5.

3 Operations-
Production Location
 Objectives:
1. Explain the reasons for a specific location of
production.

2. Discuss ways of reorganizing production

a. Outsourcing
b. Offshoring
c. In-housing
Why is production location a relevant
topic?
https://www.americanprogress.org/issues/economy/news/2014/07/30/94864/offsh
oring-work-is-taking-a-toll-on-the-u-s-economy/
 Factors to consider when choosing
location of production facilities:
❖ Costs ➢ Land, labor, transportation
❖ Competition ➢ is the market big enough to compete? Is saturation likely?
❖ Type of land ➢ is the land suitable for the size and structure of production?
❖ Markets ➢ can customers be reached quickly enough?
❖ Familiarity ➢ will unfamiliarity slow down the setup process?
❖ Available labor➢ do they match the skills required?
❖ Infrastructure ➢ will basic needs me met? transportation, electricity, water
❖ Suppliers ➢ are they good and reliable?
❖ Government ➢ are laws and taxes complicated?
ORGANIZING PRODUCTION
★ Outsourcing and offshoring
★ In-housing and reshoring
Outsourcing
❏ Refers to the practice of using another business (as a third
party) to complete part of the work.
❏ This can enable the organization to focus on its core activity,
by employing another business.
❏ Outsourcing domestically=reshoring
❏ Example - a school want to focus on educating students so
they outsource other services such as:
❏ food service
❏ training
❏ Security
Advantages and disadvantages of
outsourcing:
A - can cut costs which can lead to lower prices and a
competitive advantage.
A - can focus on core activities
D - Loss of control
D - become dependent on the supplier
D - negative PR
Offshoring
❏ Offshoring is an extension of outsourcing - when a business
outsources outside of its home country.
❏ Apple wants to focus on designing innovative products so
they outsource production to Foxconn.
❏ A - could drastically reduce costs
❏ D - cultural difference may lead to communication problems
❏ standards of quality and ethics may be different.
In-housing
○ Reshoring
○ when an organization decided to keep production
“in-house” in a desire to regain full control of the business.
○ A - regain control over quality.
○ A - good PR
○ D - may drive up costs.