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Published on January 7, 2008

Author: DC_Cloepatra

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Slide1:  Operations Management Chapter 8 – Location Strategies © 2006 Prentice Hall, Inc. PowerPoint presentation to accompany Heizer/Render Principles of Operations Management, 6e Operations Management, 8e Location Strategy:  Location Strategy One of the most important decisions a firm makes Increasingly global in nature Long term impact and decisions are difficult to change The objective is to maximize the benefit of location to the firm Location Decisions:  Location Decisions Country Decision Critical Success Factors Political risks, government rules, attitudes, incentives Cultural and economic issues Location of markets Labor availability, attitudes, productivity, costs Availability of supplies, communications, energy Exchange rates and currency risks Figure 8.1 Factors That Affect Location Decisions:  Factors That Affect Location Decisions Labor productivity Wage rates are not the only cost Lower productivity may increase total cost Location Decisions:  Location Decisions Region/ Community Decision Critical Success Factors Corporate desires Attractiveness of region Labor availability, costs, attitudes towards unions Costs and availability of utilities Environmental regulations Government incentives and fiscal policies Proximity to raw materials and customers Land/construction costs Figure 8.1 Location Decisions:  Location Decisions Site Decision Critical Success Factors Site size and cost Air, rail, highway, and waterway systems Zoning restrictions Nearness of services/ supplies needed Environmental impact issues Figure 8.1 Factors That Affect Location Decisions:  Factors That Affect Location Decisions Proximity to markets Proximity to suppliers Proximity to competitors Service Location Strategy:  Service Location Strategy 1. Purchasing power of customer-drawing area 2. Service and image compatibility with demographics of the customer-drawing area 3. Competition in the area 4. Quality of the competition 5. Uniqueness of the firm’s and competitors’ locations 6. Physical qualities of facilities and neighboring businesses 7. Operating policies of the firm 8. Quality of management Factor-Rating Method:  Factor-Rating Method Popular because a wide variety of factors can be included in the analysis Six steps in the method Develop a list of relevant factors called critical success factors Assign a weight to each factor Develop a scale for each factor Score each location for each factor Multiply score by weights for each factor for each location Recommend the location with the highest point score Factor-Rating Example:  Factor-Rating Example Table 8.3 Locational Break-Even Analysis:  Locational Break-Even Analysis Method of cost-volume analysis used for industrial locations Three steps in the method Determine fixed and variable costs for each location Plot the cost for each location Select location with lowest total cost for expected production volume Locational Break-Even Analysis Example:  Locational Break-Even Analysis Example Three locations: Total Cost = Fixed Cost + Variable Cost x Volume Locational Break-Even Analysis Example:  Locational Break-Even Analysis Example Figure 8.2 Center-of-Gravity Method:  Center-of-Gravity Method Finds location of distribution center that minimizes distribution costs Considers Location of markets Volume of goods shipped to those markets Shipping cost (or distance) Center-of-Gravity Method:  Center-of-Gravity Method Place existing locations on a coordinate grid Grid origin and scale is arbitrary Maintain relative distances Calculate X and Y coordinates for ‘center of gravity’ Assumes cost is directly proportional to distance and volume shipped Center-of-Gravity Method:  Center-of-Gravity Method where dix = x-coordinate of location i diy = y-coordinate of location i Qi = Quantity of goods moved to or from location i Center-of-Gravity Method:  Center-of-Gravity Method Center-of-Gravity Method:  Center-of-Gravity Method Center-of-Gravity Method:  Center-of-Gravity Method Geographic Information Systems (GIS):  Geographic Information Systems (GIS) New tool to help in location analysis Enables more complex demographic analysis Available data bases include Detailed census data Detailed maps Utilities Geographic features Locations of major services Geographic Information Systems (GIS):  Geographic Information Systems (GIS)

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