11 Location - Krajewski

7/30/2019 11 Location - Krajewski

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2007 Pearson Education

Location

Chapter 11


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HowLocationfits the Operations Management

Philosophy

Operations As a CompetitiveWeapon

Operations StrategyProject Management Process StrategyProcess Analysis

Process Performance and QualityConstraint Management

Process LayoutLean Systems

Supply Chain StrategyLocation

Inventory ManagementForecasting

Sales and Operations PlanningResource Planning

Scheduling


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BMW

In the late 1980s fluctuating exchange rates and rising costsconvinced BMW that it was time to consider operating a newproduction facility outside the European borders.

A blank page approach was used to compile a list of 250potential worldwide sites. Analysis pared the list down to 10options; a location in the United States was preferred due to itsproximity to a large market segment for BMWs automobiles.

BMW spent 3 1/2 years considered the labor climate, port androad 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 500vehicles a day.


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Location Decisions

Facility location is the process of determininggeographic sites for a firms 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 firms hiring and

training needs.

Accounting and Finance must evaluate costing.

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


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Factors Affecting

Location Decisions

Managers must weigh many factors whenassessing the desirability of particularlocations.

The factor must be sensitive to location.

The factor must have a high impact on thecompanys ability to meet its goals.


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Dominant Factors in

Manufacturing

Favorable labor climate. May be most importantfactor 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. Importantwhen inboundtransportation costs are high.

Proximity to the parent companys facilities.Important when coordination and communication iscritical.

Utilities, taxes, and real estate costs.


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Dominant Factorsin Services

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

Transportation costs and proximity to markets.

Especially for warehousing and distributionoperations.

Location of Competitors. Estimating the salespotential and impact of competition. Critical mass is a situation whereby several competing

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

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


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Geographical InformationSystems and Location Decisions

Geographical information system (GIS) is asystem of computer software, hardware, and datathat the firms 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 existingdatasets, apply analytic functions, and write results into

new derived datasets. Together, these three functionalities of data

storage, map displays, and modeling are criticalparts of an intelligent GIS, used to a varyingextent in all GIS applications.


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GPS and Site Selection

in the Fast Food Industry

Until recently, fast-food chains used consultants to analyzegeodemographic data (demographic data in conjunctionwith geographic location) for strategic planning, and makingfranchise location.

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

These programs can estimate the total dollars up for grabsin a market by analyzing local age and income data fromthe 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 astore can expect. Analyses can be run for any U.S. marketand can rank markets in order of viability.


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Using GIS to Identify

StarbucksLocations

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

These store locations are denoted on maps by yellow dots.

Then demographics that come with MapPoint were overlaidon the map.

On the first map, note that Oakville has more store locationsthan 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 storelocations are based in more affluent areas.


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Population density persquare kilometer for eachcensus subdivision.

Starbuckslocations


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Per Capita HouseholdIncome Map


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Onsite Expansion,New Location, or Relocation

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

Onsite expansion has the advantage of keeping peopletogether, 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 20miles ofcompanies original locations, which enables the firms

to retain their current employees.


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Tyler EmergencyMedical 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 citys tracts

is also shown. The darker red areas have up to5,000 people per square mile.

The southeast part of Tyler, census tract 18.03, hasexperienced rapid growth, with its population

almost doubling in the last twelve years.

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


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Population Densityof Tyler, Texas

EMSlocations

Areas of rapidgrowth.


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A general guideline for locating EMS facilities inurban areas is that an EMS vehicle should beable to answer 95 percent of its calls within 10

minutes in tracts that have a population density of1,000 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 darkerthan census tract 7, should be within a 10-minute drivetime zone of an EMS facility.

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

Tyler Emergency MedicalServices (EMS) Location


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Census Track 7

With MapPoint, it is easy tocalculate a drive time zone byjust selecting the pushpin andgoing under Tools on the menu

bar to select drive time zone interms of the number of minutes

of drive time.

Some areas not incoverage zone.

10 minuteresponsezones


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Three EMS locationswere chosen througha trial and errorapproach andevaluation usingMapPoint.


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Locating a Single Facility When the facility is part of a firms larger network

of facilities, we assume that there is nointerdependence.

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

them as dominant or secondary.

2. Consider alternative regions; then narrow the choicesto alternative communities and finally to specific sites.

3. Collect data on the alternatives.4. Analyze the data collected, beginning with the

quantitativefactors.

5. Bring the qualitativefactors into the evaluation. Thesite with the highest weighted score is best.


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Location Factor Weight Score (W)(S)

Total patient miles per month 25 4 100Facility utilization 20 3 60

Average time per emergency trip 20 3 60

Expressway accessibility 15 4 60Land and construction costs 10 1 10Employee preference 10 5 50

Weighted Score 340

Health-WatchPreference Matrix

Example 11.2

A new medical facility, Health-Watch, is to be located inErie, Pennsylvania.

The following table shows the location factors, weights, and

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


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Application 11.1

WS =WS = WS =


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Application 11.2Revisiting Distance Measures

Rectilinear Distance

dAB= |2080| + |10 60| = 110

Euclidian Distance

dAB= (2080)2 + (10 60)2

= 78.1

What is the distance between (20,10) and (80,60)?


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Applying the

Load-Distance Method

Loaddistance method: A mathematical model used toevaluate locations based on proximity factors.

A load may be shipments from suppliers, shipments betweenplants or to customers, or it may be customers or employees

traveling to or from the facility. The firm seeks to minimize its loaddistance (ld) score,

generally by choosing a location, so that large loads go shortdistances.

To calculate ldscore for any potential location, we use the

actual distance between any two points using a GIS system,and simply multiply the loads flowing to and from the facility bythe distances traveled.

ld lidii


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Application 11.3


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Application 11.3Solution


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Center of Gravity

Center of gravity:A good starting point to evaluatelocations in the target area using the load-distance model.

1. Determine the xand ycoordinates of different locationseither in the form of the longitude and latitude of the

locations, or by creating an (x, y) grid.2. The center of gravitys x-coordinate, denoted x*, is found

by multiplying each points x-coordinate (either thelongitude of the location or the x coordinate on a grid), byits load (li), summing these products (lixi), and then

dividing by the sum of the loads(

li).

The y-coordinate,denoted y*, is found the same way.

x

lixii

lii

and y

lii

yi

lii


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Finding the Center of GravityExample 11.3

The new Health-Watch facility is targeted to serve sevencensus tracts in Erie, PA. Customers will travel from theseven census-tract centers to the new facility when theyneed health care.

What is the target areas center of gravity for the Health-Watch medical facility?

We will use MapPoint in this solution and coordinates willbe represented in the form of latitude & longitude ratherthan an x, ygrid to calculate the center of gravity.

The target area is displayed on the map of Erie usingMapPoint. A pushpin is placed in the approximategeographical center of the census tracts. The locationsensor is then turned on and used to obtain thecoordinates.


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2007 Pearson Education 2007 Pearson Education

Finding the Center of Gravity for Health WatchCensus Tract Population Latitude Longitude Population Latitude Population Longitude

15 2,711 42.134 -80.041 114,225.27 -216,991.1516 4,161 42.129 -80.023 175,298.77 -332,975.70

17 2,988 42.122 -80.055 125,860.54 -239,204.34

25 2,512 42.112 -80.066 105,785.34 -201,125.79

26 4,342 42.117 -80.052 182,872.01 -347,585.78

27 6,687 42.116 -80.023 281,629.69 -535,113.80

28 6,789 42.107 -80.051 285,864.42 -543,466.24

Tota l 30,190 1,271,536.05 -2,416,462.81

x 1,271,536.05

30,190 42.1178

y 2,416,462.81

30,190 80.0418

x

lixii

lii

and y

lii

yi

lii

x* is the longitude and y* is the latitude for the center of gravity.


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CENSUS MAPOF ERIE, PA

Center of Gravityx,y coordinates:

42.1178, -80.4018


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Application 11.4

0.8301520

43012151120

i

i

i

ii

l

xl

x

5.5301520

5.1305.9155.820

i

i

i

ii

l

yl

y


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Using

Break-Even Analysis

Break-even analysis can help a managercompare location alternatives on the basis ofquantitative factors that can be expressed in

terms of total cost.1. Determine the variable costs and fixed costs foreach site.

2. Plot the total cost linesthe sum of variable andfixed costsfor all the sites on a single graph

3. Identify the approximate ranges for which eachlocation has the lowest cost.

4. Solve algebraically for the break-even pointsover the relevant ranges.


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Break-Even AnalysisExample 11.4

An operations manager has narrowed the search for a new facilitylocation to four communities.

The annual fixed costs (land, property taxes, insurance,

equipment, and buildings) and the variable costs (labor, materials,transportation, and variable overhead) are shown below.

Total costs are for 20,000 units.

Fixed Costs Variable Costs Total Costs

Community per Year per Unit (Fixed + Variable)A $150,000 $62 $1,390,000B $300,000 $38 $1,060,000C $500,000 $24 $ 980,000D $600,000 $30 $1,200,000


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2007 Pearson Education 2007 Pearson Education

C best

(20, 980)

B best

Break-even point

A

D

B

C

(20, 1390)

(20, 1200)

(20, 1060)

A best

6.25

Break-evenpoint

Q(thousands of units)

0

200

400

600

800

1000

1200

1400

1600

2 4 6 8 10 12 14 16 18 20 2214.3

Ann

ualcost(thousandsofdollars)

Fixed Costs Total CostsCommunity per Year (Fixed + Variable)

A $150,000 $1,390,000B $300,000 $1,060,000C $500,000 $ 980,000

D $600,000 $1,200,000

Step 1. Plot the total cost curvesfor all the communities on a singlegraph. Identify on the graph theapproximate range over which eachcommunity provides the lowest cost.


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Step 2. Using break-even analysis, calculatethe break-even quantities over the relevantranges. If the expected demand is 15,000 units

per year, what is the best location?(A) (B)

$150,000 + $62Q = $300,000 + $38Q

Q = 6,250 units

(B) (C)

$300,000 + $38Q = $500,000 + $24Q

Q = 14,286 units

Break-Even SolutionExample 11.4


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Application 11.5


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Application 11.5


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Locating a Facility within a

Network of Facilities

The use of GIS tools often simplifies the search for solutionwhen facilities are interacting.

1. Map the data for existing customers and facilities in the GIS.

2. Visually split the entire operating area into the number ofparts or sub-regions that equal the number of facilities to be

located.3. Assign a facility location for each region based on the visual

density of customer concentration or other factors.Alternately, determine the center of gravity for each part orsub-region determined in step 2 as the starting location point

for the facility in that sub-region.4. Search for alternate sites around the center of gravity to picka feasible location that meets the firm's managerial criteriasuch as proximity to major metropolitan areas or highways.

5. Compute total load-distance scores and perform capacitychecks before finalizing the locations for each region.


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Locating Multiples FacilitiesExample 11.5

Witherspoon Automotive delivers full truckloads of parts to itscustomers, and returns with a shipment of used automotiveparts for disassembly and remanufacturing.

The company presently operates out of two locations in theSoutheast--Spartanburg, South Carolina and Orlando, Florida.

Each of these locations has a re-manufacturing facility, alongwith an attached warehouse that serves as a distribution center(DC).

The Spartanburg facility covers a total of 362 customers inGeorgia, North Carolina, South Carolina, and parts of

Alabama, Tennessee and Virginia. The Orlando facility covers a total of 66 customers mostly in

Florida, and a small portion of Alabama and Georgia.

The Spartanburg DC and Orlando DC shipped 17,219 and4,629 full truckload respectively to their customers last year.


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Spartanburgservice area

Orlandoservice area


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Witherspoon Automotive has decided to close the Spartanburgfacility because of its age and obsolescence, and split theSpartanburg region into two new regions each with its ownmanufacturing and distribution center. Five important locationfactors that would impact their final decision are:

1. Quality of life: The new facilities should be located in a majormetropolitan area.

2. Distribution costs are a major determinant of profits, and sothe total load-distance score should be minimized.

3. Economies of scale: The size of the two new facilities shouldnot exceed a maximum of 9,500 truckloads of output per year.

4. The customer truckloads allocated between the two facilitiesshould be fairly balanced given the previous years demanddata.

5. Marketing has indicated that they are going to develop thenorthern Alabama market. Thus the new distribution networkshould be able to accommodate up to an additional 1,000 full

truckload shipments per year from the Alabama market.

Locating Multiple Facilitiesfor Witherspoon Automotive


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Locations & numberof full truckloadshipments delivered

last year in theSpartanburg region


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The next step was topartition the customersinto two regions, each with

a total demand of lessthan 9,500 truckloads

It seems reasonablefor the managementto locate one of thetwo new facilitiesnear Atlanta

The center ofthe 2nd region

is aroundDurham, North

Carolina.


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Four sites wereconsidered based oncenter of gravity and

load-distance measures.

Center ofGravity

The Concord site wasselected based onhighway access & travel.


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The Transportation Method

The transportation method is a quantitativeapproach that can help solve multiple-facilitylocation problems.

The transportation method does not solve allfacetsof the multiple-facility location problem.

It utilizes linear programming to minimize the cost

of shipping products from two or more plants, orsources of supply, to two or more warehouses, ordestinations.


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The first step in solving a transportation problem is toformat it in a standard matrix, sometimes called a tableau.

The basic steps in setting up an initial tableau are asfollows:

1. Create a row for each plant (existing or new) beingconsidered and a column for each warehouse.

2. Add a column for plant capacities and a row for warehousedemands and insert their specific numerical values.

3. Each cell not in the requirements row or capacity column

represents a shipping route from a plant to a warehouse.Insert the unit costs in the upper right-hand corner of eachof these cells.

The Transportation Method


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The Transportation MethodExample 11.6

The Sunbelt Pool Company has a plant in Phoenix and threewarehouses. It is considering building a new 500-unit plantbecause business is booming. One possible location is Atlanta.

The cost to ship oneunit from Atlanta toSan Antonio. Initial Tableau


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This optimal shipping pattern shows that Atlanta should supply all the demandfor Hot Springs and a third of the demand at Sioux Falls. Phoenix will supplyall the demand at San Antonio and two thirds of the demand at Sioux Falls.

A dummy columnor dummy row isnecessary if thesupply & demandare not equal.

The Transportation MethodExample 11.6Solution

Atlanta shouldship 400 unitsto Hot Springsat a cost of$4.60 per unit.

Optimal Tableau


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Phoenix shouldsupply all of San

Antoniosdemand and twothirds of demandfor Sioux Falls.

Atlanta shouldsupply all of thedemand for HotSprings and onethird of the demand

at Sioux Falls.


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Application 11.6


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Application 11.6

O h M h d f


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Other Methods ofLocation Analysis

Heuristics Solution guidelines, or rules ofthumb, that find feasiblebut notnecessarily the bestsolutions to

problems.Simulation A modeling technique that

reproduces the behavior of a system.

Optimization A procedure used todetermine the best solution; generallyutilizes simplified and less realistic viewsof a problem.


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Solved Problem 1

An electronics manufacturer must expand by building a secondfacility. The search has been narrowed to four locations, all ofwhich are acceptable to management in terms of dominantfactors. Assessment of these sites in terms of seven location

factors is shown below.


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Based on the weighted scores shown below, location C is thepreferred site, although location B is a close second.

Solved Problem 1

Mil Hi h B


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The operations manager for Mile-High Beer has narrowed thesearch for a new facility location to seven communities. Annualfixed costs (land, property taxes, insurance, equipment, andbuildings) and variable costs (labor, materials, transportation,and variable overhead) are shown below.

Mile-High BeerSolved Problem 2

Mile High Beer


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Which of the communities can be eliminated from furtherconsideration because they are dominated (both variableand fixed costs are higher) by another community?

Aurora and Colorado Springs are dominated by Fort Collins,as both fixed and variable costs are higher for those

communities than for Fort Collins. Englewood is dominatedby Golden.

Mile-High Beer

Solved Problem 2

Mil Hi h B


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Using break-even analysis, calculate the break-even quantities to determine the range overwhich each community provides the lowest cost.

Mile-High Beer

Solved Problem 2

$1,200,000 $15Q $2,000,000 $12QQ 266,667 barrels per yea

Breakeven for Ft.Collins/Boulder

$3,000,000 $10Q $2,000,000 $12Q

Q 500,000 barrels per yea

Breakeven forBoulder/Denver

Plot the total cost curves for all remainingcommunities on a single graph. Identify on thegraph the approximate range over which eachcommunity provides the lowest cost.

Mil Hi h B


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Boulder

Break-evenpoint

Fort Collins

2.67

Break-evenpoint

Barrels of beer per year (in hundred thousands)

10

8

6

4

2

01 2 3 4 5 6

Locationcost(inmillionsofdollars)

Denver

Golden

Mile-High Beer

Solved Problem 2Fort Collins is best for low volumes,Boulder for intermediate volumes,and Denver for high volumes


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The Arid Company makes canoe paddles to serve distributioncenters in Worchester, Rochester, and Dorchester from plants inBattle Creek and Cherry Creek. Annual demand is expected toincrease as projected below. Arid is considering locating a plantnear the headwaters of Dee Creek. What are the estimated

transportation costs associated with this allocation pattern?

Arid CompanySolved Problem 4

SourceDestination

Capacity

$4.37 $4.25 $4.8912,000

10,000

18,000

40,0006,000 22,000 12,000

$4.00 $5.00 $5.27

$4.13 $4.50 $3.75

Demand

Battle Creek

Cherry Creek

Dee Creek

Worchester Rochester Dorchester


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Arid CompanySolved Problem 4

SourceDestination

Capacity

$4.37 $4.25 $4.8912,000

10,000

18,000

40,0006,000 22,000 12,000

$4.00 $5.00 $5.27

$4.13 $4.50 $3.75

Demand

Battle Creek

Cherry Creek

Dee Creek

12,000

6,000 4,000

6,000 12,000

Worchester Rochester Dorchester

Total Cost = $4(6000)+$4.25(12,000)+$5(4000)+$4.50(6000)+$3.75(12,000)=$167,000

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11 Location - Krajewski