8 - 1© 2011 Pearson Education, Inc. publishing as Prentice Hall8 Location StrategiesPowerPoint presentation to accompanyHe...
8 - 2© 2011 Pearson Education, Inc. publishing as Prentice HallOutline Global Company Profile:FedEx The Strategic Import...
8 - 3© 2011 Pearson Education, Inc. publishing as Prentice HallOutline – Continued Factors That Affect LocationDecisions...
8 - 4© 2011 Pearson Education, Inc. publishing as Prentice HallOutline – Continued Methods of Evaluating LocationAlternat...
8 - 5© 2011 Pearson Education, Inc. publishing as Prentice HallOutline – Continued Service Location Strategy How Hotel C...
8 - 6© 2011 Pearson Education, Inc. publishing as Prentice HallLearning ObjectivesWhen you complete this chapter youshould...
8 - 7© 2011 Pearson Education, Inc. publishing as Prentice HallLearning ObjectivesWhen you complete this chapter youshould...
8 - 8© 2011 Pearson Education, Inc. publishing as Prentice HallFederal Express Central hub concept Enables service to mo...
8 - 9© 2011 Pearson Education, Inc. publishing as Prentice HallLocation StrategyThe objective of location strategy isto ma...
8 - 10© 2011 Pearson Education, Inc. publishing as Prentice HallLocation Strategy One of the most important decisions afi...
8 - 11© 2011 Pearson Education, Inc. publishing as Prentice HallLocation and Costs Location decisions based on lowcost re...
8 - 12© 2011 Pearson Education, Inc. publishing as Prentice HallLocation and Innovation Cost is not always the most impor...
8 - 13© 2011 Pearson Education, Inc. publishing as Prentice HallLocation Decisions Long-term decisions Decisions made in...
8 - 14© 2011 Pearson Education, Inc. publishing as Prentice HallLocation DecisionsCountry Decision Key Success Factors1. P...
8 - 15© 2011 Pearson Education, Inc. publishing as Prentice HallLocation DecisionsRegion/CommunityDecisionKey Success Fact...
8 - 16© 2011 Pearson Education, Inc. publishing as Prentice HallLocation DecisionsSite Decision Key Success Factors1. Site...
8 - 17© 2011 Pearson Education, Inc. publishing as Prentice HallGlobal CompetitivenessIndex of CountriesCountry 2009 Rank ...
8 - 18© 2011 Pearson Education, Inc. publishing as Prentice HallFactors That AffectLocation Decisions Labor productivity...
8 - 19© 2011 Pearson Education, Inc. publishing as Prentice HallFactors That AffectLocation Decisions Exchange rates and ...
8 - 20© 2011 Pearson Education, Inc. publishing as Prentice HallFactors That AffectLocation Decisions Exchange rates and ...
8 - 21© 2011 Pearson Education, Inc. publishing as Prentice HallFactors That AffectLocation Decisions Political risk, val...
8 - 22© 2011 Pearson Education, Inc. publishing as Prentice Hall© 2011 Pearson EducationRanking CorruptionRank Country 201...
8 - 23© 2011 Pearson Education, Inc. publishing as Prentice HallFactors That AffectLocation Decisions Proximity to market...
8 - 24© 2011 Pearson Education, Inc. publishing as Prentice HallFactors That AffectLocation Decisions Proximity to compet...
8 - 25© 2011 Pearson Education, Inc. publishing as Prentice HallClustering of CompaniesIndustry Locations Reason for clust...
8 - 26© 2011 Pearson Education, Inc. publishing as Prentice HallClustering of CompaniesIndustry Locations Reason for clust...
8 - 27© 2011 Pearson Education, Inc. publishing as Prentice HallClustering of CompaniesIndustry Locations Reason for clust...
8 - 28© 2011 Pearson Education, Inc. publishing as Prentice HallFactor-Rating Method Popular because a wide variety of fa...
8 - 29© 2011 Pearson Education, Inc. publishing as Prentice HallFactor-Rating ExampleKey ScoresSuccess (out of 100) Weight...
8 - 30© 2011 Pearson Education, Inc. publishing as Prentice HallLocationalBreak-Even Analysis Method of cost-volume analy...
8 - 31© 2011 Pearson Education, Inc. publishing as Prentice HallLocational Break-EvenAnalysis ExampleThree locations:Akron...
8 - 32© 2011 Pearson Education, Inc. publishing as Prentice HallLocational Break-EvenAnalysis Example–$180,000 ––$160,000 ...
8 - 33© 2011 Pearson Education, Inc. publishing as Prentice HallCenter-of-Gravity Method Finds location of distributionce...
8 - 34© 2011 Pearson Education, Inc. publishing as Prentice HallCenter-of-Gravity Method Place existing locations on acoo...
8 - 35© 2011 Pearson Education, Inc. publishing as Prentice HallCenter-of-Gravity Methodx - coordinate =∑dixQi∑Qiii∑diyQi∑...
8 - 36© 2011 Pearson Education, Inc. publishing as Prentice HallCenter-of-Gravity MethodNorth-SouthEast-West120 –90 –60 –3...
8 - 37© 2011 Pearson Education, Inc. publishing as Prentice HallCenter-of-Gravity MethodNumber of ContainersStore Location...
8 - 38© 2011 Pearson Education, Inc. publishing as Prentice HallCenter-of-Gravity MethodNorth-SouthEast-West120 –90 –60 –3...
8 - 39© 2011 Pearson Education, Inc. publishing as Prentice HallTransportation Model Finds amount to be shipped fromsever...
8 - 40© 2011 Pearson Education, Inc. publishing as Prentice HallWorldwide Distribution ofVolkswagens and PartsFigure 8.4
8 - 41© 2011 Pearson Education, Inc. publishing as Prentice HallService Location Strategy1. Purchasing power of customer-d...
8 - 42© 2011 Pearson Education, Inc. publishing as Prentice HallLocation StrategiesTable 8.6Service/Retail/Professional Lo...
8 - 43© 2011 Pearson Education, Inc. publishing as Prentice HallLocation StrategiesTable 8.6Service/Retail/Professional Lo...
8 - 44© 2011 Pearson Education, Inc. publishing as Prentice HallLocation StrategiesTable 8.6Service/Retail/Professional Lo...
8 - 45© 2011 Pearson Education, Inc. publishing as Prentice HallHow Hotel Chains Select Sites Location is a strategically...
8 - 46© 2011 Pearson Education, Inc. publishing as Prentice HallThe Call Center Industry Requires neither face-to-facecon...
8 - 47© 2011 Pearson Education, Inc. publishing as Prentice HallGeographic InformationSystems (GIS) Important tool to hel...
8 - 48© 2011 Pearson Education, Inc. publishing as Prentice HallGeographic InformationSystems (GIS)
8 - 49© 2011 Pearson Education, Inc. publishing as Prentice HallAll rights reserved. No part of this publication may be re...
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Heizer om10 ch08

  1. 1. 8 - 1© 2011 Pearson Education, Inc. publishing as Prentice Hall8 Location StrategiesPowerPoint presentation to accompanyHeizer and RenderOperations Management, 10ePrinciples of Operations Management, 8ePowerPoint slides by Jeff Heyl
  2. 2. 8 - 2© 2011 Pearson Education, Inc. publishing as Prentice HallOutline Global Company Profile:FedEx The Strategic Importance ofLocation
  3. 3. 8 - 3© 2011 Pearson Education, Inc. publishing as Prentice HallOutline – Continued Factors That Affect LocationDecisions Labor Productivity Exchange Rates and Currency Risks Costs Political Risk, Values, and Culture Proximity to Markets Proximity to Suppliers Proximity to Competitors (Clustering)
  4. 4. 8 - 4© 2011 Pearson Education, Inc. publishing as Prentice HallOutline – Continued Methods of Evaluating LocationAlternatives The Factor-Rating Method Locational Break-Even Analysis Center-of-Gravity Method Transportation Model
  5. 5. 8 - 5© 2011 Pearson Education, Inc. publishing as Prentice HallOutline – Continued Service Location Strategy How Hotel Chains Select Sites The Call Center Industry Geographic Information Systems
  6. 6. 8 - 6© 2011 Pearson Education, Inc. publishing as Prentice HallLearning ObjectivesWhen you complete this chapter youshould be able to:1. Identify and explain seven major factorsthat effect location decisions2. Compute labor productivity3. Apply the factor-rating method4. Complete a locational break-evenanalysis graphically and mathematically
  7. 7. 8 - 7© 2011 Pearson Education, Inc. publishing as Prentice HallLearning ObjectivesWhen you complete this chapter youshould be able to:5. Use the center-of-gravity method6. Understand the differences betweenservice and industrial-sector locationstrategies
  8. 8. 8 - 8© 2011 Pearson Education, Inc. publishing as Prentice HallFederal Express Central hub concept Enables service to more locations withfewer aircraft Enables matching of aircraft flights withpackage loads Reduces mishandling and delay intransit because there is total control ofpackages from pickup to delivery
  9. 9. 8 - 9© 2011 Pearson Education, Inc. publishing as Prentice HallLocation StrategyThe objective of location strategy isto maximize the benefit of locationto the firm
  10. 10. 8 - 10© 2011 Pearson Education, Inc. publishing as Prentice HallLocation Strategy One of the most important decisions afirm makes Increasingly global in nature Significant impact on fixed andvariable costs Decisions made relatively infrequently The objective is to maximize thebenefit of location to the firm
  11. 11. 8 - 11© 2011 Pearson Education, Inc. publishing as Prentice HallLocation and Costs Location decisions based on lowcost require careful consideration Once in place, location-relatedcosts are fixed in place anddifficult to reduce Determining optimal facilitylocation is a good investment
  12. 12. 8 - 12© 2011 Pearson Education, Inc. publishing as Prentice HallLocation and Innovation Cost is not always the most importantaspect of a strategic decision Four key attributes when strategy isbased on innovation High-quality and specialized inputs An environment that encouragesinvestment and local rivalry A sophisticated local market Local presence of related andsupporting industries
  13. 13. 8 - 13© 2011 Pearson Education, Inc. publishing as Prentice HallLocation Decisions Long-term decisions Decisions made infrequently Decision greatly affects both fixedand variable costs Once committed to a location,many resource and cost issuesare difficult to change
  14. 14. 8 - 14© 2011 Pearson Education, Inc. publishing as Prentice HallLocation DecisionsCountry Decision Key Success Factors1. Political risks, governmentrules, attitudes, incentives2. Cultural and economicissues3. Location of markets4. Labor talent, attitudes,productivity, costs5. Availability of supplies,communications, energy6. Exchange rates andcurrency risksFigure 8.1
  15. 15. 8 - 15© 2011 Pearson Education, Inc. publishing as Prentice HallLocation DecisionsRegion/CommunityDecisionKey Success Factors1. Corporate desires2. Attractiveness of region3. Labor availability and costs4. Costs and availability of utilities5. Environmental regulations6. Government incentives andfiscal policies7. Proximity to raw materials andcustomers8. Land/construction costsMNWIMIIL INOHFigure 8.1
  16. 16. 8 - 16© 2011 Pearson Education, Inc. publishing as Prentice HallLocation DecisionsSite Decision Key Success Factors1. Site size and cost2. Air, rail, highway, andwaterway systems3. Zoning restrictions4. Proximity of services/supplies needed5. Environmental impactissuesFigure 8.1
  17. 17. 8 - 17© 2011 Pearson Education, Inc. publishing as Prentice HallGlobal CompetitivenessIndex of CountriesCountry 2009 Rank 2005 RankSwitzerland 1 4USA 2 1Japan 8 10Canada 9 13UK 13 9Israel 27 23China 29 48Italy 48 38India 49 22Mexico 60 59Russia 63 53 Table 8.1
  18. 18. 8 - 18© 2011 Pearson Education, Inc. publishing as Prentice HallFactors That AffectLocation Decisions Labor productivity Wage rates are not the only cost Lower productivity may increase total costLabor cost per dayProductivity (units per day)= Cost per unitConnecticut= $1.17 per unit$7060 unitsJuarez= $1.25 per unit$2520 units
  19. 19. 8 - 19© 2011 Pearson Education, Inc. publishing as Prentice HallFactors That AffectLocation Decisions Exchange rates and currency risks Can have a significant impact on costs Rates change over time Costs Tangible - easily measured costs such asutilities, labor, materials, taxes Intangible - less easy to quantify andinclude education, public transportation,community, quality-of-life
  20. 20. 8 - 20© 2011 Pearson Education, Inc. publishing as Prentice HallFactors That AffectLocation Decisions Exchange rates and currency risks Can have a significant impact on coststructure Rates change over time Costs Tangible - easily measured costs such asutilities, labor, materials, taxes Intangible - less easy to quantify andinclude education, public transportation,community, quality-of-lifeLocationdecisions basedon costs alonecan createdifficult ethicalsituations
  21. 21. 8 - 21© 2011 Pearson Education, Inc. publishing as Prentice HallFactors That AffectLocation Decisions Political risk, values, and culture National, state, local governmentsattitudes toward private and intellectualproperty, zoning, pollution, employmentstability may be in flux Worker attitudes towards turnover, unions,absenteeism Globally cultures have different attitudestowards punctuality, legal, and ethicalissues
  22. 22. 8 - 22© 2011 Pearson Education, Inc. publishing as Prentice Hall© 2011 Pearson EducationRanking CorruptionRank Country 2011 CPI Score (out of 10)1 New Zealand 9.52 Demark, Finland 9.45 Singapore 9.26 Norway 9.08 Australia, Switzerland 8.810 Canada 8.712 Hong Kong 8.414 Germany, Japan 8.016 UK 7.824 USA 7.132 Taiwan 6.143 South Korea 5.460 Malaysia 4.375 China 3.6112 Vietnam 2.9143 Russia 2.4LeastCorruptMostCorrupt
  23. 23. 8 - 23© 2011 Pearson Education, Inc. publishing as Prentice HallFactors That AffectLocation Decisions Proximity to markets Very important to services JIT systems or high transportation costsmay make it important to manufacturers Proximity to suppliers Perishable goods, high transportationcosts, bulky products
  24. 24. 8 - 24© 2011 Pearson Education, Inc. publishing as Prentice HallFactors That AffectLocation Decisions Proximity to competitors Called clustering Often driven by resources such as natural,information, capital, talent Found in both manufacturing and serviceindustries
  25. 25. 8 - 25© 2011 Pearson Education, Inc. publishing as Prentice HallClustering of CompaniesIndustry Locations Reason for clusteringWine making Napa Valley (US)Bordeaux region(France)Natural resources ofland and climateSoftware firms Silicon Valley,Boston, Bangalore(India)Talent resources ofbright graduates inscientific/technicalareas, venturecapitalists nearbyRace carbuildersHuntington/NorthHampton region(England)Critical mass of talentand informationTable 8.3
  26. 26. 8 - 26© 2011 Pearson Education, Inc. publishing as Prentice HallClustering of CompaniesIndustry Locations Reason for clusteringTheme parks(Disney World,UniversalStudios)Orlando, Florida A hot spot forentertainment, warmweather, tourists, andinexpensive laborElectronicsfirmsNorthern Mexico NAFTA, duty freeexport to USComputerhardwaremanufacturersSingapore, Taiwan High technologicalpenetration rate andper capita GDP,skilled/educatedworkforce with largepool of engineersTable 8.3
  27. 27. 8 - 27© 2011 Pearson Education, Inc. publishing as Prentice HallClustering of CompaniesIndustry Locations Reason for clusteringFast foodchains(Wendy’s,McDonald’s,Burger King,and Pizza Hut)Sites within 1 mileof each otherStimulate food sales,high traffic flowsGeneral aviationaircraft(Cessna,Learjet, Boeing)Wichita, Kansas Mass of aviation skillsOrthopedicdevicemanufacturingWarsaw, Indiana Ready supply of skilledworkers, strong U.S.marketTable 8.3
  28. 28. 8 - 28© 2011 Pearson Education, Inc. publishing as Prentice HallFactor-Rating Method Popular because a wide variety of factorscan be included in the analysis Six steps in the method1. Develop a list of relevant factors called keysuccess factors2. Assign a weight to each factor3. Develop a scale for each factor4. Score each location for each factor5. Multiply score by weights for each factor foreach location6. Recommend the location with the highestpoint score
  29. 29. 8 - 29© 2011 Pearson Education, Inc. publishing as Prentice HallFactor-Rating ExampleKey ScoresSuccess (out of 100) Weighted ScoresFactor Weight France Denmark France DenmarkLaboravailabilityand attitude .25 70 60 (.25)(70) = 17.5 (.25)(60) = 15.0People-to-car ratio .05 50 60 (.05)(50) = 2.5 (.05)(60) = 3.0Per capitaincome .10 85 80 (.10)(85) = 8.5 (.10)(80) = 8.0Tax structure .39 75 70 (.39)(75) = 29.3 (.39)(70) = 27.3Educationand health .21 60 70 (.21)(60) = 12.6 (.21)(70) = 14.7Totals 1.00 70.4 68.0Table 8.4
  30. 30. 8 - 30© 2011 Pearson Education, Inc. publishing as Prentice HallLocationalBreak-Even Analysis Method of cost-volume analysis used forindustrial locations Three steps in the method1. Determine fixed and variable costs foreach location2. Plot the cost for each location3. Select location with lowest total cost forexpected production volume
  31. 31. 8 - 31© 2011 Pearson Education, Inc. publishing as Prentice HallLocational Break-EvenAnalysis ExampleThree locations:Akron $30,000 $75 $180,000Bowling Green $60,000 $45 $150,000Chicago $110,000 $25 $160,000Fixed Variable TotalCity Cost Cost CostTotal Cost = Fixed Cost + (Variable Cost x Volume)Selling price = $120Expected volume = 2,000 units
  32. 32. 8 - 32© 2011 Pearson Education, Inc. publishing as Prentice HallLocational Break-EvenAnalysis Example–$180,000 ––$160,000 –$150,000 ––$130,000 ––$110,000 –––$80,000 ––$60,000 –––$30,000 ––$10,000 ––Annualcost| | | | | | |0 500 1,000 1,500 2,000 2,500 3,000VolumeAkronlowestcostBowling Greenlowest costChicagolowestcostFigure 8.2
  33. 33. 8 - 33© 2011 Pearson Education, Inc. publishing as Prentice HallCenter-of-Gravity Method Finds location of distributioncenter that minimizes distributioncosts Considers Location of markets Volume of goods shipped to thosemarkets Shipping cost (or distance)
  34. 34. 8 - 34© 2011 Pearson Education, Inc. publishing as Prentice HallCenter-of-Gravity Method Place existing locations on acoordinate grid Grid origin and scale is arbitrary Maintain relative distances Calculate X and Y coordinates for‘center of gravity’ Assumes cost is directlyproportional to distance andvolume shipped
  35. 35. 8 - 35© 2011 Pearson Education, Inc. publishing as Prentice HallCenter-of-Gravity Methodx - coordinate =∑dixQi∑Qiii∑diyQi∑Qiiiy - coordinate =where dix = x-coordinate of location idiy = y-coordinate of location iQi = Quantity of goods moved toor from location i
  36. 36. 8 - 36© 2011 Pearson Education, Inc. publishing as Prentice HallCenter-of-Gravity MethodNorth-SouthEast-West120 –90 –60 –30 ––| | | | | |30 60 90 120 150ArbitraryoriginChicago (30, 120)New York (130, 130)Pittsburgh (90, 110)Atlanta (60, 40)Figure 8.3
  37. 37. 8 - 37© 2011 Pearson Education, Inc. publishing as Prentice HallCenter-of-Gravity MethodNumber of ContainersStore Location Shipped per MonthChicago (30, 120) 2,000Pittsburgh (90, 110) 1,000New York (130, 130) 1,000Atlanta (60, 40) 2,000x-coordinate =(30)(2000) + (90)(1000) + (130)(1000) + (60)(2000)2000 + 1000 + 1000 + 2000= 66.7y-coordinate =(120)(2000) + (110)(1000) + (130)(1000) + (40)(2000)2000 + 1000 + 1000 + 2000= 93.3
  38. 38. 8 - 38© 2011 Pearson Education, Inc. publishing as Prentice HallCenter-of-Gravity MethodNorth-SouthEast-West120 –90 –60 –30 ––| | | | | |30 60 90 120 150ArbitraryoriginChicago (30, 120)New York (130, 130)Pittsburgh (90, 110)Atlanta (60, 40)Center of gravity (66.7, 93.3)+Figure 8.3
  39. 39. 8 - 39© 2011 Pearson Education, Inc. publishing as Prentice HallTransportation Model Finds amount to be shipped fromseveral points of supply to severalpoints of demand Solution will minimize totalproduction and shipping costs A special class of linearprogramming problems
  40. 40. 8 - 40© 2011 Pearson Education, Inc. publishing as Prentice HallWorldwide Distribution ofVolkswagens and PartsFigure 8.4
  41. 41. 8 - 41© 2011 Pearson Education, Inc. publishing as Prentice HallService Location Strategy1. Purchasing power of customer-drawing area2. Service and image compatibility withdemographics of the customer-drawing area3. Competition in the area4. Quality of the competition5. Uniqueness of the firm’s and competitors’locations6. Physical qualities of facilities and neighboringbusinesses7. Operating policies of the firm8. Quality of management
  42. 42. 8 - 42© 2011 Pearson Education, Inc. publishing as Prentice HallLocation StrategiesTable 8.6Service/Retail/Professional Location Goods-Producing LocationRevenue Focus Cost FocusVolume/revenueDrawing area; purchasing powerCompetition; advertising/pricingPhysical qualityParking/access; security/lighting;appearance/imageCost determinantsRentManagement caliberOperations policies (hours, wagerates)Tangible costsTransportation cost of raw materialShipment cost of finished goodsEnergy and utility cost; labor; rawmaterial; taxes, and so onIntangible and future costsAttitude toward unionQuality of lifeEducation expenditures by stateQuality of state and localgovernment
  43. 43. 8 - 43© 2011 Pearson Education, Inc. publishing as Prentice HallLocation StrategiesTable 8.6Service/Retail/Professional Location Goods-Producing LocationTechniques TechniquesRegression models to determineimportance of various factorsFactor-rating methodTraffic countsDemographic analysis of drawing areaPurchasing power analysis of areaCenter-of-gravity methodGeographic information systemsTransportation methodFactor-rating methodLocational break-even analysisCrossover charts
  44. 44. 8 - 44© 2011 Pearson Education, Inc. publishing as Prentice HallLocation StrategiesTable 8.6Service/Retail/Professional Location Goods-Producing LocationAssumptions AssumptionsLocation is a major determinant ofrevenueHigh customer-contact issues arecriticalCosts are relatively constant for agiven area; therefore, the revenuefunction is criticalLocation is a major determinant ofcostMost major costs can be identifiedexplicitly for each siteLow customer contact allows focuson the identifiable costsIntangible costs can be evaluated
  45. 45. 8 - 45© 2011 Pearson Education, Inc. publishing as Prentice HallHow Hotel Chains Select Sites Location is a strategically importantdecision in the hospitality industry La Quinta started with 35 independentvariables and worked to refine aregression model to predict profitability The final model had only four variables Price of the inn Median income levels State population per inn Location of nearby collegesr2 = .5151% of theprofitability ispredicted byjust these fourvariables!
  46. 46. 8 - 46© 2011 Pearson Education, Inc. publishing as Prentice HallThe Call Center Industry Requires neither face-to-facecontact nor movement of materials Has very broad location options Traditional variables are no longerrelevant Cost and availability of labor maydrive location decisions
  47. 47. 8 - 47© 2011 Pearson Education, Inc. publishing as Prentice HallGeographic InformationSystems (GIS) Important tool to help in location analysis Enables more complex demographicanalysis Available data bases include Detailed census data Detailed maps Utilities Geographic features Locations of major services
  48. 48. 8 - 48© 2011 Pearson Education, Inc. publishing as Prentice HallGeographic InformationSystems (GIS)
  49. 49. 8 - 49© 2011 Pearson Education, Inc. publishing as Prentice HallAll rights reserved. No part of this publication may be reproduced, stored in a retrievalsystem, 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.

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