these three functionalities of data storage, map displays, and modeling are critical parts of an intelligent GIS, used to a varying extent in all GIS applications.


GIS and Site Selection in the Fast Food Industry

Until recently, fast-food chains used consultants to analyze geodemographic data (demographic data in conjunction with geographic location) for strategic planning, and making franchise location.

Now with the availability of easy-to-use, low cost, GIS systems that can be operated on a regular PC, small and large fast-food chains are doing it on their own.

These programs can estimate the total dollars up for grabs in a market by analyzing local age and income data from the U.S. Census Bureau as well as sales data from stores in an area.

The programs can also tell the optimal number and locations of stores in a market, and how much in sales a store can expect. Analyses can be run for any U.S. market and can rank markets in order of viability.


Using GIS to Identify Starbucks Locations

The Starbuck store addresses within 20 miles of Hamilton, Ontario were obtained from the Starbucks Web site, and imported into MapPoint.

These store locations are denoted on maps by yellow dots. Then demographics that come with MapPoint were overlaid on the map.

On the first map, note that Oakville has more store locations than Hamilton even though it has lower population density, suggesting that store location is not being driven by population density alone.

The second map shows the demographics by average per capita household income. Note that in this case, the store locations are based in more affluent areas.


Population density per square kilometer for each census subdivision.

Population density per square kilometer for each census subdivision.

Starbucks locationsStarbucks locations


Per Capita Household Income Map

Per Capita Household Income Map


Onsite Expansion, New Location, or Relocation

Managers must first decide whether to expand onsite, build another facility, or relocate to another site.

Onsite expansion has the advantage of keeping people together, reducing construction time and costs, and avoiding splitting up operations. However, as a firm expands a facility, at some point

diseconomies of scale set in.

A new plant allows it to hire more employees, install newer, more-productive machinery and better technology, and reduce transportation costs. Most firms that choose to relocate are small (comprised of

less than 10 employees). More than 80 percent of all relocations are made within 20

miles of companies’ original locations, which enables the firms to retain their current employees.


Tyler Emergency Medical Services (EMS)

Example 11.1

The locations of the two existing EMS facilities in Tyler, Texas are shown on the following map.

The population density for each of the city’s tracts is also shown. The darker red areas have up to 5,000 people per square mile.

The southeast part of Tyler, census tract 18.03, has experienced rapid growth, with its population almost doubling in the last twelve years.

The residents of this tract have complained that it takes too long for the EMS vehicles to reach them.


Population Density of Tyler, Texas

Population Density of Tyler, Texas

EMS locations

EMS locations

Areas of rapid growth.Areas of rapid growth.


A general guideline for locating EMS facilities in urban areas is that an EMS vehicle should be able to answer 95 percent of its calls within 10 minutes in tracts that have a population density of 1,000 people per square mile. Census tract 7, on the west side of the city with a

population density of 967 people per square mile, should be included in the study as well.

Thus, the census tracts that are as dark as or darker than census tract 7, should be within a 10-minute drive time zone of an EMS facility.

Where should EMS locate three facilities so as to meet its coverage goals for Tyler?

Tyler Emergency Medical Services (EMS) Location


Census Track 7Census Track 7

With MapPoint, it is easy to calculate a drive time zone by just selecting the pushpin and going under “Tools” on the menu bar to select drive time zone in terms of the number of minutes of drive time.

With MapPoint, it is easy to calculate a drive time zone by just selecting the pushpin and going under “Tools” on the menu bar to select drive time zone in terms of the number of minutes of drive time.

Some areas not in coverage zone.

10 minute response zones

10 minute response zones


Three EMS locations were chosen through a trial and error approach and evaluation using MapPoint.

Three EMS locations were chosen through a trial and error approach and evaluation using MapPoint.


Locating a Single Facility

When the facility is part of a firm’s larger network of facilities, we assume that there is no interdependence.

The process of selecting a new facility location involves a series of steps.1. Identify the important location factors and categorize

them as dominant or secondary.2. Consider alternative regions; then narrow the choices

to alternative communities and finally to specific sites.3. Collect data on the alternatives.4. Analyze the data collected, beginning with the

quantitative factors. 5. Bring the qualitative factors into the evaluation. The

site with the highest weighted score is best.


Location Factor Weight Score (W)(S)

Total patient miles per month 25 4 100Facility utilization 20 3 60Average time per emergency trip 20 3 60Expressway accessibility 15 4 60Land and construction costs 10 1 10Employee preference 10 5 50

Weighted Score 340

Health-Watch Preference Matrix

Example 11.2 A new medical facility, Health-Watch, is to be located in

Erie, Pennsylvania. The following table shows the location factors, weights, and

scores (1 = poor, 5 = excellent) for one potential site.


Application 11.1

WS =WS = WS =

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© 2007 Pearson Education Location Chapter 11. © 2007 Pearson Education How Location fits the Operations Management Philosophy Operations As a Competitive