Operations Management Location Strategies Chapter 8

1. Operations ManagementLocation StrategiesChapter 8

2. Learning Objectives When you complete this chapter, you should be able to : Identify or Define: • Objective of location strategy • International location issues • Clustering • Geographic Information Systems Describe or explain: • Three methods of solving the location problem • Factor-rating method • Locational breakeven analysis • Center -of-gravity method • Describe the factors affecting location decisions

3. Federal Express • Stresses “hub” concept • Advantages: • 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

4. Objective of Location Strategy Maximize the benefit of location to the firm

5. Industrial Location Decisions • Cost focus • Revenue varies little between locations • Location is a major cost factor • Affects shipping & production costs (e.g., labor) • Costs vary greatly between locations © 1995 Corel Corp.

6. Service Location Decisions • Revenue focus • Costs vary little between market areas • Location is a major revenue factor • Affects amount of customer contact • Affects volume ofbusiness

7. In General - Location Decisions • Long-term decisions • Difficult to reverse • Affect fixed & variable costs • Transportation cost • As much as 25% of product price • Other costs: Taxes, wages, rent etc. Objective: Maximize benefit of location to firm = Cost or Revenue = $’s! for either Manufacturing or service.

8. Region/Community Country Site © 1995 Corel Corp. © 1995 Corel Corp. © 1995 Corel Corp. Location Decision Sequence

9. Factors That Affect Location Decisions

10. Factors Affecting Country • Government rules, attitudes, political risk, incentives • Culture & economy • Market location • Labor availability, attitudes, productivity, and cost • Availability of supplies, communications, energy • Exchange rates and currency risks

11. Corporate desires Attractiveness of region (culture, taxes, climate, etc.) Labor, availability, costs, attitudes towards unions Costs and availability of utilities Environmental regulations of state and town Government incentives Proximity to raw materials & customers Land/construction costs © 1995 Corel Corp. Region Location Decisions

12. Site size and cost Air, rail, highway, and waterway systems Zoning restrictions Nearness of services/supplies needed Environmental impact issues Factors Affecting Site © 1995 Corel Corp.

13. © 1995 Corel Corp. Location Decision Example BMW decided to build its first major manufacturing plant outside Germany in Spartanburg, South Carolina.

14. Market location U.S. is world’s largest luxury car market Growing (baby boomers) Labor Lower manufacturing labor costs $17/hr. (U.S.) vs. $27 (Germany) Higher labor productivity 11 holidays (U.S.) vs. 31 (Germany) Country Decision Factors • Other • Lower shipping cost ($2,500/car less) • New plant & equipment would increase productivity (lower cost/car $2,000-3000) • Laws of U.S.A.

15. Transportation Model • Finds amount to be shipped from severalsources to several destinations • Used primarily for industrial locations • Type of linear programming model • Objective: Minimize total production & shipping costs • Constraints • Production capacity at source (factory) • Demand requirement at destination

16. Components of Volume and Revenue for a Service Firm 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 competitor’s locations 6. Physical qualities of facilities and neighboring businesses 7. Operating policies of the firm 8. Quality of management

17. Service/Retail/ProfessionalRevenue Focus Volume/revenue Drawing area, purchasing power Competition; advertising/pricing Physical quality Parking/access; security/ lighting; appearance/image Cost determinants Rent Management caliber Operations policies (hours, wage rates) Goods-Producing Location Cost Focus Tangible costs Transportation cost of raw materials Shipment cost of finished goods Energy and utility cost; labor; raw material; taxes, etc. Intangible and future costs Attitude toward union Quality of life Education expenditures by state Quality of state and local government Location Strategies – Service vs. Industrial

18. Major Methods of Solving Location Problems • Weighted methods which: • Assign weights and points to various factors • Determine tangible costs • Investigate intangible costs • Center of Gravity Method • Find best distribution center location • Location breakeven methods • Special case of breakeven analysis • Transportation method • A specialized linear programming method

19. Telemarketing and Internet Industries • Require neither face-to-face contact with customers (or employees) nor movement of material • Presents a whole new perspective on the location problem

20. Geographic Information Systems • New tool to help in location analysis • Enables combination of many parameters

21. Final Thought The ideal location for many companies in the future will be a floating factory ship that will go from port to port, from country to country – wherever cost per unit is lowest.

22. Operations ManagementLayout StrategyChapter 9

23. Learning Objectives When you complete this chapter, you should be able to : Identify or Define: • Fixed-position layout • Process-oriented layout • Work cells • Focused work center • Office layout • Retail layout • Warehouse layout • Product-oriented layout • Assembly-line factory

24. Learning Objectives When you complete this chapter, you should be able to : Describe or explain: • How to achieve a good layout for the process facility • How to balance production flow in a repetitive or product-oriented facility

25. McDonald’s - New Kitchen Layout • No food prepared ahead except patty • Elimination of some steps, shortening of others • New bun toasting machine (11 seconds vs 30 seconds) • Repositioning condiment containers (one motion, not two) • Sandwiches assembled in order • Production levels controlled by computer • Discard only meat when sandwiches do not sell fast enough • Savings of $100,000,000 per year in food costs

26. Innovation at McDonald’s • Indoor seating (1950’s) • Drive-through window (1970s) • Adding breakfast to the menu (1980s) • Adding play areas (1990s) (three out of the four are layout decisions)

27. Objectives of the Layout Strategy • Develop an economical layout which will meet the requirements of: • product design and volume (product strategy) • process equipment and capacity (process strategy) • quality of work life (human resource strategy) • building and site constraints (location strategy)

28. Types of Layouts • Fixed-position layout – Product does not move • Process-oriented layout – Product low volume specialized • Office layout –People Information Layout • Retail layout – Customer preference and access Layout • Warehouse layout – Material handling & space • Product-oriented layout – Product Layout is for max efficiency high volume

29. What is Facility Layout ? • Location or arrangement of everything within & around buildings • Objectives are to maximize • Customer satisfaction • Utilization of space, equipment, & people • Efficient flow of information, material, & people • Employee morale & safety

30. Strategic Importance of Layout Proper layout enables: • 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

31. Project Job Shop Office Retail Warehouse Repetitive /Continuous (fixed-position) (Process- (storage) oriented) (product- oriented) Examples Allstate Insurance Microsoft Kroger’s Supermarket Walgreens Bloomingdales Federal-Mogul’s Warehouse The Gap’s distribution center Sony’s TV Assembly Line Dodge Caravans Minivans Shouldice Hospital Olive Garden Ingal Ship Building Corp. Trump Plaza Pittsburgh Airport Related Issues to solve Move material to the limited storage areas around the site Manage varied material flow for each product Locate workers requiring frequent contact close to each other Expose customer to high-margin items Balance low-cost storage with low-cost material handling Equalize the task time at each workstation Layout Strategies

32. Requirements of a Good Layout • an understanding of capacity and space requirements • selection of appropriate material handling equipment • decisions regarding environment and aesthetics • identification and understanding of the requirements for information flow • identification of the cost of moving between the various work areas

33. Constraints on Layout Objectives • Product design & volume • Process equipment & capacity • Quality of work life • Building and site

34. Areas of Concern in Layout Strategy Communication Service Areas Material Attributes Layout Strategy Warehousing Work Cell Safety Material Flow

35. Operations ManagementHuman Resources and Job DesignChapter 10

36. Learning Objectives When you complete this chapter, you should be able to : Identify or Define: • Job design • Job specialization • Job expansion • Tools of methods analysis • Ergonomics • Labor standards • Andon

37. Learning Objectives - Continued When you complete this chapter, you should be able to : Describe or explain: • Requirements of good job design • The visual workplace

38. Southwest Airlines • Profitable for 26 years while United, Northwest, and U.S. Air lost billions. • Strategy: Human resources • Culture of caring for people in the totality of their lives, not just at work. • Spends more to recruit and train than any other airline

39. Southwest Airlines • Empowered employees • Wages higher than industry average • Stock options for some employees • Employees treated like customers • Everybody understands what everybody else’s problems are • No gimmicks!

40. Job Design Labor Standards People and Work System Aspects

41. Productivity in Relation to Annual Turnover Rate

42. Job Design • Specifying the tasks that make up a job for an individual or group • Involves determining • What is to be done (i.e., responses) • How it is to be done (i.e., tools etc.) • Why it is to be done (i.e., purpose) • Results in job description • Shows nature of job in task-related behaviors

43. Components of Job Design • Job specialization • Job expansion – enrichment-enlargement • Psychological components • Self-directed teams • Motivation and incentive systems • Ergonomics and work methods • Praise?

44. Job Expansion • Process of adding more variety to jobs • Intended to reduce boredom associated with labor specialization • Methods • Job enlargement • Job enrichment • Job rotation • Employee empowerment

45. Pediatrics Maternity © 1995 Corel Corp. © 1995 Corel Corp. Geriatrics © 1995 Corel Corp. Job Rotation

46. Decision-Making Control Planning Employee Empowerment Employee Empowerment

47. Psychological Components of Job Design • Individuals have values, attitudes, and emotions that affect job results • Example: Work is a social experience that affects belonging needs • Effective worker behavior comes mostly from within the individual • Scientific management argued for external financial rewards • First examined in ‘Hawthorne studies’

48. Self-Directed Teams • Group of empowered individuals working together for a common goal • May be organized for short-term or long-term objectives • Reasons for effectiveness • Provide employee empowerment • Provide core job characteristics • Meet psychological needs (e.g., belonging)

49. Motivation • Worker performance depends on • Motivation • Ability • Work environment • Motivation is the set of forces that compel behavior • Money may serve as a psychological & financial motivator

50. Motivation and Money • Taylor’s scientific management (1911) • Workers are motivated mainly by money • Suggested piece-rate system • Maslow’s theory (1943) • People are motivated by hierarchy of needs, which includes money • Herzberg (1959) • Money either dissatisfies or is neutral in its effect