topic 3 - plant location.ppt

8/10/2019 Topic 3 - Plant Location.ppt

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10/16/14 NY_KJP 585 2009 1

OperationsManagement

Topic 3: Plant LocationTopic 3: Plant Location



10/16/14 NY_KJP 585 2009 2

Outlines

Objective of Plant ocation

!acto"s #nfluencin$ ocation %ecision

&ec'ni(ues of ocation %ecision !acto" )atin$

*"ea+even ,nal-sis

.ent"e of "avit-



&'e c'oice of location $"eatl- affects *ot' t'e fie an va"iable costs

Ove"all "is+ an 3"ofitabilit- of t'e co3an-

ocation ecisions a"e ae "elativel- inf"e(uentl- *ut

'en ae7 it is usuall- because %ean 'as out$"on cu""ent 3lants ca3acit-

c'an$e "ates

.osts

ocal attitues

'ift in eo$"a3'ic an custoe" ean

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ocation %ecisions



; ocation ecision often e3en on t'e

t-3e of business

<!o" inust"ial location ecisions7 t'e st"ate$- is usuall-

inii=in$ costs

<!o" "etail an 3"ofessional se"vice o"$ani=ation7 t'e

st"ate$- focuses on aii=in$ "evenue<!o" a"e'ouse7 location st"ate$- a- be "iven b- a

cobination of cost an s3ee of elive"-

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ocation %ecisions



; 3anin$ eistin$ facilit- instea of

ovin$

;>aintainin$ cu""ent sites 'ile ain$anot'e" facilit- else'e"e

; .losin$ t'e eistin$ facilit- an ovin$ to

anot'e" location

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ocation O3tions



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Objective of Plant ocation

The objective is to maximize the benefitThe objective is to maximize the benefit

of location to the firmof location to the firm



!acto"s t'at influence 3lant location

ecisions abou" 3"ouctivit-

c'an$e "ates an cu""enc- "is+s .osts

,ttitues

P"oiit- to a"+ets

P"oiit- to su33lie"s

P"oiit- to co3etito"s ?cluste"in$@

&'e above facto"s a"e use to a+e count"-7

"e$ion/counit- an site ecisions A

!acto"s &'at #nfluenceocation %ecisions



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Labor productivity Labor productivity

age rates are not the only cost age rates are not the only cost

Lo!er productivity may increase total cost Lo!er productivity may increase total cost

Labor cost per day Labor cost per day Productivity "units per day#Productivity "units per day#

$ %ost per unit $ %ost per unit

%onnecticut %onnecticut

= $1.17= $1.17 per unit per unit $70$706060 unitsunits

&uarez &uarez

= $1.25= $1.25 per unit per unit $25$252020 unitsunits




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'xchange rates and currency ris(s'xchange rates and currency ris(s

%an have a significant impact on cost%an have a significant impact on cost

structurestructure

)ates change over time)ates change over time

%osts%osts

Tangible * easily measured costs such asTangible * easily measured costs such as

utilities+ labor+ materials+ taxesutilities+ labor+ materials+ taxes

,ntangible * less easy to -uantify and,ntangible * less easy to -uantify andinclude education+ public transportation+include education+ public transportation+community+ -uality*of*lifecommunity+ -uality*of*life




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.ttitudes: Political ris(+ values+ and .ttitudes: Political ris(+ values+ andcultureculture

/ational+ state+ local governments/ational+ state+ local governmentsattitudes to!ard private and intellectualattitudes to!ard private and intellectual property+ zoning+ pollution+ employment property+ zoning+ pollution+ employmentstability may be in flux stability may be in flux

or(er attitudes to!ards turnover+ unions+or(er attitudes to!ards turnover+ unions+

absenteeismabsenteeism

0lobally cultures have different attitudes0lobally cultures have different attitudesto!ards punctuality+ legal+ bribery andto!ards punctuality+ legal+ bribery andother ethical issues+etc1other ethical issues+etc1




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Proximity to mar(ets "locate near toProximity to mar(ets "locate near tocustomers#customers#

2ery important to services e1g1 restaurants+2ery important to services e1g1 restaurants+ post offices+ barbers+ etc1 post offices+ barbers+ etc1

&,T systems or high transportation costs&,T systems or high transportation costsmay ma(e it important to manufacturersmay ma(e it important to manufacturers

Proximity to suppliers "or near ra!Proximity to suppliers "or near ra!

materials#materials# Perishable goods+ high transportationPerishable goods+ high transportation

costs+ bul(y products "e1g1 coal+ iron ore#costs+ bul(y products "e1g1 coal+ iron ore#

a(eries+ dairy plants+ frozen seafooda(eries+ dairy plants+ frozen seafood

processor are usually close to suppliers processor are usually close to suppliersbecause of perishable ra! materials1because of perishable ra! materials1




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Proximity to competitorsProximity to competitors

%alled clustering %alled clustering

This tendency often occurs !hen majorThis tendency often occurs !hen majorresources are found in that region4siteresources are found in that region4site

Often driven by resources such as natural+Often driven by resources such as natural+information+ venture capital+ talent information+ venture capital+ talent

5ound in both manufacturing and service5ound in both manufacturing and serviceindustriesindustries




&ec'ni(ues of ocation %ecision

!acto"<)atin$ et'o

ocational *"ea+<ven ,nal-sis

.ente"<of<"avit- et'o

&'e t"ans3o"tation oel

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10/16/14 NY_KJP 585 2009 14

!acto"<)atin$ >et'o

Popular because a !ide variety of factors+Popular because a !ide variety of factors+from education to recreation to labourfrom education to recreation to labours(ills can be included in the analysiss(ills can be included in the analysis

%onsiders both -uantitative and%onsiders both -uantitative and-ualitative factors1-ualitative factors1

eightings are used to indicate theeightings are used to indicate theimportance of factors1importance of factors1



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!acto"<)atin$ >et'o

6ix steps in the method 6ix steps in the method

7171 8evelop a list of relevant factors called8evelop a list of relevant factors calledcritical success factorscritical success factors

9191 .ssign a !eight to each factor .ssign a !eight to each factor

3131 8evelop a scale for each factor 8evelop a scale for each factor

11 6core each location for each factor 6core each location for each factor

;1;1 Multiply score by !eights for each factor forMultiply score by !eights for each factor for

each locationeach location<1<1 )ecommend the location !ith the highest)ecommend the location !ith the highest

point score point score



; a3le 1 ?Bei=e" an )ene"@

; , c'ain of ten fail- o"iente t'ee 3a"+s 'as ecie to e3an ove"seasb- o3enin$ its fi"st 3a"+ in u"o3e &'e c"itical success facto"s ?.!@ t'at

t'e ana$eent 'as ecie as i3o"tant a"e labou" availabilit- an

attitue7 3eo3le<to<ca" "atio7 3e" ca3ita incoe7 ta st"uctu"e7 an eucation

an 'ealt' &'e ana$eent 'as a$"ee on t'e folloin$ ei$'ts fo" eac'

of t'e .!s an co""es3onin$ sco"es fo" eac' of t'e locations in u"o3e

; .'oose t'e best location to e3an to

10/16/14 NY_KJP 585 2009 16

!acto"<)atin$ >et'o

CSF WeightScores (per 100)

Labour availabilityand attitude.People-car ratioPer capita incomeTax structureEducation & health

0.250.050.100.!0.21

"050#5"5$0

$0$0#0"0"0

Total 1.00 - -



10/16/14 NY_KJP 585 2009 1A

!acto"<)atin$ a3le

%ritical %ritical 6cores6cores6uccess6uccess "out of 7==#"out of 7==# eighted 6coreseighted 6cores5actor 5actor eight eight 5rance5rance 8enmar( 8enmar( 5rance5rance 8enmar( 8enmar(

LaborLaboravailability availability

and attitude and attitude .25.25 7070 6060 (.25)(70) = 17.5(.25)(70) = 17.5 (.25)(60) = 15.0(.25)(60) = 15.0People*to* People*to* car ratiocar ratio .05.05 5050 6060 (.05)(50) = 2.5(.05)(50) = 2.5 (.05)(60) = 3.0(.05)(60) = 3.0

Per capitaPer capita incomeincome .10.10 8585 8080 (.10)(85) = 8.5(.10)(85) = 8.5 (.10)(80) = 8.0(.10)(80) = 8.0

Tax structureTax structure .39.39 7575 7070 (.39)(75) = 29.3(.39)(75) = 29.3 (.39)(70) = 27.3(.39)(70) = 27.3'ducation'ducation and healthand health .21.21 6060 7070 (.21)(60) = 12.6(.21)(60) = 12.6 (.21)(70) = 14.7(.21)(70) = 14.7

TotalsTotals 1.001.00 70.470.4 68.068.0

Table 8.4Table 8.4



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ocational

*"ea+<ven ,nal-sis Method of cost*volume analysis used forMethod of cost*volume analysis used for

industrial locationsindustrial locations

The use of cost*volume analysis to ma(eThe use of cost*volume analysis to ma(ean economic comparison of locationan economic comparison of locationalternativesalternatives

y identifying the fixed and variabley identifying the fixed and variable

costs and graphing them for eachcosts and graphing them for eachlocation+ !e can determine !hich onelocation+ !e can determine !hich one produces the lo!est cost1 produces the lo!est cost1



10/16/14 NY_KJP 585 2009 19

Three steps in the method Three steps in the method

7171 8etermine fixed and variable costs for8etermine fixed and variable costs foreach locationeach location

9191 Plot the costs for each location+ !ithPlot the costs for each location+ !ithcosts on the vertical axis and annualcosts on the vertical axis and annualvolume on the horizontal axis of the graphvolume on the horizontal axis of the graph

3131 6elect location !ith lo!est total cost for6elect location !ith lo!est total cost forexpected production volumeexpected production volume

ocational

*"ea+<ven ,nal-sis



; ,n autoobile ca"bu"eto" anufactu"e" is consie"in$ t'"ee

locations C ,7 *7 an . fo" a ne 3lant .ost stuies inicate t'at

fie costs 3e" -ea" at t'e sites a"e )>:070007 )>607000 an

)>1107000 "es3ectivel-D an t'e va"iable costs a"e )>A5 3e" unit7

)>45 3e" unit an )>25 3e" unit "es3ectivel- &'e e3ecte sellin$

3"ice of t'e ca"bu"eto"s 3"ouce is 120

a@ !in t'e ost econoical location an t'e e3ecte 3"ofit fo" an

e3ecte volue of 27000 units 3e" -ea"

b@ %ete"ine t'e ost econoical location fo" all 3ossible volues of

sales

10/16/14 NY_KJP 585 2009 20

ocational *"ea+<ven ,nal-sisa3le



10/16/14 21

ocational *"ea+<ven

,nal-sis a3lea# Three locations:a# Three locations:

. . 30,00030,000 7575 180,000180,000

60,00060,000 4545 150,000150,000

% % 110,000110,000 2525 160,000160,000

5ixed 5ixed 2ariable2ariable Total Total %ity %ity %ost")M#%ost")M# %ost")M#%ost")M# %ost")M#%ost")M#

Total %ost $ 5ixed %ost > "2ariable %ost x 2olume#Total %ost $ 5ixed %ost > "2ariable %ost x 2olume#

6elling price6elling price = RM120= RM120

'xpected volume'xpected volume = 2,000= 2,000 unitsunits



a) i@ &'e"efo"e fo" an e3ecte volue of 27000 units 3e" -ea"7

Location B s'oul be c'osen as it is t'e least costl-

ii@ !"ecte# "o%it = Total e&en'e Total cot.

,t t'is level of sales7

3ecte 3"ofit E ?120@?)>27000@ C )>1507000 E )>907000 3e" -ea"

; b) &o fin t'e ost econoical location fo" all 3ossible sales

volues7 3lot t'e above "esults on a $"a3' Fie t'e $"a3'

10/16/14 NY_KJP 585 2009 22


http://d/LECTURES/MEM575/MEM575_Zainuddin/4Location_BEchart.xls

http://d/LECTURES/MEM575/MEM575_Zainuddin/4Location_BEchart.xls



; !"o t'e $"a3'

&'e c"oss<ove" 3oint fo" location , G * is 'e"e

:07000 H A5 E 607000 H 45

EI :0 E :07000

EI E 17000 units

&'e c"oss<ove" 3oint fo" location * G . is 'e"e

607000 H 45 E 1107000 H 25

EI 20 E 507000

EI E 27500 units

; &'e"efo"e

'en *ale + 1,000 'nit7 location is ost econoical

'en 1,000 'nit + *ale + 2,500 'nit7 location B is ost econoical

,n 'en *ale - 2,500 'nit7 location is ost econoical

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10/16/14 24

ocational *"ea+<ven

,nal-sis a3le ?

7@=+===7@=+=== ? ?

7<=+===7<=+=== ?7;=+===7;=+=== ?

?73=+===73=+=== ?

?77=+===77=+=== ?

? ?

@=+===@=+=== ? ?

<=+===<=+=== ? ? ?

3=+===3=+=== ? ?

7=+===7=+=== ? ?

. n n u

a l c o s t " ) M #

. n n u

a l c o s t " ) M #

A A A A A A A

= = ;== ;== 7+=== 7+=== 7+;== 7+;== 9+=== 9+=== 9+;== 9+;== 3+=== 3+===

2olume2olume

. .lo!estlo!estcost cost

lo!est cost lo!est cost % lo!est% lo!estcost cost

% c o s t

c u r v e

% c o s t

c u r v e

. c o

s t

. c o

s t

c u r v e

c u r v e

3 c o

s t c u

r v e

3 c o

s t c u

r v e

/i'e 8.2/i'e 8.2



10/16/14 NY_KJP 585 2009 25

.ente"<of<"avit- >et'o

5inds location of distribution5inds location of distributioncenter that minimizes distributioncenter that minimizes distribution

costscosts

%onsiders%onsiders

Location of mar(etsLocation of mar(ets

2olume of goods shipped to those2olume of goods shipped to thosemar(etsmar(ets

6hipping cost "or distance#6hipping cost "or distance#



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Place existing locations on aPlace existing locations on acoordinate grid coordinate grid

0rid origin and scale is arbitrary0rid origin and scale is arbitraryMaintain relative distancesMaintain relative distances

%alculate B and C coordinates for%alculate B and C coordinates for

Dcenter of gravityE Dcenter of gravityE .ssumes cost is directly .ssumes cost is directly

proportional to distance and proportional to distance andvolume shipped volume shipped



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x * coordinate x * coordinate $$

d d ix ix F F

i i

F F i i

i i

i i

d d iy iy F F

i i

F F i i

i i

i i

y * coordinatey * coordinate $$

!here!here d d ix ix $$ x*coordinate of x*coordinate of

location i location i

d d iy iy $$ y*coordinate ofy*coordinate of

location i location i $$



10/16/14 NY_KJP 585 2009 28


/orth*6outh/orth*6outh

'ast*est 'ast*est

79=79= ?

G=G= ?

<=<= ?

3=3= ?

?

A A A A A A

3= 3= <= <= G= G= 79= 79= 7;= 7;=

.rbitrary .rbitraryoriginorigin

%hicago%hicago (30, 120)(30, 120)/e! Cor(/e! Cor( (130, 130)(130, 130)

PittsburghPittsburgh (90, 110)(90, 110)

.tlanta .tlanta (60, 40)(60, 40)

/i'e 8.3/i'e 8.3

%enter of gravity%enter of gravity (66.7, 93.3)(66.7, 93.3)>



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/umber of %ontainers/umber of %ontainers6tore Location6tore Location 6hipped per Month6hipped per Month

%hicago%hicago (30, 120)(30, 120) 2,0002,000

PittsburghPittsburgh (90, 110)(90, 110) 1,0001,000

/e! Cor(/e! Cor( (130, 130)(130, 130) 1,0001,000 .tlanta .tlanta (60, 40)(60, 40) 2,0002,000

x*coordinate x*coordinate $$(30)(2000) (90)(1000) (130)(1000) (60)(2000)(30)(2000) (90)(1000) (130)(1000) (60)(2000)

2000 1000 1000 20002000 1000 1000 2000

$$ 66.766.7

y*coordinatey*coordinate $$(120)(2000) (110)(1000) (130)(1000) (40)(2000)(120)(2000) (110)(1000) (130)(1000) (40)(2000)

2000 1000 1000 20002000 1000 1000 2000

$$ 93.393.3



10/16/14 NY_KJP 585 2009 :0


/orth*6outh/orth*6outh

'ast*est 'ast*est

79=79= ?

G=G= ?

<=<= ?

3=3= ?

?

A A A A A A

3= 3= <= <= G= G= 79= 79= 7;= 7;=

.rbitrary .rbitraryoriginorigin

%hicago%hicago (30, 120)(30, 120)/e! Cor(/e! Cor( (130, 130)(130, 130)

PittsburghPittsburgh (90, 110)(90, 110)

.tlanta .tlanta (60, 40)(60, 40)

%enter of gravity%enter of gravity (66.7, 93.3)(66.7, 93.3)>

/i'e 8.3/i'e 8.3



10/16/14 NY_KJP 585 2009 :1

ocation t"ate$ies

6ervice4)etail4Professional Location6ervice4)etail4Professional Location 0oods*Producing Location 0oods*Producing Location )evenue 5ocus)evenue 5ocus %ost 5ocus%ost 5ocus

2olume4revenue2olume4revenue

8ra!ing areaH purchasing po!er 8ra!ing areaH purchasing po!er

%ompetitionH advertising4pricing %ompetitionH advertising4pricing

Physical -uality Physical -uality

Par(ing4accessH security4lightingHPar(ing4accessH security4lightingHappearance4imageappearance4image

%ost determinants%ost determinants

)ent )ent

Management caliber Management caliber

Operations policies "hours+ !ageOperations policies "hours+ !agerates#rates#

Tangible costsTangible costs

Transportation cost of ra!Transportation cost of ra!material material

6hipment cost of finished goods6hipment cost of finished goods

'nergy and utility costH laborH ra!'nergy and utility costH laborH ra!materialH taxes+ and so onmaterialH taxes+ and so on

,ntangible and future costs,ntangible and future costs

.ttitude to!ard union .ttitude to!ard union

Fuality of lifeFuality of life

'ducation expenditures by state'ducation expenditures by state

Fuality of state and localFuality of state and localgovernment government

Table 8.6Table 8.6



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ocation t"ate$ies

6ervice4)etail4Professional Location6ervice4)etail4Professional Location 0oods*Producing Location0oods*Producing Location

Techni-uesTechni-ues Techni-uesTechni-ues

)egression models to determine)egression models to determine

importance of various factorsimportance of various factors5actor*rating method 5actor*rating method

Traffic countsTraffic counts

8emographic analysis of dra!ing8emographic analysis of dra!ingareaarea

Purchasing po!er analysis of areaPurchasing po!er analysis of area

%enter*of*gravity method %enter*of*gravity method

0eographic information systems0eographic information systems

Transportation method Transportation method

5actor*rating method 5actor*rating method Locational brea(*even analysisLocational brea(*even analysis

%rossover charts%rossover charts

Table 8.6Table 8.6



10/16/14 NY_KJP 585 2009 ::

ocation t"ate$ies

6ervice4)etail4Professional Location6ervice4)etail4Professional Location 0oods*Producing Location0oods*Producing Location

.ssumptions .ssumptions .ssumptions .ssumptions

Location is a major determinant ofLocation is a major determinant of

revenuerevenueIigh customer*contact issues areIigh customer*contact issues arecritical critical

%osts are relatively constant for a%osts are relatively constant for agiven areaH therefore+ the revenuegiven areaH therefore+ the revenuefunction is critical function is critical

Location is a major determinant ofLocation is a major determinant of

cost cost Most major costs can be identifiedMost major costs can be identifiedexplicitly for each siteexplicitly for each site

Lo! customer contact allo!s focusLo! customer contact allo!s focuson the identifiable costson the identifiable costs

,ntangible costs can be evaluated ,ntangible costs can be evaluated

Table 8.6Table 8.6



10/16/14 NY_KJP 585 2009 :4

eo$"a3'ic #nfo"ation

-stes ?#@ ,mportant tool to help in location analysis,mportant tool to help in location analysis

'nables more complex demographic'nables more complex demographic

analysisanalysis .vailable data bases include .vailable data bases include

8etailed census data8etailed census data

8etailed maps8etailed maps

JtilitiesJtilities

0eographic features0eographic features

Locations of major servicesLocations of major services



10/16/14 NY KJP 585 2009 :5

eo$"a3'ic #nfo"ation

-stes ?#@

topic 3 - plant location.ppt

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