8-1
Location Planning and Analysis
Operations Management
William J. Stevenson
8th edition
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Location Planning and Analysis
CHAPTER
8
Location Planning and Analysis
Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
8-3
Location Planning and Analysis
Need for Location Decisions •
Marketing Strategy
•
Cost of Doing Business
•
Growth
•
Depletion of Resources
8-4
Location Planning and Analysis
Nature of Location Decisions •
Strategic Importance • • •
•
Objectives • • •
•
Profit potential No single location may be better than others Identify several locations from which to choose
Options • • •
8-5
Long term commitment/costs Impact on investments, revenues, and operations Supply chains
Expand existing facilities Add new facilities Move
Location Planning and Analysis
Making Location Decisions Decide on the criteria Identify the important factors • Develop location alternatives • Evaluate the alternatives • Make selection • •
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Location Planning and Analysis
Location Decision Factors Regional Factors
Community Considerations
Multiple Plant Strategies
Site-related Factors
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Location Planning and Analysis
Regional Factors Location of raw materials • Location of markets • Labor factors • Climate and taxes •
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Location Planning and Analysis
Community Considerations Quality of life Services • Attitudes • Taxes • Environmental regulations • Utilities • Developer support • •
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Location Planning and Analysis
Site Related Factors Land Transportation • Environmental • Legal • •
8-10 Location Planning and Analysis
Multiple Plant Strategies Product plant strategy • Market area plant strategy • Process plant strategy •
8-11 Location Planning and Analysis
Table 8.2
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
8-12 Location Planning and Analysis
Trends in Locations •
Foreign producers locating in U.S. • •
• • •
“Made in USA” Currency fluctuations
Just-in-time manufacturing techniques Microfactories Information Technology
8-13 Location Planning and Analysis
Table 8.3 Foreign Government
Cultural Differences
a. Policies on foreign ownership of production facilities Local Content Import restrictions Currency restrictions Environmental regulations Local product standards b. Stability issues Living circumstances for foreign workers / dependents Religious holidays/traditions
Customer Preferences
Possible buy locally sentiment
Labor
Level of training and education of workers Work practices Possible regulations limiting number of foreign employees Language differences Availability and quality of raw materials, energy, transportation
Resources
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Evaluating Locations •
Cost-Profit-Volume Analysis •
Determine fixed and variable costs
•
Plot total costs
•
Determine lowest total costs
8-15 Location Planning and Analysis
Location Cost-Volume Analysis •
Assumptions Fixed costs are constant Variable costs are linear • Output can be closely estimated • Only one product involved • •
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Example 1: Cost-Volume Analysis Fixed and variable costs for four potential locations L o c a tio n
F ix e d C ost $ 2 5 0 ,0 0 1 0 0 ,0 0 1 5 0 ,0 0 2 0 0 ,0 0
A B C D
V a r ia b le C ost $11 30 20 35
0 0 0 0
8-17 Location Planning and Analysis
Example 1: Solution Fixed Costs A B C D
$250,000 100,000 150,000 200,000
Variable Costs
Total Costs
$11(10,000) 30(10,000) 20(10,000) 35(10,000)
$360,000 400,000 350,000 550,000
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Example 1: Solution $(000) 800 700 600 500 400 300 200 100 0 0
D B C A A Superior C Superior B Superior
2
4
6
8
10
Annual Output (000)
12
14
16
8-19 Location Planning and Analysis
Evaluating Locations •
Transportation Model •
•
Factor Rating •
•
Decision based on movement costs of raw materials or finished goods Decision based on quantitative and qualitative inputs
Center of Gravity Method •
Decision based on minimum distribution costs
