8 - 1 Chapter 8: Location Strategies. 8 - 2 Outline The Strategic Importance of Location Factors...

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Chapter 8: Location StrategiesChapter 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)

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Outline – Continued

Methods of Evaluating Location Alternatives The Factor-Rating Method

Locational Break-Even Analysis

Center-of-Gravity Method

Transportation Model

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Service Location Strategy

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To (A)Albuquerque

(B)Boston

(C)Cleveland

(D) Des Moines

(E) Evansville

(F) Fort Lauderdale

Warehouse requirement 300 200 200

Factory capacity

300

300

100

700

$5

$5

$4

$4

$3

$3

$9

$8

$7

From

Northwest-Corner Rule

100

100

100

200

200

Figure C.3

Means that the firm is shipping 100 bathtubs from Fort Lauderdale to Boston

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Computed Shipping Cost

Table C.2

This is a feasible solution but not necessarily the lowest cost alternative

RouteFrom To Tubs Shipped Cost per Unit Total Cost

D A 100 $5 $ 500E A 200 8 1,600E B 100 4 400F B 100 7 700F C 200 5 $1,000

Total: $4,200

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Intuitive Lowest-Cost Method

To (A)Albuquerque

(B)Boston

(C)Cleveland

(D) Des Moines

(E) Evansville

(F) Fort Lauderdale


Factory capacity

300

300

100

700

$5

$5

$4

$4

$3

$3

$9

$8

$7

From

100

100

200

300

Total Cost = $3(100) + $3(100) + $4(200) + $9(300)= $4,100

Figure C.4

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Intuitive Lowest-Cost Method

To (A)Albuquerque

(B)Boston

(C)Cleveland

(D) Des Moines

(E) Evansville

(F) Fort Lauderdale


Factory capacity

300

300

100

700

$5

$5

$4

$4

$3

$3

$9

$8

$7

From

100

100

200

300

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

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To (A)Albuquerque

(B)Boston

(C)Cleveland

(D) Des Moines

(E) Evansville

(F) Fort Lauderdale


Factory capacity

300

300

100

700

$5

$5

$4

$4

$3

$3

$9

$8

$7

From


100

100

100

200

200

Figure C.3

Means that the firm is shipping 100 bathtubs from Fort Lauderdale to Boston

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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

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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.

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To (A)Albuquerque

(B)Boston

(C)Cleveland

(D) Des Moines

(E) Evansville

(F) Fort Lauderdale


Factory capacity

300

300

100

700

$5

$5

$4

$4

$3

$3

$9

$8

$7

From

100

100

100

200

200

+-

-+

Figure C.5

Des Moines- Boston index

= $4 - $5 + $8 - $4

= +$3

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To (A)Albuquerque

(B)Boston

(C)Cleveland

(D) Des Moines

(E) Evansville

(F) Fort Lauderdale


Factory capacity

300

300

100

700

$5

$5

$4

$4

$3

$3

$9

$8

$7

From

100

100

100

200

200

Figure C.6

Start

+-

+

-+

-

Des Moines-Cleveland index

= $3 - $5 + $8 - $4 + $7 - $5 = +$4

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To (A)Albuquerque

(B)Boston

(C)Cleveland

(D) Des Moines

(E) Evansville

(F) Fort Lauderdale


Factory capacity

300

300

100

700

$5

$5

$4

$4

$3

$3

$9

$8

$7

From

100

100

100

200

200Evansville-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)

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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

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To (A)Albuquerque

(B)Boston

(C)Cleveland

(D) Des Moines

(E) Evansville

(F) Fort Lauderdale


Factory capacity

300

300

100

700

$5

$5

$4

$4

$3

$3

$9

$8

$7

From

100

100

100

200

200

Figure C.7

+

+-

-

1. Add 100 units on route FA2. Subtract 100 from routes FB3. Add 100 to route EB4. Subtract 100 from route EA

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To (A)Albuquerque

(B)Boston

(C)Cleveland

(D) Des Moines

(E) Evansville

(F) Fort Lauderdale


Factory capacity

300

300

100

700

$5

$5

$4

$4

$3

$3

$9

$8

$7

From

100

200

100

100

200

Figure C.8

Total Cost = $5(100) + $8(100) + $4(200) + $9(100) + $5(200)= $4,000

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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

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Chapter 9 : Layout StrategiesChapter 9 : Layout Strategies

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Outline

The Strategic Importance of Layout Decisions

Types of Layout

Office Layout

Retail Layout

Warehousing and Storage Layouts

Fixed-Position Layout

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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

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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

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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

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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

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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

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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)

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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

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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

Table 9.1

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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

Standard Aero

Repetitive/ Continuous (product oriented)

Equalize the task time at each workstation

Sony’s TV assembly line

Toyota Scion

Table 9.1

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Good Layouts Consider

Material handling equipment

Capacity and space requirements

Environment and aesthetics

Flows of information

Cost of moving between various work areas

8 - 1 Chapter 8: Location Strategies. 8 - 2 Outline The Strategic Importance of Location Factors...

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