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Unit-3

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Location Strategies

PowerPoint presentation to accompany Heizer and Render Operations Management, Eleventh EditionPrinciples of Operations Management, Ninth Edition

PowerPoint slides by Jeff Heyl

© 2014 Pearson Education, Inc.

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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

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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

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The Strategic Importance of Location

► Long-term decisions

► Once committed to a location, many resource and cost issues are difficult to change

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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

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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)

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Global Competitiveness Index of Countries

TABLE 8.1

Competitiveness of 142 Selected Countries

COUNTRY2011-2012 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

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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

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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

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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

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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

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Ranking CorruptionRank Country 2012 CPI Score (out of

100)

1 Demark, Finland, New Zealand 904 Sweden 885 Singapore 876 Switzerland 867 Australia, Norway 859 Canada, Netherlands 8413 Germany 7914 Hong Kong 7717 Japan, UK 7419 USA 7337 Taiwan 6139 Israel 6045 South Korea 5680 China 39123 Vietnam 31133 Russia 28

Least Corrupt

Most Corrupt

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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

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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

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Factor-Rating Method► 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 key 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. Make a recommendation based on the highest point score

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Layout Strategies

PowerPoint presentation to accompany Heizer and Render Operations Management, Eleventh EditionPrinciples of Operations Management, Ninth Edition

PowerPoint slides by Jeff Heyl

99

© 2014 Pearson Education, Inc.

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Outline► Global Company Profile:

McDonald’s

► The Strategic Importance of Layout Decisions

► Types of Layout► Office Layout► Retail Layout► Warehousing and Storage Layouts

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Outline - Continued

► Fixed-Position Layout► Process-Oriented Layout► Work Cells► Repetitive and Product-

Oriented Layout

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Learning ObjectivesWhen you complete this chapter you should be able to:

1. Discuss important issues in office layout

2. Define the objectives of retail layout

3. Discuss modern warehouse management and terms such as ASRS, cross-docking, and random stocking

4. Identify when fixed-position layouts are appropriate

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When you complete this chapter you should be able to:

Learning Objectives

5. Explain how to achieve a good process-oriented facility layout

6. Define work cell and the requirements of a work cell

7. Define product-oriented layout

8. Explain how to balance production flow in a repetitive or product-oriented facility

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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.

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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!

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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

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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 StrategiesTABLE 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 SupermarketWalgreen’sBloomingdale’s

Warehouse (storage)

Balance low-cost storage with low-cost material handling

Federal-Mogul’s warehouseThe Gap’s distribution center

Project (fixed position)

Move material to the limited storage areas around the site

Ingall Ship Building Corp.Trump PlazaPittsburgh Airport

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Layout StrategiesTABLE 9.1 Layout Strategies

OBJECTIVES EXAMPLES

Job Shop (process oriented)

Manage varied material flow for each product

Arnold Palmer HospitalHard Rock CafeOlive Garden

Work Cell (product families)

Identify a product family, build teams, cross train team members

Hallmark CardsWheeled Coach Ambulances

Repetitive/ Continuous (product oriented)

Equalize the task time at each workstation

Sony’s TV assembly lineToyota Scion

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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

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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

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Office Layout

► Three physical and social aspects► Proximity

► Privacy

► Permission

► Two major trends► Information technology

► Dynamic needs for space and services

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Supermarket Retail Layout

▶Objective is to maximize profitability per square foot of floor space

▶Sales and profitability vary directly with customer exposure

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Store Layout

Figure 9.2