Locations

Location
Chapter 10
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition 2004 Prentice Hall, Inc. All rights reserved.
Reasons for Globalization

Improved transportation and communication technologies Loosened regulations on financial institutions Increased demand for imported services and goods Reduced import quotas and other international trade barriers
Managing Global Operations

Other Languages Different Norms and Customs Workforce Management Unfamiliar Laws and Regulations Unexpected Cost Mix
Location Decisions Manufacturing

Favorable Labor Climate Proximity to Markets Quality of Life Proximity to Suppliers Proximity to Parent Company Utilities, Taxes, and Real Estate Costs
Location Decisions Services

Proximity to Customers Transportation Costs and Proximity to Markets Location of Competitors Site-Specific Factors
Location
Erie North
Health-Watch
Scranton State College Pittsburgh
Uniontown
Harrisburg Philadelphia
Example 10.1
Location
Erie North
Health-Watch
Location Factor
Scranton Weight Score
Total patient miles per month 25 4 State College Facility utilization 20 3 Pittsburgh Average time per emergency trip 20 3 Harrisburg Expressway accessibility 15 4 Philadelphia Land andUniontown construction costs 10 1 Employee preference 10 5
Example 10.1
Location
Erie North
Health-Watch
Weighted Score Location Factor
Total patient miles per month 25 4 State College Facility utilization 20 3 Pittsburgh Average time per emergency trip 20 3 Harrisburg Expressway accessibility 15 4 Philadelphia Land andUniontown construction costs 10 1 Employee preference 10 5
Example 10.1
Location
Erie North
Health-Watch
WS = (25 x miles per month Total patient 4) 25 4 State College Facility utilization 20 3 Pittsburgh Average time per emergency trip 20 3 Harrisburg Expressway accessibility 15 4 Philadelphia Land andUniontown construction costs 10 1 Employee preference 10 5
Example 10.1
Location
Erie North
Health-Watch
WS = (25 x miles per month Total patient 4) + (20 x 3) 25 4 State College Facility utilization 20 3 Pittsburgh Average time per emergency trip 20 3 Harrisburg Expressway accessibility 15 4 Philadelphia Land andUniontown construction costs 10 1 Employee preference 10 5
Example 10.1
Location
Erie North
Health-Watch
WS = (25 x miles per month Total patient 4) + (20 x 3) + 25 4 State College Facility (20 x 3) utilization 20 3 Pittsburgh Average time per emergency trip 20 3 Harrisburg Expressway accessibility 15 4 Philadelphia Land andUniontown construction costs 10 1 Employee preference 10 5
Example 10.1
Location
Erie North
Health-Watch
WS = (25 x miles per month Total patient 4) + (20 x 3) + 25 4 Facility (20 x 3) + (15 x 4) + State College utilization 20 3 Pittsburgh (10 x per emergency trip Average time1) + (10 x 5) 20 3 Harrisburg Expressway accessibility 15 4 Philadelphia Land andUniontown construction costs 10 1 Employee preference 10 5
Example 10.1
Location
Erie North
Health-Watch
WS = 340 Total patient miles per month 25 4 State College Facility utilization 20 3 Pittsburgh Average time per emergency trip 20 3 Harrisburg Expressway accessibility 15 4 Philadelphia Land andUniontown construction costs 10 1 Employee preference 10 5
Example 10.1
Location
Center of Gravity Approach
Census Population Tract (x, y) (l) lx A (2.5, 4.5) 2 5 B (2.5, 2.5) 5 12.5 C (5.5, 4.5) 10 55 D (5, 2) 7 35 E (8, 5) 10 80 F (7, 2) 20 140 G (9, 2.5) 14 126 Totals 68 453.5 ly 9 x* = 12.5 45 14 50 y* = 40 35 205.5
Example 10.2
Location
453.5 68
205.5 68
Example 10.2
Location
453.5 68
205.5 68
Example 10.2
Location
Census Population Tract (x, y) (l) lx A (2.5, 4.5) 2 5 B (2.5, 2.5) 5 12.5 C (5.5, 4.5) 10 55 D (5, 2) 7 35 E (8, 5) 10 80 F (7, 2) 20 140 G (9, 2.5) 14 126 Totals 68 453.5 ly 9 x* = 6.67 12.5 45 14 50 y* = 3.02 40 35 205.5
Example 10.2
Location
Figure 10.1
Location
Break-Even Analysis
Location
Break-Even Analysis
Fixed Costs per Year $150,000 $300,000 $500,000 $600,000 Variable Costs Total Costs per Unit (Fixed + Variable) $62 $38 $24 $30 Community A B C D
Example 10.3
Location
Break-Even Analysis
for 20,000 units
Community A B C D Fixed Costs per Year $150,000 $300,000 $500,000 $600,000 Variable Costs Total Costs per Unit (Fixed + Variable) $62 $38 $24 $30
Total Variable Costs
Example 10.3
Location
Break-Even Analysis
for 20,000 units
Total Variable Costs $62 (20,000)

Example 10.3
Location
Break-Even Analysis
for 20,000 units
Total Variable Costs $62 (20,000) = $1,240,000

Example 10.3
Location
Break-Even Analysis
for 20,000 units
Community A B C D Fixed Costs per Year $150,000 $300,000 $500,000 $600,000 Variable Costs Total Costs per Unit (Fixed + Variable) $62 $38 $24 $30 $1,390,000

Example 10.3
Location
Break-Even Analysis
for 20,000 units
Community A B C D Fixed Costs per Year $150,000 $300,000 $500,000 $600,000 Variable Costs Total Costs per Unit (Fixed + Variable) $62 $38 $24 $30 $1,390,000

Example 10.3
Location
Break-Even Analysis
for 20,000 units
Community A B C D Fixed Costs per Year $150,000 $300,000 $500,000 $600,000 Variable Costs Total Costs per Unit (Fixed + Variable) $62 $38 $24 $30 $1,390,000 $1,060,000 $ 980,000 $1,200,000
Example 10.3
Community A B C 1600 D
Fixed Costs per Year $150,000 $300,000 $500,000 $600,000
Total Costs (Fixed + Variable) $1,390,000 $1,060,000 $ 980,000 $1,200,000
Location
Break-Even Analysis
Annual cost (thousands of dollars)
1400
1200 1000
800 600 400 200
0
Example 10.3
10 12 14
16 18 20 22
Q (thousands of units)
Location
A (20, 1390) (20, 1200)
Break-Even Analysis
D B C
(20, 980)
1400
1200 1000
800 600 400 200
(20, 1060)
0
Example 10.3
10 12 14
16 18 20 22
Location
A (20, 1390) (20, 1200)
Break-Even Analysis
D B C
(20, 980)
1400
1200 1000
800 600 400 200 A best
(20, 1060)
Break-even point
0
Example 10.3
10 12 14
16 18 20 22
Location
A (20, 1390) (20, 1200)
Break-Even Analysis
D B C
(20, 980)
1400
1200 1000
800 600 400 200 A best
(20, 1060)
Break-even point Break-even point
B best 6 8 6.25 10 12 14 16 18 20 22 14.3
0
Example 10.3
Location
A (20, 1390) (20, 1200)
Break-Even Analysis
D B C
(20, 980)
1400
1200 1000
800 600 400 200 A best
(20, 1060)
Break-even point Break-even point
B best 6 8 6.25
C best
0
Example 10.3
10 12 14 16 18 20 22 14.3
Location
Break-Even Analysis
1600 1400 (20, 1390) (20, 1200) (20, 1060) (20, 980) 800 600 400 200 A best Break-even point Break-even point
1200 1000
D B C
B best 6 8 6.25
C best
0
Figure 10.2
10 12 14 16 18 20 22 14.3
Location
Break-Even Analysis
1600 1400 (20, 1390)
1200 1000
800 600 400 200
Break-Even Quantities
(20, 1060)
(20, 1200)
D B C
(A)
(B) 980) (20,
$150,000 + $62Q Break-even point $38Q = $300,000 + Q = 6,250 units

Break-even (B) point
(C)
0
Example 10.3
$300,000 + $38Q = $500,000 + $24Q A best B best C best Q = 14,286 units

2 4 6 8 6.25 10 12 14 16 18 20 22 14.3
Location
Transportation Method Setting up the Initial Tableau
Create a row for each plant and a column for each warehouse
Plant 1 Phoenix Warehouse 2 3
Atlanta
Location
Add a column for plant capacities and a row for warehouse demand
Plant 1 Phoenix Warehouse 2 3 400 Capacity
Atlanta Requirements 200 400 300
500 900 900
Location
Insert costs into the shipping route option cells
Plant 1 Phoenix
$5.00
Warehouse 2
$6.00
Capacity 3
$5.40
400
Atlanta Requirements
$7.00
$4.60
$6.60
500 900 900
200
400
300
Figure 10.3
Location
Transportation Method Interpreting the Optimal Solution
Figure 10.4
Mile-High Beer Solved Problem 2

Location cost (in millions of dollars)
10
8
6
4
Golden Break-even point Fort Collins Boulder 3 4 5
Breakeven point
2
Denver 6 0 1 2 2.67
Barrels of beer per year (in hundred thousands)
Figure 10.5
Arid Company Solved Problem 4

Source
Worchester
Destination
Rochester
Dorchester
Capacity $4.89
Battle Creek
$4.37
$4.25 12,000
12,000
Cherry Creek
$4.00 6,000
$5.00 4,000 $4.50 6,000
$5.27
10,000
Dee Creek
$4.13
$3.75 12,000 12,000
18,000
Demand
Figure 10.6
6,000
22,000
40,000

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Location

Reasons for Globalization

Managing Global Operations

Location Decisions Manufacturing

Location Decisions Services

Scranton State College Pittsburgh

Scranton Weight Score

Weighted Score Location Factor

Scranton Weight Score

Weighted Score Location Factor

Scranton Weight Score

Weighted Score Location Factor

Scranton Weight Score

Weighted Score Location Factor

Scranton Weight Score

Weighted Score Location Factor

Scranton Weight Score

Weighted Score Location Factor

Scranton Weight Score

Total Variable Costs

Total Variable Costs $62 (20,000)

Total Variable Costs $62 (20,000) = $1,240,000

Total Variable Costs $62 (20,000) = $1,240,000

Total Variable Costs $62 (20,000) = $1,240,000

Fixed Costs per Year $150,000 $300,000 $500,000 $600,000

Total Costs (Fixed + Variable) $1,390,000 $1,060,000 $ 980,000 $1,200,000

Annual cost (thousands of dollars)

Fixed Costs per Year $150,000 $300,000 $500,000 $600,000

Total Costs (Fixed + Variable) $1,390,000 $1,060,000 $ 980,000 $1,200,000

Annual cost (thousands of dollars)

Fixed Costs per Year $150,000 $300,000 $500,000 $600,000

Total Costs (Fixed + Variable) $1,390,000 $1,060,000 $ 980,000 $1,200,000

Annual cost (thousands of dollars)

Fixed Costs per Year $150,000 $300,000 $500,000 $600,000

Total Costs (Fixed + Variable) $1,390,000 $1,060,000 $ 980,000 $1,200,000

Annual cost (thousands of dollars)

Break-even point Break-even point

B best 6 8 6.25 10 12 14 16 18 20 22 14.3

Fixed Costs per Year $150,000 $300,000 $500,000 $600,000

Total Costs (Fixed + Variable) $1,390,000 $1,060,000 $ 980,000 $1,200,000

Annual cost (thousands of dollars)

Break-even point Break-even point

1600 1400 (20, 1390)

(B) 980) (20,

$150,000 + $62Q Break-even point $38Q = $300,000 + Q = 6,250 units

$300,000 + $38Q = $500,000 + $24Q A best B best C best Q = 14,286 units

Atlanta Requirements 200 400 300

500 900 900

500 900 900

Mile-High Beer Solved Problem 2

Golden Break-even point Fort Collins Boulder 3 4 5

Arid Company Solved Problem 4

$5.00 4,000 $4.50 6,000

$3.75 12,000 12,000

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