1. 1 Lecture 4 Location Planning and Analysis Chapter 8

2. 2 Need for Location Decisions  Cost of Doing Business  Growth  Depletion of Resources  Marketing Strategy

3. 3 Site Selection at Staples Inc. http://www.computerworld.com/databasetopics/businessintelligence/story/0,10801,104656,00.html  Staples plans to open 95 new stores this year after considering as many as 5,000 sites. Mistakes are costly -- closing a failed store can set the Framingham, Mass.-based company back $500,000 to $1 million. The office supply retailer uses GIS tools from Tactician Corp. in Andover, Mass., combined with analytic tools from SAS Institute Inc. in Cary, N.C., to help it select store sites. The process all begins with a real estate model that forecasts weekly sales or potential sales by ZIP code. The forecasts drive activities such as site selection, budgeting, labor scheduling and marketing programs such as direct-mail campaigns, says Alan Gordon, director of sales forecasting at Staples, which now has GIS tools in a half-dozen departments. The model considers some 30 factors that affect site selection, including obvious ones such as the presence of competitors and the demographics of the local population. "And there are things we put into our model that other people haven't learned of yet," Gordon says. He says Staples hones its site-selection acumen by using SAS routines to correct and enhance the geographic data that it buys from external parties. "The more we work in this area, the more we find problems and correct them," Gordon says. "We have explicitly tried to make that a competitive advantage." For example, Gordon says, commercial databases of driving times between locations allow users to vary speeds by road type, but the databases don't take into account actual local traffic densities. Staples has written software that incorporates local conditions, so it knows how long it takes to drive from one ZIP code to another location through intervening ZIP codes of varying traffic density. GIS and BI tool vendors are collaborating to integrate their products, so users don't have to. But the Tactician and SAS tools aren't yet integrated, and Staples passes files back and forth between the two companies' tools via FTP. But Gordon says Staples is building its own interface to allow both SAS and Tactician to access common DB2 or Oracle tables.

4. 4 Nature of Location Decisions  Strategic Importance  Long term commitment/costs  Impact on investments, revenues, and operations  Supply chains  Objectives  Profit potential  Minimize travel distance/cost/time  No single location may be better than others  Identify several locations from which to choose  Options  Expand existing facilities  Add new facilities  Move

5. 5 Making Location Decisions  Decide on the objective  Identify the important factors  Develop location alternatives  Evaluate the alternatives  Make selection

6. 6  Proximity to raw materials  Proximity to customers  Location of markets  Labor factors - cost, availability, skill, productivity  Taxes at the federal, state, county, and local levels  Construction costs and land price  Government and political stability  Regional competition  Insurance Regional Factors

7. 7  Demographics  Services - schools, hospitals, recreation, etc.  Environmental regulations  Utilities  Transportation system Community Considerations & Site Related Factors Geographic Information System (GIS) technology

8. 8 Country Decision Critical Success Factors 1.Political risks, government rules, attitudes, incentives 2.Cultural and economic issues 3.Location of markets 4.Labor availability, attitudes, productivity, costs 5.Availability of supplies, communications, energy 6.Exchange rates and currency risks Global Location Decisions

9. 9 Comparison of Service and Manufacturing Considerations Manufacturing/DistributionService/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 Table 8.2

10. 10 IndustryLocationsReason for clustering Wine makersNapa Valley (US) Bordeaux region (France) Natural resources of land and climate Software firmsSilicon Valley, Boston, Bangalore (India) Talent resources of bright graduates in scientific/technical areas, venture capitalists nearby Race car buildersHuntington/North Hampton region (England) Critical mass of talent and information Locations of Industry

11. 11 IndustryLocationsReason for clustering Theme parksOrlandoA hot spot for entertainment, warm weather, tourists, and inexpensive labor Electronic firmsNorthern MexicoNAFTA, duty free export to US Computer hardware manufacturers Singapore, TaiwanHigh technological penetration rate and per capita GDP, skilled/educated workforce with large pool of engineers Fast food chainsSites within one mile of each other Stimulate food sales, high traffic flows General aviation aircraft Wichita, KansasMass of aviation skills Locations of Industry – Contd.

12. 12 Evaluating Locations  Cost-Profit-Volume Analysis  Determine fixed and variable costs  Plot total costs  Determine lowest total costs

13. 13 Three locations: Akron$30,000$75$180,000 Bowling Green$60,000$45$150,000 Chicago$110,000$25$160,000 Selling price = $120 Expected volume = 2,000 units FixedVariableTotal CityCostCostCost Total Cost = Fixed Cost + Variable Cost x Volume Cost-Volume & Locational Break-Even Analysis

14. 14 – $180,000 $180,000 – – $160,000 $160,000 – $150,000 $150,000 – – $130,000 $130,000 – – $110,000 $110,000 – – $80,000 $80,000 – – $60,000 $60,000 – – $30,000 $30,000 – – $10,000 $10,000 – – Annual cost ||||||| 05001,0001,5002,0002,5003,000 Volume Akron lowest cost Bowling Green lowest cost Chicago lowest cost Chicago cost curve Akron cost curve Bowling Green cost curve Locational Break-Even Analysis Graph of Break-Even Points

15. 15 Evaluating Locations  Factor Rating  Decision based on quantitative and qualitative inputs  Center of Gravity Method  Decision based on minimum distribution costs  Transportation Model  Decision based on movement costs of raw materials or finished goods

16. 16  Popular because a wide variety of factors can be included in the analysis  Six steps in the method 1.Develop a list of relevant factors called critical success factors 2.Assign a weight to each factor 3.Develop a scale for each factor 4.Score each location for each factor 5.Multiply score by weights for each factor for each location 6.Recommend the location with the highest point score Factor-Rating Method

17. 17 CriticalScores Success(out of 100)Weighted Scores FactorWeightFranceDenmarkFranceDenmark Labor availability and attitude.257060(.25)(70) = 17.5(.25)(60) = 15.0 People-to car ratio.055060(.05)(50) = 2.5(.05)(60) = 3.0 Per capita income.108580(.10)(85) = 8.5(.10)(80) = 8.0 Tax structure.397570(.39)(75) = 29.3(.39)(70) = 27.3 Education and health.216070(.21)(60) = 12.6(.21)(70) = 14.7 Totals 1.0070.468.0 Factor-Rating Example

18. 18 Determine the center of gravity for the destinations shown on the following map. Monthly shipments will be the quantities listed in the table. DC #CoordinateWeekly Shipment Qty DC1(2,2)800 DC2(3,5)900 DC3(5,4)200 DC4(8,5)100 DC1 DC2 DC3 DC4 Center of Gravity: An Example

19. 19 Transportation Problem Chapter 8S  Objective:  determination of a transportation plan of a single commodity  from a number of sources  to a number of destinations,  such that total cost of transportation is minimized  Sources may be plants, destinations may be warehouses  Question:  how many units to transport  from source i  to destination j  such that supply and demand constraints are met, and  total transportation cost is minimized

20. 20 A Transportation Table Warehouse 47 7 1 100 12 3 8 8 200 8 1016 5 150 450 8090120160 1234 1 2 3 Factory Factory 1 can supply 100 units per period Demand Table 8S.1 Warehouse B’s demand is 90 units per period Total demand per period Total supply capacity per period

21. 21 Solution in Management Scientist Total transportation cost = 4(80) + 7(0) + 7(10)+ 1(10) + 12(0) + 3(90) + 8(110) + 8(0) + 8(0) +10(0) + 16(0) +5 (150) = $2300

22. 22 Transportation Model – Tool for Site Location: An Example  A large tire manufacturer is contemplating construction of a new manufacturing facility.  Two leading candidate location: Cincinnati and Columbus, OH  The new facility would have a supply capacity of 160 units a week  Transportation costs  Between each candidate location and existing locations (A, B, C), and  between pairs of existing locations  Choose the best candidate location. From Columbus to Cost per unit From Cincinnati to Cost per unit A$18A$7 B8B17 C13C ABC Supply per week 1101410210 2121720140 311 12150 Demand per week 220

23. 23 Set up transportation table for Columbus

24. 24 Set up transportation table for Cincinnati Choose Columbus

25. 25 Project Management Chapter 17 Lecture 4

26. 26 Project Management  How is it different?  Limited time frame  Narrow focus, specific objectives  Why is it used?  Special needs  Pressures for new or improves products or services  Definition of a project  Unique, one-time sequence of activities designed to accomplish a specific set of objectives in a limited time frame

27. 27 Project Management  What are the Key Metrics  Time  Cost  Performance objectives  What are the Key Success Factors?  Top-down commitment  Having a capable project manager  Having time to plan  Careful tracking and control  Good communications

28. 28 Project Management  What are the tools?  Work breakdown structure  Network diagram  Gantt charts

29. 29 Project Manager Responsible for: WorkQuality Human ResourcesTime CommunicationsCosts

30. 30  Deciding which projects to implement  Selecting a project manager  Selecting a project team  Planning and designing the project  Managing and controlling project resources  Deciding if and when a project should be terminated Key Decisions

31. 31  Temptation to understate costs  Withhold information  Misleading status reports  Falsifying records  Compromising workers’ safety  Approving substandard work  http://www.pmi.org/ http://www.pmi.org/ Ethical Issues

32. 32 PERT and CPM PERT: Program Evaluation and Review Technique CPM: Critical Path Method  Graphically displays project activities  Estimates how long the project will take  Indicates most critical activities  Show where delays will not affect project  PERT and CPM have been used to plan, schedule, and control a wide variety of projects:  R&D of new products and processes  Construction of buildings and highways  Maintenance of large and complex equipment  Design and installation of new systems

33. 33 PERT/CPM  PERT/CPM  used to plan the scheduling of individual activities that make up a project.  Projects may have as many as several thousand activities.  Complicating factor in carrying out the activities  some activities depend on the completion of other activities before they can be started.

34. 34 PERT/CPM  Project managers rely on PERT/CPM to help them answer questions such as:  What is the total time to complete the project?  What are the scheduled start and finish dates for each specific activity?  Which activities are critical?  must be completed exactly as scheduled to keep the project on schedule?  How long can non-critical activities be delayed  before they cause an increase in the project completion time?

35. 35 Planning and Scheduling Locate new facilities Interview staff Hire and train staff Select and order furniture Remodel and install phones Furniture setup Move in/startup Activity 0 2 4 6 8 10 12 14 16 18 20

36. 36 Project Network  Project network  constructed to model the precedence of the activities.  Nodes represent activities  Arcs represent precedence relationships of the activities  Critical path for the network  a path consisting of activities with zero slack

37. 37 Project Network – An Example A B C E F Locate facilities Order furniture Furniture setup Interview Remodel Move in D Hire and train GS 8 weeks 6 weeks 3 weeks 4 weeks 9 weeks 11 weeks 1 week

38. 38 Management Scientist Solution Critical Path

39. 39  Three-time estimate approach  the time to complete an activity assumed to follow a Beta distribution  An activity’s mean completion time is: t = (a + 4m + b)/6  a = the optimistic completion time estimate  b = the pessimistic completion time estimate  m = the most likely completion time estimate  An activity’s completion time variance is  2 = (( b - a )/6) 2 Uncertain Activity Times

40. 40 Uncertain Activity Times  In the three-time estimate approach, the critical path is determined as if the mean times for the activities were fixed times.  The overall project completion time is assumed to have a normal distribution  with mean equal to the sum of the means along the critical path, and  variance equal to the sum of the variances along the critical path.

41. 41 Activity Immediate Predecessor Optimistic Time (a) Most Likely Time (m) Pessimistic Time (b) A--468 B 14.55 CA333 DA456 EA0.511.5 FB,C345 G 11.55 HE,F567 I 258 JD,H2.52.754.5 KG,I357Example

42. 42 Management Scientist Solution

43. 43  Network activities  ES: early start  EF: early finish  LS: late start  LF: late finish  Used to determine  Expected project duration  Slack time  Critical path Key Terminology

44. 44 The Network Diagram (cont’d)  Path  Sequence of activities that leads from the starting node to the finishing node  AON path: S-1-2-6-7  Critical path  The longest path; determines expected project duration  Critical activities  Activities on the critical path  Slack  Allowable slippage for path; the difference the length of path and the length of critical path

45. 45 Advantages of PERT  Forces managers to organize  Provides graphic display of activities  Identifies  Critical activities  Slack activities 1 2 3 4 56

46. 46 Limitations of PERT  Important activities may be omitted  Precedence relationships may not be correct  Estimates may include a fudge factor  May focus solely on critical path