Production and Operations Management Location Planning and Analysis
Learning Objectives List some of the main reasons organizations need to make location decisions. Explain why location decisions are important. Discuss the options that are available for location decisions. Describe some of the major factors that affect location decisions. Outline the decision process for making these kinds of decisions. Use the techniques presented to solve typical problems.
Need for Location Decisions Marketing Strategy Cost of Doing Business Growth Depletion of Resources
Nature of Location Decisions Strategic Importance of location decisions Long-term commitment/costs Impact on investments, revenues, and operations Supply chains Objectives of location decisions Profit potential No single location may be better than others Identify several locations from which to choose Location Options Expand existing facilities Add new facilities Move
Making Location Decisions Decide on the criteria Identify the important factors Develop location alternatives Identify general region Identify a small number of community alternatives Identify site alternatives Evaluate alternatives and make selection
Location Decision Factors Regional Factors Community Considerations Multiple Plant Strategies Site-related Factors 8-6 6
Location Decision Factors: Regional Factors Location of raw materials Location of markets Labor factors Climate and taxes 8-7
Location Decision Factors: Community Considerations Quality of life Services Attitudes Taxes Environmental regulations Utilities Developer support
Location Decision Factors: Site-Related Factors Land Transportation Environmental Legal
Location Decision Factors: Multiple Plant Strategies Product plant strategy Market area plant strategy Process plant strategy
Service and Retail Locations Manufacturers – cost focused Service and retail – revenue focused Traffic volume and convenience most important Demographics Age Income Education
Service and Retail Locations Service and retail – revenue focused Location, location, location Good transportation Customer safety
Manufacturing/Distribution Service and Retail Locations: 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
Global Locations Reasons for globalization Benefits Disadvantages Risks Global operations issues
Globalization Facilitating Factors Benefits Trade agreements Technology Benefits Markets Cost savings Legal and regulatory Financial
Globalization Disadvantages Transportation costs Security Unskilled labor Import restrictions Criticisms
Globalization Risks Political Terrorism Economic Legal Cultural
Evaluating Locations Cost-Profit-Volume Analysis Determine fixed and variable costs Plot total costs Determine lowest total costs
Location Cost-Volume Analysis Assumptions Fixed costs are constant Variable costs are linear Output can be closely estimated Only one product involved
Example 1: Cost-Volume Analysis Fixed and variable costs for four potential locations
Example 1: Solution
Example 1: Solution 800 700 600 500 400 300 200 100 Annual Output (000) $(000) 8 10 12 14 16 6 4 2 A B C B Superior C Superior A Superior D
Evaluating Locations Transportation Model Factor Rating—example 2 Decision based on movement costs of raw materials or finished goods Factor Rating—example 2 Decision based on quantitative and qualitative inputs Center of Gravity Method—example 3, 4 Decision based on minimum distribution costs
Evaluating Locations—Center of Gravity