Operations Management: Location Strategies 8
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Questions and Answers

What is the primary objective of a location strategy?

  • To minimize the cost of labor
  • To increase the frequency of location decisions
  • To maximize the benefit of location to the firm (correct)
  • To focus on industrial-sector location analysis
  • What is a significant impact of location decisions on a firm's costs?

  • Neither fixed nor variable costs are affected
  • Both fixed and variable costs are affected (correct)
  • Only fixed costs are affected
  • Only variable costs are affected
  • What is a characteristic of location decisions?

  • Only applicable to industrial sector
  • Infrequent and long-term (correct)
  • Only applicable to service sector
  • Frequent and flexible
  • What is an option for achieving a location strategy?

    <p>Expanding existing facilities</p> Signup and view all the answers

    What is a trend that is increasingly influencing location decisions?

    <p>Globalization of business</p> Signup and view all the answers

    What is a key consideration when making location decisions?

    <p>Fixed costs are difficult to reduce</p> Signup and view all the answers

    What can affect the cost of a facility location?

    <p>Fluctuations in exchange rates</p> Signup and view all the answers

    What is a result of globalization on location decisions?

    <p>Increased complexity in location decisions</p> Signup and view all the answers

    What type of costs are easily measured?

    <p>Tangible costs</p> Signup and view all the answers

    What is a strategy to manage exchange rate risks?

    <p>Operational hedging</p> Signup and view all the answers

    What can affect attitudes toward private and intellectual property?

    <p>National, state, local governments' attitudes</p> Signup and view all the answers

    Why might proximity to markets be important for manufacturers?

    <p>To implement JIT systems or reduce transportation costs</p> Signup and view all the answers

    What can drive the clustering of competitors in a particular location?

    <p>Access to information, capital, talent, and natural resources</p> Signup and view all the answers

    Why might a company choose a location close to its suppliers?

    <p>To reduce transportation costs or handle perishable goods</p> Signup and view all the answers

    How do cultural differences globally impact business decisions?

    <p>They affect attitudes toward punctuality, legal, and ethical issues</p> Signup and view all the answers

    La Quinta's final model to predict profitability had 35 independent variables.

    <p>False</p> Signup and view all the answers

    The quality of management is a major determinant of volume and revenue.

    <p>True</p> Signup and view all the answers

    Location is a strategically unimportant decision in the hospitality industry.

    <p>False</p> Signup and view all the answers

    The final model predicted $81% of the profitability.

    <p>False</p> Signup and view all the answers

    One of the major determinants of volume and revenue is the physical quality of neighboring businesses.

    <p>True</p> Signup and view all the answers

    Study Notes

    Location Strategies

    • Location decisions are one of the most important decisions a firm makes, with a significant impact on fixed and variable costs.
    • Location decisions are increasingly global in nature and are made relatively infrequently.

    The Strategic Importance of Location

    • Long-term decisions are involved in location strategy, and once committed, many resource and cost issues are difficult to change.
    • The objective of location strategy is to maximize the benefit of location to the firm.
    • Options include expanding existing facilities, maintaining existing and adding sites, or closing existing and relocating.

    Location and Costs

    • Location decisions require careful consideration, and once in place, location-related costs are fixed in place and difficult to reduce.
    • Effort spent determining optimal facility location is a good investment.

    Factors That Affect Location Decisions

    • Globalization adds to complexity, and drivers of globalization include market economics, communication, rapid and reliable transportation, ease of capital flow, and differing labor costs.
    • Identify key success factors (KSFs) to make informed location decisions.
    • Exchange rates and currency risks can have a significant impact on costs, and operational hedging involves shifting production as exchange rates change.
    • Costs can be categorized into tangible (easily measured) and intangible (not as easy to quantify) costs.

    Factors That Affect Location Decisions (continued)

    • Political risk, values, and culture can affect location decisions, including national, state, and local governments' attitudes toward private and intellectual property, zoning, pollution, and employment stability.
    • Worker attitudes toward turnover, unions, and absenteeism can vary globally.
    • Cultures have different attitudes toward punctuality, legal, and ethical issues.

    Factors That Affect Location Decisions (continued)

    • Proximity to markets is very important to services, and JIT systems or high transportation costs may make it important to manufacturers.
    • Proximity to suppliers is important for perishable goods, high transportation costs, and bulky products.
    • Proximity to competitors (clustering) is often driven by resources such as natural, information, capital, and talent, and is found in both manufacturing and service industries.

    Location Strategies

    • Location decisions are one of the most important decisions a firm makes, with a significant impact on fixed and variable costs.
    • These decisions are made relatively infrequently, are long-term, and can be difficult to change once committed.

    The Strategic Importance of Location

    • The objective of location strategy is to maximize the benefit of location to the firm.
    • Options include expanding existing facilities, maintaining existing and adding sites, or closing existing and relocating.

    Location and Costs

    • Location decisions require careful consideration, as location-related costs are fixed in place and difficult to reduce once in place.
    • Effort spent determining optimal facility location is a good investment.

    Factors That Affect Location Decisions

    • Globalization adds to complexity, with drivers including market economics, communication, rapid and reliable transportation, ease of capital flow, and differing labor costs.
    • Key success factors (KSFs) must be identified.

    Location Decisions Based on Costs

    • Exchange rates and currency risks can have a significant impact on costs, and rates change over time.
    • Operational hedging involves shifting production as exchange rates change.
    • Costs can be tangible (e.g., utilities, labor, materials, taxes) or intangible (e.g., education, public transportation, community, quality-of-life).

    Service Location Strategy

    • Major determinants of volume and revenue include:
      • Purchasing power of customer-drawing area
      • Service and image compatibility with demographics of the customer-drawing area
      • Competition in the area
      • Quality of the competition
      • Uniqueness of the firm's and competitors' locations
      • Physical qualities of facilities and neighboring businesses
      • Operating policies of the firm
      • Quality of management

    How Hotel Chains Select Sites

    • Location is a strategically important decision in the hospitality industry.
    • La Quinta used a regression model to predict profitability, starting with 35 independent variables and refining it to four variables:
      • Price of the inn
      • Median income levels
      • State population per inn
      • Location of nearby colleges
    • The final model predicted 51% of profitability with just these four variables.

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    Related Documents

    Ch08_Location Strategies.pptx

    Description

    This quiz accompanies the 13th edition of Heizer, Render, Munson's Operations Management textbook, covering location strategies in operations management. Learn about the key concepts and principles of location strategies.

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