8 - 1 Chapter 8: Location Strategies

8 - 2 Outline  The Strategic Importance of Location  Factors That Affect Location Decisions  Labor Productivity  Exchange Rates and Currency Risks  Costs  Political Risk, Values, and Culture  Proximity to Markets  Proximity to Suppliers  Proximity to Competitors (Clustering)

8 - 3 Outline – Continued  Methods of Evaluating Location Alternatives  The Factor-Rating Method  Locational Break-Even Analysis  Center-of-Gravity Method  Transportation Model

8 - 4 Outline – Continued  Service Location Strategy

8 - 5 To (A) Albuquerque (B) Boston (C) Cleveland (D) Des Moines (E) Evansville (F) Fort Lauderdale Warehouse requirement Factory capacity $5 $4 $3 $9 $8 $7 From Northwest-Corner Rule Figure C.3 Means that the firm is shipping 100 bathtubs from Fort Lauderdale to Boston

8 - 6 Northwest-Corner Rule Computed Shipping Cost Table C.2 This is a feasible solution but not necessarily the lowest cost alternative Route FromToTubs ShippedCost per UnitTotal Cost DA100$5$ 500 EA20081,600 EB FB FC2005$1,000 Total: $4,200

8 - 7 Intuitive Lowest-Cost Method To (A) Albuquerque (B) Boston (C) Cleveland (D) Des Moines (E) Evansville (F) Fort Lauderdale Warehouse requirement Factory capacity $5 $4 $3 $9 $8 $7 From Total Cost= $3(100) + $3(100) + $4(200) + $9(300) = $4,100 Figure C.4

8 - 8 Intuitive Lowest-Cost Method To (A) Albuquerque (B) Boston (C) Cleveland (D) Des Moines (E) Evansville (F) Fort Lauderdale Warehouse requirement Factory capacity $5 $4 $3 $9 $8 $7 From Total Cost= $3(100) + $3(100) + $4(200) + $9(300) = $4,100 Figure C.4 This is a feasible solution, and an improvement over the previous solution, but not necessarily the lowest cost alternative

8 - 9 To (A) Albuquerque (B) Boston (C) Cleveland (D) Des Moines (E) Evansville (F) Fort Lauderdale Warehouse requirement Factory capacity $5 $4 $3 $9 $8 $7 From Northwest-Corner Rule Figure C.3 Means that the firm is shipping 100 bathtubs from Fort Lauderdale to Boston

Stepping-Stone Method 1.Select any unused square to evaluate 2.Beginning at this square, trace a closed path back to the original square via squares that are currently being used 3.Beginning with a plus (+) sign at the unused corner, place alternate minus and plus signs at each corner of the path just traced

Stepping-Stone Method 4.Calculate an improvement index by first adding the unit-cost figures found in each square containing a plus sign and subtracting the unit costs in each square containing a minus sign 5.Repeat steps 1 though 4 until you have calculated an improvement index for all unused squares. If all indices are ≥ 0, you have reached an optimal solution.

Stepping-Stone Method To (A) Albuquerque (B) Boston (C) Cleveland (D) Des Moines (E) Evansville (F) Fort Lauderdale Warehouse requirement Factory capacity $5 $4 $3 $9 $8 $7 From Figure C.5 Des Moines- Boston index = $4 - $5 + $8 - $4 = +$3

Stepping-Stone Method To (A) Albuquerque (B) Boston (C) Cleveland (D) Des Moines (E) Evansville (F) Fort Lauderdale Warehouse requirement Factory capacity $5 $4 $3 $9 $8 $7 From Figure C.6 Start Des Moines-Cleveland index = $3 - $5 + $8 - $4 + $7 - $5 = +$4

Stepping-Stone Method To (A) Albuquerque (B) Boston (C) Cleveland (D) Des Moines (E) Evansville (F) Fort Lauderdale Warehouse requirement Factory capacity $5 $4 $3 $9 $8 $7 From Evansville-Cleveland index = $3 - $4 + $7 - $5 = +$1 (Closed path = EC - EB + FB - FC) Fort Lauderdale-Albuquerque index = $9 - $7 + $4 - $8 = -$1 (Closed path = FA - FB + EB - EA)

Stepping-Stone Method 1.If an improvement is possible, choose the route (unused square) with the largest negative improvement index 2.On the closed path for that route, select the smallest number found in the squares containing minus signs 3.Add this number to all squares on the closed path with plus signs and subtract it from all squares with a minus sign

Stepping-Stone Method To (A) Albuquerque (B) Boston (C) Cleveland (D) Des Moines (E) Evansville (F) Fort Lauderdale Warehouse requirement Factory capacity $5 $4 $3 $9 $8 $7 From Figure C Add 100 units on route FA 2.Subtract 100 from routes FB 3.Add 100 to route EB 4.Subtract 100 from route EA

Stepping-Stone Method To (A) Albuquerque (B) Boston (C) Cleveland (D) Des Moines (E) Evansville (F) Fort Lauderdale Warehouse requirement Factory capacity $5 $4 $3 $9 $8 $7 From Figure C.8 Total Cost= $5(100) + $8(100) + $4(200) + $9(100) + $5(200) = $4,000

Service Location Strategy 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

Chapter 9 : Layout Strategies

Outline  The Strategic Importance of Layout Decisions  Types of Layout  Office Layout  Retail Layout  Warehousing and Storage Layouts  Fixed-Position Layout

Outline – Continued  Process-Oriented Layout  Work Cells  Requirements of Work Cells  Staffing and Balancing Work Cells  The Focused Work Center and the Focused Factory  Repetitive and Product-Oriented Layout  Assembly-Line Balancing

Strategic Importance of Layout Decisions The objective of layout strategy is to develop an effective and efficient layout that will meet the firm’s competitive requirements

Layout Design Considerations  Higher utilization of space, equipment, and people  Improved flow of information, materials, or people  Improved employee morale and safer working conditions  Improved customer/client interaction  Flexibility

Types of Layout 1.Office layout 2.Retail layout 3.Warehouse layout 4.Fixed-position layout 5.Process-oriented layout 6.Work-cell layout 7.Product-oriented layout

Types of Layout 1.Office layout: Positions workers, their equipment, and spaces/offices to provide for movement of information 2.Retail layout: Allocates shelf space and responds to customer behavior 3.Warehouse layout: Addresses trade- offs between space and material handling

Types of Layout 4.Fixed-position layout: Addresses the layout requirements of large, bulky projects such as ships and buildings 5.Process-oriented layout: Deals with low-volume, high-variety production (also called job shop or intermittent production)

Types of Layout 6.Work cell layout: Arranges machinery and equipment to focus on production of a single product or group of related products 7.Product-oriented layout: Seeks the best personnel and machine utilizations in repetitive or continuous production

Layout Strategies ObjectivesExamples OfficeLocate workers requiring frequent contact close to one another Allstate Insurance Microsoft Corp. RetailExpose customer to high- margin items Kroger’s Supermarket Walgreen’s Bloomingdale’s Warehouse (storage) Balance low cost storage with low-cost material handling Federal-Mogul’s warehouse The Gap’s distribution center Project (fixed position) Move material to the limited storage areas around the site Ingall Ship Building Corp. Trump Plaza Pittsburgh Airport Table 9.1

Layout Strategies ObjectivesExamples Job Shop (process oriented) Manage varied material flow for each product Arnold Palmer Hospital Hard Rock Cafe Olive Garden Work Cell (product families) Identify a product family, build teams, cross train team members Hallmark Cards Wheeled Coach Standard Aero Repetitive/ Continuous (product oriented) Equalize the task time at each workstation Sony’s TV assembly line Toyota Scion Table 9.1

Good Layouts Consider  Material handling equipment  Capacity and space requirements  Environment and aesthetics  Flows of information  Cost of moving between various work areas