8-1

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Location Planning and Analysis

Chapter 8

Location Planning and Analysis

8-2

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Location Planning and Analysis

Need for Location Decisions

• Marketing Strategy

• Cost of Doing Business

• Growth

• Depletion of Resources

8-3

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Location Planning and Analysis

Nature of Location Decisions

• Importance– Long term commitment/costs

• Objectives– Profit potential

• Options– Expand existing facilities– Add new facilities– Move

8-4

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Location Planning and Analysis

Location Decision Factors

Regional Factors

Site-related Factors

Multiple Plant Strategies

Community Considerations

8-5

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Location Planning and Analysis

• Location of raw materials• Location of markets• Labor factors• Climate and taxes• Foreign locations

Regional Factors

8-6

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Location Planning and Analysis

• Quality of life• Services• Attitudes• Taxes• Environmental regulations• Developer support

Community Considerations

8-7

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Location Planning and Analysis

• Land• Transportation• Environmental• Legal

Site Related Factors

8-8

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Location Planning and Analysis

• Product plant strategy• Market area plant strategy• Process plant strategy

Multiple Plant Strategies

8-9

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Location Planning and Analysis

Trends in Locations• Foreign producers locating in U.S.

– “Made in USA”– Currency fluctuations

• Just-in-time manufacturing techniques• Microfactories• Information highway

8-10

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Location Planning and Analysis

Comparison of Service and Manufacturing 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

8-11

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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

8-12

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Location Planning and Analysis

Evaluating Locations

• Cost-Profit-Volume Analysis– Determine fixed and variable costs

– Plot total costs

– Determine lowest total costs

8-13

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Location Planning and Analysis

Example 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

8-14

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Location Planning and Analysis

Example 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

8-15

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Location Planning and Analysis

Example 1: Solution

800700600500400300200100

0

Annual Output (000)

$(000)

8 10 12 14 166420

A

BC

B SuperiorC Superior

A Superior

D

8-16

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Location Planning and Analysis

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