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Facility Location Operations Management Dr. Ron Lembke.

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Presentation on theme: "Facility Location Operations Management Dr. Ron Lembke."— Presentation transcript:

1 Facility Location Operations Management Dr. Ron Lembke

2 Location Decisions Long-term decisions  Difficult to change Affect fixed & variable costs  Transportation costs (25% of price)  Other costs: taxes, wages, rent Affect revenues: customers know you where you are Objective: find best location for firm

3 What factors should we consider? Skilled workforce Environmental laws / cost of compliance Cost of utilities, labor, taxes  Freeport Law in NV – no inventory tax Suppliers close by – fast & cheap access Customers close by Competitors close by? Skilled labor pool International - control issues?

4 Service Facilities – Traffic focus Revenue changes a huge amount, depending on the location.  Old Navy in Stead because of cheap land?  Location, location, location: you need traffic  Make it convenient!  vitamins: need enough, but it has to be the right kind  people who would want to buy your products when they are there. Cost probably doesn’t change nearly as much, by location  All malls have high rent

5 Northtowne Center Wal-Mart WinCo Office Max Toys Party

6 A Tale of Two Stores K W

7 Kmart Access “I-80 & McCarran” sounds great. Kmart Sins: Can’t see from anywhere - see where we’re going Very circuitous entry - feels inconvenient, no matter how long it actually takes

8 Wal-Mart Access

9 Street Views

10 Give Me Convenience

11 Cost Focus Revenue does not vary much, depending on the location.  Customers don’t care if your warehouse is in Sparks or Sacramento Location is a major cost driver  Impacts shipping, labor, production costs  Varies greatly by location

12 Cost Minimization Identify the costs that will vary most with the location you choose.  Transportation, taxes, labor,  Facility construction cost, utilities Other considerations  Proximity of services, suppliers  Quality of life  Government incentives

13 Cost Focus Process Overview 1. Identify general region to locate in Usually based on mostly on transp. costs 2. Identify a list of candidate cities Choose cities with good transp. Access Estimate labor cost & availability, facilities costs 3. Select metro area, identify candidate properties. Find cost of building or leasing individual properties Estimate costs of the facilities How good will the service to our customers be?

14 Biggest Freight Lanes

15 Summary Service/Retail– impact on revenues Production/Distribution – impact on costs High traffic is not enough  Must be the right kind, must be easy Transportation lanes important consideration

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