1. Unit-3

2. Location Strategies PowerPoint presentation to accompany
Heizer and Render
Operations Management, Eleventh Edition
Principles of Operations Management, Ninth Edition
PowerPoint slides by Jeff Heyl
© 2014 Pearson Education, Inc.

3. Location Provides Competitive Advantage for FedEx
Central hub concept
Enables service to more locations with fewer aircraft
Enables matching of aircraft flights with package loads
Reduces mishandling and delay in transit because there is total control of packages from pickup to delivery
© 2014 Pearson Education, Inc.

4. The Strategic Importance of Location
One of the most important decisions a firm makes
Increasingly global in nature
Significant impact on fixed and variable costs
Decisions made relatively infrequently

5. The Strategic Importance of Location
Long-term decisions
Once committed to a location, many resource and cost issues are difficult to change

6. Location and Costs
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

7. Factors That Affect Location Decisions
Globalization adds to complexity
Market economics
Communication
Rapid, reliable transportation
Ease of capital flow
Differing labor costs
Identify key success factors (KSFs)

8. Global Competitiveness Index of Countries
TABLE 8.1
Competitiveness of 142 Selected Countries
COUNTRY
RANKING
Switzerland 1
Singapore 2
Sweden 3
Finland 4
USA 5
Japan 9 UK 10
Canada 12
Israel 22
China 26
Mexico 58
Vietnam 65
Russia 66
Haiti
141
Chad
142

9. Factors That Affect Location Decisions
Labor productivity
Wage rates are not the only cost
Lower productivity may increase total cost
Labor cost per day
Productivity (units per day)
= Cost per unit
South Carolina
= $1.17 per unit
$70
60 units
Mexico
= $1.25 per unit
$25
20 units

10. Factors That Affect Location Decisions
Exchange rates and currency risks
Can have a significant impact on costs
Rates change over time
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

11. Factors That Affect Location Decisions
Exchange rates and currency risks
Can have a significant impact on costs
Rates change over time
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
Location decisions based on costs alo

12. Factors That Affect Location Decisions
Political risk, values, and culture
National, state, local governments attitudes toward private and intellectual property, zoning, pollution, employment stability may be in flux
Worker attitudes towards turnover, unions, absenteeism
Globally cultures have different attitudes towards punctuality, legal, and ethical issues

13. Ranking Corruption Rank Country 2012 CPI Score (out of 100)
1 Demark, Finland, New Zealand 90
4 Sweden 88
5 Singapore 87
6 Switzerland 86
7 Australia, Norway 85
9 Canada, Netherlands 84
13 Germany 79
14 Hong Kong 77
17 Japan, UK 74
19 USA 73
37 Taiwan 61
39 Israel 60
45 South Korea 56
80 China 39
123 Vietnam 31
133 Russia 28
Least Corrupt
Most Corrupt
CPI is the Corrupt Perceptions Index calculated by Transparency International, an organization dedicated to fighting business corruption. The Index is calculated from up to 13 different individual scores. For details and the methodology, see
In 2012 they changed their scoring system from “out of 10” to “out of 100”.
In case students are interested, three countries tied for the lowest score in the 2012 survey with a score of 8 out of 100 – Afghanistan, North Korea, and Somalia. 13

14. 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

15. Factors That Affect Location Decisions
Proximity to competitors (clustering)
Often driven by resources such as natural, information, capital, talent
Found in both manufacturing and service industries

16. Factor-Rating Method
Popular because a wide variety of factors can be included in the analysis
Six steps in the method
Develop a list of relevant factors called key success factors
Assign a weight to each factor
Develop a scale for each factor
Score each location for each factor
Multiply score by weights for each factor for each location
Make a recommendation based on the highest point score

17. 9 Layout Strategies PowerPoint presentation to accompany
Heizer and Render
Operations Management, Eleventh Edition
Principles of Operations Management, Ninth Edition
PowerPoint slides by Jeff Heyl
© 2014 Pearson Education, Inc.

18. Outline Global Company Profile: McDonald’s
The Strategic Importance of Layout Decisions
Types of Layout
Office Layout
Retail Layout
Warehousing and Storage Layouts

19. Outline - Continued Fixed-Position Layout Process-Oriented Layout
Work Cells
Repetitive and Product- Oriented Layout

20. Learning Objectives
When you complete this chapter you should be able to:
Discuss important issues in office layout
Define the objectives of retail layout
Discuss modern warehouse management and terms such as ASRS, cross-docking, and random stocking
Identify when fixed-position layouts are appropriate

21. Learning Objectives
When you complete this chapter you should be able to:
Explain how to achieve a good process- oriented facility layout
Define work cell and the requirements of a work cell
Define product-oriented layout
Explain how to balance production flow in a repetitive or product-oriented facility

22. Innovations at McDonald’s
Indoor seating (1950s)
Drive-through window (1970s)
Adding breakfast to the menu (1980s)
Adding play areas (late 1980s)
Redesign of the kitchens (1990s)
Self-service kiosk (2004)
Now three separate dining sections
© 2014 Pearson Education, Inc.

23. Innovations at McDonald’s
Indoor seating (1950s)
Drive-through window (1970s)
Adding breakfast to the menu (1980s)
Adding play areas (late 1980s)
Redesign of the kitchens (1990s)
Self-service kiosk (2004)
Now three separate dining sections
Six out of the seven are layout decisions!
© 2014 Pearson Education, Inc.

24. McDonald’s New Layout Seventh major innovation
Redesigning all 30,000 outlets around the world
Three separate dining areas
Linger zone with comfortable chairs and Wi-Fi connections
Grab and go zone with tall counters
Flexible zone for kids and families
Facility layout is a source of competitive advantage
© 2014 Pearson Education, Inc.

25. 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

26. 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

27. Types of Layout Office layout Retail layout Warehouse layout
Fixed-position layout
Process-oriented layout
Work-cell layout
Product-oriented layout

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

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

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

31. Layout Strategies TABLE 9.1 Layout Strategies OBJECTIVES EXAMPLES
Office
Locate workers requiring frequent contact close to one another
Allstate Insurance
Microsoft Corp.
Retail
Expose 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

32. Layout Strategies TABLE 9.1 Layout Strategies OBJECTIVES EXAMPLES
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 Ambulances
Repetitive/ Continuous (product oriented)
Equalize the task time at each workstation
Sony’s TV assembly line
Toyota Scion

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

34. Office Layout
Grouping of workers, their equipment, and spaces to provide comfort, safety, and movement of information
Movement of information is main distinction
Typically in state of flux due to frequent technological changes

35. Office Layout Three physical and social aspects Two major trends
Proximity
Privacy
Permission
Two major trends
Information technology
Dynamic needs for space and services

36. Supermarket Retail Layout
Objective is to maximize profitability per square foot of floor space
Sales and profitability vary directly with customer exposure

37. Store Layout
Figure 9.2