Unit 2

Management of Conversion System

Chapter 6: Facility location

Lesson 20 : Tutorial 5 Good Morning students, today we are going to have a tutorial session for the

previous lesson. The overall objective is to appreciate how the theoretical concepts

are translated and applied into practical business situations. We would start with a

few problems to review our conceptual understanding and wind up the session with

a well designed case study.

I hope the session results into value addition for all of us.

Let’s put our thinking caps and start now.

1. Which of the following methods best considers intangible costs related to a

location decision? (a) weighted method (b) locational break-even analysis (c) transportation method (d) assignment method (e) none of the above

2. What is the major difference in focus between location decisions in the service

sector and in the manufacturing sector? (a) there is no difference in focus (b) the focus in manufacturing is revenue maximization, while the focus in

service is cost minimization (c) the focus in service is revenue maximization, while the focus in

manufacturing is cost minimization (d) the focus in manufacturing is on raw materials, while the focus in service

is on labour

3. Service / retail / professional locational analysis typically has a: (a) cost focus (b) revenue focus (c) labour focus (d) environmental focus

4. The factors involved in location decisions include (a) foreign exchange (b) attitudes (c) labour productivity (d) all of the above (e) none of the above

5. Industrial locational analysis typically has a

(a) cost focus (b) revenue focus (c) labour focus (d) environmental focus

6. Hotel chain find regression analysis useful in site location

(a) True (b) False

7. The telemarketing industry seeks locations that have

(a) good electronic movement of data (b) low cost labour (c) adequate availability of labour (d) all of the above

8. Factors affecting location decisions include

(a) proximity to markets, proximity to suppliers, proximity to athletic facilities

(b) site costs, transpotation availability, labour availability (c) average age of labour force, labour costs, number of females in college (d) utility costs, zoning, altitude of city (e) all of the above

9. Break into teams. Select two organizations, one in services and one in

manufacturing, that are known to some of your team members. What are the key factors that each organization would consider in locating a new facility? What data would you want to collect before evaluating the location options, and how would you collect it? Would additional factors or data be needed if some of the location options were in another country? Explain.

10. Bindley Corporation has a one-year contract to supply motors for all washing

machines produced by Rinso Ltd. Rinso manufactures the washers at four locations around the country: New York, Fort Worth, San Diego, and Minneapolis. Plans call for the following numbers of washing machines to be produced at each location:

New York 50,000 Fort Worth 70,000

San Diego 60,000 Minneapolis 80,000

Bindley has three plants that can produce the motors. The plants and production capacities are Boulder 100,000 Macon 100,000 Gary 150,000 Due to varying production and transportation costs, the profit Bindley earns on each 1,000 units depends on where they were produced and where they were shipped. The following table gives the accounting department estimates of the rupee profit per unit. (Shipment will be made in lots of 1000) Produced at New York Fort Worth San Diego Minneapolis Boulder Macon Gary

7 20 8

11 17 18

8 12 13

13 10 16

Given profit maximization as a criterion, Bindley would like to determine how many motors should be produced at each plant and how many motors should be shipped from each plant to each destination.

(a) Develop a transportation table for this problem (b) Find the optimal solution.

11. Case: Manufacturing Site Selection in China A Fortune 500 auto parts producer sought to place its first wholly-owned factory in China. Where to put the factory in such a vast country? There were numerous options, based on where the major centers of car production were in China. The South of China, in the Guangdong region, represents about 2% of China’s car manufacturing power. Chongqing, in the mountainous central portion of the country, has about 5% of the

automobile market. The North of China, around Beijing and Tianjin, represents about a third of China’s automobile manufacturing capability. Meanwhile, the central east coast of China represents the lion’s share of activity in China’s burgeoning car market. Within a 200 km radius of Shanghai is more than half the total manufacturing activity in China’s automobile industry.

Companies like Shanghai VW, Shanghai GM, Fiat, Geely, and SAIC provide the engine of growth for the fast-paced car market in China. Silk Road Communications (SRC) consultants decided that since this was the company’s first and primary investment in China, it would be best to seed it in the heart of the Chinese market – the Yangtze Delta region. Silk Road Communications focused the site survey on two provinces: Jiangsu Province and Zhejiang province. The provinces are like butterfly wings to Shanghai: Jiangsu Province to the north; Zhejiang Province to the south. The Silk Road team considered including Anhui Province in the search for a time, but then felt the economic development level and infrastructure conditions would not be able to support a relatively large ($10 million) investment of a progressive technology company. Further, Silk Road felt the client’s first investment would have enough of a learning curve without challenges being compounded by a “Wild West” environment. Silk Road worked closely with executives of the client company to tailor a survey to the company’s specific requirements both in America and according to the strategy it had laid out for itself in China. SRC staff then translated the 20-question survey into Chinese language. Silk Road consultants contacted the government officials of more than thirty Economic Development Zones (EDZs) in Jand Zhejiang and asked them to complete the survey. The survey waprofile of the Zone that would give thTeam some idea of whether the Zone merited a visit. All but one of the zones completethe survey and returned it to SRC.

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SRC ranked the surveys by the viability of the EDZ each survey presented. SRC Chinese staff in America and in China then coordinated a schedule with twenty-two of the EDZs for visits by SRC staff (see Figure 3). Armed with the completed surveys, a video camera and a notebook, SRC researchers visited the twenty-two EDZs in eleven consecutive business days. The SRC survey team interviewed scores of government officials in the EDZs and the local city governments, walked the land proposed for its client’s investment, and met company representatives that had already invested in the EDZ. SRC collected literature and Powerpoint presentations and videos each of the EDZs offered SRC staff to educate the staff about the EDZ.

SRC team members in Beijing and in Chicago assembled the team’s findings to present its “top picks” to Client eThe Team developed a weighted ranking of theEDZs, using an expanded list of 30 criteria it developed refined whvisiting the EDZs.

xecutives.

ile

ient executives icks

Clconfirmed the top pand asked SRC to arrangea trip that would involve their seeing the top eight

EDZs with their own eyes. Within four months of originally commissioning SRC to identify potential sites for their investment, the Client had settled on three EDZs in which it was willing to invest. Within six months of initiating the search it signed an agreement with one of the EDZs to launch its investment in the location. Dear students, with this I would like to conclude the today’s tutorial. I hope it has

been a great learning process for all of you and that this exercise has resulted in

immense value addition.

O.K. Then. See you all in the next lecture.

Take care.

Bye.