2. Learning Objectives
When you complete this chapter, you should be
able to :
Identify or Define:
–
–
–
–
Objective of location strategy
International location issues
Clustering
Geographic Information Systems
Describe or explain:
– Three methods of solving the location problem
• Factor-rating method
• Locational breakeven analysis
• Center -of-gravity method
– Describe the factors affecting location decisions
3. Federal Express
• Stresses “hub” concept
• Advantages:
– enables service to more locations with fewer
aircraft
– enables matching of aircraft flights with package
loads
– reduces mishandling and delay in transit because
there is total control of packages from pickup to
delivery
6. Service Location Decisions
• Revenue focus
– Costs vary little between market areas
• Location is a major
revenue factor
– Affects amount of
customer contact
– Affects volume of
business
7. In General - Location Decisions
• Long-term decisions
• Difficult to reverse
• Affect fixed & variable costs
– Transportation cost
• As much as 25% of product price
– Other costs: Taxes, wages, rent etc.
Objective: Maximize benefit of location to firm =
Cost or Revenue = $’s! for either Manufacturing
or service.
14. Country Decision Factors
• Market location
– U.S. is world’s largest luxury
car market
– Growing (baby boomers)
• Labor
– Lower manufacturing labor
costs
• $17/hr. (U.S.) vs. $27
(Germany)
– Higher labor productivity
• 11 holidays (U.S.) vs.
31 (Germany)
• Other
– Lower shipping cost
($2,500/car less)
– New plant &
equipment would
increase productivity
(lower cost/car
$2,000-3000)
– Laws of U.S.A.
15. Transportation Model
• Finds amount to be shipped from several
sources to several destinations
• Used primarily for industrial locations
• Type of linear programming model
– Objective: Minimize total production
& shipping costs
– Constraints
• Production capacity at source (factory)
• Demand requirement at destination
16. Components of Volume and Revenue for
a Service Firm
1. Purchasing power of customer drawing area
2. Service and image compatibility with demographics of
the customer drawing area
3. Competition in the area
4. Quality of the competition
5. Uniqueness of the firm’s and competitor’s locations
6. Physical qualities of facilities and neighboring
businesses
7. Operating policies of the firm
8. Quality of management
17. Location Strategies – Service vs.
Industrial
Service/Retail/Professional Revenue
Goods-Producing Location
Focus
Cost Focus
Tangible costs
Volume/revenue
Drawing area, purchasing power
Competition; advertising/pricing
Physical quality
Parking/access; security/ lighting;
appearance/image
Cost determinants
Rent
Management caliber
Operations policies (hours, wage
rates)
Transportation cost of raw
materials
Shipment cost of finished goods
Energy and utility cost; labor;
raw material; taxes, etc.
Intangible and future costs
Attitude toward union
Quality of life
Education expenditures by state
Quality of state and local
government
18. Major Methods of Solving Location
Problems
• Weighted methods which:
– Assign weights and points to various factors
– Determine tangible costs
– Investigate intangible costs
• Center of Gravity Method
– Find best distribution center location
• Location breakeven methods
– Special case of breakeven analysis
• Transportation method
– A specialized linear programming method
19. Telemarketing and Internet
Industries
• Require neither face-to-face contact with
customers (or employees) nor movement of
material
• Presents a whole new perspective on the
location problem
21. Final Thought
The ideal location for many
companies in the future will
be a floating factory ship
that will go from port to
port, from country to
country – wherever cost
per unit is lowest.
23. Learning Objectives
When you complete this chapter, you should be
able to :
Identify or Define:
–
–
–
–
–
–
–
–
–
Fixed-position layout
Process-oriented layout
Work cells
Focused work center
Office layout
Retail layout
Warehouse layout
Product-oriented layout
Assembly-line factory
24. Learning Objectives
When you complete this chapter, you
should be able to :
Describe or explain:
– How to achieve a good layout for the process
facility
– How to balance production flow in a
repetitive or product-oriented facility
25. McDonald’s - New Kitchen Layout
– No food prepared ahead except patty
– Elimination of some steps, shortening of others
– New bun toasting machine (11 seconds vs 30 seconds)
– Repositioning condiment containers (one motion,
not two)
– Sandwiches assembled in order
– Production levels controlled by computer
– Discard only meat when sandwiches do not sell fast
enough
– Savings of $100,000,000 per year in food costs
26. Innovation at McDonald’s
•
•
•
•
Indoor seating (1950’s)
Drive-through window (1970s)
Adding breakfast to the menu (1980s)
Adding play areas (1990s)
(three out of the four are layout decisions)
27. Objectives of the Layout Strategy
• Develop an economical layout which will
meet the requirements of:
–
–
–
–
product design and volume (product strategy)
process equipment and capacity (process strategy)
quality of work life (human resource strategy)
building and site constraints (location strategy)
28. Types of Layouts
• Fixed-position layout – Product does not move
• Process-oriented layout – Product low volume
specialized
• Office layout –People Information Layout
• Retail layout – Customer preference and access
Layout
• Warehouse layout – Material handling & space
• Product-oriented layout – Product Layout is for
max efficiency high volume
29. What is Facility Layout ?
• Location or arrangement of everything
within & around buildings
• Objectives are to maximize
–
–
–
–
Customer satisfaction
Utilization of space, equipment, & people
Efficient flow of information, material, & people
Employee morale & safety
30. Strategic Importance of Layout
Proper layout enables:
• 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
31. Layout Strategies
Project
(fixed-position)
Job Shop
(Processoriented)
Office
Retail
Warehouse
(storage)
Repetitive
/Continuous
(productoriented)
Examples
Ingal Ship
Building Corp.
Shouldice
Hospital
Allstate
Insurance
Kroger’s
Supermarket
Federal-Mogul’s
Warehouse
Sony’s TV
Assembly Line
Trump Plaza
Olive
Garden
Microsoft
Walgreens
The Gap’s
distribution center
Dodge
Caravans
Minivans
Pittsburgh
Airport
Bloomingdales
Related Issues to solve
Move material
to the limited
storage areas
around the site
Manage varied
material flow for
each product
Locate workers
requiring frequent
contact close to
each other
Expose
customer to
high-margin
items
Balance lowcost storage
with low-cost
material
handling
Equalize the
task time at
each
workstation
32. Requirements of a Good Layout
an understanding of capacity and space
requirements
selection of appropriate material handling
equipment
decisions regarding environment and aesthetics
identification and understanding of the
requirements for information flow
identification of the cost of moving between the
various work areas
33. Constraints on Layout Objectives
•
•
•
•
Product design & volume
Process equipment & capacity
Quality of work life
Building and site
34. Areas of Concern in Layout
Strategy
Communication
Service
Areas
Warehousing
Safety
Material
Attributes
Layout
Strategy
Work
Cell
Material
Flow
36. Learning Objectives
When you complete this chapter, you should be
able to :
Identify or Define:
–
–
–
–
–
–
–
Job design
Job specialization
Job expansion
Tools of methods analysis
Ergonomics
Labor standards
Andon
37. Learning Objectives - Continued
When you complete this chapter, you
should be able to :
Describe or explain:
– Requirements of good job design
– The visual workplace
38. Southwest Airlines
• Profitable for 26 years while United, Northwest,
and U.S. Air lost billions.
• Strategy: Human resources
– Culture of caring for people in the totality of their lives,
not just at work.
– Spends more to recruit and train than any other airline
39. Southwest Airlines
•
•
•
•
•
Empowered employees
Wages higher than industry average
Stock options for some employees
Employees treated like customers
Everybody understands what everybody
else’s problems are
• No gimmicks!
41. Productivity in Relation to
Annual Turnover Rate
>20%
16-20%
11-15%
6-10%
3-5%
<3%
$120,000
$125,000
$130,000
$150,000
$153,000
$200,000
42. Job Design
• Specifying the tasks that make up
a job for an individual or group
• Involves determining
– What is to be done (i.e., responses)
– How it is to be done (i.e., tools etc.)
– Why it is to be done (i.e., purpose)
• Results in job description
– Shows nature of job in task-related behaviors
43. Components of Job Design
• Job specialization
• Job expansion – enrichment-enlargement
• Psychological components
• Self-directed teams
• Motivation and incentive systems
• Ergonomics and work methods
• Praise?
44. Job Expansion
• Process of adding more variety to jobs
• Intended to reduce boredom associated with
labor specialization
• Methods
–
–
–
–
Job enlargement
Job enrichment
Job rotation
Employee empowerment
47. Psychological Components of
Job Design
• Individuals have values, attitudes,
and emotions that affect job results
– Example: Work is a social experience
that affects belonging needs
• Effective worker behavior comes mostly from
within the individual
– Scientific management argued for external
financial rewards
• First examined in ‘Hawthorne studies’
48. Self-Directed Teams
• Group of empowered individuals working
together for a common goal
• May be organized for short-term or
long-term objectives
• Reasons for effectiveness
– Provide employee empowerment
– Provide core job characteristics
– Meet psychological needs (e.g., belonging)
49. Motivation
• Worker performance depends on
– Motivation
– Ability
– Work environment
• Motivation is the set of forces that compel
behavior
• Money may serve as a psychological &
financial motivator
50. Motivation and Money
• Taylor’s scientific management (1911)
– Workers are motivated mainly by money
– Suggested piece-rate system
• Maslow’s theory (1943)
– People are motivated by hierarchy of needs, which
includes money
• Herzberg (1959)
– Money either dissatisfies or is neutral in its effect
51. Maslow’s Hierarchy of Needs
Self-Actualization
Use of abilities
Self-fulfillment
Ego
Self Respect
Social
Group Interaction
Job Status
Safety
Physical Safety
Job Security
Physiology
Food
Shelter
52. Ergonomics and Work Methods
• Worker performance depends on
– Motivation
– Ability
– Work environment
• Foundation laid by Frederick Taylor
– Match employees to task
– Develop work methods
– Establish work standards
54. What is Work Measurement?
• Determining the amount of worker time
required to generate one unit of output
• Provides labor standards
– Target amount of time required to perform a job
under normal working conditions
55. Uses of Labor Standards
•
•
•
•
•
•
Costing labor content of products
Planning staffing needs
Cost & time estimates for bids
Planning production
Wage-incentive plans
Employee efficiency
56. Sources of Labor Standards
•
•
•
•
Historical experience
Time studies
Predetermined time standards (MTM)
Work sampling
57. Labor Standards - Historical
Experience
• Labor standards are based on how many
labor-hours were needed in past
• Least preferred method
• Advantages
– Easy and inexpensive to obtain standard
• Disadvantages
– Unknown accuracy due to unusual occurrences,
unknown pace etc.
58. A Final Thought
Two stonecutters were
asked what they were
doing. The first said, ‘I’m
cutting this stone into
blocks.’ The second one
replied, ‘I’m on a team
that’s building a
cathedral.’
— Old Story
