The Strategic

Importance of
Location
The objective of location strategy is
to maximize the benefit of location
to the firm
Options include
1.Expanding existing facilities
2.Maintain existing and add sites
3.Closing existing and relocating

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 Location and Costs
► Location decisions based on low
cost require careful consideration
► Once in place, location-related costs
are fixed in place and difficult to
reduce
► Determining optimal facility location
is a good investment

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 Factors That Affect
Location Decisions
▶ Globalization adds to complexity
▶ Market economics
▶ Communication
▶ Rapid, reliable transportation
▶ Ease of capital flow
▶ Differing labor costs
▶ Identify key success factors (KSFs)

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 Location Decisions
Country Decision Key Success Factors
1. Political risks, government
rules, attitudes, incentives
2. Cultural and economic
issues
3. Location of markets
4. Labor talent, attitudes,
productivity, costs
5. Availability of supplies,
communications, energy
Figure 8.1 6. Exchange rates and
currency risks

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 Location Decisions
Region/ Key Success Factors
Community
Decision 1. Corporate desires
2. Attractiveness of region
MN 3. Labor availability and costs
WI 4. Costs and availability of utilities
MI 5. Environmental regulations
IL IN
OH 6. Government incentives and fiscal
policies
7. Proximity to raw materials and
customers
Figure 8.1
8. Land/construction costs

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 Location Decisions
Site Decision Key Success Factors
1. Site size and cost
2. Air, rail, highway, and
waterway systems
3. Zoning restrictions
4. Proximity of services/
supplies needed
5. Environmental impact
issues

Figure 8.1

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 Factor-Rating
► Method
Popular because a wide variety of factors
can be included in the analysis
► Six steps in the method
1. Develop a list of relevant factors called key
success factors
2. Assign a weight to each factor
3. Develop a scale for each factor
4. Score each location for each factor
5. Multiply score by weights for each factor for
each location
6. Make a recommendation based on the
highest point score

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 Factor-Rating
TABLE 8.4
Example
Weights, Scores, and Solution

SCORES
(OUT OF 100) WEIGHTED SCORES
FRANC
KSF WEIGHT DENMARK FRANCE DENMARK
E

Labor availability
.25 70 60 (.25)(70) = 17.5 (.25)(60) = 15.0
and attitude

People-to-car (.05)(60) =
.05 50 60 (.05)(50) = 2.5
ratio 3.0

Per capita income .10 85 80 (.10)(85) = 8.5 (.10)(80) = 8.0

Tax structure .39 75 70 (.39)(75) = 29.3 (.39)(70) = 27.3

Education and
.21 60 70 (.21)(60) = 12.6 (.21)(70) = 14.7
health
Totals 1.00 70.4 68.0

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 Strategic Importance of Layout
Decisions

The objective of layout strategy

is to develop an effective and
efficient layout that will meet the
firm’s competitive requirements

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 Layout Design Considerations
► Higher utilization of space, equipment, and
people
► Improved flow of information, materials, or
people
► Improved employee morale and safer
working conditions
► Improved customer/client interaction
► Flexibility

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 Types of Layout
1. Office layout
2. Retail layout
3. Warehouse layout
4. Fixed-position layout
5. Process-oriented layout
6. Work-cell layout
7. Product-oriented layout

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 Types of Layout
1. Office layout: Positions workers, their
equipment, and spaces/offices to
provide for movement of information
2. Retail layout: Allocates shelf space
and responds to customer behavior
3. Warehouse layout: Addresses trade-
offs between space and material
handling

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 Types of Layout

4. Fixed-position layout: Addresses the

layout requirements of large, bulky
projects such as ships and buildings
5. Process-oriented layout: Deals with
low-volume, high-variety production
(also called job shop or intermittent
production)

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 Types of Layout

6. Work cell layout: Arranges machinery

and equipment to focus on production
of a single product or group of related
products
7. Product-oriented layout: Seeks the
best personnel and machine
utilizations in repetitive or continuous
production

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 Layout Strategies
TABLE 9.1 Layout Strategies
OBJECTIVES EXAMPLES

Office Locate workers requiring Allstate Insurance

frequent contact close to one Microsoft Corp.
another

Retail Expose customer to high- Kroger’s Supermarket

margin items Walgreen’s
Bloomingdale’s

Warehouse Balance low-cost storage with Federal-Mogul’s warehouse

(storage) low-cost material handling The Gap’s distribution center

Project (fixed Move material to the limited Ingall Ship Building Corp.
position) storage areas around the site Trump Plaza
Pittsburgh Airport

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 Layout Strategies
TABLE 9.1 Layout Strategies
OBJECTIVES EXAMPLES

Job Shop Manage varied material flow for Arnold Palmer Hospital
(process each product Hard Rock Cafe
oriented) Olive Garden

Work Cell Identify a product family, build Hallmark Cards

(product teams, cross train team Wheeled Coach Ambulances
families) members

Repetitive/ Equalize the task time at each Sony’s TV assembly line

Continuous workstation Toyota Scion
(product
oriented)

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 Good Layouts Consider
► Material handling equipment
► Capacity and space requirements
► Environment and aesthetics
► Flows of information
► Cost of moving between various work
areas

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 Office Layout
► Grouping of workers, their equipment,
and spaces to provide comfort, safety,
and movement of information
► Movement of information is main
distinction
► Typically in state of flux due to
frequent technological changes

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 Relationship Chart

Figure 9.1
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© 2014 Pearson Education, Inc. 9 - 20
© 2014 Pearson Education, Inc. 9 - 21
© 2014 Pearson Education, Inc. 9 - 22
 Office Layout
► Three physical and social aspects
► Proximity
► Privacy
► Permission
► Two major trends
► Information technology
► Dynamic needs for space and services

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 Supermarket Retail Layout
▶ Objective is to maximize profitability
per square foot of floor space
▶ Sales and profitability vary directly
with customer exposure

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 Five Helpful Ideas for
Supermarket Layout
1. Locate high-draw items around the periphery of
the store
2. Use prominent locations for high-impulse and
high-margin items
3. Distribute power items to both sides of an aisle
and disperse them to increase viewing of other
items
4. Use end-aisle locations
5. Convey mission of store through careful
positioning of lead-off department
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 Store Layout

Figure 9.2
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 Retail Slotting
▶ Manufacturers pay fees to retailers to
get the retailers to display (slot) their
product
▶ Contributing factors
▶ Limited shelf space
▶ An increasing number of new products
▶ Better information about sales through
POS data collection
▶ Closer control of inventory

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 Customizing
▶ Value-added activities performed at the
warehouse
▶ Enable low cost and rapid response
strategies
▶ Assembly of components
▶ Loading software
▶ Repairs
▶ Customized labeling and packaging

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 Fixed-Position Layout
▶ Product remains in one place
▶ Workers and equipment come to site
▶ Complicating factors
▶ Limited space at site
▶ Different materials
required at different
stages of the project
▶ Volume of materials
needed is dynamic
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 Alternative Strategy
▶ As much of the project as possible is
completed off-site in a product-oriented
facility
▶ This can
significantly
improve
efficiency but
is only possible
when multiple
similar units need to be created
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 Process-Oriented Layout
▶ 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

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 Process-Oriented Layout
Surgery ER triage room Emergency room admissions
Patient A - broken leg

Patient B - erratic heart

pacemaker

Laboratories

Radiology ER Beds Pharmacy Billing/exit

Figure 9.3

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 Process-Oriented Layout
▶ Arrange work centers so as to minimize
the costs of material handling
▶ Basic cost elements are
▶ Number of loads (or people) moving
between centers
▶ Distance loads (or people) move between
centers

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 Repetitive and Product-
Oriented Layout
Organized around products or families of
similar high-volume, low-variety products
1. Volume is adequate for high equipment utilization
2. Product demand is stable enough to justify high
investment in specialized equipment
3. Product is standardized or approaching a phase of
life cycle that justifies investment
4. Supplies of raw materials and components are
adequate and of uniform quality

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 Product-Oriented Layouts
► Fabrication line
► Builds components on a series of machines
► Machine-paced
► Require mechanical or engineering changes to
balance
► Assembly line Both types of lines
► must
Puts fabricated parts together at be balanced
a series of
workstations so that the time to
perform the work at
► Paced by work tasks each station is the
► Balanced by moving tasks same

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 Product-Oriented Layouts
Advantages
1. Low variable cost per unit
2. Low material handling costs
3. Reduced work-in-process inventories
4. Easier training and supervision
5. Rapid throughput
Disadvantages
1. High volume is required
2. Work stoppage at any point ties up the whole
operation
3. Lack of flexibility in product or production rates

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 McDonald’s Assembly Line

Figure 9.11

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 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 theoretical
minimum number of
workstations
▶ Balance the line by
assigning specific
tasks to workstations
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 Wing Component Example
TABLE 9.2 Precedence Data for Wing Component
ASSEMBLY TIME
TASK (MINUTES)
A 10
B 11
C 5
D 4
TASK MUST FOLLOW
TASK LISTED BELOW
– This means that
A tasks B and E
cannot be done
B until task A has
B
been completed

E 11 A
F 3 C, D
G 7 F
H 11 E
I 3 G, H
Total time 65

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 Wing Component Example
Precedence Data for Wing
TABLE 9.2 Component 480 available mins
TASK MUST
per day
ASSEMBLY TIME FOLLOW TASK 40 units required
TASK (MINUTES) LISTED BELOW
A 10 –
Production time available
B 11 A per day
C 5 Cycle
B time = Units required per day
D 4 B Figure 9.12
= 480 / 40
E 11 A 5
F 3 C, D = 12 minutes per unit
C
G 7 F 10 11 3 7

H 11 E A B F G
Minimum number 4
I 3 3
G, H
of workstations D
Total time 65 11 11 I
= 65E / 12 H
=5.42, or 6 stations
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 Wing Component Example
Layout Heuristics That May Be Used to Assign Tasks
TABLE 9.3
to Workstations in Assembly-Line Balancing
1. Longest task time From the available tasks, choose the task
with the largest (longest) task time
2. Most following tasks From the available tasks, choose the task
with the largest number of following tasks

3. Ranked positional From the available tasks, choose the task

weight
4. Shortest task time
5. Least number of
following tasks
for which the sum of following task times
is the longest
From the available tasks, choose the task
with the shortest task time
From the available tasks, choose the task
with the least number of subsequent
tasks

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 Wing Component Example
480 available mins
Figure 9.13 per day
40 units required
Cycle time = 12 mins
Minimum
Station 5 workstations = 5.42 or 6
2
C
10 11 3 7
A B F G
4 3
D Station 3
Station 4 I
11 11
Station 6
Station Station 6
1 E H
Station Station
3 5
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