Operations Management Final

What impacts location decisions?

-long-term decisions

-decisions made infrequently

-greatly affects both fixed and variable costs

-resource and cost issues are difficult to change once committed

location strategy

the objective of location strategy is to maximize the benefit of the location to the firm

What does location strategy do for manufacturing?

minimizes costs

What does location strategy do for services?

maximizes sales

labor productivity

-wage rates aren’t the only cost

-lower productivity may increase total cost

labor cost per day/productivity (units per day) = cost per unit

service location strategy

-purchasing power of customer-drawing area

-service and image compatibility with demographics

-competition in area

-quality of competition

-uniqueness of the firm’s and competitor’s location

-physical qualities of facilities and neighboring businesses

-operating policies of the firm

-quality of management

Country location decisions

-political risks, government incentives, rules, and attitude

-cultural and economic issues

-location of markets

-labor talent, productivity, and costs

-availibilty of supplies, communications, energy

-exchange rates and currency risks

region/community decision

-corporate desires

-attractiveness of region

-labor availibility and costs

-costs and availibility of utilities

-environmental regulations

-government incentives and fiscal policies

-proximity to raw materials and customers

-land/construction costs

site decision

-site size and costs

-air, rail, highway, and waterway systems

-zoning restrictions

-proximity of services/supplies needed

-environmental impact issues

factor-rating method

popular because a wide variety of factors can be included in the analysis

6 steps of the factor-rating method

-develop a list of relevant factors called key success factors

-assign a weight to each factor (out of 100)

-develop a scale for each factor

-score each location for each factor

-multiply score by weights for each factor for each location

-recommend the location with the highest point score

locational break-even analysis

used for manufacturing locations (also known as cost-volume analysis)

3 steps of locational break-even analysis method

-determine fixed and variable costs for each location

-graph the cost for each location

-select location with the lowest total cost for expected production volume

-total cost = fixed cost + (variable cost*volume)

center of gravity method

finds location of distribution center that minimizes distribution costs

considers:

-location of markets

-volume of goods shipped to those markets

-shipping cost (or distance)

how to perform center of gravity method

-place existing locations on a coordinate grid

-calculate x and y coordinates for center of gravity (assumes cost is directly proportional to distance and volume shipped

transportation model

finds amount to be shipped from several points of supply to several points of demand

-this minimizes total production and shipping costs

-special class of linear programing problems

Innovations at McDonald’s

-indoor seating (1950’s)

-drive thru window (70’s)

-adding breakfast to the menu (80’s)

-adding play areas (late 80’s)

-redesign of kitchen (90’s)

-self service kiosk (2004)

-3 separate dining sections

mcdonalds new layout

seventh major innovation

-redesigning all 30,000 outlets around the world

-3 separate dining areas

linger zone with comfy chairs, grab and go with tall counters and felxible zone for families and kids

-facility layout is a source of competative advantage

types of layout

-office layout

-retail layout

-warehouse layout

-fixed-position layout

-process-oriented layout

-work-cell layout

-product-oriented layout

office

locate workers requiring frequent contact close to one another ex. allstate insurance and microsoft corp

-group workers, equipment, and spaces to provide comfort, safety, and movement of information

-typically in a state of flux due to frequent technological changes

retail

expose customer to high-margin items ex. kroger’s, walgreen’s, bloomingdale’s

warehouse (storage)

balance low cost storage with low cost material handling ex. the gap’s distribution center

-optimize trade-offs between handling costs and costs associated with warehouse space

-maximize total volume of the warehouse while maintaining low material handling costs

project (fixed position)

move material to the limited storage areas around the site ex. pgh airport, trump plaza

-product remains in one place

-workers and equipment come to site

complicating factors: -limited space at site

-different materials are required at different stages of the project

-volume of materials needed is dynamic

jop shop (process oriented)

manage varied material flow for each product ex. arnold palmer hospital, hard rock cafe, olive garden

-like machines and equipment are grouped together

-flexible and capable of handling a wide variety of products or services

-scheduling can be difficult and setup, material handling, and labor costs can be high

-arrange work centers so as to minimize costs of material handling

-basic cost elements are number of loads or people moving between centers and distance loads or people move between centers

work cell (product families)

identify a product family, build teams, cross train team members ex. hallmark cards, wheeled coach

repatative/contiinous product (product oriented)

equalize the task time at each workstation ex. sony’s tv assembly line

What do good layouts consider?

-material handling equipment

-capacity and space requirements

-environment and aesthetics

-flows of information

-cost of moving between various work areas

supermarket retail layout

-objective is to maximize profitability per square foot of floor space

-sales and profitability vary directly with customer exposure

5 helpful ideas for supermarket layout

-locate high draw items around the perephery of the store

-use prominent locations for high-impulse and high-margin items

-distribute power items to both sides of an aisle and disperse them to increase viewing of other items

-use end-aisle locations

-convey mission of store through careful positioning of lead-off department

retail slotting

manufacturers pay fees to retailers to display (slot) their product

-limits shelf space

-increasing number of new products

-better information about sales thru pos collection

closer control of inventory

servicescapes

1. ambient conditions-background characteristics such as lighting, sound, temperature, and smell

2. spatial layout and functionality-customer circulation path planning, aisle characteristics, and product grouping

3. signs, symbols, and artifacts-characteristics of building design that carry social significance

cross-docking

materials are moved directly from receiving to shipping and aren’t placed in storage in the warehouse

-requires tight scheduling and accurate shipments, bar code or RFID identification used for advanced shipment notification as materials are unloaded

alternative strategy

-as much of the product as possible is completed off-site in a product oriented facility

-can improve efficiency but only possible when pultiple similar units need to be created

repatative and product oriented layout

organized around products or families of similar high-volume, low variety products

-volume is adequate for high equipment utilization

-product demand is stable enough to justify high investment in specialized equipment

-product is standardized or approaching a phase of life cycle that justifies investment

-supplies or raw materials and components are adequate and of uniform quality

fabrication line

-builds components on a series of machines

-machine paced

-require mechanical or engineering changes to balance

assembly line

puts fabricated parts together at a series of workstations

-paced by work tasks

-balenced by moving tasks

advantages of product oriented layout

-low variable cost per unit

-low material handling costs

-reduced work in process inventories

-easier training and supervision

-rapid throughput

disadvantages of product oriented layout

-high volume is required

-work stoppage at any point ties up the whole operation

-lack of flexibility in product or production rates

assembly line balancing

-objective is to minimize the imbalance between machines or personnel while meeting required output

-starts with the precedence relationships (determine cycle time, calculate theoreticalminimum number of workstations, balance the line by assigning specific tasks to workstations

cycle time

The maximum time that a product is allowed at each workstation.

production availible per day / units required per day (demand)

minimum number of workstations

time for task / cycle time

efficiency

total task times / (actual number of workstations * cycle time)

tangible costs

Readily identifiable costs that can be measured with some precision.

Intangible costs

A category of location costs that cannot be easily quantified, such as quality of life and government.

Clustering

the location of competing companies near each other, often because of a critical mass of information, talent, venture capital, or natural resources.

Location options include

(1) expanding an existing facility instead of moving,

(2) maintaining current sites while adding another facility elsewhere, and

(3) closing the existing facility and moving to another location