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Contemporary Logistics Twelfth Edition Chapter 9 Facility Location Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved. Learning Objectives (1 of...

Contemporary Logistics Twelfth Edition Chapter 9 Facility Location Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved. Learning Objectives (1 of 2) 9.1 To examine the strategic importance of facility location 9.2 To explain the general process of determining the optimum number of facilities 9.3 To describe the major factors that influence facility location 9.4 To examine a site’s specialized location characteristics Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved. Learning Objectives (2 of 2) 9.5 To explain location decisions using simple grid systems 9.6 To learn about facility relocation and facility closing Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved. Facility Location Facility location  Refers to choosing the locations for distribution centers, warehouses, and production facilities to facilitate logistical effectiveness and efficiency Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved.  The Strategic Importance of Facility Location (1 of 3) Factors that can influence facility location decisions include:  Cost considerations o Consumers sensitized to buy only when prices are low o Low price/low cost framework led companies to operate in countries with low-cost labor o In recent years, organizations are reexamining the low- cost labor paradigm Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved. The Strategic Importance of Facility Location (2 of 3) Factors that can influence facility location decisions include:  Customer service expectations o Expectations continue to increase over time o Customers looking for faster and more reliable order cycles Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved. The Strategic Importance of Facility Location (3 of 3) Factors that can influence facility location decisions include:  Location of customer or supply markets o Population shift o Economic growth o Sustainability Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved. Table 9.1: Five Most Populous States in the United States—1970, 1990, and 2014 Source: Derived from data at www.demographia.com and www.infoplease.com Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved. Determining the Number of Facilities Facilities are generally added when service levels become unacceptable Software packages exist to help in determining the number and location of facilities Key issue—time it takes to get from facility to majority of the U.S. (or target) population  Moving from 1 to 3 facilities saves 1 day lead time  Moving from 3 to 10 facilities saves ¼ day lead time1 1www.chicago-consulting.com Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved.  Figure 9.1: Chicago Consulting’s 10 Best Warehouse Networks Source: Courtesy of Terry Harris, Managing Partner of Chicago Consulting. Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved. General Factors Influencing Facility Location (1 of 7) Influences on location of manufacturing, processing, or assembly facility  Raw materials  Component parts  Labor  Markets Location of warehouses, distribution centers, and cross-docking facilities are influenced by locations of plants whose products they handle and markets they serve Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved. General Factors Influencing Facility Location (2 of 7) Natural resources  Pure materials  Weight-losing products  Weight-gaining products Population characteristics—market for goods Population characteristics—labor  Maquiladora  Sweatshops  Right-to-work laws  Expatriate workers Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved. General Factors Influencing Facility Location (3 of 7) Taxes and incentives  Inventory tax  Incentive packages Transportation considerations  Availability o Refers to the number of transportation modes (intermodal competition) and o The number of carriers within each mode (intramodal competition)  Cost Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved. Figure 9.2: Truck Distances from Nebraska Source: Reprinted with permission from Inbound Logistics magazine (September 2011). www.inboundlogistics.com/subscribe. Copyright Inbound Logistics 2014. Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved. General Factors Influencing Facility Location (4 of 7) Proximity to industry clusters  Agglomeration concept, better known today as the industry cluster concept o Differ in shape and size o One type focused on a particular industry o Another type offers organizations proximity to key suppliers Catalyst in the development of supplier parks Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved. General Factors Influencing Facility Location (5 of 7) Trade patterns  Commodity flow data studied to determine changes occurring in the movement of raw materials and semiprocessed goods o How much is being produced? o Where is it being shipped?  Trade agreements (e.g., NAFTA) Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved. General Factors Influencing Facility Location (6 of 7) Quality-of-life considerations  Cost of living  Educational opportunities  Crime rates  Employment opportunities  Weather  Cultural amenities  Others Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved. General Factors Influencing Facility Location (7 of 7) Locating in other countries  Relevant legal system  Political stability  Bureaucratic red tape  Corruption  Protectionism  Nationalism  Privatization  Expropriation (confiscation)  Treaties and trade agreements Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved. Specialized Location Characteristics (1 of 4) Current zoning of the land  There may be limits on how the land can be used Local unions  Have areas of jurisdiction  Firm’s labor relations manager may have distinct preferences with which locals they are willing to work  Different supplemental agreements provide companies with differing levels of managerial flexibility (or inflexibility) Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved. Specialized Location Characteristics (2 of 4) Title search  May be needed to make sure a parcel of land can be sold and that there are no liens against it Engineers examine site for proper drainage and to determine load-bearing characteristics of the soil Due diligence of environmental factors  Brownfields o Previously used sites that contain chemicals or other types of industrial waste Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved. Specialized Location Characteristics (3 of 4) Free Trade Zone  Highly specialized sites in which to locate  Also known as: o Foreign trade zones o Export processing zones o Special economic zones  Nondomestic merchandise may be stored, exhibited, processed, or used in manufacturing operations without being subjected to duties and quotas until the goods or their products enter the customs territory of the zone country Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved. Specialized Location Characteristics (4 of 4) Free trade zone  Have become extremely popular in recent years  Often located at, or near, water ports, although they can also be located at, or near, airports  Free trade subzones refer to specific locations at an existing free trade zone o Particularly popular with automotive manufacturers Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved.  Figure 9.3: Example of Transportation Forces Dictating Plant Location Adapted from Alfred Weber, Theory of the Location of Industries, translated by Carl J. Friedrich (Chicago: University of Chicago Press, 1929). Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved. Finding the Lowest-Cost Location Using Grid Systems Grid systems  Allow one to analyze spatial relationships with mathematical tools  Checkerboard patterns  Placed so that they coincide with north–south and east–west line on a map Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved. Figure 9.4: Center-of-Gravity Location for a Warehouse Serving Five Retail Stores Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved. Table 9.2: Weighted Center-of-Gravity Example Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved. Facility Relocation and Facility Closing (1 of 5) Two specialized situations regarding location choice  Facility relocation o Associated with business growth  Facility closing o Associated with business contraction Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved. Facility Relocation and Facility Closing (2 of 5) Facility relocation  Occurs when a firm decides that it can no longer continue operations in its present facility and must move operations to another facility to better serve suppliers or customers  Common reason for facility relocation o Lack of room for expansion at current site Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved. Facility Relocation and Facility Closing (3 of 5) Facility relocation  Decision involves a comparison of the advantages and disadvantages of a new site to the advantages and disadvantages of an existing location  Must also consider the potential consequences of relocation on their human resources (consequences that may not be easily quantified)  Must keep current employees informed  Must be prepared for unplanned glitches during transition to prevent customer service issues Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved. Facility Relocation and Facility Closing (4 of 5) Facility closing  Occurs when a company decides to discontinue operations at a current site because the operations may no longer be needed or can by absorbed by other facilities  Examples leading to facility closure include: o Eliminating redundant capacity in mergers and acquisitions o Improving supply chain efficiency o Poor planning o Insufficient volume of business Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved. Facility Relocation and Facility Closing (5 of 5) Facility closing  Worker Adjustment and Retraining Notification (WARN) Act  Human impact must be considered o Employees should be kept informed o Individuals are losing jobs and pay o Individuals suffer a loss of self-esteem  Poorly handled closings can lead to negative publicity Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved. Key Terms (1 of 2) Agglomeration (industry Intermodal competition cluster) Intramodal competition Brownfields Inventory tax Center-of-gravity Locavore strategy approach Expatriate workers Facility closing Facility location Facility relocation Free trade zone Grid systems Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved. Key Terms (2 of 2) Maquiladora plants Nearsourcing Pure materials Quality-of-life considerations Right-to-work laws Supplier parks Sweatshops Weight-gaining products Weight-losing products Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved. Copyright Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved.