Introduction to Operations Management Location Planning and Analysis (Ch.8, 8s) Hansoo Kim (金翰秀) Dept. of Management Information Systems, YUST

X X X X X X X X OM Overview Class Overview (Ch. 0) Operations, Productivity, and Strategy (Ch. 1, 2) X Project Management (Ch. 17) Strategic Capacity Planning (Ch. 5, 5S) Process Selection/ Facility Layout; LP (Ch. 6, 6S) X X X Mgmt of Quality/ Six Sigma Quality (Ch. 9, 10) X X Queueing/ Simulation (Ch. 18) Supply Chain Management (Ch 11) X Location Planning and Analysis (Ch. 8) JIT & Lean Mfg System (Ch. 15) Demand Mgmt Forecasting (Ch 3) Aggregated Planning (Ch. 13) Inventory Management (Ch. 12) MRP & ERP (Ch 14) Term Project

Today’s Outline Location Strategy (위치선정) Transportation Problem Objectives (목적) Factors (요소) Considerations (고려사항) Methods (방법) Transportation Problem

Need for Location Decisions Where to build factory or Warehouse? What factors should be considered? 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

Location Strategy 설비를 어디에 위치시키는 가를 결정하는 문제 (Problem to decide the location of facility) 장기적 의사결정 문제 (Long-term decisions) 되돌리기가 어렵다 (Difficult to reverse) 의사결정시 고정비와 변동비가 주요 고려사항 (Affect fixed & variable costs) Transportation cost As much as 25% of product price Other costs: Taxes, wages, rent etc. Objective: Maximize benefit of location to firm

Location Strategy [Purpose] Maximize the benefit of location to the firm 이익을 최대화 (To maximize the benefits) 하기 위해서, 어디에 (Where to build) 공장 및 창고와 같은 설비(Facility)를 위치 시켜야 하는가? 위치와 비용/수익간에 관계성이 있다! There are relations between location and benefit 산업별 고려사항이 차이가 있다 (Different considering factors depending on industry) Industrial Location Decision (생산 설비의 위치결정 문제) Service Location Decision (서비스 설비의 위치결정 문제)

Industrial Location Decision (생산설비의 위치결정 문제) 비용절감에 촛점(Cost Focus) 공산품의 가격 (Revenue)은 위치에 따라 변동폭이 작다 설비의 위치는 중요한 비용요소 (Cost Factor)이다 Service Location Decision (서비스설비의 위치결정 문제) 수익증대에 촛점(Revenue Focus) 비용(Cost)의 변동은 상대적으로 작은 반면, 수익성의 폭이 넓다 설비의 위치는 중요한 수익요소 (Revenue Factor)이다

Making Location Decisions Decide on the criteria Identify the important factors Develop location alternatives Evaluate the alternatives Identify general region Identify a small number of community alternatives Identify site alternatives Evaluate and make selection

Factors of Location Problem

Factors Affecting Country Government rules, attitudes, political risk, incentives Culture & economy Market location Labor availability, attitudes, productivity, and cost Availability of supplies, communications, energy Exchange rates and currency risks © 1995 Corel Corp. Students, especially those from other countries, should be able to contribute significantly to a discussion of factors affecting one’s choice of country.

Region Location Decisions Corporate desires Attractiveness of region (culture, taxes, climate, etc.) Labor, availability, costs, attitudes towards unions Costs and availability of utilities Environmental regulations of state and town Government incentives Proximity to raw materials & customers Land/construction costs © 1995 Corel Corp. Discussion of this slide might include comments on the impact of information technology on the priorities attached to the factors listed.

Factors Affecting Site Site size and cost Air, rail, highway, and waterway systems Zoning restrictions Nearness of services/supplies needed Environmental impact issues What impact does the increasing rate of environmental change have on a firm’s site choice? For example, would one build a single site, or a collection of sites which might be tied together by technology? Does one have to choose a site near desired services, or can these services often be secured through technology? © 1995 Corel Corp.

Location Decision Example © 1995 Corel Corp. BMW decided to build its first major manufacturing plant outside Germany in Spartanburg, South Carolina, USA. BMW’s decisions

Country Decision Factors Market location U.S. is world’s largest luxury car market Growing (baby boomers) Labor Lower manufacturing labor costs $17/hr. (U.S.) vs. $27 (Germany) Higher labor productivity 11 holidays (U.S.) vs. 31 (Germany) Other Lower shipping cost ($2,500/car less) New plant & equipment would increase productivity (lower cost/car $2,000-3000) USA

Region/Community Decision Factors Labor Lower wages in South Carolina (SC) Government incentives $135 million in state & local tax breaks Free-trade zone from airport to plant No duties on imported components or on exported cars Spartanburg, SC

Global Competitiveness of Countries [GCI] (2010-2011) 국가경쟁력지수 Japan 6위 Korea Rep. 22위 China 27위 출처: http://www.weforum.org

국가부패지수 Corruption Index (2010) Japan: 17 Korea: 39 China: 78 출처: http://www.transparency.org/

위치선정에 영향을 주는 요소들 Factors influencing location 노동생산성 (Labor Productivity) 환율, 화폐 안정성 (Exchange Rate and Currency Risk) 비용 (Costs) 기업에 대한 태도 (Attitude) 시장에 대한 접근성 (Proximity to Markets) 공급자에 대한 접근성 (Proximity to Suppliers) 경쟁자들에 대한 접근성 (Proximity to Competitors, Clustering) Clustering: 관련 분야가 한곳에 모여있는 단지. 공동상승효과 기대

위치 선정 평가방법 Methods for facility location Factor-rating method (요소평가법) Locational break-even analysis (손익분기 분석) Center of gravity method (무게중심법) Transportation model (운송모델) This slide can be used to frame a discussion of methods to evaluate location decisions. © 1995 Corel Corp.

요소 평가법 (Factor-Rating Method) 가장 일반적인 위치 선정 방법 평가 요소를 선정한 후, 각 대상 위치를 평가함 Decide evaluation factors, and evaluate locations with the factors 정량적인 평가요소 (Quantitative Evaluation Factors) 장기/단기 비용, 세율 등.. 정성적인 평가요소 (Qualitative Evaluation Factors) 노동의 품질, 교육수준 각 요소에 중요성을 반영한 가중치를 부여한 후에, 위치별로 가중평균하여 최고치를 선정한다. Set weights for each factors and find best location with weighted average score for each location

Example > Eval. Factors Weight 평가점수 (100점 만점) (중국 말레이지아) (중국 말레이지아) 가중평가점수 (중국 말레이지아) 노동가용성 및 태도 자동차/인구 비율 인당자산소득 과세구조 교육및 의료 총합 25% 5% 10% 39% 21% 100% 70 50 85 75 60 80 17.5 2.5 8.5 29.3 12.6 70.4 15.0 3.0 8.0 27.3 14.7 68.0 >

Example 2: Factor Rating

손익분기법 (Location Break-Even Analysis) 생산설비 위치결정 방법 (Location for production facility) 비용과 생산량을 대비하여 분석 Method of cost-volume analysis used for industrial locations 방법 위치에 따라 고정비와 변동비를 결정한다 (Determine fixed & variable costs for each location) 년간 생산량에 따른 비용을 계산한다 (Plot total cost for each location (Cost on vertical axis, Annual Volume on horizontal axis)) 예상되는 생산량에 대한 최소 비용의 위치를 결정한다 (Select location with lowest total cost for expected production volume) 선정된 위치는 적어도 손익 분기점은 넘어야 한다 (Must be above break-even)

예제) 북경현대 자동차에서, 새로운 자동차 점화 플러그 생산 설비를 세우려 한다. © 1995 Corel Corp. 북경현대 자동차에서, 새로운 자동차 점화 플러그 생산 설비를 세우려 한다. 세 지역(중경, 연변, 청도)이 후보 대상이다. 이 지역에 대한 각각의 고정비는 $30k, $60k 와 $110k이며, 변동비는 $75, $45 와 $25이다. 제품 한개 판매가격은 $120이라고 한다. 이 제품에 대한 년간 수요가 2000개 라고 할때 어디가 최적의 위치인가? An example

Locational Break-Even Crossover Chart 50000 100000 150000 200000 500 1000 1500 2000 2500 3000 Volume Annual Cost 중경 청도 연변 연변 lowest cost 청도 lowest cost 중경 lowest cost Graphical solution to the example

Example 1: Cost-Profit-Volum Analysis Fixed and variable costs for four potential plant locations are shown below:

무게중심법 (Center for Gravity Method) 여러곳을 배송하는 물류센타의 위치를 결정할때 (Finds location of single distribution center serving several destinations) 주로 서비스 설비 위치 결정에 사용 (Used primarily for services) 고려사항 배송되는 설비들의 위치 (Location of existing destinations) Example: Markets, retailers etc. 배송되는 양 (Volume to be shipped) 배송 거리(혹은 비용) (Shipping distance (or cost)) 물건 개당 거리당 배송 비용은 상수로 가정 (Shipping cost/unit/mile is constant)

Coordinate Locations of Four Quain’s Department Stores and the Center of Gravity 운송량 Chicago: 2000개 Pittsburgh: 1000개 New York: 1000개 Atlanta: 2000개 Cx= {30(2000)+90(1000)+130(1000)+60(2000)}/(2000+1000+1000+2000) = 66.7 Cy={120(2000)+110(1000)+130(1000)+40(2000)}/(2000+1000+1000+2000) = 93.3

방법) 그 위치들의 무게 중심을 구한다 기존의 설비들의 위치와 거리를 구한다 Place existing locations on a coordinate grid Grid has arbitrary origin & scale Maintains relative distances 그 위치들의 무게 중심을 구한다 Calculate X & Y coordinates for ‘center of gravity’ Gives location of distribution center Minimizes transportation cost

Center of Gravity Method Equations X Coordinate dix = x coordinate of location i Wi = Volume of goods moved to or from location i diy = y coordinate of location i Y Coordinate

Using Excel

Example 4: 무게중심법

Transportation Model Finds amount to be shipped from several sources to several destinations Used primarily for industrial locations Type of linear programming (LP) model Objective: Minimize total production & shipping costs Constraints Production capacity at source (factory) Demand requirement at destination Again, this method, while quantitative, is unable to handle many of the important factors.

Example: Transportation Model

LP Formulation Decision Variables Objective Function Constraints Xij = i에서 j로 옮기는 물건의 양 Objective Function Min CijXij Constraints j Xij = Si, i Xij = Dj Xij >= 0

LP Formulation Minimize 4x1A + 7x1B + 7x1C + 1x1D + 12x2A + 3x2B + 8x2C + 8x2D + 8x3A + 10x3B + 16x3C + 5x3D

Excel Solver

Location Strategy The ideal location for many companies in the future will be a floating factory ship that will go from port to port, from country to country – wherever cost per unit is lowest. Students should asked to consider: - is this the ultimate in “locations”? - what are the implications of this idea? © 1995 Corel Corp.

Announcement HW: Solve all examples and solved problems covered in class (Ch. 8, 8s) Problem 8.3, 8.9, 8.12

Good Bye!