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© 2007 Pearson Education Location Chapter 11. © 2007 Pearson Education How Location fits the Operations Management Philosophy Operations As a Competitive.

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Presentation on theme: "© 2007 Pearson Education Location Chapter 11. © 2007 Pearson Education How Location fits the Operations Management Philosophy Operations As a Competitive."— Presentation transcript:

1 © 2007 Pearson Education Location Chapter 11

2 © 2007 Pearson Education How Location fits the Operations Management Philosophy Operations As a Competitive Weapon Operations Strategy Project Management Process Strategy Process Analysis Process Performance and Quality Constraint Management Process Layout Lean Systems Supply Chain Strategy Location Inventory Management Forecasting Sales and Operations Planning Resource Planning Scheduling

3 © 2007 Pearson Education BMW  In the late 1980’s fluctuating exchange rates and rising costs convinced BMW that it was time to consider operating a new production facility outside the European borders.  A “blank page” approach was used to compile a list of 250 potential worldwide sites. Analysis pared the list down to 10 options; a location in the United States was preferred due to its proximity to a large market segment for BMW’s automobiles.  BMW spent 3 1/2 years considered the labor climate, port and road access, geographical requirements and constraints, airport access, and its relations with the governments.  The plant was located in Spartanburg, SC, and now employs approximately 4,700 workers who produce more than 500 vehicles a day.

4 © 2007 Pearson Education Location Decisions  Facility location is the process of determining geographic sites for a firm’s operations.  Location decisions affect processes throughout the organization.  Marketing must assess how the location will appeal to customers; possibly opening new markets.  Human Resources must be attuned to the firm’s hiring and training needs.  Accounting and Finance must evaluate costing.  Operations needs to be able to meet current customer demand and provide the right amount of customer contact.

5 © 2007 Pearson Education Factors Affecting 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.

6 © 2007 Pearson Education Dominant Factors in Manufacturing  Favorable labor climate. May be most important factor in labor-intensive industries  Proximity to markets. Important when outbound transportation rates are high.  Quality of life. Good schools, recreational facilities, cultural events and attractive lifestyle.  Proximity to suppliers and resources. Important when inbound transportation costs are high.  Proximity to the parent company’s facilities. Important when coordination and communication is critical.  Utilities, taxes, and real estate costs.

7 © 2007 Pearson Education Dominant Factors in Services  Proximity to customers. How conveniently customers can carry on business with a firm.  Transportation costs and proximity to markets. Especially for warehousing and distribution operations.  Location of Competitors. Estimating the sales potential and impact of competition.  Critical mass is a situation whereby several competing firms clustered in one location attract more customers than the total number who would shop at the same stores at scattered locations.  Site-Specific Factors. Including residential density, traffic flow, and site visibility.

8 © 2007 Pearson Education Geographical Information Systems and Location Decisions  Geographical information system (GIS) is a system of computer software, hardware, and data that the firm’s personnel can use to manipulate, analyze, and present information relevant to a location decision. It can be used to:  Store databases  Display maps  Create models that can take information from existing datasets, apply analytic functions, and write results into new derived datasets.  Together, these three functionalities of data storage, map displays, and modeling are critical parts of an intelligent GIS, used to a varying extent in all GIS applications.

9 © 2007 Pearson Education GIS and Site Selection in the Fast Food Industry  Until recently, fast-food chains used consultants to analyze geodemographic data (demographic data in conjunction with geographic location) for strategic planning, and making franchise location.  Now with the availability of easy-to-use, low cost, GIS systems that can be operated on a regular PC, small and large fast-food chains are doing it on their own.  These programs can estimate the total dollars up for grabs in a market by analyzing local age and income data from the U.S. Census Bureau as well as sales data from stores in an area.  The programs can also tell the optimal number and locations of stores in a market, and how much in sales a store can expect. Analyses can be run for any U.S. market and can rank markets in order of viability.

10 © 2007 Pearson Education Using GIS to Identify Starbucks Locations  The Starbuck store addresses within 20 miles of Hamilton, Ontario were obtained from the Starbucks Web site, and imported into MapPoint.  These store locations are denoted on maps by yellow dots. Then demographics that come with MapPoint were overlaid on the map.  On the first map, note that Oakville has more store locations than Hamilton even though it has lower population density, suggesting that store location is not being driven by population density alone.  The second map shows the demographics by average per capita household income. Note that in this case, the store locations are based in more affluent areas.

11 © 2007 Pearson Education Population density per square kilometer for each census subdivision. Starbucks locations

12 © 2007 Pearson Education Per Capita Household Income Map

13 © 2007 Pearson Education Onsite Expansion, New Location, or Relocation  Managers must first decide whether to expand onsite, build another facility, or relocate to another site.  Onsite expansion has the advantage of keeping people together, reducing construction time and costs, and avoiding splitting up operations.  However, as a firm expands a facility, at some point diseconomies of scale set in.  A new plant allows it to hire more employees, install newer, more-productive machinery and better technology, and reduce transportation costs.  Most firms that choose to relocate are small (comprised of less than 10 employees).  More than 80 percent of all relocations are made within 20 miles of companies’ original locations, which enables the firms to retain their current employees.

14 © 2007 Pearson Education Tyler Emergency Medical Services (EMS) Example 11.1  The locations of the two existing EMS facilities in Tyler, Texas are shown on the following map.  The population density for each of the city’s tracts is also shown. The darker red areas have up to 5,000 people per square mile.  The southeast part of Tyler, census tract 18.03, has experienced rapid growth, with its population almost doubling in the last twelve years.  The residents of this tract have complained that it takes too long for the EMS vehicles to reach them.

15 © 2007 Pearson Education Population Density of Tyler, Texas EMS locations Areas of rapid growth.

16 © 2007 Pearson Education  A general guideline for locating EMS facilities in urban areas is that an EMS vehicle should be able to answer 95 percent of its calls within 10 minutes in tracts that have a population density of 1,000 people per square mile.  Census tract 7, on the west side of the city with a population density of 967 people per square mile, should be included in the study as well.  Thus, the census tracts that are as dark as or darker than census tract 7, should be within a 10-minute drive time zone of an EMS facility.  Where should EMS locate three facilities so as to meet its coverage goals for Tyler? Tyler Emergency Medical Services (EMS) Location

17 © 2007 Pearson Education Census Track 7 With MapPoint, it is easy to calculate a drive time zone by just selecting the pushpin and going under “Tools” on the menu bar to select drive time zone in terms of the number of minutes of drive time. Some areas not in coverage zone. 10 minute response zones

18 © 2007 Pearson Education Three EMS locations were chosen through a trial and error approach and evaluation using MapPoint.

19 © 2007 Pearson Education Locating a Single Facility  When the facility is part of a firm’s larger network of facilities, we assume that there is no interdependence.  The process of selecting a new facility location involves a series of steps. 1.Identify the important location factors and categorize them as dominant or secondary. 2.Consider alternative regions; then narrow the choices to alternative communities and finally to specific sites. 3.Collect data on the alternatives. 4.Analyze the data collected, beginning with the quantitative factors. 5.Bring the qualitative factors into the evaluation. The site with the highest weighted score is best.

20 © 2007 Pearson Education Location FactorWeightScore (W)(S) Total patient miles per month Facility utilization20360 Average time per emergency trip20360 Expressway accessibility15460 Land and construction costs10110 Employee preference10550 Weighted Score340 Health-Watch Preference Matrix Example 11.2  A new medical facility, Health-Watch, is to be located in Erie, Pennsylvania.  The following table shows the location factors, weights, and scores (1 = poor, 5 = excellent) for one potential site.

21 © 2007 Pearson Education Application 11.1 WS =


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