Location Strategy and Layout
Strategy
19 July 2001
Introduction
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What – Location and Layout Decisions
Where – Important to company
Why – Costly to change
Why is Location Important?
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Affects costs
Costs of inputs depend on region
Characteristics of labour force depend
on region
Difficult to change once decision made
Objective: maximize benefits of location
to the firm
Choosing a Country
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Government
Culture and economics
Market locations
Labour
Availability of Inputs
Exchange rate
Choosing a Community
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Corporate desires
Attractiveness
Labour
Utilities
Environmental Regulations
Government Incentives
Proximity
Land and Construction Costs
Choosing a Site
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Size and Cost
Air, rail, highway, waterway systems
Zoning restrictions
Nearness of services and suppliers
Environmental impact
Evaluating Location
Alternatives
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How do we choose between locations?
Factor Rating
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Develop list of factors
Weight each factor
Develop scale for each factor
Score each location for each factor
Multiply score by weights
Sum points
Break-Even Analysis
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Determine fixed and variable costs for
each location
Plot costs vs volume
Select location with lowest total cost for
expected production volume
Break-Even Analysis
Annual Cost
200000
150000
100000
50000
Akron
lowest
cost
0
0
Bowling Green
lowest cost
Chicago
lowest
cost
500 1000 1500 2000 2500 3000
Volume
Center of Gravity Method
Service Location Strategy
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Maximize volume of business and revenue
Purchasing Power
Compatibility with demographics
Competition
Quality of Competition
Uniqueness of location
Physical qualities of facilities
Operating Policies
Quality of Management
What is Layout?
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Placement of machines
Offices
Service centers
Efficient flow of materials, people,
information
Layout Achieves
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Higher utilization of space, equipment,
people
Improved flow of information,
materials, people
Improved morale and safe working
conditions
Improved customer / client interaction
Flexibility
Good Layout Requires
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Material handling equipment
Capacity and space requirements
Environment and aesthetics
Flows of Information
Cost of moving between work areas
Fixed Position Layout
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Project remains in one place
Workers and equipment come to the
work area
Limited space
At different stages, different materials
needed
Volume of materials needed is dynamic
New Innovations
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Move some construction off-site
Modular construction – ie shipbuilding
Group technology – group components
Process-Oriented Layout
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Low volume
High variety
Similar machines grouped together
Product moves from one department to
another
Advantage: flexibility
Disadvantage: set-up and movement
Material Handling Costs
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Arrange departments to minimize
material handling
Work cells
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Temporary
Product-oriented arrangement
Reduced work-in-process inventory
Less floor space
Reduced raw material and finished goods
inventory
Reduced labour
More employee participation
Increased use of equipment
Reduced investment in machinery
Work cells require
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Identified families of products
Highly trained and flexible employees
Support to get up and running
Focused Work Centre
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Product oriented arrangement
Office Layout
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Moving information instead of materials
Work cell concept still valid
Technology allows increasing layout
flexibility
Virtual companies – hoteling
Retail Layout
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Profitability related to customer exposure to
products
High-draw items around periphery
Prominent locations for high-impulse and
high-margin
Disperse “power items” around store
End-aisle locations have high exposure
Convey mission by position lead-off
department
Warehouse and Storage
Layout
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Find optimum cost between material
handling and storage space
Variety of items stored and number of
items picked per order
Shipping and receiving areas
Cross-Docking
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Avoid placing in storage
Ship what is received
Reduce distribution costs
Speed restocking
Requires tight scheduling
Requires accurate product information
Random Stocking
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Locate stock wherever there is space
Customizing
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Warehouse adds value to product by
customizing it for customer
Modification
Repair
Labeling
Packaging
Repetitive Product-Oriented
Layout
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High volume
Low variety
Expensive!
Volume adequate for high equipment
utilization
Product demand stable
Product standardized
Adequate supplies of raw materials
Product Layouts
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Fabrication line
Assembly line
Time spent at each stage in the line
must be balanced
Advantages
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Low variable cost per unit
Low material handling cost
Reduced work-in-process inventory
Easier training and supervision
Rapid throughput
Disadvantages
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High investment – requires high volume
Work stoppage stops entire operation
Low flexibility
Assembly-Line Balancing
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Cycle time = Production time available
per day / units per day
Minimum Workstations = Sum of task
times / Cycle time
Efficiency = Sum of task times / (actual
workstations x assigned cycle time)