Operations Management MD021

1. Operations Management(MD021) Location Planning and Analysis

2. Agenda Strategic nature of location decisions Considerations when making location decisions Numerical methods for analyzing locations Geographic information systems can aid location decisions

3. Many factors can drive location decisions Growth in demand Marketing strategy involves expanding network of facilities Relative costs of doing business Resources available Depletion of resources

4. Strategic aspects of location decisions Strategic importance of location decisions Organizational strategy should drive location decisions Locating facilities involves long term commitment/costs, which constrain future strategy Location characteristics impact investments, revenues, operations, supply chains Objectives will depend on the type of firm “For Profit” – profit potential “Non Profit”/Government – balance between costs and services provided to customers/constituents

5. Often have many location options Often must consider many location options No single location may be better than others Often must identify several locations from which to choose Basic options Expand existing facilities? Add new facilities to network of existing facilities? Shut down existing facility, move to new location? Do nothing … stay in same location?

6. Considerations When Making Location Decisions

7. Typical steps for making location decisions Decide on the criteria that are important for the location decision Identify the important factors Develop location alternatives Evaluate each of the alternatives Make a selection

8. Location Decision Factors

9. Regional Factors Locate near raw materials, due to necessity, perishability, or transportation costs Location of markets, clients, or constituents Labor factors … cost, availability, skills, education Climate Tax rates and tax incentives

10. Regional Factors – global location decisions Comparative advantage (e.g., labor) in many developing countries Challenging to manage facilities, personnel and operations around the world Tariffs can impede trade Import restrictions can hurt ability to move technologies, equipment, spare parts Language differences Cultural differences Level of corruption Different legal systems

11. Community Considerations Quality of life Quality of services (police, fire, etc.) Local attitudes toward certain types of businesses (N.I.M.B.Y.) Environmental regulations Public utilities: cost, availability Developer support Taxes and tax incentives

12. Tax incentives and credits are often a major consideration when locating Tax Incentives and Tax Credits (2003 survey by KPMG; 209 corporate real estate professionals) Importance of tax incentives and credits = “Important/Very Important” (3.64 avg. ranking out of 4.00) Factoring into location decisions … Job creation tax credits (64%) Sales tax exemptions (63%) Property tax abatements (52%) Enterprise zone tax credits (51%) Job training benefits (51%)

13. Site Related Factors Land – soil conditions, load factors, drainage rates Transportation – access for semi-trucks, close to freeway Zoning – residential vs. commercial vs. mixed use Environmental regulations – swamp land, endangered species

14. Multiple Plant Strategies Product plant strategy Products/product lines produced in separate plants Market area plant strategy Each plant produces all products; plant serves a geographic region Process plant strategy Each plant focuses on different processes

15. Ongoing trends in manufacturing location decisions Foreign producers locating in U.S. “Made in USA” Currency fluctuations Just-in-time manufacturing techniques Microfactories – small factory with a narrow product focus, located near major market Information Technology facilitates coordination between facilities, supply chain

16. Service facility location involves very different considerations

17. Numerical Methods for Analyzing Facility Locations

18. Evaluating Locations Cost-Profit-Volume Analysis Determine fixed and variable costs associated with location alternatives Plot total costs for each alternative on the same graph Determine location having lowest total costs Assumptions Fixed costs are constant Variable costs are linear Output can be closely estimated Only one product involved

19. Locational Cost-Volume Analysis Fixed and variable costs for four potential locations

20. Calculate total costs for two levels of output

21. Solution is found by graphing and identifying regions of minimum costs

22. Several alternative methods for evaluating locations Factor Rating Decision based on quantitative and qualitative inputs Choose appropriate factors, weight their importance, rate them for each location, weight ratings together into an index Center of Gravity Method Makes decision based on minimizing distribution costs to a number of facilities

23. Factor rating method for choosing a location

24. “Center of Gravity” method for locating distribution facilities

25. Geographic Information Systems

26. Geographic Information Systems (GIS) GIS systems are made specifically for analyzing and presenting data related to geographical positions (Latitude, Longitude) Location Street Location Town County State Nation

27. Geographic Information Systems (GIS) ESRI’s (www.esri.com) ArcView is the primary product available (and used) for such applications Links to online mapping applications that you can use to locate facilities http://www.esri.com/software/internetmaps/index.html

28. GIS can be used to find a house or house valuations Personal Location Decisions – real estate sites combining public real estate data with GIS maps Zillow.com Trulia.com Google Real Estate RealEstateABC.com

29. Massachusetts uses GIS to assist firms locating in MA Massachusetts GIS Resources MassGIS (http://www.state.ma.us/mgis/) General mapping of state data Massachusetts Site Finder (http://www.massachusettssitefinder.com/) Has a search system for locating available facilities

31. Many states and gov’t bodies provide GIS resources for location decisions States and City Government GIS San Francisco Prospector (http://www.sfprospector.com/) Has a search system for locating available facilities City of Tucson, AZ (http://www.tucsonlocator.com/) Has a search system for locating available facilities Federal Government GIS HUD e-Maps (http://egis.hud.gov/egis) Locations of populations, businesses, etc. Locations of Tax Increment Financing areas, etc. US Geological Survey (http://www.usgs.gov/)

32. GIS can be used to identify promising markets for locating

33. GIS can be used to identify clusters of similar or related businesses