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  • 8/19/2019 Operations Management Chapter 8

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    © 2008 Prentice Hall, Inc. 8 – 1

    OperationsManagement Chapter 8 –Chapter 8 –Location StrategiesLocation Strategies

    PowerPoint presentation to accompanyPowerPoint presentation to accompany

    Heizer/RenderHeizer/Render

    Principles of Operations Management !ePrinciples of Operations Management !e

    Operations Management "eOperations Management "e

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    O#tlineO#tline

    $lo%al Company Profile&$lo%al Company Profile&'ed() 'ed() 

    *he Strategic +mportance of*he Strategic +mportance ofLocationLocation

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    O#tline – Contin#ed O#tline – Contin#ed 

    'actors *hat ,ffect Location'actors *hat ,ffect Location-ecisions-ecisions

    La%or Prod#cti.ity La%or Prod#cti.ity 

    ()change Rates and C#rrency Riss()change Rates and C#rrency Riss

    CostsCosts

    Political Ris 0al#es and C#lt#rePolitical Ris 0al#es and C#lt#re

    Pro)imity to MaretsPro)imity to Marets

    Pro)imity to S#ppliersPro)imity to S#ppliers

    Pro)imity to Competitors 1Cl#stering2Pro)imity to Competitors 1Cl#stering2

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    O#tline – Contin#ed O#tline – Contin#ed 

    Methods of (.al#ating LocationMethods of (.al#ating Location ,lternati.es ,lternati.es

    *he 'actor3Rating Method *he 'actor3Rating Method  Locational 4rea3(.en ,nalysisLocational 4rea3(.en ,nalysis

    Center3of3$ra.ity Method Center3of3$ra.ity Method 

    *ransportation Model *ransportation Model 

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    O#tline – Contin#ed O#tline – Contin#ed 

    Ser.ice Location Strategy Ser.ice Location Strategy 

    How Hotel Chains Select SitesHow Hotel Chains Select Sites

    *he Call Center +nd#stry *he Call Center +nd#stry 

    $eographic +nformation Systems$eographic +nformation Systems

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    Learning O%5ecti.esLearning O%5ecti.es

    6hen yo# complete this chapter yo#6hen yo# complete this chapter yo#sho#ld %e a%le to&sho#ld %e a%le to&

    77 +dentify and e)plain se.en ma5or factors+dentify and e)plain se.en ma5or factorsthat effect location decisionsthat effect location decisions

    99 Comp#te la%or prod#cti.ity Comp#te la%or prod#cti.ity 

    ::  ,pply the factor3rating method  ,pply the factor3rating method 

    ;; Complete a locational %rea3e.enComplete a locational %rea3e.enanalysis graphically and mathematically analysis graphically and mathematically 

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    'ederal ()press'ederal ()press

    Central h#% concept Central h#% concept 

    (na%les ser.ice to more locations with(na%les ser.ice to more locations with

    fewer aircraft fewer aircraft  (na%les matching of aircraft flights with(na%les matching of aircraft flights with

     pacage loads pacage loads

    Red#ces mishandling and delay in transitRed#ces mishandling and delay in transit

    %eca#se there is total control of%eca#se there is total control of pacages from pic#p to deli.ery  pacages from pic#p to deli.ery 

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    Location Strategy Location Strategy 

    One of the most important decisions aOne of the most important decisions afirm maesfirm maes

    +ncreasingly glo%al in nat#re+ncreasingly glo%al in nat#re Significant impact on fi)ed andSignificant impact on fi)ed and

    .aria%le costs.aria%le costs

    -ecisions made relati.ely infre>#ently -ecisions made relati.ely infre>#ently 

    *he o%5ecti.e is to ma)imize the*he o%5ecti.e is to ma)imize the%enefit of location to the firm%enefit of location to the firm

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    Location and CostsLocation and Costs

    Location decisions %ased on lowLocation decisions %ased on lowcost re>#ire caref#l considerationcost re>#ire caref#l consideration

    Once in place location3relatedOnce in place location3relatedcosts are fi)ed in place andcosts are fi)ed in place anddiffic#lt to red#cediffic#lt to red#ce

    -etermining optimal facility-etermining optimal facilitylocation is a god in.estment location is a god in.estment 

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    Location and +nno.ationLocation and +nno.ation

    Cost is not always the most importantCost is not always the most importantaspect of a strategic decisionaspect of a strategic decision

    'o#r ey attri%#tes when strategy is'o#r ey attri%#tes when strategy is%ased on inno.ation%ased on inno.ation

    High3>#ality and specialized inp#tsHigh3>#ality and specialized inp#ts

     ,n en.ironment that enco#rages ,n en.ironment that enco#rages

    in.estment and local ri.alry in.estment and local ri.alry 

     , sophisticated local maret  , sophisticated local maret 

    Local presence of related andLocal presence of related and

    s#pporting ind#striess#pporting ind#stries

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    Location -ecisionsLocation -ecisions

    Long3term decisionsLong3term decisions

    -ecisions made infre>#ently -ecisions made infre>#ently  -ecision greatly affects %oth fi)ed-ecision greatly affects %oth fi)ed

    and .aria%le costsand .aria%le costs

    Once committed to a locationOnce committed to a locationmany reso#rce and cost iss#esmany reso#rce and cost iss#esare diffic#lt to changeare diffic#lt to change

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    Location -ecisionsLocation -ecisions

    Co#ntry -ecisionCo#ntry -ecision Critical S#ccess 'actorsCritical S#ccess 'actors

    77 Political riss go.ernmentPolitical riss go.ernmentr#les attit#des incenti.esr#les attit#des incenti.es

    99 C#lt#ral and economicC#lt#ral and economiciss#esiss#es

    :: Location of maretsLocation of marets

    ;; La%or talent attit#desLa%or talent attit#des

     prod#cti.ity costs prod#cti.ity costs

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    Location -ecisionsLocation -ecisions

    Region/Region/Comm#nityComm#nity

    -ecision-ecision

    Critical S#ccess 'actorsCritical S#ccess 'actors

    77 Corporate desiresCorporate desires

    99  ,ttracti.eness of region ,ttracti.eness of region

    :: La%or a.aila%ility costsLa%or a.aila%ility costsattit#des towards #nionsattit#des towards #nions

    ;; Costs and a.aila%ility of #tilitiesCosts and a.aila%ility of #tilities

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    Location -ecisionsLocation -ecisions

    Site -ecisionSite -ecision Critical S#ccess 'actorsCritical S#ccess 'actors

    77 Site size and cost Site size and cost 

    99  ,ir rail highway and ,ir rail highway andwaterway systemswaterway systems

    :: Aoning restrictionsAoning restrictions

    ;; Pro)imity of ser.ices/Pro)imity of ser.ices/s#pplies needed s#pplies needed 

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    $rowth Competiti.eness$rowth Competiti.eness+nde) of Co#ntries+nde) of Co#ntries

    Co#ntry Co#ntry  9BB?39BB! Ran 9BB?39BB! Ran  9BB< Ran 9BB< Ran 

    Switzerland Switzerland  77 ;;

    =S,=S, ? ?  77

    apanapan ! !  7B 7B $ermany $ermany  8 8  ? ? 

    =D =D  7B 7B  ""

    +srael +srael  7

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    'actors *hat ,ffect'actors *hat ,ffectLocation -ecisionsLocation -ecisions

    La%or prod#cti.ity La%or prod#cti.ity 

    6age rates are not the only cost 6age rates are not the only cost 

    Lower prod#ction may increase total cost Lower prod#ction may increase total cost 

    La%or cost per day La%or cost per day 

    Prod#ction 1#nits per day2Prod#ction 1#nits per day2E Cost per #nit E Cost per #nit 

    Connectic#t Connectic#t 

    = $1.17= $1.17 per #nit  per #nit $70$70

    6060 #nits#nits

    #arez #arez 

    = $1.25= $1.25 per #nit  per #nit $25$25

    2020 #nits#nits

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    'actors *hat ,ffect'actors *hat ,ffectLocation -ecisionsLocation -ecisions

    ()change rates and c#rrency riss()change rates and c#rrency riss

    Can ha.e a significant impact on costCan ha.e a significant impact on coststr#ct#restr#ct#re

    Rates change o.er timeRates change o.er time

    CostsCosts

    *angi%le 3 easily meas#red costs s#ch as*angi%le 3 easily meas#red costs s#ch as

    #tilities la%or materials ta)es#tilities la%or materials ta)es

    +ntangi%le 3 less easy to >#antify and+ntangi%le 3 less easy to >#antify andincl#de ed#cation p#%lic transportationincl#de ed#cation p#%lic transportationcomm#nity >#ality3of3lifecomm#nity >#ality3of3life

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    'actors *hat ,ffect'actors *hat ,ffectLocation -ecisionsLocation -ecisions

    ()change rates and c#rrency riss()change rates and c#rrency riss

    Can ha.e a significant impact on costCan ha.e a significant impact on coststr#ct#restr#ct#re

    Rates change o.er timeRates change o.er time

    CostsCosts

    *angi%le 3 easily meas#red costs s#ch as*angi%le 3 easily meas#red costs s#ch as

    #tilities la%or materials ta)es#tilities la%or materials ta)es

    +ntangi%le 3 less easy to >#antify and+ntangi%le 3 less easy to >#antify andincl#de ed#cation p#%lic transportationincl#de ed#cation p#%lic transportationcomm#nity >#ality3of3lifecomm#nity >#ality3of3life

    Locationdecisions %asedon costs alone

    can create

    diffic#lt ethicalsit#ations

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    'actors *hat ,ffect'actors *hat ,ffectLocation -ecisionsLocation -ecisions

    Political ris .al#es and c#lt#rePolitical ris .al#es and c#lt#re

    @ational state local go.ernments@ational state local go.ernments

    attit#des toward pri.ate and intellect#alattit#des toward pri.ate and intellect#al property zoning poll#tion employment property zoning poll#tion employmentsta%ility may %e in fl#) sta%ility may %e in fl#) 

    6orer attit#des towards t#rno.er #nions6orer attit#des towards t#rno.er #nionsa%senteeisma%senteeism

    $lo%ally c#lt#res ha.e different attit#des$lo%ally c#lt#res ha.e different attit#destowards p#nct#ality legal and ethicaltowards p#nct#ality legal and ethicaliss#esiss#es

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    Raning Corr#ptionRaning Corr#ption

    Ran Ran  Co#ntry Co#ntry  9BB? CP+ Score 1o#t of 7B29BB? CP+ Score 1o#t of 7B2

    77 'inland 'inland  "? "? 

    77 +celand +celand  "? "? 

    77 @ew Aealand @ew Aealand  "? "? 

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    'actors *hat ,ffect'actors *hat ,ffectLocation -ecisionsLocation -ecisions

    Pro)imity to maretsPro)imity to marets

    0ery important to ser.ices0ery important to ser.ices

    +* systems or high transportation costs+* systems or high transportation costsmay mae it important to man#fact#rersmay mae it important to man#fact#rers

    Pro)imity to s#ppliersPro)imity to s#ppliers

    Perisha%le goods high transportationPerisha%le goods high transportationcosts %#ly prod#ctscosts %#ly prod#cts

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    'actors *hat ,ffect'actors *hat ,ffectLocation -ecisionsLocation -ecisions

    Pro)imity to competitorsPro)imity to competitors

    Called cl#stering Called cl#stering 

    Often dri.en %y reso#rces s#ch as nat#ralOften dri.en %y reso#rces s#ch as nat#ralinformation capital talent information capital talent 

    'o#nd in %oth man#fact#ring and ser.ice'o#nd in %oth man#fact#ring and ser.iceind#striesind#stries

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    Cl#stering of CompaniesCl#stering of Companies

    +nd#stry +nd#stry  LocationsLocations Reason for cl#stering Reason for cl#stering 

    6ine maing 6ine maing  @apa 0alley 1=S2@apa 0alley 1=S24ordea#) region4ordea#) region1'rance21'rance2

    @at#ral reso#rces of@at#ral reso#rces ofland and climateland and climate

    Software firmsSoftware firms Silicon 0alleySilicon 0alley4oston 4angalore4oston 4angalore1+ndia21+ndia2

    *alent reso#rces of*alent reso#rces of%right grad#ates in%right grad#ates inscientific/technicalscientific/technicalareas .ent#reareas .ent#recapitalists near%y capitalists near%y 

    Race carRace car%#ilders%#ilders

    H#ntington/@orthH#ntington/@orthHampton regionHampton region1(ngland21(ngland2

    Critical mass of talentCritical mass of talentand informationand information

    Table 8.3Table 8.3

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    Cl#stering of CompaniesCl#stering of Companies

    +nd#stry +nd#stry  LocationsLocations Reason for cl#stering Reason for cl#stering 

    *heme pars*heme pars1-isney 6orld1-isney 6orld=ni.ersal=ni.ersalSt#dios2St#dios2

    Orlando 'loridaOrlando 'lorida  , hot spot for , hot spot forentertainment warmentertainment warmweather to#rists andweather to#rists andine)pensi.e la%or ine)pensi.e la%or 

    (lectronics(lectronicsfirmsfirms

    @orthern Me)ico@orthern Me)ico @,'*, d#ty free@,'*, d#ty freee)port to =S e)port to =S 

    Comp#terComp#ter

    hardwarehardwareman#fact#rersman#fact#rers

    Singapore *aiwanSingapore *aiwan High technologicalHigh technological

     penetration rate and penetration rate and per capita $-P per capita $-Psilled/ed#catedsilled/ed#catedworforce with largeworforce with large

     pool of engineers pool of engineers

    Table 8.3Table 8.3

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    Cl#stering of CompaniesCl#stering of Companies

    +nd#stry +nd#stry  LocationsLocations Reason for cl#stering Reason for cl#stering 

    'ast food'ast foodchainschains16endyFs16endyFsMc-onaldFsMc-onaldFs4#rger Ding4#rger Dingand Pizza H#t2and Pizza H#t2

    Sites within 7 mileSites within 7 mileof each other of each other 

    Stim#late food salesStim#late food saleshigh traffic flowshigh traffic flows

    $eneral$enerala.iation aircrafta.iation aircraft1Cessna1CessnaLear5et 4oeing2Lear5et 4oeing2

    6ichita Dansas6ichita Dansas Mass of a.iation sillsMass of a.iation sills

    OrthopedicOrthopedicde.icesde.ices

    6arsaw +ndiana6arsaw +ndiana Ready s#pply of silledReady s#pply of silledworers strong =Sworers strong =Smaret maret 

    Table 8.3Table 8.3

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    'actor3Rating Method 'actor3Rating Method 

    Pop#lar %eca#se a wide .ariety of factorsPop#lar %eca#se a wide .ariety of factorscan %e incl#ded in the analysiscan %e incl#ded in the analysis

    Si) steps in the method Si) steps in the method 

    77 -e.elop a list of rele.ant factors called-e.elop a list of rele.ant factors calledcritical s#ccess factorscritical s#ccess factors

    99  ,ssign a weight to each factor  ,ssign a weight to each factor 

    :: -e.elop a scale for each factor -e.elop a scale for each factor 

    ;; Score each location for each factor Score each location for each factor 

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    'actor3Rating ()ample'actor3Rating ()ample

    Critical Critical  ScoresScoresS#ccessS#ccess 1o#t of 7BB21o#t of 7BB2 6eighted Scores6eighted Scores'actor 'actor  6eight 6eight  'rance'rance -enmar -enmar  'rance'rance -enmar -enmar 

    La%orLa%ora.aila%ility  a.aila%ility 

      and attit#de and attit#de .25.25 7070 6060 (.25)(70) = 17.5(.25)(70) = 17.5 (.25)(60) = 15.0(.25)(60) = 15.0People3to3 People3to3   car ratiocar ratio .05.05 5050 6060 (.05)(50) = 2.5(.05)(50) = 2.5 (.05)(60) = 3.0(.05)(60) = 3.0

    Per capitaPer capita  incomeincome .10.10 8585 8080 (.10)(85) = 8.5(.10)(85) = 8.5 (.10)(80) = 8.0(.10)(80) = 8.0

    *a) str#ct#re*a) str#ct#re .39.39 7575 7070 (.39)(75) = 29.3(.39)(75) = 29.3 (.39)(70) = 27.3(.39)(70) = 27.3(d#cation(d#cation  and healthand health .21.21 6060 7070 (.21)(60) = 12.6(.21)(60) = 12.6 (.21)(70) = 14.7(.21)(70) = 14.7

    *otals*otals 1.001.00 70.470.4 68.068.0

    Table 8.4Table 8.4

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    LocationalLocational

    4rea3(.en ,nalysis4rea3(.en ,nalysis Method of cost3.ol#me analysis #sed forMethod of cost3.ol#me analysis #sed for

    ind#strial locationsind#strial locations

    *hree steps in the method *hree steps in the method 77 -etermine fi)ed and .aria%le costs for-etermine fi)ed and .aria%le costs for

    each locationeach location

    99 Plot the cost for each locationPlot the cost for each location

    :: Select location with lowest total cost forSelect location with lowest total cost fore)pected prod#ction .ol#mee)pected prod#ction .ol#me

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    Locational 4rea3(.enLocational 4rea3(.en

     ,nalysis ()ample ,nalysis ()ample*hree locations&*hree locations&

     ,ron ,ron $30,000$30,000 $75$75 $180,000$180,000

    4owling $reen4owling $reen $60,000$60,000 $45$45 $150,000$150,000ChicagoChicago $110,000$110,000 $25$25 $160,000$160,000

    'i)ed 'i)ed  0aria%le0aria%le *otal *otal City City  Cost Cost  Cost Cost  Cost Cost 

    *otal Cost E 'i)ed Cost G 10aria%le Cost ) 0ol#me2*otal Cost E 'i)ed Cost G 10aria%le Cost ) 0ol#me2

    Selling priceSelling price = $120= $120

    ()pected .ol#me()pected .ol#me = 2,000= 2,000 #nits#nits

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    Locational 4rea3(.enLocational 4rea3(.en

     ,nalysis ()ample ,nalysis ()ample

     –78BBBB78BBBB –

     –7?BBBB7?BBBB –7

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    Center3of3$ra.ity Method Center3of3$ra.ity Method 

    'inds location of distri%#tion'inds location of distri%#tioncenter that minimizes distri%#tioncenter that minimizes distri%#tion

    costscosts

    ConsidersConsiders

    Location of maretsLocation of marets

    0ol#me of goods shipped to those0ol#me of goods shipped to thosemaretsmarets

    Shipping cost 1or distance2Shipping cost 1or distance2

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    Center3of3$ra.ity Method Center3of3$ra.ity Method 

    Place e)isting locations on aPlace e)isting locations on acoordinate grid coordinate grid 

    $rid origin and scale is ar%itrary$rid origin and scale is ar%itrary

    Maintain relati.e distancesMaintain relati.e distances 

    Calc#late J and K coordinates forCalc#late J and K coordinates for

    center of gra.ityF center of gra.ityF  ,ss#mes cost is directly ,ss#mes cost is directly

     proportional to distance and proportional to distance and.ol#me shipped .ol#me shipped 

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    Center3of3$ra.ity Method Center3of3$ra.ity Method 

     ) 3 coordinate E ) 3 coordinate E

    ∑∑d d i) i)   i i 

    ∑∑  i i i i 

    i i 

    ∑∑d d iy iy   i i 

    ∑∑  i i i i 

    i i 

    y 3 coordinate Ey 3 coordinate E

    wherewhere d d i) i)  EE  )3coordinate of )3coordinate of

    location i location i 

    d d iy iy  EE y3coordinate ofy3coordinate of

    location i location i EE

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    Center3of3$ra.ity Method Center3of3$ra.ity Method 

    @orth3So#th@orth3So#th

    (ast36est (ast36est 

    79B79B –

    "B"B –

    ?B?B –

    :B:B –

     –

    I I I I I I

    :B :B  ?B ?B  "B "B  79B 79B  7

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    Center3of3$ra.ity Method Center3of3$ra.ity Method 

    @#m%er of Containers@#m%er of ContainersStore LocationStore Location Shipped per MonthShipped per Month

    ChicagoChicago (30, 120)(30, 120) 2,0002,000

    Pitts%#rghPitts%#rgh (90, 110)(90, 110) 1,0001,000

    @ew Kor@ew Kor (130, 130)(130, 130) 1,0001,000 ,tlanta ,tlanta (60, 40)(60, 40) 2,0002,000

     )3coordinate E )3coordinate E(30)(2000) + (90)(1000) + (130)(1000) + (60)(2000)(30)(2000) + (90)(1000) + (130)(1000) + (60)(2000)

    2000 + 1000 + 1000 + 20002000 + 1000 + 1000 + 2000

    EE 66.766.7

    y3coordinate Ey3coordinate E(120)(2000) + (110)(1000) + (130)(1000) + (40)(2000)(120)(2000) + (110)(1000) + (130)(1000) + (40)(2000)

    2000 + 1000 + 1000 + 20002000 + 1000 + 1000 + 2000

    EE 93.393.3

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    Center3of3$ra.ity Method Center3of3$ra.ity Method 

    @orth3So#th@orth3So#th

    (ast36est (ast36est 

    79B79B –

    "B"B –

    ?B?B –

    :B:B –

     –

    I I I I I I

    :B :B  ?B ?B  "B "B  79B 79B  7

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    *ransportation Model *ransportation Model 

    'inds amo#nt to %e shipped from'inds amo#nt to %e shipped fromse.eral points of s#pply to se.eralse.eral points of s#pply to se.eral

     points of demand  points of demand  Sol#tion will minimize totalSol#tion will minimize total

     prod#ction and shipping costs prod#ction and shipping costs

     , special class of linear , special class of linear programming pro%lems programming pro%lems

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    6orldwide -istri%#tion of6orldwide -istri%#tion of

    0olswagens and Parts0olswagens and Parts

    Figure 8.4Figure 8.4

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    Ser.ice Location Strategy Ser.ice Location Strategy 

    7 P#rchasing power of c#stomer3drawing area7 P#rchasing power of c#stomer3drawing area

    9 Ser.ice and image compati%ility with demographics9 Ser.ice and image compati%ility with demographicsof the c#stomer3drawing areaof the c#stomer3drawing area

    : Competition in the area: Competition in the area; #ality of the competition; #ality of the competition

    #eness of the firmFs and competitorsF locations#eness of the firmFs and competitorsF locations

    ? Physical >#alities of facilities and neigh%oring? Physical >#alities of facilities and neigh%oring

    %#sinesses%#sinesses

    ! Operating policies of the firm! Operating policies of the firm

    8 #ality of management 8 #ality of management 

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    Location StrategiesLocation Strategies

    Ser.ice/Retail/Professional LocationSer.ice/Retail/Professional Location  $oods3Prod#cing Location$oods3Prod#cing Location Re.en#e 'oc#sRe.en#e 'oc#s  Cost 'oc#sCost 'oc#s

    0ol#me/re.en#e0ol#me/re.en#e

    -rawing areaN p#rchasing power -rawing areaN p#rchasing power 

    CompetitionN ad.ertising/pricing CompetitionN ad.ertising/pricing 

    Physical >#ality Physical >#ality 

    Paring/accessN sec#rity/lightingNParing/accessN sec#rity/lightingNappearance/imageappearance/image

    Cost determinantsCost determinants

    Rent Rent 

    Management cali%er Management cali%er 

    Operations policies 1ho#rs wageOperations policies 1ho#rs wagerates2rates2

    *angi%le costs*angi%le costs

    *ransportation cost of raw*ransportation cost of rawmaterial material 

    Shipment cost of finished goodsShipment cost of finished goods

    (nergy and #tility costN la%orN raw(nergy and #tility costN la%orN rawmaterialN ta)es and so onmaterialN ta)es and so on

    +ntangi%le and f#t#re costs+ntangi%le and f#t#re costs

     ,ttit#de toward #nion ,ttit#de toward #nion

    #ality of life#ality of life

    (d#cation e)pendit#res %y state(d#cation e)pendit#res %y state

    #ality of state and local#ality of state and localgo.ernment go.ernment 

    Table 8.6Table 8.6

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    Location StrategiesLocation Strategies

    Ser.ice/Retail/Professional LocationSer.ice/Retail/Professional Location  $oods3Prod#cing Location$oods3Prod#cing Location

     *echni>#es*echni>#es  *echni>#es*echni>#es

    Regression models to determineRegression models to determineimportance of .ario#s factorsimportance of .ario#s factors

    'actor3rating method 'actor3rating method 

    *raffic co#nts*raffic co#nts

    -emographic analysis of drawing area-emographic analysis of drawing area

    P#rchasing power analysis of areaP#rchasing power analysis of area

    Center3of3gra.ity method Center3of3gra.ity method 

    $eographic information systems$eographic information systems

    *ransportation method *ransportation method 

    'actor3rating method 'actor3rating method Locational %rea3e.en analysisLocational %rea3e.en analysis

    Crosso.er chartsCrosso.er charts

    Table 8.6Table 8.6

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    Location StrategiesLocation Strategies

    Ser.ice/Retail/Professional LocationSer.ice/Retail/Professional Location  $oods3Prod#cing Location$oods3Prod#cing Location

     ,ss#mptions ,ss#mptions  ,ss#mptions ,ss#mptions

    Location is a ma5or determinant ofLocation is a ma5or determinant ofre.en#ere.en#e

    High c#stomer3contact iss#es areHigh c#stomer3contact iss#es arecritical critical 

    Costs are relati.ely constant for aCosts are relati.ely constant for agi.en areaN therefore the re.en#egi.en areaN therefore the re.en#ef#nction is critical f#nction is critical 

    Location is a ma5or determinant ofLocation is a ma5or determinant ofcost cost 

    Most ma5or costs can %e identifiedMost ma5or costs can %e identifiede)plicitly for each sitee)plicitly for each site

    Low c#stomer contact allows foc#sLow c#stomer contact allows foc#son the identifia%le costson the identifia%le costs

    +ntangi%le costs can %e e.al#ated +ntangi%le costs can %e e.al#ated 

    Table 8.6Table 8.6

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    How Hotel Chains Select SitesHow Hotel Chains Select Sites

    Location is a strategically importantLocation is a strategically importantdecision in the hospitality ind#stry decision in the hospitality ind#stry 

    La #inta started with :< independentLa #inta started with :< independent

    .aria%les and wored to refine a.aria%les and wored to refine aregression model to predict profita%ility regression model to predict profita%ility 

    *he final model had only fo#r .aria%les*he final model had only fo#r .aria%les

    Price of the innPrice of the inn

    Median income le.elsMedian income le.els

    State pop#lation per innState pop#lation per inn

    Location of near%y collegesLocation of near%y colleges

    r 9  = .51

    51% of the profita%ility is predicted %y

     5#st these fo#r.aria%les 

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    *he Call Center +nd#stry *he Call Center +nd#stry 

    Re>#ires neither face3to3faceRe>#ires neither face3to3face

    contact nor mo.ement of materialscontact nor mo.ement of materials Has .ery %road location optionsHas .ery %road location options

    *raditional .aria%les are no longer*raditional .aria%les are no longer

    rele.ant rele.ant  Cost and a.aila%ility of la%or mayCost and a.aila%ility of la%or may

    dri.e location decisionsdri.e location decisions

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    $eographic +nformation$eographic +nformation

    Systems 1$+S2Systems 1$+S2 +mportant tool to help in location analysis+mportant tool to help in location analysis

    (na%les more comple) demographic(na%les more comple) demographic

    analysisanalysis  ,.aila%le data %ases incl#de ,.aila%le data %ases incl#de

    -etailed cens#s data-etailed cens#s data

    -etailed maps-etailed maps

    =tilities=tilities

    $eographic feat#res$eographic feat#res

    Locations of ma5or ser.icesLocations of ma5or ser.ices

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    $eographic +nformation$eographic +nformation

    Systems 1$+S2Systems 1$+S2