Location Strategy and Layout Strategy

1. Location Strategy and Layout Strategy 19 July 2001

2. Introduction • What – Location and Layout Decisions • Where – Important to company • Why – Costly to change

3. Why is Location Important? • Affects costs • Costs of inputs depend on region • Characteristics of labour force depend on region • Difficult to change once decision made • Objective: maximize benefits of location to the firm

4. Choosing a Country • Government • Culture and economics • Market locations • Labour • Availability of Inputs • Exchange rate

5. Choosing a Community • Corporate desires • Attractiveness • Labour • Utilities • Environmental Regulations • Government Incentives • Proximity • Land and Construction Costs

6. Choosing a Site • Size and Cost • Air, rail, highway, waterway systems • Zoning restrictions • Nearness of services and suppliers • Environmental impact

7. Evaluating Location Alternatives • How do we choose between locations?

8. Factor Rating • Develop list of factors • Weight each factor • Develop scale for each factor • Score each location for each factor • Multiply score by weights • Sum points

9. Break-Even Analysis • Determine fixed and variable costs for each location • Plot costs vs volume • Select location with lowest total cost for expected production volume

10. Chicago Bowling Green Bowling Green lowest cost Akron lowest cost Chicago lowest cost Break-Even Analysis 200000 Akron 150000 Annual Cost 100000 50000 0 0 500 1000 1500 2000 2500 3000 Volume

11. Center of Gravity Method

12. Service Location Strategy • Maximize volume of business and revenue • Purchasing Power • Compatibility with demographics • Competition • Quality of Competition • Uniqueness of location • Physical qualities of facilities • Operating Policies • Quality of Management

13. What is Layout? • Placement of machines • Offices • Service centers • Efficient flow of materials, people, information

14. Layout Achieves • Higher utilization of space, equipment, people • Improved flow of information, materials, people • Improved morale and safe working conditions • Improved customer / client interaction • Flexibility

15. Good Layout Requires • Material handling equipment • Capacity and space requirements • Environment and aesthetics • Flows of Information • Cost of moving between work areas

16. Fixed Position Layout • Project remains in one place • Workers and equipment come to the work area • Limited space • At different stages, different materials needed • Volume of materials needed is dynamic

17. New Innovations • Move some construction off-site • Modular construction – ie shipbuilding • Group technology – group components

18. Process-Oriented Layout • Low volume • High variety • Similar machines grouped together • Product moves from one department to another • Advantage: flexibility • Disadvantage: set-up and movement

19. Material Handling Costs • Arrange departments to minimize material handling

20. Work cells • Temporary • Product-oriented arrangement • Reduced work-in-process inventory • Less floor space • Reduced raw material and finished goods inventory • Reduced labour • More employee participation • Increased use of equipment • Reduced investment in machinery

21. Work cells require • Identified families of products • Highly trained and flexible employees • Support to get up and running

22.  Focused Work Centre • Product oriented arrangement

23. Office Layout • Moving information instead of materials • Work cell concept still valid • Technology allows increasing layout flexibility • Virtual companies – hoteling

24. Retail Layout • Profitability related to customer exposure to products • High-draw items around periphery • Prominent locations for high-impulse and high-margin • Disperse “power items” around store • End-aisle locations have high exposure • Convey mission by position lead-off department

25. Warehouse and Storage Layout • Find optimum cost between material handling and storage space • Variety of items stored and number of items picked per order • Shipping and receiving areas

26. Cross-Docking • Avoid placing in storage • Ship what is received • Reduce distribution costs • Speed restocking • Requires tight scheduling • Requires accurate product information

27. Random Stocking • Locate stock wherever there is space

28. Customizing • Warehouse adds value to product by customizing it for customer • Modification • Repair • Labeling • Packaging

29. Repetitive Product-Oriented Layout • High volume • Low variety • Expensive! • Volume adequate for high equipment utilization • Product demand stable • Product standardized • Adequate supplies of raw materials

30. Product Layouts • Fabrication line • Assembly line • Time spent at each stage in the line must be balanced

31. Advantages • Low variable cost per unit • Low material handling cost • Reduced work-in-process inventory • Easier training and supervision • Rapid throughput

32. Disadvantages • High investment – requires high volume • Work stoppage stops entire operation • Low flexibility

33. Assembly-Line Balancing • Cycle time = Production time available per day / units per day • Minimum Workstations = Sum of task times / Cycle time • Efficiency = Sum of task times / (actual workstations x assigned cycle time)