Location Strategy and Layout Strategy 19 July 2001

Introduction What – Location and Layout Decisions Where – Important to company Why – Costly to change

Why is Location Important? Affects costs Costs of inputs depend on region Characteristics of labour force depend on region Difficult to change once decision made Objective: maximize benefits of location to the firm

Choosing a Country Government Culture and economics Market locations Labour Availability of Inputs Exchange rate

Choosing a Community Corporate desires Attractiveness Labour Utilities Environmental Regulations Government Incentives Proximity Land and Construction Costs

Choosing a Site Size and Cost Air, rail, highway, waterway systems Zoning restrictions Nearness of services and suppliers Environmental impact

Evaluating Location Alternatives How do we choose between locations?

Factor Rating Develop list of factors Weight each factor Develop scale for each factor Score each location for each factor Multiply score by weights Sum points

Break-Even Analysis Determine fixed and variable costs for each location Plot costs vs volume Select location with lowest total cost for expected production volume

Break-Even Analysis 200000 150000 Annual Cost 100000 50000 500 1000 Akron 150000 Chicago Bowling Green Akron lowest cost Bowling Green lowest cost Chicago lowest cost Annual Cost 100000 50000 500 1000 1500 2000 2500 3000 Volume

Center of Gravity Method

Service Location Strategy Maximize volume of business and revenue Purchasing Power Compatibility with demographics Competition Quality of Competition Uniqueness of location Physical qualities of facilities Operating Policies Quality of Management

What is Layout? Placement of machines Offices Service centers Efficient flow of materials, people, information

Layout Achieves Higher utilization of space, equipment, people Improved flow of information, materials, people Improved morale and safe working conditions Improved customer / client interaction Flexibility

Good Layout Requires Material handling equipment Capacity and space requirements Environment and aesthetics Flows of Information Cost of moving between work areas

Fixed Position Layout Project remains in one place Workers and equipment come to the work area Limited space At different stages, different materials needed Volume of materials needed is dynamic

New Innovations Move some construction off-site Modular construction – ie shipbuilding Group technology – group components

Process-Oriented Layout Low volume High variety Similar machines grouped together Product moves from one department to another Advantage: flexibility Disadvantage: set-up and movement

Material Handling Costs Arrange departments to minimize material handling

Work cells Temporary Product-oriented arrangement Reduced work-in-process inventory Less floor space Reduced raw material and finished goods inventory Reduced labour More employee participation Increased use of equipment Reduced investment in machinery

Work cells require Identified families of products Highly trained and flexible employees Support to get up and running

 Focused Work Centre Product oriented arrangement

Office Layout Moving information instead of materials Work cell concept still valid Technology allows increasing layout flexibility Virtual companies – hoteling

Retail Layout Profitability related to customer exposure to products High-draw items around periphery Prominent locations for high-impulse and high-margin Disperse “power items” around store End-aisle locations have high exposure Convey mission by position lead-off department

Warehouse and Storage Layout Find optimum cost between material handling and storage space Variety of items stored and number of items picked per order Shipping and receiving areas

Cross-Docking Avoid placing in storage Ship what is received Reduce distribution costs Speed restocking Requires tight scheduling Requires accurate product information

Random Stocking Locate stock wherever there is space

Customizing Warehouse adds value to product by customizing it for customer Modification Repair Labeling Packaging

Repetitive Product-Oriented Layout High volume Low variety Expensive! Volume adequate for high equipment utilization Product demand stable Product standardized Adequate supplies of raw materials

Product Layouts Fabrication line Assembly line Time spent at each stage in the line must be balanced

Advantages Low variable cost per unit Low material handling cost Reduced work-in-process inventory Easier training and supervision Rapid throughput

Disadvantages High investment – requires high volume Work stoppage stops entire operation Low flexibility

Assembly-Line Balancing Cycle time = Production time available per day / units per day Minimum Workstations = Sum of task times / Cycle time Efficiency = Sum of task times / (actual workstations x assigned cycle time)