2. 8 McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 8 Location Planning

3. Need for Location Decisions Marketing Strategy Cost of Doing Business Growth Depletion of Resources

4. Location Decisions The importance of location Competition Cost Hidden effect Opportunity costs Market Related Factors Locations of demand or competition

5. Location Factors (General) Tangible Cost Factors Availability of Multiple Modes of Transportation Material oriented location Market oriented location Labor availability and costs Utilities Energy availability and costs Water availability and costs Site and construction costs Taxes

6. Location Factors Intangible Factors Zoning and legal regulations Pollution control Community Attitudes Public opinion (noise, smoke, odor) Expansion potential Access roads and transportation facilities Living conditions Costs of living, housing, etc

7. Nature of Location Decisions Strategic Importance Long term commitment/costs Impact on investments, revenues, and operations Supply chains Objectives Profit potential No single location may be better than others Identify several locations from which to choose Options Expand existing facilities Add new facilities Move

8. Making Location Decisions Decide on the criteria Identify the important factors Develop location alternatives Evaluate the alternatives Make selection

9. Location Decision Factors Regional Factors Site-related Factors Multiple Plant Strategies Community Considerations

10. Location of raw materials Location of markets Labor factors Climate and taxes Regional Factors

11. Quality of life Services Attitudes Taxes Environmental regulations Utilities Developer support Community Considerations

12. Land Transportation Environmental Legal Site Related Factors

13. Product plant strategy Market area plant strategy Process plant strategy Multiple Plant Strategies

14. Comparison of Service and Manufacturing Considerations Manufacturing/Distributi on Service/Retail Cost FocusRevenue focus Transportation modes/costsDemographics: age,income,etc Energy availability, costsPopulation/drawing area Labor cost/availability/skillsCompetition Building/leasing costsTraffic volume/patterns Customer access/parking

15. Trends in Locations Foreign producers locating in U.S. “ Made in USA ” Currency fluctuations Just-in-time manufacturing techniques Microfactories Information Technology

16. Retail Facility Location The major criterion used in locating a retail facility is the volume of demand. Population in a given area Median Age Median Income Traffic counts at the potential site

17. Public Service Facility Location Difficulty of measuring “ social- costs ” or “ social benefits ” Average distance or time traveled by the users of the facility Maximum distance or travel time between the facility and its intended population

18. Emergency Facility Location The objective is to locate the facility so that the maximum response time to any point of demand is minimized.

19. Evaluating Locations Transportation Model Decision based on movement costs of raw materials or finished goods Factor Rating Decision based on quantitative and qualitative inputs Center of Gravity Method Decision based on minimum distribution costs

20. Center of Gravity

25. Evaluating Locations Cost-Profit-Volume Analysis Determine fixed and variable costs Plot total costs Determine lowest total costs

26. Location Cost-Volume Analysis Assumptions Fixed costs are constant Variable costs are linear Output can be closely estimated Only one product involved

27. Location Decisions

28. Example 1: Cost-Volume Analysis Fixed and variable costs for four potential locations

29. Example 1: Solution

30. 800 700 600 500 400 300 200 100 0 Annual Output (000) $(000) 8101214166420 A B C B Superior C Superior A Superior D