Heizer om10 ch08-location
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Heizer om10 ch08-location Heizer om10 ch08-location Document Transcript

  • 10/16/2010 8 Location Strategies Outline Global Company Profile: FedEx PowerPoint presentation to accompany The Strategic Importance of Heizer and Render Operations Management, 10e Location Principles of Operations Management, 8e PowerPoint slides by Jeff Heyl© 2011 Pearson Education, Inc. publishing as Prentice Hall 8-1 © 2011 Pearson Education, Inc. publishing as Prentice Hall 8-2 Outline – Continued Outline – Continued Factors That Affect Location Decisions Methods of Evaluating Location Labor Productivity Alternatives Exchange Rates and Currency Risks The Factor-Rating Method g Costs Locational Break-Even Analysis Political Risk, Values, and Culture Center-of-Gravity Method Proximity to Markets Transportation Model Proximity to Suppliers Proximity to Competitors (Clustering)© 2011 Pearson Education, Inc. publishing as Prentice Hall 8-3 © 2011 Pearson Education, Inc. publishing as Prentice Hall 8-4 Outline – Continued Learning Objectives When you complete this chapter you Service Location Strategy should be able to: How Hotel Chains Select Sites 1. Identify and explain seven major factors The Call Center Industry that effect location decisions Geographic Information Systems 2. Compute labor productivity 3. Apply the factor-rating method 4. Complete a locational break-even analysis graphically and mathematically© 2011 Pearson Education, Inc. publishing as Prentice Hall 8-5 © 2011 Pearson Education, Inc. publishing as Prentice Hall 8-6 1
  • 10/16/2010 Learning Objectives Federal Express When you complete this chapter you should be able to: Central hub concept Enables service to more locations with 5. Use the center-of-gravity method fewer aircraft 6. 6 Understand the differences between Enables matching of aircraft flights with service and industrial-sector location package loads strategies Reduces mishandling and delay in transit because there is total control of packages from pickup to delivery© 2011 Pearson Education, Inc. publishing as Prentice Hall 8-7 © 2011 Pearson Education, Inc. publishing as Prentice Hall 8-8 Location Strategy Location Strategy One of the most important decisions a The objective of location strategy is firm makes to maximize the benefit of location Increasingly global in nature to the firm Significant impact on fixed and variable costs Decisions made relatively infrequently The objective is to maximize the benefit of location to the firm© 2011 Pearson Education, Inc. publishing as Prentice Hall 8-9 © 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 10 Location and Costs Location and Innovation Cost is not always the most important Location decisions based on low aspect of a strategic decision cost require careful consideration Four key attributes when strategy is Once in place, location-related based on innovation costs are fixed in place and High-quality and specialized inputs difficult to reduce An environment that encourages Determining optimal facility investment and local rivalry location is a good investment A sophisticated local market Local presence of related and supporting industries© 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 11 © 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 12 2
  • 10/16/2010 Location Decisions Location Decisions Country Decision Key Success Factors Long-term decisions 1. Political risks, government rules, attitudes, incentives Decisions made infrequently 2. Cultural and economic Decision greatly affects both fixed issues and variable costs 3. Location of markets 4. Labor talent, attitudes, Once committed to a location, productivity, costs many resource and cost issues 5. Availability of supplies, are difficult to change communications, energy 6. Exchange rates and Figure 8.1 currency risks© 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 13 © 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 14 Location Decisions Location Decisions Region/ Key Success Factors Site Decision Key Success Factors Community Decision 1. Corporate desires 1. Site size and cost 2. Attractiveness of region 2. Air, rail, highway, and MN 3. Labor availability and costs waterway systems WI 4. Costs and availability of utilities 3. Zoning restrictions MI 5. Environmental regulations 4. Proximity of services/ OH 6. Government incentives and supplies needed IL IN fiscal policies 5. Environmental impact 7. Proximity to raw materials and issues customers Figure 8.1 8. Land/construction costs Figure 8.1© 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 15 © 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 16 Global Competitiveness Factors That Affect Index of Countries Location Decisions Country 2009 Rank 2005 Rank Labor productivity Switzerland 1 4 Wage rates are not the only cost USA 2 1 Japan 8 10 Lower productivity may increase total cost Canada C d 9 13 UK 13 9 Labor cost per day = Cost per unit Israel 27 23 Productivity (units per day) China 29 48 Italy 48 38 Connecticut Juarez India 49 22 $70 $25 Mexico 60 59 = $1.17 per unit = $1.25 per unit 60 units 20 units Russia 63 53 Table 8.1© 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 17 © 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 18 3
  • 10/16/2010 Factors That Affect Factors That Affect Location Decisions Location Decisions Exchange rates and currency risks Exchange rates and currency risks Can have a significant impact on costs Can have a significant impact on cost structure Location Rates change over time decisions Rates change over time based Costs on costs alone Costs Tangible - easily measured costs such as can create utilities, labor, materials, taxes Tangible - easily measured costs such as difficult ethical utilities, labor, materials, taxes Intangible - less easy to quantify and include education, public transportation, Intangible - less easysituations to quantify and community, quality-of-life include education, public transportation, community, quality-of-life© 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 19 © 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 20 Factors That Affect Ranking Corruption Location Decisions Rank Country 2009 CPI Score (out of 10) 1 New Zealand 9.4 Least Political risk, values, and culture 2 Demark 9.3 Corrupt 3 Singapore, Sweden 9.2 National, state, local governments 5 Switzerland 9.0 attitudes toward private and intellectual 8 Australia, Canada, Iceland 8.7 property, zoning, pollution, employment 12 Hong Kong 8.2 stability may be in flux 14 Germany 8.0 17 Japan, UK 7.7 Worker attitudes towards turnover, unions, 19 USA 7.5 absenteeism 37 Taiwan 5.6 Globally cultures have different attitudes 39 South Korea 5.5 56 Malaysia 4.5 towards punctuality, legal, and ethical Most 79 China 3.6 issues 89 Mexico 3.3 Corrupt 146 Russia 2.2© 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 21 © 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 22 Factors That Affect Factors That Affect Location Decisions Location Decisions Proximity to markets Proximity to competitors Very important to services Called clustering JIT systems or high transportation costs Often driven by resources such as natural, y , may make i i k it important to manufacturers f information, capital, talent Proximity to suppliers Found in both manufacturing and service Perishable goods, high transportation industries costs, bulky products© 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 23 © 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 24 4
  • 10/16/2010 Clustering of Companies Clustering of Companies Industry Locations Reason for clustering Industry Locations Reason for clustering Wine making Napa Valley (US) Natural resources of Theme parks Orlando, Florida A hot spot for Bordeaux region land and climate (Disney World, entertainment, warm (France) Universal weather, tourists, and Studios) inexpensive labor So t a e Software firms s S co a ey, Silicon Valley, Talent resources o a e t esou ces of Boston, Bangalore bright graduates in Electronics Northern Mexico NAFTA, duty free (India) scientific/technical firms export to US areas, venture capitalists nearby Computer Singapore, Taiwan High technological Race car Huntington/North Critical mass of talent hardware penetration rate and builders Hampton region and information manufacturers per capita GDP, (England) skilled/educated workforce with large pool of engineers© 2011 Pearson Education, Inc. publishing as Prentice Hall Table 8.3 8 - 25 © 2011 Pearson Education, Inc. publishing as Prentice Hall Table 8.3 8 - 26 Clustering of Companies Factor- Factor-Rating Method Popular because a wide variety of factors Industry Locations Reason for clustering can be included in the analysis Fast food Sites within 1 mile Stimulate food sales, Six steps in the method chains of each other high traffic flows (Wendy’s, 1. Develop a list of relevant factors called key McDonald’s, success factors Burger King King, and Pizza Hut) 2. Assign a weight to each factor General aviation Wichita, Kansas Mass of aviation skills 3. Develop a scale for each factor aircraft (Cessna, 4. Score each location for each factor Learjet, Boeing) 5. Multiply score by weights for each factor for Orthopedic Warsaw, Indiana Ready supply of skilled each location device workers, strong U.S. manufacturing market 6. Recommend the location with the highest point score© 2011 Pearson Education, Inc. publishing as Prentice Hall Table 8.3 8 - 27 © 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 28 Factor- Factor-Rating Example Locational Break- Break-Even Analysis Key Scores Success (out of 100) Weighted Scores Factor Weight France Denmark France Denmark Method of cost-volume analysis used for Labor industrial locations availability and attitude .25 70 60 (.25)(70) = 17.5 (.25)(60) = 15.0 Three steps in the method p People-to- car ratio .05 50 60 (.05)(50) = 2.5 (.05)(60) = 3.0 1. Determine fixed and variable costs for Per capita each location income .10 85 80 (.10)(85) = 8.5 (.10)(80) = 8.0 2. Plot the cost for each location Tax structure .39 75 70 (.39)(75) = 29.3 (.39)(70) = 27.3 Education 3. Select location with lowest total cost for and health .21 60 70 (.21)(60) = 12.6 (.21)(70) = 14.7 expected production volume Totals 1.00 70.4 68.0 Table 8.4© 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 29 © 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 30 5
  • 10/16/2010 Locational Break-Even Break- Locational Break-Even Break- Analysis Example Analysis Example Three locations: – $180,000 – – Selling price = $120 $160,000 – $150,000 – Expected volume = 2,000 units – $130,000 – , Annual cost t Fixed Variable Total $110,000 – – City Cost Cost Cost – – Akron $30,000 $75 $180,000 $80,000 – – Bowling Green $60,000 $45 $150,000 $60,000 – – Chicago $110,000 $25 $160,000 $30,000 – – Akron Bowling Green Chicago lowest lowest – lowest cost cost cost $10,000 – Total Cost = Fixed Cost + (Variable Cost x Volume) | – | | | | | | 0 500 1,000 1,500 2,000 2,500 3,000 Figure 8.2 Volume© 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 31 © 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 32 Center-of- Center-of-Gravity Method Center-of- Center-of-Gravity Method Finds location of distribution Place existing locations on a center that minimizes distribution coordinate grid costs Grid origin and scale is arbitrary Considers C id Maintain l ti di t M i t i relative distances Location of markets Calculate X and Y coordinates for Volume of goods shipped to those ‘center of gravity’ markets Assumes cost is directly Shipping cost (or distance) proportional to distance and volume shipped© 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 33 © 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 34 Center-of- Center-of-Gravity Method Center-of- Center-of-Gravity Method ∑dixQi North-South New York (130, 130) x - coordinate = i Chicago (30, 120) ∑Qi 120 – i Pittsburgh (90, 110) ∑diyQi 90 – y - coordinate = i ∑Qi 60 – i 30 – where dix = x-coordinate of location i Atlanta (60, 40) diy = y-coordinate of location i – | | | | | | East-West Qi = Quantity of goods moved to 30 60 90 120 150 Arbitrary or from location i origin Figure 8.3© 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 35 © 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 36 6
  • 10/16/2010 Center-of- Center-of-Gravity Method Center-of- Center-of-Gravity Method Number of Containers North-South Store Location Shipped per Month New York (130, 130) Chicago (30, 120) Chicago (30, 120) 2,000 120 – Pittsburgh (90, 110) 1,000 Pittsburgh (90, 110) New York (130, 130) 1,000 90 – + Center of gravity ( C f (66.7, 93.3) ) Atlanta (60, 40) 2,000 60 – (30)(2000) + (90)(1000) + (130)(1000) + (60)(2000) x-coordinate = 2000 + 1000 + 1000 + 2000 30 – = 66.7 Atlanta (60, 40) (120)(2000) + (110)(1000) + (130)(1000) + (40)(2000) – | | | | | | y-coordinate = East-West 2000 + 1000 + 1000 + 2000 30 60 90 120 150 Arbitrary = 93.3 origin Figure 8.3© 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 37 © 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 38 Transportation Model Worldwide Distribution of Volkswagens and Parts Finds amount to be shipped from several points of supply to several points of demand Solution will minimize total production and shipping costs A special class of linear programming problems Figure 8.4© 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 39 © 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 40 Service Location Strategy Location Strategies 1. Purchasing power of customer-drawing area Service/Retail/Professional Location Goods-Producing Location Revenue Focus Cost Focus 2. Service and image compatibility with Volume/revenue Tangible costs demographics of the customer-drawing area Drawing area; purchasing power Transportation cost of raw material 3. Competition in the area Competition; advertising/pricing Shipment cost of finished goods Energy and utility cost; labor; raw 4. 4 Quality of the competition Physical quality material; taxes, and so on taxes Parking/access; security/lighting; 5. Uniqueness of the firm’s and competitors’ appearance/image Intangible and future costs locations Attitude toward union Cost determinants Quality of life 6. Physical qualities of facilities and neighboring Rent Education expenditures by state businesses Management caliber Quality of state and local Operations policies (hours, wage government 7. Operating policies of the firm rates) 8. Quality of management Table 8.6© 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 41 © 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 42 7
  • 10/16/2010 Location Strategies Location Strategies Service/Retail/Professional Location Goods-Producing Location Service/Retail/Professional Location Goods-Producing Location Techniques Techniques Assumptions Assumptions Regression models to determine Transportation method Location is a major determinant of Location is a major determinant of importance of various factors Factor-rating method revenue cost Factor rating Factor-rating method Locational break even analysis break-even High customer contact issues are customer-contact Most major costs can be identified Traffic counts Crossover charts critical explicitly for each site Demographic analysis of drawing area Costs are relatively constant for a Low customer contact allows focus Purchasing power analysis of area given area; therefore, the revenue on the identifiable costs function is critical Intangible costs can be evaluated Center-of-gravity method Geographic information systems Table 8.6 Table 8.6© 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 43 © 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 44 How Hotel Chains Select Sites The Call Center Industry Location is a strategically important decision in the hospitality industry Requires neither face-to-face La Quinta started with 35 independent contact nor movement of materials variables and worked to refine a regression model to predict profitability Has very broad location options The final model had only four variables Traditional variables are no longer Price of the inn r2 = .51 relevant Median income levels 51% of the profitability is Cost and availability of labor may State population per inn predicted by drive location decisions Location of nearby colleges just these four variables!© 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 45 © 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 46 Geographic Information Geographic Information Systems (GIS) Systems (GIS) Important tool to help in location analysis Enables more complex demographic analysis Available data bases include Detailed census data Detailed maps Utilities Geographic features Locations of major services© 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 47 © 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 48 8
  • 10/16/2010 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.© 2011 Pearson Education, Inc. publishing as Prentice Hall 8 - 49 9