Unit-3

Location Strategies PowerPoint presentation to accompany Heizer and Render Operations Management, Eleventh Edition Principles of Operations Management, Ninth Edition PowerPoint slides by Jeff Heyl © 2014 Pearson Education, Inc.

Location Provides Competitive Advantage for FedEx Central hub concept Enables service to more locations with fewer aircraft Enables matching of aircraft flights with package loads Reduces mishandling and delay in transit because there is total control of packages from pickup to delivery © 2014 Pearson Education, Inc.

The Strategic Importance of Location One of the most important decisions a firm makes Increasingly global in nature Significant impact on fixed and variable costs Decisions made relatively infrequently

The Strategic Importance of Location Long-term decisions Once committed to a location, many resource and cost issues are difficult to change

Location and Costs Location decisions based on low cost require careful consideration Once in place, location-related costs are fixed in place and difficult to reduce Determining optimal facility location is a good investment

Factors That Affect Location Decisions Globalization adds to complexity Market economics Communication Rapid, reliable transportation Ease of capital flow Differing labor costs Identify key success factors (KSFs)

Global Competitiveness Index of Countries TABLE 8.1 Competitiveness of 142 Selected Countries COUNTRY 2011-2012 RANKING Switzerland 1 Singapore 2 Sweden 3 Finland 4 USA 5 Japan 9 UK 10 Canada 12 Israel 22 China 26 Mexico 58 Vietnam 65 Russia 66 Haiti 141 Chad 142

Factors That Affect Location Decisions Labor productivity Wage rates are not the only cost Lower productivity may increase total cost Labor cost per day Productivity (units per day) = Cost per unit South Carolina = $1.17 per unit $70 60 units Mexico = $1.25 per unit $25 20 units

Factors That Affect Location Decisions Exchange rates and currency risks Can have a significant impact on costs Rates change over time Costs Tangible - easily measured costs such as utilities, labor, materials, taxes Intangible - less easy to quantify and include education, public transportation, community, quality-of-life

Factors That Affect Location Decisions Exchange rates and currency risks Can have a significant impact on costs Rates change over time Costs Tangible - easily measured costs such as utilities, labor, materials, taxes Intangible - less easy to quantify and include education, public transportation, community, quality-of-life Location decisions based on costs alo

Factors That Affect Location Decisions Political risk, values, and culture National, state, local governments attitudes toward private and intellectual property, zoning, pollution, employment stability may be in flux Worker attitudes towards turnover, unions, absenteeism Globally cultures have different attitudes towards punctuality, legal, and ethical issues

Ranking Corruption Rank Country 2012 CPI Score (out of 100) 1 Demark, Finland, New Zealand 90 4 Sweden 88 5 Singapore 87 6 Switzerland 86 7 Australia, Norway 85 9 Canada, Netherlands 84 13 Germany 79 14 Hong Kong 77 17 Japan, UK 74 19 USA 73 37 Taiwan 61 39 Israel 60 45 South Korea 56 80 China 39 123 Vietnam 31 133 Russia 28 Least Corrupt Most Corrupt CPI is the Corrupt Perceptions Index calculated by Transparency International, an organization dedicated to fighting business corruption. The Index is calculated from up to 13 different individual scores. For details and the methodology, see www.transparency.org. In 2012 they changed their scoring system from “out of 10” to “out of 100”. In case students are interested, three countries tied for the lowest score in the 2012 survey with a score of 8 out of 100 – Afghanistan, North Korea, and Somalia. 13

Factors That Affect Location Decisions Proximity to markets Very important to services JIT systems or high transportation costs may make it important to manufacturers Proximity to suppliers Perishable goods, high transportation costs, bulky products

Factors That Affect Location Decisions Proximity to competitors (clustering) Often driven by resources such as natural, information, capital, talent Found in both manufacturing and service industries

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 key 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 Make a recommendation based on the highest point score

9 Layout Strategies PowerPoint presentation to accompany Heizer and Render Operations Management, Eleventh Edition Principles of Operations Management, Ninth Edition PowerPoint slides by Jeff Heyl © 2014 Pearson Education, Inc.

Outline Global Company Profile: McDonald’s The Strategic Importance of Layout Decisions Types of Layout Office Layout Retail Layout Warehousing and Storage Layouts

Outline - Continued Fixed-Position Layout Process-Oriented Layout Work Cells Repetitive and Product- Oriented Layout

Learning Objectives When you complete this chapter you should be able to: Discuss important issues in office layout Define the objectives of retail layout Discuss modern warehouse management and terms such as ASRS, cross-docking, and random stocking Identify when fixed-position layouts are appropriate

Learning Objectives When you complete this chapter you should be able to: Explain how to achieve a good process- oriented facility layout Define work cell and the requirements of a work cell Define product-oriented layout Explain how to balance production flow in a repetitive or product-oriented facility

Innovations at McDonald’s Indoor seating (1950s) Drive-through window (1970s) Adding breakfast to the menu (1980s) Adding play areas (late 1980s) Redesign of the kitchens (1990s) Self-service kiosk (2004) Now three separate dining sections © 2014 Pearson Education, Inc.

Innovations at McDonald’s Indoor seating (1950s) Drive-through window (1970s) Adding breakfast to the menu (1980s) Adding play areas (late 1980s) Redesign of the kitchens (1990s) Self-service kiosk (2004) Now three separate dining sections Six out of the seven are layout decisions! © 2014 Pearson Education, Inc.

McDonald’s New Layout Seventh major innovation Redesigning all 30,000 outlets around the world Three separate dining areas Linger zone with comfortable chairs and Wi-Fi connections Grab and go zone with tall counters Flexible zone for kids and families Facility layout is a source of competitive advantage © 2014 Pearson Education, Inc.

Strategic Importance of Layout Decisions The objective of layout strategy is to develop an effective and efficient layout that will meet the firm’s competitive requirements

Layout Design Considerations Higher utilization of space, equipment, and people Improved flow of information, materials, or people Improved employee morale and safer working conditions Improved customer/client interaction Flexibility

Types of Layout Office layout Retail layout Warehouse layout Fixed-position layout Process-oriented layout Work-cell layout Product-oriented layout

Types of Layout Office layout: Positions workers, their equipment, and spaces/offices to provide for movement of information Retail layout: Allocates shelf space and responds to customer behavior Warehouse layout: Addresses trade- offs between space and material handling

Types of Layout Fixed-position layout: Addresses the layout requirements of large, bulky projects such as ships and buildings Process-oriented layout: Deals with low-volume, high-variety production (also called job shop or intermittent production)

Types of Layout Work cell layout: Arranges machinery and equipment to focus on production of a single product or group of related products Product-oriented layout: Seeks the best personnel and machine utilizations in repetitive or continuous production

Layout Strategies TABLE 9.1 Layout Strategies OBJECTIVES EXAMPLES Office Locate workers requiring frequent contact close to one another Allstate Insurance Microsoft Corp. Retail Expose customer to high-margin items Kroger’s Supermarket Walgreen’s Bloomingdale’s Warehouse (storage) Balance low-cost storage with low-cost material handling Federal-Mogul’s warehouse The Gap’s distribution center Project (fixed position) Move material to the limited storage areas around the site Ingall Ship Building Corp. Trump Plaza Pittsburgh Airport

Layout Strategies TABLE 9.1 Layout Strategies OBJECTIVES EXAMPLES Job Shop (process oriented) Manage varied material flow for each product Arnold Palmer Hospital Hard Rock Cafe Olive Garden Work Cell (product families) Identify a product family, build teams, cross train team members Hallmark Cards Wheeled Coach Ambulances Repetitive/ Continuous (product oriented) Equalize the task time at each workstation Sony’s TV assembly line Toyota Scion

Good Layouts Consider Material handling equipment Capacity and space requirements Environment and aesthetics Flows of information Cost of moving between various work areas

Office Layout Grouping of workers, their equipment, and spaces to provide comfort, safety, and movement of information Movement of information is main distinction Typically in state of flux due to frequent technological changes

Office Layout Three physical and social aspects Two major trends Proximity Privacy Permission Two major trends Information technology Dynamic needs for space and services

Supermarket Retail Layout Objective is to maximize profitability per square foot of floor space Sales and profitability vary directly with customer exposure

Store Layout Figure 9.2