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Ko ç Un iversity. OPSM 301 Operations Management. Class 18: Location (Chapter 8). Zeynep Aksin zaksin @ku.edu.tr. Efficiency. Responsiveness. Supply chain structure. Inventory. Transportation. Facilities. Information. Drivers. Drivers of Supply Chain Performance. - PowerPoint PPT Presentation
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OPSM 301 Operations Management
Class 18:
Location(Chapter 8)
Koç University
Zeynep [email protected]
Drivers of Supply Chain Performance
Efficiency Responsiveness
Inventory Transportation Facilities Information
Supply chain structure
Drivers
The Logistics Network
The Logistics Network consists of:
Facilities:Vendors, Manufacturing Centers, Warehouse/ Distribution Centers, and Customers
Raw materials and finished products that flow between the facilities.
Supply
Sources:plantsvendorsports
RegionalWarehouses:stocking points
Field Warehouses:stockingpoints
Customers,demandcenterssinks
Production/purchase costs
Inventory &warehousing costs
Transportation costs Inventory &
warehousing costs
Transportation costs
Decision Classifications
Strategic Planning: Decisions that typically involve major capital investments and have a long term effect
1. Determination of the number, location and size of new plants, distribution centers and warehouses
2. Acquisition of new production equipment and the design of working centers within each plant
3. Design of transportation facilities, communications equipment, data processing means, etc.
Decision Classifications
Tactical Planning: Effective allocation of manufacturing and distribution resources over a period of several months
1. Work-force size
2. Inventory policies
3. Definition of the distribution channels
4. Selection of transportation and trans-shipment alternatives
Decision Classifications
Operational Control: Includes day-to-day operational decisions
1. The assignment of customer orders to individual machines
2. Dispatching, expediting and processing orders
3. Vehicle scheduling
Competitive Imperatives Impacting Location The need to produce close to the customer due
to time-based competition, trade agreements, and shipping costs
The need to locate near the appropriate labor pool to take advantage of low wage costs and/or high technical skills
Article from Financial Times
Site selection and Location
Site selection– Short-term focus– Accessibility of consumers and workers– “Cost” driven decision
Location– stability– Long-term market position– Strategies for back-office operations
Facility Location
Location decisions are made for facilities that produce and deliver both products and services
Both quantitative and qualitative factors can be important to location decisions
Several levels of quantitative analysis are possible– Cost comparisons– Break-even analysis– Linear programming
Locational Factors
Proximity to Customers
Business Climate Total Costs Infrastructure Quality of Labor Suppliers Other Facilities
Free Trade Zones Political Risk Government Barriers Trading Blocs Environmental
Regulation Host Community
Characteristics of a Good Location Proximity to target market
Residences, hospitals, schools, offices, airports, military bases
Proximity to destination points Malls tourist attractions, anchor stores
Ease of access Proximity to competition Proximity to other units of the same
type
Problem: accurate identification and trade-offs
Demand Sensitive Services
Solution Techniques:– Informal judgment– Factor Rating– Regression
Case:– La Quinta Hotels - Regression based
site selection
Location Evaluation Methods
Factor-rating method Locational break-even analysis Center of gravity method Transportation model
Factor-Rating Method
Most widely used location technique Useful for service & industrial locations Rates locations using factors
– Tangible (quantitative) factors• Example: Short-run & long-run costs
– Intangible (qualitative) factors• Example: Education quality, labor skills
Steps in Factor Rating Method List relevant factors Assign importance weight to each factor
(such as 0 – 1) Develop scale for each factor (such as 1 –
100) Score each location using factor scale Multiply scores by weights for each factor &
total Select location with maximum total score
Demand Sensitive Service Facility Location
Factor Rating example
Item Scale MultiplierIncome of neighborhood 0-10 .40Proximity to shopping centers 0-10 .25Accessibility 0-10 .15Visibility 0-10 .10Traffic 0-10 .10
Demand Sensitive Service Facility Location
Buyukdere 3.15
Etiler 8.00
Bostanci 9.20
Beyoglu 5.10
Buyukdere Etiler Bostanci Beyoglu
Income 4 8 10 6
Shopping 2 7 10 4
Access 1 9 8 4
Visibility 6 9 7 6
Traffic 3 8 8 5
Score
Factor Rating Example
Cost-Volume Analysis
Fixed and variable costs for four potential locations:
Location FixedCost
VariableCost
ABCD
$250,000100,000150,000200,000
$11302035
800700600500400300200100
0
Annual Output (000)
8 10 12 14 166420
$(000)
A
BC
B SuperiorC Superior
A Superior
D
Cost-Volume Analysis
Center of Gravity Method
Finds location of single distribution center serving several destinations
Used primarily for services Considers
– Location of existing destinations • Example: Markets, retailers etc.
– Volume to be shipped– Shipping distance (or cost)
• Shipping cost/unit/mile is constant
Center of Gravity Method Steps
Place existing locations on a coordinate grid– Grid has arbitrary origin & scale – Maintains relative distances
Calculate X & Y coordinates for ‘center of gravity’– Gives location of distribution center– Minimizes transportation cost
Center of Gravity Method Equations
dix = x coordinate of location i
Wi = Volume of goods moved to or from location i
diy = y coordinate of location i
X Coordinate
Y Coordinate
ii
iiix
x W
WdC
ii
iiiy
y W
WdC
Example: retail stores
Store Location No of containers shipped/monthLocation A 400Location B 300Location C 200Location D 100Location E 300Location F 100
B
C
D
E
F
CGA
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
0.00 20.00 40.00 60.00 80.00 100.00 120.00 140.00
East-West
No
rth
-So
uth
A
B
C
D
E
F
CG
Remarks
Geographic center is not equal to the cost center Define distance concept carefully
Hotelling’s
Hotelling’s: round 1
A B
Hotelling’s: round 2
A B
Hotelling’s: round 3
B A
Hotelling’s: final configuration
A B
Conclusion
Why is McDonalds always next to Burger King? Gloria Jeans next to Starbucks?
Remember that others can move when you are planning locations
In general: dynamics of competitive location matter