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8 McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 8 Location Planning
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
