Operations Management as a Competitive Weapon
Module 5
Location
OM Course Framework
Strategic Issues
Tactical Issues
Operations
Strategy
Capacity
Operational Issues
MRP
Process
Analysis
Manufacturing
Design &
Selection
Location
JIT
Inventory
Aggregate
Planning
Module 5: Location
TOC
2
Learning Objectives
At the end of this module, each student will be able to:
1. Describe factors affecting location
decisions
2. Discuss facility location sequence
3. Explain some methods of evaluating
location alternatives
Module 5: Location
3
1. Overall - Global





Other Languages
Different Norms
and Customs
Work-Force
Management
Unfamiliar Laws
and Regulations
Unexpected Cost Mix
Module 5: Location
4
Type of Facility
 Product-focused (55%)
 Market-focused (30%)
 Process-focused (10%)
 General purpose (5%)
Module 5: Location
5
Product-focused
 Produces one family or type of
product

Usually for a large market

Transportation costs are low

Scale economies are high
Module 5: Location
6
Market-focused
 Located in the markets they serve
 Service operations, since services
cannot be transported
 Require quick response, customized
products, high transportation costs
Module 5: Location
7
Process-focused
 Have one technology

Produce components or parts that are
shipped to other facilities for further
processing or assembly
 Can make a wide variety of products
with the given process technology
Module 5: Location
8
General-purpose
 Produce several types of products
and use several different processes
Module 5: Location
9
2. Location Decision Sequence
Region/Community
Country
Site
© 1995
Corel Corp.
© 1995 Corel Corp.
© 1995
Corel Corp.
Module 5: Location
10
Location Decision Example
BMW decided to
build its first
major mfg. plant
outside Germany
in Spartanburg,
South Carolina.
© 1995 Corel Corp.
Module 5: Location
11
Country Decision Factors
 Market location
 Labor

Manufacturing labor costs

Labor productivity
Module 5: Location
12
Country Decision Factors
 Other

Shipping cost

New plant & equipment
Module 5: Location
13
Region Decision Factors
 Labor

Wages in South Carolina (SC)
 Government incentives

Free-trade zone
Module 5: Location
14
3. Location Methods
 Factor weighting
method
 Center of
gravity method
© 1995 Corel Corp.
Module 5: Location
15
Factor Rating Method
 Most widely used location
technique
 Useful for service & industrial
locations
 Rates locations using factors
Module 5: Location
16
Factor Rating Method Steps
 List relevant factors
 Assign importance weight to each factor
 Develop scale for each factor (0-1, etc.)
 Score each location using factor scale
 Multiply scores by weights for each factor
& total
 Select location with maximum total score
Module 5: Location
17
Factor Rating Method Example
You’re an analyst for John Deere.
You’re considering locating a new
mfg. plant in Omaha (NE) or
Denver (CO).
© 1995 Corel Corp.
Factor
Wgt NE CO
Mfg. costs .7 .8
.9
Cost of living .1 .6
.8
Labor avail. .2
1
.8
Where should you locate?
Module 5: Location
18
Factor Rating Method Solution
Omaha
Factor Wgt
Mfg.
Cost $
Cost
Living
Labor
Avail.
TOTAL
Wgt
Denver
Score Wgt
(0-1) Score
Wgt
Score Wgt
(0-1) Score
.7
.7
.8
.56
.7
.9
.63
.1
.1
.6
.06
.1
.8
.08
.2
.2
1
.20
.2
.8
.16
1.0
0.82
Module 5: Location
0.87
19
Center of Gravity Method
 Finds location of single
distribution center serving several
destinations
 Used primarily for services
Module 5: Location
20
Center of Gravity Method Steps
 Place existing locations on a
coordinate grid
 Calculate X & Y coordinates for
‘center of gravity’
Module 5: Location
21
Center of Gravity Equations
X Coordinate
Cx =
dix Wi
i
Wi
i
Y Coordinate
Cy =
diy Wi
i
Wi
i
Module 5: Location
dix = x coordinate
of location i
Wi = Volume of
goods moved to or
from location i
diy = y coordinate
of location i
22
Center of Gravity Example
You’re an analyst for
Home Depot. You want
to find the best location
of a warehouse serving
retail stores in Lincoln
(coord. 90, 60), Columbia
(coord. 150, 30), &
Austin (coord. 90, 10).
Monthly demand is 2k,
3k, 5k units respectively.
© 1995
Corel
Corp.
Columbia,
SC
Module 5: Location
Austin,
TX
Warehouse?
Lincoln, NE
23
Center of Gravity Example
90
Lincoln Store
(90,60)
2k demand
60
Austin Store
(90,10)
5k demand
30
Columbia Store
(150,30)
3k demand
0
0
30
60
90
Module 5: Location
120
150
© 1995
Corel
Corp.
24
Center of Gravity Solution
Cx =
dix Wi
i
Wi
(90)(2) + (150)(3) + (90)(5)
=
= 108
2+3+5
i
Cy =
diy Wi
i
Wi
(60)(2) + (30) (3) + (10)(5)
=
= 26
2+3+5
i
Module 5: Location
25
COG Method Solution
90
Lincoln
Store
60
X
30
0
Warehouse at
(108, 26):
Little Rock
Austin
Store
0
30
60
90
Module 5: Location
Columbia
Store
©1
Cor
Cor
120
150
26
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Sport Obermeyer - University of Michigan