Operations Management (MD021)

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Operations Management(MD021)

• Location Planning and Analysis

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Agenda

• Strategic nature of location decisions
• Considerations when making location decisions
• Numerical methods for analyzing locations
• Geographic information systems can aid location
  decisions

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There are many factors that drive location
decisions

• Marketing strategy involves expanding network of
  facilities
• Relative costs of doing business
• Growth in demand
• Resources available
• Depletion of resources

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Strategic aspects of location decisions

• Strategic importance of location decisions
• Organizational strategy should drive location
  decisions
• Locating facilities involves long term
  commitment/costs, which constrain future strategy
• Location characteristics impact investments,
  revenues, operations, supply chains
• Location decisions can create entry barriers for
  competitors
• Objectives will depend on the type of firm
• For Profit profit potential
• Non Profit/Government balance between costs
  and services provided to customers/constituents

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There are often many location options

• Often must consider many location options
• No single location may be better than others
• Often must identify several locations from which
  to choose
• Basic options to consider
• Expand existing facilities
• Add new facilities to network of existing
  facilities
• Shut down existing facility, move to new location
• Do nothing stay in same location

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Considerations When Making Location Decisions
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Typical steps when making location decisions

• Decide on the criteria that are important for the
  location decision
• Identify the important factors
• Develop location alternatives
• Evaluate each of the alternatives
• Make a selection

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

• Location near raw materials, due to necessity,
  perishability, or transportation costs
• Location of markets, clients, or constituents
• Labor factors cost, availability, skills,
  education
• Climate
• Tax rates and tax incentives

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Regional factors involved in global location
decisions

• Comparative advantage (e.g., labor) in many
  developing countries
• Challenging to manage facilities, personnel and
  operations around the world
• Tariffs can impede trade
• Import restrictions can hurt ability to move
  technologies, equipment, spare parts
• Language differences
• Cultural differences
• Level of corruption
• Different legal systems

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Community Considerations

• Quality of life
• Quality of services (police, fire, etc.)
• Local attitudes toward certain types of
  businesses (N.I.M.B.Y.)
• Environmental regulations
• Public utilities cost, availability
• Developer support
• Taxes and tax incentives

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Tax incentives and credits are often a major
consideration when locating

• Tax Incentives and Tax Credits (2003 survey by
  KPMG 209 corporate real estate professionals)
• Importance of tax incentives and credits
  Important/Very Important (3.64 avg. ranking out
  of 4.00)
• Factoring into location decisions
• Job creation tax credits (64)
• Sales tax exemptions (63)
• Property tax abatements (52)
• Enterprise zone tax credits (51)
• Job training benefits (51)

Source http//www.facilitycity.com/busfac/bf_04_0
1_news1.asp
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Site Related Factors

• Land soil conditions, load factors, drainage
  rates
• Transportation access for semi-trucks, close to
  freeway
• Zoning residential vs. commercial vs. mixed use
• Environmental regulations swamp land,
  endangered species

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Multiple Plant Strategies

• Product plant strategy
• Products/product lines produced in separate
  plants
• Market area plant strategy
• Each plant produces all products plant serves a
  geographic region
• Process plant strategy
• Each plant focuses on different processes

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Service facility location involves very different
considerations
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Ongoing trends in manufacturing location decisions

• Foreign producers locating in U.S.
• Made in USA
• Currency fluctuations
• Just-in-time manufacturing techniques
• Microfactories small factory with a narrow
  product focus, located near major market
• Information Technology facilitates coordination
  between facilities, supply chain

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Numerical Methods for Analyzing Facility Locations
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Evaluating Locations

• Cost-Profit-Volume Analysis
• Determine fixed and variable costs associated
  with location alternatives
• Plot total costs for each alternative on the same
  graph
• Determine location having lowest total costs
• Assumptions
• Fixed costs are constant
• Variable costs are linear
• Output can be closely estimated
• Only one product involved

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Locational Cost-Volume Analysis

• Fixed and variable costs for four potential
  locations

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Calculate total costs for two levels of output
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Solution is found by graphing and identifying
regions of minimum costs
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Several alternative methods for evaluating
locations

• Transportation Model
• Decision based on movement costs of raw materials
  or finished goods
• Involves linear programming (optimization tools)
• Factor Rating
• Decision based on quantitative and qualitative
  inputs
• Choose appropriate factors, weight their
  importance, rate them for each location, weight
  ratings together into an index
• Center of Gravity Method
• Makes decision based on minimizing distribution
  costs to a number of facilities

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Factor rating method for choosing a location
Boston, with a weighted score of 79, is higher,
and would be chosen
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Center of Gravity method for locating
distribution facilities
Assume we have two facilities, in Springfield and
Boston (on the Mass Pike, 85 miles apart) (assume
Mass Pike is a straight line)
Decision Locate 57 miles from Springfield (approx.
at I-495)
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Geographic Information Systems
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Geographic Information Systems (GIS)

• GIS systems are made specifically for analyzing
  and presenting data related to geographical
  positions
• (Latitude, Longitude) Location
• Street Location
• Town
• County
• State
• Nation

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Geographic Information Systems (GIS)

• ESRIs (www.esri.com) ArcView is the primary
  product available (and used) for such
  applications
• Links to free data sources
• Links to data sources you can purchase
• Links to online mapping applications that you can
  use to locate facilities
• http//www.esri.com/software/internetmaps/index.ht
  ml

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Massachusetts uses GIS to assist firms when
locating in MA

• Massachusetts GIS Resources
• MassGIS (http//www.state.ma.us/mgis/)
• General mapping of state data
• MassMeansBusiness (http//www.massmeansbusiness.co
  m/)
• Has a search system for locating available
  facilities
• Locate state funding opportunities
• Description of regions for locating

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(No Transcript)
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Many states and govt bodies provide GIS
resources for location decisions

• States and City Government GIS
• San Francisco Prospector (http//www.sfprospector.
  com/)
• Has a search system for locating available
  facilities
• City of Tucson, AZ (http//www.ci.tucson.az.us/ed/
  ed.htm)
• Has a search system for locating available
  facilities
• Federal Government GIS
• HUD e-Maps (http//www.hud.gov/emaps)
• Locations of populations, businesses, etc.
• Locations of Tax Increment Financing areas, etc.
• US Geological Survey (http//www.usgs.gov/)

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GIS can be used to identify promising markets for
locating
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GIS can be used to identify clusters of similar
or related businesses
Locating Clusters of Similar Businesses
Source http//www.esri.com/news/arcnews/fall01art
icles/gissupports.html