Ch08_Location Strategies.pptx
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Location Strategies 8 PowerPoint presentation to accompany Heizer, Render, Munson Operations Management, Thirteen Edition, Global Edition Principles of Operations Management, Eleventh Edition PowerPoint slides by Jeff...
Location Strategies 8 PowerPoint presentation to accompany Heizer, Render, Munson Operations Management, Thirteen Edition, Global Edition Principles of Operations Management, Eleventh Edition PowerPoint slides by Jeff Heyl Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 8-1 Learning Objectives When you complete this chapter you should be able to: 8.1 Identify and explain seven major factors that effect location decisions 8.2 Compute labor productivity 8.3 Apply the factor-rating method 8.4 Complete a locational cost-volume analysis graphically and mathematically Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 8-2 Learning Objectives When you complete this chapter you should be able to: 8.5 Use the center-of-gravity method 8.6 Understand the differences between service- and industrial-sector location analysis Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 8-3 The Strategic Importance of Location ► One of the most important decisions a firm makes ► Increasingly global in nature ► Significant impact on fixed and variable costs ► Decisions made relatively infrequently Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 8-4 The Strategic Importance of Location ► Long-term decisions ► Once committed to a location, many resource and cost issues are difficult to change Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 8-5 The Strategic Importance of Location The objective of location strategy is to maximize the benefit of location to the firm Options include 1. Expanding existing facilities 2. Maintain existing and add sites 3. Closing existing and relocating Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 8-6 Location and Costs ► Location decisions require careful consideration ► Once in place, location-related costs are fixed in place and difficult to reduce ► Effort spent determining optimal facility location is a good investment Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 8-7 Factors That Affect Location Decisions ▶ Globalization adds to complexity ▶ Drivers of globalization ▶ Market economics ▶ Communication ▶ Rapid, reliable transportation ▶ Ease of capital flow ▶ Differing labor costs ▶ Identify key success factors (KSFs) Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 8-8 Location decisions based on costs Factors That Affect alone can create difficult ethical situations Location Decisions ► Exchange rates and currency risks ► Can have a significant impact on costs ► Rates change over time ► Operational hedging – shift production as exchange rates change ► Costs ► Tangible – easily measured costs such as utilities, labor, materials, taxes ► Intangible – not as easy to quantify and include education, public transportation, community, quality-of-life Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 8-9 Factors That Affect Location Decisions ► Political risk, values, and culture ► National, state, local governments' attitudes toward private and intellectual property, zoning, pollution, employment stability may be in flux ► Worker attitudes toward turnover, unions, absenteeism ► Globally cultures have different attitudes toward punctuality, legal, and ethical issues Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 8 - 10 Factors That Affect Location Decisions ► Proximity to markets ► Very important to services ► JIT systems or high transportation costs may make it important to manufacturers ► Proximity to suppliers ► Perishable goods, high transportation costs, bulky products Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 8 - 11 Factors That Affect Location Decisions ► Proximity to competitors (clustering) ► Often driven by resources such as natural, information, capital, talent ► Found in both manufacturing and service industries Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 8 - 12 Ranking Corruption Rank Country 2017 CPI Score (out of 100) 1 New Zealand 89 2 Denmark 88 3 Finland, Norway, Switzerland 85 6 Singapore, Sweden 84 Least 8 Canada, UK 82 Corrupt 12 Germany 81 16 USA 75 20 Japan 73 51 South Korea 54 77 China 41 135 Mexico, Russia 29 180 Somalia 9 Most Corrupt Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 8 - 13 Clustering of Companies TABLE 8.3 Clustering of Companies REASON FOR INDUSTRY LOCATIONS CLUSTERING Wine making Napa Valley (U.S.) Natural resources of land Bordeaux region and climate (France) Software firms Silicon Valley, Talent resources of bright Boston, Bangalore, graduates in Israel scientific/technical areas, venture capitalists nearby Clean energy Colorado Critical mass of talent and information, with 1,000 companies Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 8 - 14 Factor-Rating Method ► Popular because a wide variety of factors can be included in the analysis ► Six steps in the method 1. Develop a list of relevant factors called key success factors 2. Assign a weight to each factor 3. Develop a scale for each factor 4. Score each location for each factor 5. Multiply score by weights for each factor and total the score for each location 6. Make a recommendation based on the highest point score Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 8 - 15 Locational Cost-Volume Analysis ► An economic comparison of location alternatives ► Three steps in the method 1. Determine fixed and variable costs for each location 2. Plot the costs for each location 3. Select location with lowest total cost for expected production volume Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 8 - 16 Center-of-Gravity Method ► Finds location of distribution center that minimizes distribution costs ► Considers ► Location of markets ► Volume of goods shipped to those markets ► Shipping cost (or distance) Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 8 - 17 Center-of-Gravity Method ► Place existing locations on a coordinate grid ► Grid origin and scale are arbitrary ► Maintain relative distances ► Calculate x and y coordinates for 'center of gravity' ► Assumes cost is directly proportional to distance and volume shipped Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 8 - 18 Center-of-Gravity Method (30)(2000) + (90)(1000) + (130)(1000) + (60)(2000) x-coordinate = 2000 + 1000 + 1000 + 2000 = 66.7 (120)(2000) + (110)(1000) + (130)(1000) + (40)(2000) y-coordinate = 2000 + 1000 + 1000 + 2000 = 93.3 Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 8 - 19 Transportation Model ► 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 Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 8 - 20 Worldwide Distribution of Volkswagens and Parts Figure 8.4 Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 8 - 21 Service Location Strategy Major Determinants of Volume and Revenue 1. Purchasing power of customer-drawing area 2. Service and image compatibility with demographics of the customer-drawing area 3. Competition in the area 4. Quality of the competition 5. Uniqueness of the firm’s and competitors’ locations 6. Physical qualities of facilities and neighboring businesses 7. Operating policies of the firm 8. Quality of management Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 8 - 22 How Hotel Chains Select Sites ► Location is a strategically important decision in the hospitality industry ► La Quinta started with 35 independent variables and worked to refine a regression 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 colleges Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 8 - 23 How Hotel Chains Select Sites ► Location is a strategically important decision in the hospitality industry ► La Quinta started with 35 independent variables and worked to refine a regression model to predict profitability ► R2 =.51 The final model had only four variables ► Price of the inn 51% of the profitability is ► Median income levels predicted by ► State population per inn just these ► Location of nearby colleges four variables! Copyright © 2020 Pearson Education Ltd. All Rights Reserved. 8 - 24
