Production Management PDF

PRODUCTION/OPERATIONS MANAGEMENT ASSOC. PROF. DR. ARZU KARAMAN AKGÜL  WHY PRODUCTION IS CONCEPTUALIZED AS A SYSTEM?  INTRODUCTION TO OPERATIONS MANAGEMENT  Production can well be viewed as an «INPUT- TRANSFORMATION-OUTPUT» system.  SYSTEM  A system is designe...

PRODUCTION/OPERATIONS MANAGEMENT ASSOC. PROF. DR. ARZU KARAMAN AKGÜL  WHY PRODUCTION IS CONCEPTUALIZED AS A SYSTEM?  INTRODUCTION TO OPERATIONS MANAGEMENT  Production can well be viewed as an «INPUT- TRANSFORMATION-OUTPUT» system.  SYSTEM  A system is designed to accomplish pre-determined goals and objectives through people and other resources  A system is composed of smaller and interrelated and interdependent sub-systems  A system is contained by boundaries  CLASSIFICATION OF SYSTEMS  OPEN SYSTEMS  CLOSED SYSTEMS  Is production an open system or closed system?  PRODUCTION SYSTEMS  INPUTS  Labors  Materials  Information  Human resources  Equipment  Facilities  Technology  Energy  Know-how  Information  Capital  Enterpreneur  PRODUCTION SYSTEMS  TRANSFORMATION  Physical/chemical/biological processes  Storage  transportation  PRODUCTION SYSTEMS  OUTPUT  Direct  Product  Service  Semi-product  Indirect  Waste  Pollution  FEED BACK AND CONTROL  Information about the outputs, transformation process and inputs is fed back to management  This information is matched with management expectations.  When there is a difference, management must take corrective action to maintain control of system.  Feed back=control EXAMPLES OF PRODUCTION SYSTEMS System Inputs Conversion Output (desired) Hospital Patients Health Care Healthy MDs, Nurses Individuals Medical Supplies Equipment Restaurant Hungry Customers Prepare Food Satisfied Food, Chef Serve Food Customers Servers Atmosphere Automobile Sheet Steel Fabrication High Quality Plant Engine Parts and Assembly Automobiles Tools, Equipment of Cars Workers University High School Grads Transferring Educated Teachers, Books of Knowledge Individuals Classroom and Skills  Evolution of Operations and Supply Chain Management  Supply chain management  management of the flow of information, products, and services across a network of customers, enterprises, and supply chain partners Copyright 2011 John Wiley & Sons, Inc. 1-11 Changing Challenges for the Operations Manager Past Causes Future Local or Low-cost, reliable worldwide Global Focus national communication and focus transportation networks Batch (large) Cost of capital puts pressure on Just-in-time shipments reducing investment in shipments inventory Low-bid Quality emphasis requires that Supply-chain purchasing suppliers be engaged in product partners improvement Lengthy Shorter life cycles, rapid Rapid product product international communication, development, development computer-aided design, and alliances, international collaboration collaborative designs Changing Challenges for the Operations Manager Past Causes Future Standardized Affluence and worldwide markets; Mass products increasingly flexible production customization processes Job Changing sociocultural milieu. Empowered specialization Increasingly a knowledge and employees, information society. teams, and lean production Low cost Environmental issues, ISO 14000, Environmentally focus increasing disposal costs sensitive production, Green manufacturing, recycled materials, remanufacturing  PRODUCTION MANAGEMENT ASSOC. PROF. DR. ARZU KARAMAN AKGÜL Changing Challenges for the Operations Manager Past Causes Future Local or Low-cost, reliable worldwide Global Focus national communication and focus transportation networks Batch (large) Cost of capital puts pressure on Just-in-time shipments reducing investment in shipments inventory Low-bid Quality emphasis requires that Supply-chain purchasing suppliers be engaged in product partners improvement Lengthy Shorter life cycles, rapid Rapid product product international communication, development, development computer-aided design, and alliances, international collaboration collaborative designs Changing Challenges for the Operations Manager Past Causes Future Standardized Affluence and worldwide markets; Mass products increasingly flexible production customization processes Job Changing sociocultural milieu. Empowered specialization Increasingly a knowledge and employees, information society. teams, and lean production Low cost Environmental issues, ISO 14000, Environmentally focus increasing disposal costs sensitive production, Green manufacturing, recycled materials, remanufacturing  METRICS OF OPERATIONS MANAGEMENT  Productivity Represents output relative to input Productivity Units produced = Input used  Types of Productivity  Organizations have many options for use of this formula,  labor productivity,  machine productivity,  capital productivity,  energy productivity, etc.  A productivity ratio can be computed for a single operation, a department, a facility, an organization, or even an entire country  Productivity Measures  Partial Measures:  A ratio of outputs to only one input (e.g.: labor productivity, machine utilization, energy efficiency)  Multifactor Measures:  A ratio of outputs to several, but not all, inputs  Total Productivity Measures:  The ratio of outputs to all inputs  Labor Productivity Example:  Assume two workers paint twenty-four tables in eight hours:  Inputs: 16 hours of labor (2 workers x 8 hours)  Outputs: 24 painted tables  Multifactor Productivity  Convert all inputs & outputs to $ value  Example:  200 units produced sell for $12.00 each  Materials cost $6.50 per unit  40 hours of labor were required at $10 an hour  Productivity Growth Rate  Can be used to compare a process’ productivity at a given time (P2) to the same process’ productivity at an earlier time (P1)  Productivity Growth Rate Example:  Last week a company produced 150 units using 200 hours of labor  This week, the same company produced 180 units using 250 hours of labor  Efficiency-Effectiveness  «doing the things right»  doing things in the manner they are expected, needed, or required to be done  «doing the right things»  following rules, policies, procedures, and norms  Example  If a company is not doing well and they decide to train their workforce on a new technology.  The training goes really well - they train all their employees in avery short time and tests show they have absorbed the training well.  But overall productivity doesn't improve.  What about the efficiency and the effectiveness of the strategy? HISTORICAL EVENTS IN OPERATIONS MANAGEMENT  Historical Events in Operations Management 1-15 Era Events/Concepts Dates Originator Steam engine 1769 James Watt Industrial Division of labor 1776 Adam Smith Revolution Interchangeable parts 1790 Eli Whitney Principles of scientific 1911 Frederick W. Taylor management Frank and Lillian Scientific Time and motion studies 1911 Gilbreth Management Activity scheduling chart 1912 Henry Gantt Moving assembly line 1913 Henry Ford  Historical Events in Operations 1-16 Management Era Events/Concepts Dates Originator Hawthorne studies 1930 Elton Mayo Human 1940s Abraham Maslow Relations Motivation theories 1950s Frederick Herzberg 1960s Douglas McGregor Linear programming 1947 George Dantzig Digital computer 1951 Remington Rand Simulation, waiting Operations Operations research line theory, decision 1950s Research groups theory, PERT/CPM 1960s, Joseph Orlicky, IBM MRP, EDI, EFT, CIM 1970s and others  Historical Events in Operations 1-17 Management Era Events/Concepts Dates Originator JIT (just-in-time) 1970s Taiichi Ohno (Toyota) TQM (total quality W. Edwards Deming, 1980s management) Joseph Juran Quality Strategy and Wickham Skinner, 1980s Revolution operations Robert Hayes Michael Hammer, Reengineering 1990s James Champy Six Sigma 1990s GE, Motorola  Historical Events in Operations 1-18 Management Era Events/Concepts Dates Originator Internet Internet, WWW, ERP, 1990s ARPANET, Tim Revolution supply chain management Berners-Lee SAP, i2 Technologies, ORACLE, Dell E-commerce 2000s Amazon, Yahoo, eBay, Google, and others Globalization WTO, European Union, 1990s China, India, Global supply chains, 2000s emerging Outsourcing, Service economies Science  Historical Events in Operations 1-19 Management Era Events/Concepts Dates Originator Green Global warming, An Today Numerous Revolution Inconvenient Truth, Kyoto scientists, statesmen and governments  PRODUCTION MANAGEMENT ASSOC. PROF. DR. ARZU KARAMAN AKGÜL PRODUCTION PROCESS TYPES  Main Characteristics in the Classification of Production Processes  Production processes are classified on the basis of  Volume: Average quantity of the products produced in a manufacturing system  Low volume  High volume  Mid-volume  Variety: Number of alternative products and variants of each product that is offered by a manufacturing system  Flow: Flow indicates the nature and intensity of activities involved in conversion of components and material from raw material stage to finished goods stage  Process Types according to the production methods  Primary operations: mining etc.  Analytic  resources are broken down in production process  extracting minerals from ore, petroleum, sugar from sugar beet (treacle, pulp)  Synthetic  resources are combined in the production process  Paint production  Synthetic rubber  Plastics  Silver alloy  Process Types according to the production methods  Fabrication is a manufacturing process in which an item is made (fabricated) from raw or semi-finished materials instead of being assembled from ready-made components or parts  Assembly: Component or end item comprising of a number of parts or subassemblies put together to perform a specific function.  Types of Production  Continuous  Intermittent  Project  Continuous Flow  Continuous usually means operating 24 hours per day, seven days per week with infrequent maintenance shutdowns, such as semi-annual or annual.  Goods are produced on a large scale for stocking and selling. They are not produced on customer's orders.  Inputs and outputs are standardized along with the production process and sequence.  Continuous flow  Production facilities are arranged as per the sequence of production operations from the first operations to the finished product.  The items are made to flow through the sequence of operations through material handling devices such as conveyors, transfer devices, etc.  The products are produced on predetermined quality standards.  The products are produced in anticipation of demand.  Continuous Flow  Special purpose machines are used to produce large quantities of products  Products have limited variations  Uniform parts flow from station to station.  Semi-skilled workers operate the stations.  Examples – automobiles, household appliances, furniture, paper, and lumber  Types of Continuous Production  Flow type  Mass production  Flow Type Production  Resources are arranged according to the sequence of the operations  High standardization, high speed  Low material handling  Short flow time  low unit-processing costs  high investment cost  special purpose equipment, and low skilled labor prevent flexibility  Flow Type Production  The cell is an area where everything that is needed to process the part is within easy reach, and no part is allowed to go to the next operation until the previous operation has been completed.  Ex: Cement, Petrol/Diesel  Mass Production  Manufacturing of discrete parts and accessories using a continuous process is called as mass production,  Demand pattern is known.  Standard products are produced in large batches.  Characteristics of Mass Production  Standardization is the main characteristic of this system.  There is a uniform flow of material.  It is processed by a predetermined sequence of operations.  Dedicated special purpose machines having higher production capacities and output rates.  Large volume of products.  Shorter cycle time of production.  Characteristics of Mass Production  Lower in process inventory.  Higher capacity utilization due to perfectly balanced production lines.  Flow of materials, components and parts is continuous and without any back tracking.  Production planning and control is easy.  Material handling can be completely automatic. Less skilled operators are required. Manufacturing cost per unit is low.  Limitations of Mass Production  Breakdown of one machine will stop an entire production line.  Line layout needs major change with the changes in the product design.  High investment in production facilities.  The cycle time is determined by the slowest operation.  Intermittent Flow  Intermittent means something that starts (initiates) and stops (halts) at irregular (unfixed) intervals (time gaps).  In the intermittent production system,  Goods are produced based on customer's orders.  These goods are produced in lots and on a small scale.  The flow of material and production is intermittent (irregular).  Intermittent Flow  In this system, large varieties of products are produced.  These products are of different sizes.  Therefore, production facilities are flexible to handle a wide variety of products and sizes.  Goods are manufactured specially to fulfill orders made by customers than for stock. Characteristics of Intermittent Flow System  Characterized by wide varieties of products  The volume of production is small.  Since there are different types of products, general purpose machines are used.  The quantity, size, shape, design, etc. of the product depends on the customer's orders.  The sequence of operation goes on changing as per the design of the product.  Difficulties of Intermittent flow  Flow and capacity balancing are difficult but important  Capacity estimation is hard  Production planning and control is complex.  Batch Type of Production  Lot Production of similar items – job passes through the functional departments in lots or batches. E.g : medicines  Each lot has a different routing.  Advantages of Batch Production  Better utilization of plant and machinery.  Promotes functional specialization.  Cost per unit is lower as compared to job shop production.  Lower investment in plant and machinery.  Flexibility to accommodate and process number of products.  Job satisfaction exists for operators.  Limitations of Batch Production  Material handling is complex because of irregular and longer flows.  Production planning and control is complex.  Work in process inventory is higher compared to continuous production.  Higher set up costs due to frequent changes in set up.  Job Shop Type of Production  High variety, low volume production  It is appropriate for manufacturers of small batches of many different products.  Each of the products are custom designed.  Each of them requires its own unique set of processing steps.  Use of general purpose machines  Job Shop Type of Production  Highly skilled operators  Large inventory of material, tools, parts.  Detailed planning required.  High material handling  Long flow time  High cost per unit of product but low investment  Functional layout: similar resources are located in the same department. Comparison of Intermittent and Continuous Operations  Project Type of Production  Deals with one of a kind products that are tailored to the unique requirements of each customer.  Project is non-repetitive.  Products cannot be standardized.  Therefore the transformation process must be flexible in its equipment capabilities, human skills, and procedures.  The product is located in a fixed location.  Manufacturing equipment is moved to the product.  Ex: Fabrication of a bridge, a plane, a ship, Marmaray  References  Business Sixth Ed. By Griffin, Ebert, Starke  https://www.google.com.tr/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ua ct=8&ved=0CB0QFjAA&url=http%3A%2F%2Fimages.pcmac.org%2FSiSFiles%2FSchool s%2FGA%2FBryanCounty%2FRHHigh%2FUploads%2FPresentations%2F5_Types_of_P roduction.pptx&ei=3RNIVLXLF6Gv7AaLlIHYCQ&usg=AFQjCNEIq5xW- mKjLoYR2vTMYcJTkEFmHw&sig2=UhcbIwVK7EibwVoLTPQiEA&bvm=bv.77880786,d.ZGU  https://todaysupdates.files.wordpress.com/2013/01/lecture-3-process.pp  http://webcache.googleusercontent.com/search?q=cache:v- QbbaWxcH8J:isites.harvard.edu/fs/docs/icb.topic1115859.files/Chapter%25207%2520- %2520Processes%2520Presentation.ppt+&cd=1&hl=en&ct=clnk&gl=tr  https://www.google.com.tr/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&cad=rja&ua ct=8&ved=0CC0QFjAC&url=http%3A%2F%2Fwps.pearsoned.ca%2Fwps%2Fmedia%2F objects%2F4421%2F4527629%2Fstudent_ppt%2Fgriff_6e_ch11_stu.ppt&ei=57lGVMSQ GMzzaOu0gdgH&usg=AFQjCNHAZLG9MxWH3BWGt0XqyaVNZMV36w&sig2=ZYy92I MJNxpCKHhJo4evaQ&bvm=bv.77880786,d.d2s  References R. Dan Reid & Nada R. Sanders (2010), Operations Management, 4th Edition, Wiley. William J. Stevenson, Operations Management, Eight Edt. https://www.google.com.tr/url?sa=t&rct=j&q=&esrc= s&source=web&cd=3&cad=rja&uact=8&ved=0CCU QFjAC&url=http%3A%2F%2Fwww.csun.edu%2F~a a2035%2FSOM306%2Fpowerpoints%2FPart1%2FC h5_1_Process.ppt&ei=do1JVKb6FYGCzAPSjYHYBA &usg=AFQjCNFssdj- gWGq5LAXb_YUJ5dy8jyWIw&sig2=dCorapJA0v3A 4o7tG_fOhw&bvm=bv.77880786,d.bGQ  FACILITY LAYOUT PLANNING ASSOC. PROF. DR. ARZU KARAMAN AKGÜL  Facility Layout Planning - Layout planning is deciding the best physical arrangement of all resources within a facility - Affects productivity - Requires substantial investments of money and effort - Involves long-term commitments - Has significant impact on cost and efficiency of short-term operations  Objectives of Facility Layout  Minimizing material handling costs  Efficient use of  facilities  machines &equipment  labor  Elimination of waste or Non value added processes(such as movement)  In order to accomplish the objectives of facility layout we need to  Facilitate  organizational structure  interaction between workers  production processes  Minimize  cycle time  investment  Provide  convenience, safety and comfort for employees  flexibility to adapt to changing conditions  Basic Types of Layouts  Four basic layout types consisting of:  Product layouts - Designed to produce a specific product efficiently  Process layouts - Group similar resources together  Hybrid layouts - Combine aspects of both process and product layouts  Fixed-Position layouts - Product is too large to move; e.g. a building  Product layouts  Every job visits the machines in the same order  Products are standard  Demand is stable  Volume of production is high  Variety is low,  Special purpose equipments are used  Workers are not skilled  Advantage: It provides productivity.  Product Layout Raw Finished Station Station Station Station materials 1 2 3 4 item  Process Layouts  A process layout is a functional grouping of machines.  The flow is intermittent.  Customization is high.  Demand fluctuates.  Volume of production is low.  General purpose equipments are used.  Skilled workers are needed.  Process Layout Assembly Assembly Assembly Milling Milling Painting Testing Testing Testing Press Press Press  Differences Between Product and Process Layouts  Inventory Product layout: low work-in-process inventory, high raw material and finished goods inventory. Process layout: high work-in-process inventory and low raw materiald and finished goods inventory.  Material handling Product layout: Automatic guided vehicles are used for material handling which travels in a fixed path. Process layout: Forklifts are suitable  Differences Between Product and Process Layouts  Scheduling/line balancing Process layout: Dynamic scheduling -a new scheduling decisions is made whenever a new job arrives. Product layout: Product flow is standard and set when the line is designed.  Hybrid=Cellular layout  Combine elements of both product & process layouts  Efficiency of product layouts  Flexibility of process layouts  Cellular Layouts  Cellular Production  Layout in which machines are grouped into a cell that can process items that have similar processing requirements  Group Technology  The grouping into part families of items with similar design or manufacturing characteristics  Cellular Layouts Machines Enter Worker 2 Worker Worker 1 3 Exit Key: Product route Worker route Cellular Layout  Advantages of Cellular Layouts  Reduced material handling and transit time  Reduced setup time  Reduced work-in-process inventory  Better use of human resources  Better scheduling, easier to control and automate  Disadvantages of Cellular Layout  Sometimes cells may not be formed because of inadequate part families.  Some cells may have a high volume of production and others very low. This results in poorly balanced cells.  When volume of production changes, number of workers are adjusted and workers are reassigned to various cells. To cope with this type of reassignments, workers must be multi-skilled and cross-trained.  Sometimes, machines are duplicated in different cells. This increases capital investment.  Process vs. Cellular Layout Dimension Functional Cellular Number of moves many few between departments Travel distances longer shorter Travel paths variable fixed Job waiting times greater shorter Throughput time higher lower Amount of work in higher lower process Supervision difficulty higher lower Scheduling complexity higher lower Equipment utilization lower higher  Fixed-Position Layout  Used when product is large  Product is difficult or impossible to move, i.e. very large or fixed  All resources must be brought to the site  Scheduling of workers and resources is difficult Fixed-Position Layout  References  R. Dan Reid & Nada R. Sanders, 4th Edition, Wiley 2010  Stephens, M. P., & Meyers, F. E. (2013). Manufacturing facilities design and material handling. Purdue University Press.  William J. Stevenson, Operations Management, 8th ed. 2005. FACILITY LOCATION DECISION  Location Decision  Facility location is the process of determining geographic sites for a firm’s operations.  Location decision is one of the most important decisions a firm makes.  Decisions made relatively infrequently.  The objective of location strategy is to maximize the benefit of location to the firm  Location Decisions: Strategically Important  Location decisions:  Are long-term decisions  Are closely tied to an organization’s strategies  Low-cost  Convenience to attract market share  Effect capacity and flexibility  Are difficult to reverse  Represent a long-term commitment of resources  Effect investment requirements,  Effect operating costs (fixed and variable), (such as transportation costs, taxes, wages, rent etc)  Effect revenues,  Effect operations  Impact competitive advantage  Important to supply chains  Location and Cost Location decisions based on low cost require careful consideration Once in place, location-related costs are fixed in place and difficult to reduce Determining optimal facility location is a good investment  Need for Location Decision  Location decisions may arise for a variety of reasons:  Addition of new facilities  As part of a marketing strategy to expand markets  Growth in demand that cannot be satisfied by expanding existing facilities  Depletion of basic inputs requires relocation  Shift in markets  Cost of doing business at a particular location makes relocation attractive  Location Options  Expanding existing facilities  Building a new facility (for the beginners)  Moving to another facility  Addition of one or more facilities to the existing network in order to expand capacity  Closing of one or more facilities in order to shrink capacity General Procedure for Making Location Decisions  Decide on the criteria to use for evaluating location alternatives  Identify important factors (such as location of markets or raw materials)  Develop location alternatives - identify the country or countries for location - identify the general region for location - identify a small number of community alternatives - identify site alternatives among the cummunity alternatives  Evaluate the alternatives and make a selection  Industrial Location Decisions Cost focus Revenue varies little between locations Location is a major cost factor Location effects shipping & production costs (costs vary greatly between locations)  Service Location Decisions Revenue focus Costs vary little between market areas Location is a major revenue factor Factors such as traffic volume, good transportation, customer, safety and convenience most important  Location effects amount of customer contact  Locaiton effects volume of business  Organizations that need to be close to markets Government agencies Police & fire departments Post Office Retail Sales and Service Fast food restaurants, supermarkets, gas stations Drug stores, shopping malls Bakeries Other Services Doctors, lawyers, accountants, barbers Banks, auto repair, motels  Factors That Affect Location Decisions  Managers must weigh many factors when assessing the desirability of particular locations.  The factor must be sensitive to location.  The factor must have a high impact on the company’s ability to meet its goals. Factors That Affect Location Decisions  Labor Productivity /Proximity to labor  Wage rates are not the only cost  Lower productivity may increase total cost  Local wage rates, attitude toward unions, availability of special skills (e.g.: silicon valley)  Costs  Tangible - easily measured costs such as utilities, labor, materials, taxes  Intangible- less easy to quantify and include education, public transportation, community, quality-of-life  Factors That Affect Location Decisions  Political Risk, Values, and Culture National, state, local governments attitudes toward private and intellectual property, zoning, pollution Worker attitudes towards turnover, unions, absenteeism Globally cultures have different attitudes towards punctuality, legal, and ethical issues 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  Reduce transportation costs of perishable or bulky raw materials  Proximity to competitors  Called clustering  Often driven by resources such as natural, information, capital, talent  Found in both manufacturing and service industries  Factors Affecting Location Decisions Exchange Rates and Currency Risks Can have a significant impact on costs Rates change over time Site considerations Local zoning & taxes, access to utilities, etc. Other Considerations Options for future expansion, local competition, etc  Location Decision Sequence  Country Decision  Region/ Community Decision  Site Decision  Globalization - Should Firm Go Global?  Globalization is the process of locating facilities around the world  Potential advantages:  Inside track to foreign markets, avoid trade barriers, gain access to cheaper labor  Potential disadvantages:  Political risks may increase, loss of control of proprietary technology, local infrastructure (roads & utilities) may be inadequate, high inflation  Other issues:  Language barriers, different laws & regulations, different business cultures  Key Success Factors in Country Decision 1. Political risks, government rules, attitudes, incentives 2. Cultural and economic issues 3. Location of markets 4. Labor talent, attitudes, productivity, costs 5. Availability of supplies, communications, energy 6. Exchange rates and currency risks Key Success Factors in Region/ Community Decision 1. Corporate desires 2. Attractiveness of region 3. Labor availability and costs 4. Costs and availability of utilities 5. Environmental regulations 6. Government incentives and fiscal policies 7. Proximity to raw materials and customers 8. Land/construction costs  Key Success Factors in Site Decision 1. Site size and cost 2. Air, rail, highway, and waterway systems 3. Zoning restrictions 4. Proximity of services/ supplies needed 5. Environmental impact issues  Methods of Evaluating Location Alternatives  The Factor-Rating Method  Locational Break-Even Analysis  Center-of-Gravity Method  Transportation Model  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 for each location 6. Recommend the location with the highest point score  Methods of Evaluating Location Alternatives  The Factor-Rating Method  Locational Break-Even Analysis  Center-of-Gravity Method  Transportation Model  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 for each location 6. Recommend the location with the highest point score  Example Key Scores Success (out of 100) Weighted Scores Factor Weight France Denmark France Denmark Labor availability and attitude.25 70 60 (.25)(70) = 17.5 (.25)(60) = 15.0 People-to- car ratio.05 50 60 (.05)(50) = 2.5 (.05)(60) = 3.0 Per capita income.10 85 80 (.10)(85) = 8.5 (.10)(80) = 8.0 Tax structure.39 75 70 (.39)(75) = 29.3 (.39)(70) = 27.3 Education and health.21 60 70 (.21)(60) = 12.6 (.21)(70) = 14.7 Totals 1.00 70.4 68.0  Locational Break-Even Analysis Method of cost-volume analysis used for industrial locations Three steps in the method 1. Determine fixed and variable costs for each location 2. Plot the cost for each location 3. Select location with lowest total cost for expected production volume  Example Three locations: Selling price = $120 Expected volume = 2,000 units Fixed Variable Total City Cost Cost Cost Akron $30,000 $75 $180,000 Bowling Green $60,000 $45 $150,000 Chicago $110,000 $25 $160,000 Total Cost = Fixed Cost + (Variable Cost x Volume)  Example – $180,000 – – $160,000 – $150,000 – – $130,000 – Annual cost – $110,000 – – – $80,000 – – $60,000 – – – Akron Chicago $30,000 – lowest Bowling Green lowest – cost lowest cost cost $10,000 – | | | | | | | – 0 500 1,000 1,500 2,000 2,500 3,000 Volume  Example Total Cost A= 30,000+(75xQ) Total Cost B= 60,000+(45xQ) Total Cost C= 110,000+(25xQ) Total Cost A= Total Cost B 30,000+(75xQ)= 60,000+(45xQ) Q= 1,000 60,000+(45xQ)= 110,000+(25xQ) Q= 2,500  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)  Center-of-Gravity Method Place existing locations on a coordinate grid  Grid origin and scale is arbitrary  Maintain relative distances Calculate X and Y coordinates for ‘center of gravity’  Assumes cost is directly proportional to distance and volume shipped  Center-of-Gravity Method ∑dixQi i x - coordinate = ∑Qi i ∑diyQi i y - coordinate = ∑Qi i where dix = x-coordinate of location i diy = y-coordinate of location i Qi = Quantity of goods moved to or from location i  Center-of-Gravity Method North-South New York (130, 130) Chicago (30, 120) 120 – Pittsburgh (90, 110) 90 – 60 – 30 – Atlanta (60, 40) – | | | | | | East-West 30 60 90 120 150 Arbitrary origin  Center-of-Gravity Method Number of Containers Store Location Shipped per Month Chicago (30, 120) 2,000 Pittsburgh (90, 110) 1,000 New York (130, 130) 1,000 Atlanta (60, 40) 2,000 (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  Center-of-Gravity Method North-South New York (130, 130) Chicago (30, 120) 120 – Pittsburgh (90, 110) 90 – + Center of gravity (66.7, 93.3) 60 – 30 – Atlanta (60, 40) –| | | | | | East-West 30 60 90 120 150 Arbitrary origin  Load Distance Model  A mathematical model used to evaluate locations based on proximity factors.  A load may be shipments from suppliers, shipments between plants or to customers, or it may be customers or employees traveling to or from the facility.  The firm seeks to minimize its load–distance (ld) score, generally by choosing a location, so that large loads go short distances.  To calculate ld score for any potential location, we use the actual distance between any two points using a GIS system, and simply multiply the loads flowing to and from the facility by the distances traveled.  Example  Management is investigating which location will be best to poistion its new plant relative to four suppliers (A, B, C, D) and three market areas (MA1, MA2 and MA3). The following information has been collected. Which is best?  Solution Market Area Alternatives Suppliers X Y A B C D MA1 360 180 X 200 100 250 500 MA2 420 450 Y 200 500 600 300 MA3 250 400 Wt 75 105 135 60 Distances MA1 dA = (xA - x1)2 + (yA - y1)2 = (200-360)2 + (200-180)2 = 161.2 dB = (xB - x1)2 + (yB - y1)2 = (100-360)2 + (500-180)2 = 412.3 dC = (xC - x1)2 + (yC - y1)2 = (250-360)2 + (600-180)2 = 434.2 dD = (xC - x1)2 + (yD - y1)2 = (500-360)2 + (300-180)2 = 184.4  Solution MA 2 dA = (xA – x2)2 + (yA – y2)2 = (200-420)2 + (200-450)2 = 333 dB = (xB – x2)2 + (yB – y2)2 = (100-420)2 + (500-450)2 = 323.9 dC = (xC – x2)2 + (yC – y2)2 = (250-420)2 + (600-450)2 = 226.7 dD = (xD – x2)2 + (yD – y2)2 = (500-420)2 + (300-450)2 = 170 MA 3 dA = (xA – x3)2 + (yA – y3)2 = (200-250)2 + (200-400)2 = 206.2 dB = (xB – x3)2 + (yB – y3)2 = (100-250)2 + (500-400)2 = 180.4 dC = (xC – x3)2 + (yC – y3)2 = (250-250)2 + (600-400)2 = 200 dD = (xD – x3)2 + (yD – y3)2 = (500-250)2 + (300-400)2 = 269.3  Solution LOAD-DISTANCE n LD =  ld i i i=1 MA1= (75)(161.2) + (105)(412.3) + (135)(434.2) + (60)(184.4) = 125,063 MA2 = (75)(333) + (105)(323.9) + (135)(226.7) + (60)(170) = 99,791 MA3 = (75)(206.2) + (105)(180.3) + (135)(200) + (60)(269.3) = 77,555* * MA3  References  https://www.google.com.tr/url?sa=t&rct=j&q=&esrc=s&source=we b&cd=13&cad=rja&uact=8&ved=0CCcQFjACOAo&url=http%3A%2 F%2Fwww.baskent.edu.tr%2F~sureten%2F(location).ppt&ei=W2R sVN7YDYztaNK5gbgO&usg=AFQjCNGrH6ng5ZcolGu8M4qVW3f- JW6ClQ  https://www.google.com.tr/url?sa=t&rct=j&q=&esrc=s&source=we b&cd=8&cad=rja&uact=8&ved=0CEoQFjAH&url=http%3A%2F%2 Fwww.clt.astate.edu%2Fasyamil%2FReidSandersOM3rd%2FPPT% 2Fch09.ppt&ei=zFpsVObJHpLfasPwgtgI&usg=AFQjCNGT1bkxlhH N46t5oLSIm3Ng5ZUVIA  Krajewski, L. J., Ritzman, L. P. and Malhotra M. K., Operations Management: Processes and Supply Chains, Student Value Edition (10th Edition), 2012, Prentice Hall: US.  Heizer, J. and Render, B., Operations Management, 10th ed., 2011, Prentice Hall.