© 1997 Prentice-Hall, Inc. 6 - 1 Principles of Operations Management Selecting the Location Chapter...
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© 1997 Prentice-Hall, © 1997 Prentice-Hall, Inc. Inc. 6 - 6 - 1 1 Principles of Principles of Operations Management Operations Management Selecting the Location Selecting the Location Chapter 6 Chapter 6
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Transcript of © 1997 Prentice-Hall, Inc. 6 - 1 Principles of Operations Management Selecting the Location Chapter...
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
6 - 6 - 11
Principles of Principles of Operations ManagementOperations Management
Principles of Principles of Operations ManagementOperations Management
Selecting the LocationSelecting the LocationChapter 6Chapter 6
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
6 - 6 - 22
Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives
Explain location decisionsExplain location decisions Describe the factors affecting location Describe the factors affecting location
decisionsdecisions Explain the methods of evaluating Explain the methods of evaluating
location alternativeslocation alternatives Factor rating methodFactor rating method Center of gravity methodCenter of gravity method
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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Thinking ChallengeThinking ChallengeThinking ChallengeThinking Challenge
Where do you want to live Where do you want to live after graduation? Why?after graduation? Why?
© 1995 Corel Corp.
AloneAlone GroupGroup Class Class
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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CostCost focus focus Revenue varies little Revenue varies little
between locationsbetween locations
Location is a major Location is a major cost factorcost factor Affects shipping & Affects shipping &
production costs (e.g., labor)production costs (e.g., labor) Costs vary greatly between Costs vary greatly between
locationslocations
Industrial Industrial Location StrategiesLocation Strategies
Industrial Industrial Location StrategiesLocation Strategies
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Service Service Location StrategiesLocation Strategies
Service Service Location StrategiesLocation Strategies
RevenueRevenue focus focus Costs vary little between market areasCosts vary little between market areas
Location is a major Location is a major revenue factorrevenue factor Affects amount of Affects amount of
customer contactcustomer contact Affects volume ofAffects volume of
businessbusiness© 1995 Corel Corp.
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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Location DecisionsLocation DecisionsLocation DecisionsLocation Decisions
Long-term decisionsLong-term decisions Difficult to reverseDifficult to reverse Affect fixed & variable costsAffect fixed & variable costs
Transportation cost Transportation cost As much as 25% of product priceAs much as 25% of product price
Other costs: Taxes, wages, rent etc.Other costs: Taxes, wages, rent etc.
Objective: Maximize benefit of Objective: Maximize benefit of location to firmlocation to firm
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Factors Affecting Factors Affecting Country Country
Factors Affecting Factors Affecting Country Country
GovernmentGovernment Culture & economyCulture & economy Market locationMarket location LaborLabor
ProductivityProductivity CostCost
InfrastructureInfrastructure Exchange rateExchange rate
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Labor ProductivityLabor ProductivityLabor ProductivityLabor Productivity
Low wages often Low wages often over-emphasizedover-emphasized
Labor productivity Labor productivity importantimportant
Labor cost per Labor cost per unit should be unit should be criterion:criterion: Labor cost/dayLabor cost/day Units made/day Units made/day
Hourly Compensation ($)Hourly Compensation ($)Mfg. Workers (1994)Mfg. Workers (1994)
Germany 27.37
Japan 21.38
U.S. 17.10
Hong Kong 4.79
Mexico 2.57
Germany 27.37
Japan 21.38
U.S. 17.10
Hong Kong 4.79
Mexico 2.57
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Factors Affecting Factors Affecting Region/Community Region/Community
Factors Affecting Factors Affecting Region/Community Region/Community
Corporate desiresCorporate desires AttractivenessAttractiveness LaborLabor Utility costsUtility costs Gov’t incentivesGov’t incentives Proximity to Proximity to
customers & supplierscustomers & suppliers Land/construction $$$Land/construction $$$
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Factors Affecting Factors Affecting Site Site
Factors Affecting Factors Affecting Site Site
Site sizeSite size Site costSite cost Transportation in/outTransportation in/out Proximity of Proximity of
servicesservices Environmental Environmental
impactimpact
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Location MethodsLocation MethodsLocation MethodsLocation Methods
Factor weighting Factor weighting methodmethod
Locational break-Locational break-even analysiseven analysis
Center of gravity Center of gravity methodmethod
Transportation Transportation modelmodel
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Factor Rating MethodFactor Rating MethodFactor Rating MethodFactor Rating Method
Most widely used location techniqueMost widely used location technique Useful for service & industrial Useful for service & industrial
locationslocations Rates locations using factorsRates locations using factors
Intangible (qualitative) factorsIntangible (qualitative) factorsExample: Education quality, labor skillsExample: Education quality, labor skills
Tangible (quantitative) factorsTangible (quantitative) factorsExample: Short-run & long-run costsExample: Short-run & long-run costs
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Factor Rating Method Factor Rating Method StepsSteps
Factor Rating Method Factor Rating Method StepsSteps
List relevant factorsList relevant factors Assign importance weight to each factorAssign importance weight to each factor Develop scale for each factor (0-1, etc.)Develop scale for each factor (0-1, etc.) Score each location using factor scaleScore each location using factor scale Multiply scores by weights for each factor Multiply scores by weights for each factor
& total& total Select location with maximum total scoreSelect location with maximum total score
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Factor Rating Method Factor Rating Method ExampleExample
Factor Rating Method Factor Rating Method ExampleExample
You’re an analyst for John You’re an analyst for John Deere. You’re considering Deere. You’re considering locating a new mfg. plant in locating a new mfg. plant in Omaha (NE) or Denver (CO). Omaha (NE) or Denver (CO).
Factor Wgt NE COFactor Wgt NE CO
Mfg. costsMfg. costs .7.7 $60k$60k $62k$62k
Cost of livingCost of living .1.1 .7.7 .6 .6
Labor avail.Labor avail. .2.2 11 .8 .8
Where should you locate?Where should you locate?
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Factor Rating Method Factor Rating Method SolutionSolution
Factor Rating Method Factor Rating Method SolutionSolution
Omaha DenverFactor Wgt Econ Score
(0-1)Wgt
ScoreEcon Score
(0-1)Wgt
Score
TOTAL
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Factor Rating Method Factor Rating Method Thinking ChallengeThinking Challenge
Factor Rating Method Factor Rating Method Thinking ChallengeThinking Challenge
You’re owner of a hot tub You’re owner of a hot tub store. You’re considering store. You’re considering relocating to Phoenix (AZ) relocating to Phoenix (AZ) or Santa Fe (NM). or Santa Fe (NM).
Factor Wgt AZ NMFactor Wgt AZ NM
PopulationPopulation .4.4 984k984k 56k56k
CompetitionCompetition .1.1 .3.3 .8 .8
Life styleLife style .5.5 .2.2 .9 .9
Where should you locate?Where should you locate? © 1995 Corel Corp.
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Thinking Challenge Thinking Challenge Solution*Solution*
Thinking Challenge Thinking Challenge Solution*Solution*
Phoenix Santa FeFactor Wgt Econ Score
(0-1)Wgt
ScoreEcon Score
(0-1)Wgt
Score
TOTAL
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Center of Gravity Center of Gravity MethodMethod
Center of Gravity Center of Gravity MethodMethod
Finds location of Finds location of singlesingle distribution distribution center serving several destinationscenter serving several destinations
Used primarily for servicesUsed primarily for services ConsidersConsiders
Location of existing destinations Location of existing destinations Example: Markets, retailers etc.Example: Markets, retailers etc.
Volume to be shippedVolume to be shipped Shipping distance (or cost)Shipping distance (or cost)
Shipping cost/unit/mile is constant Shipping cost/unit/mile is constant
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Center of Gravity Center of Gravity Method StepsMethod Steps
Center of Gravity Center of Gravity Method StepsMethod Steps
Place existing locations on a Place existing locations on a coordinate gridcoordinate grid Grid has arbitrary origin & scale Grid has arbitrary origin & scale Maintains relative distances Maintains relative distances
Calculate Calculate XX & & YY coordinates for coordinates for ‘center of gravity’‘center of gravity’ Gives location of distribution centerGives location of distribution center Minimizes transportation costMinimizes transportation cost
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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Center of Gravity Center of Gravity Method EquationsMethod EquationsCenter of Gravity Center of Gravity Method EquationsMethod Equations
C
d W
W
C
d W
W
x
ix ii
ii
y
iy ii
ii
C
d W
W
C
d W
W
x
ix ii
ii
y
iy ii
ii
ddixix = = xx coordinate coordinate
of location of location ii
WWii == Volume of Volume of
goods moved to goods moved to or from location or from location i i
ddiyiy = = yy coordinate coordinate
of location of location ii
XX Coordinate Coordinate
Y Y CoordinateCoordinate
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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Center of Gravity Center of Gravity Method ExampleMethod ExampleCenter of Gravity Center of Gravity Method ExampleMethod Example
You’re an analyst for You’re an analyst for Home Depot. You want Home Depot. You want to find the best location to find the best location of a warehouse serving of a warehouse serving retail stores in Lincoln retail stores in Lincoln (coord. (coord. 9090, , 6060), Columbia ), Columbia (coord. (coord. 150150, , 3030), & Austin ), & Austin (coord. (coord. 9090, , 1010). Monthly ). Monthly demand is demand is 2k2k, , 3k3k, , 5k 5k units respectively.units respectively.
Columbia, SC
Austin, TX
Lincoln, NE
WarehouseWarehouse?
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Center of Gravity Center of Gravity Method SolutionMethod SolutionCenter of Gravity Center of Gravity Method SolutionMethod Solution
00 3030 6060 9090 120120 150150
3030
6060
9090
00
Lincoln Store(90,60)2k demand
Austin Store(90,10)5k demand
Columbia Store (150,30)3k demand
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Thinking ChallengeThinking ChallengeThinking ChallengeThinking Challenge
You’re a planner for You’re a planner for Sears. You want to find Sears. You want to find the best location of a the best location of a warehouse serving retail warehouse serving retail stores in Seattle (stores in Seattle (5050, , 6060), ), Aberdeen (Aberdeen (2020, , 3535), & ), & Spokane (Spokane (160160, , 5050). ). Monthly demand is Monthly demand is 494k494k, , 18k18k, , 171k 171k units units respectively.respectively.
AloneAlone GroupGroup Class Class
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ConclusionConclusionConclusionConclusion
Explained location decisionsExplained location decisions Described the factors affecting Described the factors affecting
location decisionslocation decisions Explained the methods of evaluating Explained the methods of evaluating
location alternativeslocation alternatives Factor rating methodFactor rating method Center of gravity methodCenter of gravity method
