Chap008 Location Planning & Analysis

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8-1 Location Planning and Analysis

William J. Stevenson

Operations Management

8th edition


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CHAPTER

8

Location Planningand Analysis

McGraw-Hill/Irwin

Operations Management, Eighth Edition, by William J. StevensonCopyright 2005 by The McGraw-Hill Companies, Inc. All rights reserved.


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Need for Location Decisions Marketing Strategy, part ofe.g banks , fast food chains ,

retails stores , In these cases location helps to expand their mkts

Cost of Doing Business

Growth in demand may require new locations

Depletion of Resources, fishing


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Other Reasons for location

Fishing and Logging operations

Mining and petroleum operations , they generally

have a longer time horizon

Shift in MarketsNature of Location Decisions

Infrequent

But have a significant impact


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Nature of Location Decisions

Strategic Importance Long term commitment/costs ( low cost strategy )

Impact on investments, revenues, and operations

Supply chains

Objectives of LD Profit potential

No single location may be better than others

Identify several locations from which to choose

Also where u are in the supply chain

Web based businesses can operate from anywhere


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Location Options

Options, Four in Nb Generally

Expand existing facilities, if there is adequate room forexpansion

Add new facilities, e.g retail operations . This can be adefensive startegy to increase mkt presence and share . Take

care that it dosent cannibalise the existing ones Move: Shut down at one and move to another e.g US to

China , Nortel Networks , canada to China , Comdev.

Status Quo : if the alternatives do not yield anything

substantial , maintain the present status


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Procedure for Making Location

Decisions

Decide on the criteria e.g inc revenue or customer service

Identify the important factors in the supply

chain

Develop location alternatives Evaluate the alternatives

Make selection


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Location Decision FactorsRegional Factors

Site-relatedFactors

Multiple PlantStrategies

CommunityConsiderations


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Location of raw materials Location of markets

Labor factors

Climate and taxes

Regional Factors


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Raw Materials

Three reasons for proximity to RM

Neccessity: Mining , farming, forestry & fishes

Perishability : Canning & freezing of food

products Transportation Costs

8 11 l d A l


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Some factors may dominate sometimes

Energy in Mfr

Water Supply

Cooling for Nuclear Reactors

Traffic Patterns in Service Industry Convenience in service e.g car rental near airport

Competitor location in Service

8 12 L i Pl i d A l i


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Quality of life Services

Attitudes

Taxes

Environmental regulations

Utilities

Developer support

Community Considerations

8 13 L i Pl i d A l i


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Land Transportation

Environmental

Legal

Site Related Factors

8 14 L ti Pl i d A l i


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Product plant strategy Market area plant strategy

Process plant strategy

Multiple Plant Strategies



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Comparison of Service andManufacturing 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



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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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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



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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 AnalysisFixed and variable costs forfour potential locations

L o c a t i o n F i x e d

C o s t

V a r i a b l e

C o s tABCD

$ 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



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Example 1: SolutionFixedCosts

VariableCosts

TotalCosts

ABCD

$250,000100,000150,000200,000

$11(10,000)30(10,000)20(10,000)35(10,000)

$360,000400,000350,000550,000



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Example 1: Solution800700600

500400300200100

0

Annual Output (000)

$(000)

8 10 12 14 166420

A

B

C

B SuperiorC Superior

A Superior

D



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Evaluating 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

Documents

Chap008 Location Planning & Analysis