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Facility Location

Facility Location. Operations Management Dr. Ron Lembke. Location Decisions. Long-term decisions Difficult to change Affect fixed & variable costs Transportation costs (25% of price) Other costs: taxes, wages, rent Affect revenues: customers know you where you are

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Facility Location

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  1. Facility Location Operations Management Dr. Ron Lembke

  2. Location Decisions • Long-term decisions • Difficult to change • Affect fixed & variable costs • Transportation costs (25% of price) • Other costs: taxes, wages, rent • Affect revenues: customers know you where you are • Objective: find best location for firm

  3. What factors should we consider? • Skilled workforce • Environmental laws / cost of compliance • Cost of utilities, labor, taxes • Freeport Law in NV – no inventory tax • Suppliers close by – fast & cheap access • Customers close by • Competitors close by? Skilled labor pool • International - control issues?

  4. Service Facilities – Traffic focus • Revenue changes a huge amount, depending on the location. • Old Navy in Stead because of cheap land? • Location, location, location: you need traffic • Make it convenient! • vitamins: need enough, but it has to be the right kind • people who would want to buy your products when they are there. • Cost probably doesn’t change nearly as much, by location • All malls have high rent

  5. Northtowne Center Wal-Mart Toys Party Office Max WinCo

  6. A Tale of Two Stores W K

  7. Kmart Access • “I-80 & McCarran” sounds great. • Kmart Sins: • Can’t see from anywhere • - see where we’re going • Very circuitous entry • feels inconvenient, no matter • how long it actually takes

  8. Wal-Mart Access

  9. Street Views

  10. Give Me Convenience

  11. Cost Focus • Revenue does not vary much, depending on the location. • Customers don’t care if your warehouse is in Sparks or Sacramento • Location is a major cost driver • Impacts shipping, labor, production costs • Varies greatly by location

  12. Cost Minimization Identify the costs that will vary most with the location you choose. • Transportation, taxes, labor, • Facility construction cost, utilities Other considerations • Proximity of services, suppliers • Quality of life • Government incentives

  13. Cost Focus Process Overview • Identify general region to locate in • Usually based on mostly on transp. costs • Identify a list of candidate cities • Choose cities with good transp. Access • Estimate labor cost & availability, facilities costs • Select metro area, identify candidate properties. • Find cost of building or leasing individual properties • Estimate costs of the facilities • How good will the service to our customers be?

  14. Biggest Freight Lanes

  15. Summary • Service/Retail– impact on revenues • Production/Distribution – impact on costs • High traffic is not enough • Must be the right kind, must be easy • Transportation lanes important consideration

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