8

McGraw-Hill/IrwinOperations Management, Eighth Edition, by William J. StevensonCopyright © 2005 by The McGraw-Hill Companies, Inc. All rights

reserved.

Chapter 8Location Planning

Need for Location Decisions Marketing Strategy Cost of Doing Business Growth Depletion of Resources

Location Decisions The importance of location

Competition Cost Hidden effect

Opportunity costs Market Related Factors

Locations of demand or competition

Location Factors (General) Tangible Cost Factors

Availability of Multiple Modes of Transportation

Material oriented location Market oriented location

Labor availability and costs Utilities

Energy availability and costs Water availability and costs

Site and construction costs Taxes

Location Factors Intangible Factors Zoning and legal regulations

Pollution control Community Attitudes

Public opinion (noise, smoke, odor) Expansion potential

Access roads and transportation facilities Living conditions

Costs of living, housing, etc

Nature of Location Decisions

Strategic Importance Long term commitment/costs Impact on investments, revenues, and operations Supply chains

Objectives Profit potential No single location may be better than others Identify several locations from which to choose

Options Expand existing facilities Add new facilities Move

Making Location Decisions Decide on the criteria Identify the important factors Develop location alternatives Evaluate the alternatives Make selection

Location Decision FactorsRegional Factors

Site-related Factors

Multiple Plant Strategies

Community Considerations

Location of raw materials Location of markets Labor factors Climate and taxes

Regional Factors

Quality of life Services Attitudes Taxes Environmental regulations Utilities Developer support

Community Considerations

Land Transportation Environmental Legal

Site Related Factors

Product plant strategy Market area plant strategy Process plant strategy

Multiple Plant Strategies

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

Trends in Locations Foreign producers locating in U.S.

“Made in USA” Currency fluctuations

Just-in-time manufacturing techniques Microfactories Information Technology

Retail Facility Location The major criterion

used in locating a retail facility is the volume of demand. Population in a

given area Median Age Median Income Traffic counts at the

potential site

Public Service Facility Location Difficulty of

measuring “social-costs” or “social benefits” Average distance or

time traveled by the users of the facility

Maximum distance or travel time between the facility and its intended population

Emergency Facility Location The objective is to

locate the facility so that the maximum response time to any point of demand is minimized.

Evaluating Locations Transportation Model

Decision based on movement costs of raw materials or finished goods

Factor Rating Decision based on quantitative and

qualitative inputs Center of Gravity Method

Decision based on minimum distribution costs

Center of Gravity

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

Location Decisions

Example 1: Cost-Volume Analysis

Fixed and variable costs for four potential locations

L o c a t i o n F i x e dC o s t

V a r i a b l eC o s t

ABCD

$ 2 5 0 , 0 0 01 0 0 , 0 0 01 5 0 , 0 0 02 0 0 , 0 0 0

$ 1 13 02 03 5

Example 1: Solution

F i x e dC o s t s

V a r i a b l eC o s t s

T o t a lC o s t s

ABCD

$ 2 5 0 , 0 0 01 0 0 , 0 0 01 5 0 , 0 0 02 0 0 , 0 0 0

$ 1 1 ( 1 0 , 0 0 0 )3 0 ( 1 0 , 0 0 0 )2 0 ( 1 0 , 0 0 0 )3 5 ( 1 0 , 0 0 0 )

$ 3 6 0 , 0 0 04 0 0 , 0 0 03 5 0 , 0 0 05 5 0 , 0 0 0

Example 1: Solution

800700600500400300200100

0

Annual Output (000)

$(000)

8 10 12 14 166420

A

BC

B SuperiorC Superior

A Superior

D