OMGT OMGT 2228 2228  Operations Management Operations Management 
 
Selection of Technology
Technology in Services
2 Location Strategy
The Factor#$ating !ethod
Locational %reak#"ven Analysis
&enter#of#'ravity !ethod
 
Process StrategiesProcess Strategies
The o-ective of a (rocess strategy is The o-ective of a (rocess strategy is  to -uild a (roduction (rocess thatto -uild a (roduction (rocess that .eets custo.er re6uire.ents and.eets custo.er re6uire.ents and (roduct s(ecifications ,ithin cost(roduct s(ecifications ,ithin cost and other .anagerial constraintsand other .anagerial constraints
8o, to (roduce a (roduct or (rovide a service that
!eets or e9ceeds custo.er re6uire.ents
!eets cost and .anagerial goals
8as long ter. effects on
"fficiency and (roduction fle9i-ility
) !ass custo.i;ation
 
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1. Process Focus1. Process Focus Facilities are organi;ed around s(ecific
activities or (rocesses
8igh degree of (roduct fle9i-ility
Ty(ically high costs and lo, e6ui(.ent utili;ation
 

=surgeries> sick (atients> -a-y deliveries> e.ergencies?
!any different out(uts =uni6uely treated (atients?
!any de(art.ents and .any routings
=lo, volu.e> high variety> inter.ittent (rocesses?
8os(ital
Facilities often organi;ed as asse.-ly lines
&haracteri;ed -y .odules ,ith (arts and asse.-lies .ade (reviously
!odules .ay -e co.-ined for .any out(ut o(tions
Less fle9i-ility than (rocess#focused facilities -ut .ore efficient
 
!odules co.-ined for .any @ut(ut o(tions
=.any co.-inations of .otorcycles?
=.odular?
8igh volu.e and lo, variety of (roducts
Long> continuous (roduction runs ena-le efficient (rocesses
Ty(ically high fi9ed cost -ut lo, varia-le cost
'enerally less skilled la-or 
 
Product FocusProduct Focus
Bucor Steel Plant
 
8ot tunnel furnace # 3 ft
8ot .ill for finishing> cooling> and coiling
D
" F
'8
 
. Mass !ustomi"ation. Mass !ustomi"ation
The ra(id> lo,#cost (roduction of goods and service to satisfy increasingly uni6ue custo.er desires
 
Mass !ustomi"ationMass !ustomi"ation
Cehicle .odels 1) 2<7 Cehicle ty(es 1< 1>212 %icycle ty(es < 211> Soft,are titles )> We- sites 172>> !ovie releases (er year 27: :75 Be, -ook titles )>53 3> 8ouston TC channels 5 1<5 %reakfast cereals 17 3) te.s =SEs? in 1)> 15>   su(er.arkets L&D TCs 12
Bu.-er of &hoices
 
!any out(ut versions =custo. P&s and note-ooks?
!any .odules
=high#volu.e> high#variety?
1<
Tools #or Process $nal%sis andTools #or Process $nal%sis and DesignDesign
Flo, &harts # Sho,s the .ove.ent of .aterials
Ti.e#Function !a((ing # Sho,s flo,s and ti.e fra.e
Calue#Strea. !a((ing # Sho,s flo,s and ti.e and value added -eyond the i..ediate organi;ation
Process &harts # Eses sy.-ols to sho, key activities
 
1
Process $nal%sis and DesignProcess $nal%sis and Design Flo, &harts # Sho,s the .ove.ent of
.aterials
 
&usto.er 
Sales
Warehouse
Plant %
Trans(ort
12 days 13 days 1 day ) days 1 day 1 days 1 day day 1 day
52 days
 
@ften co.(le9 decisions
Possi-le co.(etitive advantage
Auto.atic identification syste.s =ASs?
Process control
Cision syste.
Auto.ated guided vehicles =A'Cs?
ncreased (recision
ncreased (roductivity
ncreased fle9i-ility
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 $utomatic ,denti#ication $utomatic ,denti#ication S%stems -$,SsS%stems -$,Ss
.(roved data ac6uisition
ncreased sco(e of (rocess auto.ation
 
Process !ontrol Process !ontrol  $eal#ti.e .onitoring and control of
(rocesses
!easure.ents translated into digital signals then sent to a co.(uter 
&o.(uter (rogra.s analy;e the data
$esulting out(ut .ay take nu.erous for.s
 
Particular aid to ins(ection
 
Perfor. tasks re6uiring significant strength or endurance
'enerally enhanced consistency and accuracy
 
3
 $utomated Storage and $utomated Storage and Retrieval S%stems -$SRSsRetrieval S%stems -$SRSs
Auto.ated (lace.ent and ,ithdra,al of (arts and (roducts
$educed errors and la-or 
Particularly useful in inventory and test areas of .anufacturing fir.s
Source: http://www.iblogku.com
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 $utomated Guided *e+icle $utomated Guided *e+icle -$G*s-$G*s
"lectronically guided and controlled carts
Esed for .ove.ent of (roducts and+or individuals
http://www.jbtc-agv.com
&o.(uter controls -oth the ,orkstation and the .aterial handling e6ui(.ent
%ack,ards to engineering and inventory control
"nhance fle9i-ility
&an also include financial and custo.er service areas
 
Tec+nolog% in ServicesTec+nolog% in Services Service ndustry "9a.(le
Financial Services
De-it cards> electronic funds transfer> AT!s> nternet stock trading> on#line -anking via cell (hone
"ducation "lectronic -ulletin -oards> on#line ournals> We-&T> %lack-oard and s.art (hones
Etilities and govern.ent
Auto.ated one#.an gar-age trucks> o(tical .ail and -o.- scanners> flood ,arning syste.s> .eters allo,ing ho.eo,ners to control energy usage and costs
$estaurants and foods
Wireless orders fro. ,aiters to kitchen> ro-ot -utchering> trans(onders on cars that track sales at drive#throughs
&o..unications nteractive TC> e-ooks via indle 2
 
Tec+nolog% in ServicesTec+nolog% in Services Service ndustry "9a.(le
8otels "lectronic check#in+check#out> electronic key+lock syste.> .o-ile ,e- -ooking
Wholesale+retail trade
AT!#like kiosks> (oint#of#sale =P@S? ter.inals> e#co..erce> electronic co..unication -et,een store and su((lier> -ar coded data> $FD
Trans(ortation Auto.atic toll -ooths> satellite#directed navigation syste.s> WiFi in auto.o-ile
8ealth care @nline (atient#.onitoring> online .edical infor.ation syste.s> ro-otic surgery
Airlines Ticketless travel> scheduling> nternet (urchases> -oarding (asses t,o# di.ensional -ar codes on s.art (hones
 
0ocation Strateg% 0ocation Strateg% 
The o-ective of location strategy isThe o-ective of location strategy is to .a9i.i;e the -enefit of locationto .a9i.i;e the -enefit of location
to the fir.to the fir.
 
ncreasingly glo-al in nature
Decisions .ade relatively infre6uently
 
Decision greatly affects -oth fi9ed and varia-le costs
 
&ountry Decision&ountry Decision ey Success Factorsey Success Factors
1 Political risks> govern.ent rules> attitudes> incentives
2 &ultural and econo.ic issues
3 Location of .arkets
5 Availa-ility of su((lies> co..unications> energy
7 "9change rates and currency risks
 
http://www.weforum.org/issues/global-competitiveness
Singapore 2
1 &or(orate desires
5 "nviron.ental regulations
< Land+construction costs igure from :http://wwp.greenwichmeantime.com/time-zone/australia/
 
1 Site si;e and cost
2 Air> rail> high,ay> and ,ater,ay syste.s
3 Goning restrictions
5 "nviron.ental i.(act issues
 
Factors T+at $##ectFactors T+at $##ect 0ocation Decisions0ocation Decisions
1 La-or (roductivity
Lo,er (roductivity .ay increase total cost
La-or cost (er day =la-or content?
Productivity =units (er day? 0 &ost (er unit
SydneySydney
7 units
2 units
"9a.(le*
 
Factors T+at $##ectFactors T+at $##ect 0ocation Decisions0ocation Decisions
2 "9change rates and currency risks
&an have a significant i.(act on costs
$ates change over ti.e
 
))
Factors T+at $##ectFactors T+at $##ect 0ocation Decisions0ocation Decisions
2 "9change rates and currency risks
&an have a significant i.(act on cost structure
$ates change over ti.e
 
can create difficult ethical
Factors T+at $##ectFactors T+at $##ect 0ocation Decisions0ocation Decisions
) Political risk> values> and culture
Bational> state> local govern.ents attitudes to,ard (rivate and intellectual (ro(erty> ;oning> (ollution> e.(loy.ent sta-ility .ay -e in flu9
Worker attitudes to,ards turnover> unions> a-senteeis.
 
Least &orru(t
!ost &orru(t
2012 Ranking
Rank  Country
1   enmark
1 inland
Factors T+at $##ectFactors T+at $##ect 0ocation Decisions0ocation Decisions
5 Pro9i.ity to .arkets
Cery i.(ortant to services
IT syste.s or high trans(ortation costs .ay .ake it i.(ortant to .anufacturers
7 Pro9i.ity to su((liers
 
)<
Factors T+at $##ectFactors T+at $##ect 0ocation Decisions0ocation Decisions
: Pro9i.ity to co.(etitors
@ften driven -y resources such as natural> infor.ation> ca(ital> talent
Found in -oth .anufacturing and service industries
 
)
Met+ods o# valuating 0ocation $lternativesMet+ods o# valuating 0ocation $lternatives
1 Factor#$ating !ethod
Po(ular -ecause a ,ide variety of factors can -e included in the analysis
Si9 ste(s in the .ethod
1 Develo( a list of relevant factors called key success factors
2 Assign a ,eight to each factor 
3 Develo( a scale for each factor 
) Score each location for each factor 
5 !ulti(ly score -y ,eights for each factor for each location
7 $eco..end the location ,ith the highest oint score
 
Factor)Rating Met+od ampleFactor)Rating Met+od ample
An entertain.ent co.(any -ased in ES has decided to e9(and its o(erations -y o(ening its first (ark in "uro(e t ,ishes to select -et,een France and Den.ark The follo,ing rating sheet lists key success factors that .anage.ent has decided are i.(ortant Their ,eightings and their rating are sho,n in the follo,ing ta-le Esing a Factor#$ating !ethod ,hich country is (refera-le/
ey Scores Success =out of 1? Factor Weight France Den.ark
La-or availa-ility
Per ca(ita   inco.e 1 <5 <
Ta9 structure 3 :5 :
Factor)Rating ampleFactor)Rating ample
ey Scores Success =out of 1? Weighted Scores Factor Weight France Den.ark France Den.ark
La-or availa-ility
  and attitude 25 : 7 =25?=:? 0 1:5 =25?=7? 0 15
Peo(le#to#   car ratio 5 5 7 =5?=5? 0 25 =5?=7? 0 3
Per ca(ita   inco.e 1 <5 < =1?=<5? 0 <5 =1?=<? 0 <
Ta9 structure 3 :5 : =3?=:5? 0 23 =3?=:? 0 2:3
"ducation   and health 21 7 : =21?=7? 0 127 =21?=:? 0 1):
Totals 1 :) 7<
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2. 0ocational 'rea)ven $nal%sis2. 0ocational 'rea)ven $nal%sis
!ethod of cost#volu.e analysis used for industrial locations
Three ste(s in the .ethod
1 Deter.ine fi9ed and varia-le costs for each location
2 Plot the cost for each location
 
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0ocational 'rea)ven $nal%sis ample0ocational 'rea)ven $nal%sis ample
Three locations* Akron> %o,ling 'reen and &hicago Juestion* %ased on e9(ected volu.e of 2 units ,hich location should -e selected/ What a-out 25 units/ 5/ 8ere is .ore infor.ation*
Akron H3> H:5 H1<>
&hicago H11> H25 H17>
Total &ost 0 Fi9ed &ost K =Caria-le &ost 9 Colu.e?
Selling (rice 0 H12 "9(ected volu.e 0 2> units
 
5)
0ocational 'rea)ven $nal%sis0ocational 'rea)ven $nal%sis ample Solutionample Solution
  H1<>
   l   c   o   s
Colu.e
 r v e
  A    k  r
 v e
Total cost 0 3>K:5=volu.e? Total cost 0 7>K)5=volu.e?
Total cost 0 11>K25=volu.
 
3. !enter)o#)Gravit% Met+od 3. !enter)o#)Gravit% Met+od 
Finds location of distri-ution center that .ini.i;es distri-ution costs
&onsiders
Shi((ing cost =or distance?
Place e9isting locations on a coordinate grid
'rid origin and scale is ar-itrary
!aintain relative distances 
 
  ) coordinate 6
location i 
location i 
 
!enter)o#)Gravit% Met+od ample!enter)o#)Gravit% Met+od ample
5 Discount De(art Stores a chain of four large Target#ty(e outlets> has store locations in &hicago> Pitts-urgh> Be, ork> and Atlanta They are currently -eing su((lied out of an old and inade6uate ,arehouse in Pitts-urgh The fir. ,ants to find so.e McentralN location in ,hich to -uild a ne, ,arehouse
5 The De.and rate at each outlet are given in the follo,ing ta-le*
 
3hicago 6ittsburgh #ew 7ork  )tlanta
2000 1000 1000 2000
!enter)o#)Gravit% Met+od !enter)o#)Gravit% Met+od  Borth#South
"ast#West
&hicago =3> 12? Be, ork =13> 13?
Pitts-urgh => 11?
Atlanta =7> )?
!enter)o#)Gravit% Met+od !enter)o#)Gravit% Met+od 
Bu.-er of &ontainers Store Location Shi((ed (er !onth
&hicago =3> 12? 2> Pitts-urgh => 11? 1> Be, ork =13> 13? 1> Atlanta =7> )? 2>
  #coordinate 0 =3?=2? K =?=1? K =13?=1? K =7?=2?
2 K 1 K 1 K 2
0 77:
% #coordinate 0 =12?=2? K =11?=1? K =13?=1? K =)?=2?
2 K 1 K 1 K 2
0 33
!enter)o#)Gravit% Met+od !enter)o#)Gravit% Met+od  Borth#South
"ast#West
&hicago =3> 12? Be, ork =13> 13?
Pitts-urgh => 11?
Atlanta =7> )?
 
. Transportation Model . Transportation Model 
Finds a.ount to -e shi((ed fro. several (oints of su((ly to several (oints of de.and
Solution ,ill .ini.i;e total (roduction and shi((ing costs
 
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