Operation Management Chapter 6

Alex Hill and Terry Hill

•Size of the INVESTMENT•The FIXED NATURE of the choice•The UNCERTAINTY of the future

DECIDING WHERE TO LOCATE

Choosing a location

Once chosen, many organizations NEVER CHANGE location

The two tasks of deciding location and layout are distinct yet related. They are distinct in that

location concerns where best to site a facility, whereas layout concerns how best to arrange the staff, processes and equipment within that facility. And they are related in that they form two parts of

a key decision – how best to position facilities in order to perform the operations task and meet the

needs of the business.

•CONTINENT or REGION•COUNTRY•AREA or CITY•SITE

Choosing a location

Levels of decision

> KEY IDEA

The number of LEVELS and FACTORS involved differ DECISION

•The ORIGIN of existing location decisions•POLITICALLY based constraints•TECHNOLOGY developments•Market ACCESS or local PRESENCE in large

consumer markets•CURRENCY value fluctuations

Background factors influencing location decisions

•A well developed INFRASTRUCTURE•Proximity to MARKETS•Proximity to SUPPLIERS•Hospitable BUSINESS CLIMATE•Availability of STAFF•Quality of LIFE for employees•COSTS and INVESTMENTS•Favourable GOVERNMENT policies•Proximity to CUSTOMERS

Factors affecting the choice of location

•FACILITIES for staff and customers•Building’s DESIGN•RENTAL costs and local taxes•SPACE•Proximity to SUPPORT SERVICES•Room for EXPANSION•Level of customer TRAFFIC•VISIBILITY to customers•Proximity to CUSTOMERS•Proximity to COMPETITORS

Factors affecting the choice of site

CASE 6.1

GROWTH AT SOFTWARE TECHNOLOGY PARKS OF INDIA1.What are the REASONS

for the rapid growth in Noida’s IT-based services?

2.What FACTORS have affected the choice of continent/region, country and area/city?

CASE 6.1

Question

Answer

REASONS for growth

FACTORS affecting decision

• Well-developed INFRASTRUCTURE• Hospital BUSINESS CLIMATE• Availability of STAFF• Quality of LIFE for employees• Favorable GOVERNMENT policies

• IT services EASY to source from abroad• Plentiful supply of English-speaking

STAFF• Lower COSTS to provide service

GROWTH AT SOFTWARE TECHNOLOGY PARKS OF INDIA

CASE 6.3

HSBC RELOCATES CALL CENTRE OPERATIONS

1.How did it CHANGE its approach in the 1990s?

2.What were the ADVANTAGES and DISADVANTAGES of these changes?

CASE 6.3Question Answer

Changes

Advantages

Disadvantages

• Lower COSTS• Used profits to REINVEST and grow

sales• Large number of well educated,

English speaking STAFF

• Moved IT services- 4,000 jobs moved

• Start-up COSTS• Initial RISK

HSBC RELOCATES CALL CENTRE OPERATIONS

Site location techniques

•WEIGHTED factor•Centre of

GRAVITY

Site location techniques

In the location factor rating system, factors that are important in the location decision are identified. Each factor is weighted from 0 to 1.00 to prioritize the factor and reflect its importance. A subjective score is assigned (usually between 0 and 100) to each factor based on its attractiveness compared with other locations, and the weighted scores are summed. Decisions typically will not be made based solely on these ratings, but they provide a good way to organize and rank factors.

The center-of-gravity, or weight center, technique is a quantitative method for locating a facility such as a warehouse at the center of movement in a geographic area based on weight and distance. This method identifies a set of coordinates designating a central location on a map relative to all other locations.

Choose a LAYOUT

Chosen a LOCATION

Choosing a layout

Choosing a layout

Factors influencing layout

Basic types of layout

•FIXED position•PROCESS or FUNCTIONAL•SERVICE or PRODUCT

The BASIC TYPES of layout are:• FIXED POSITION,• PROCESS or FUNCTIONAL and• SERVICE or PRODUCT

CarBirdGovernment

Service or product type, process and layout

Dinner rush

(1952)

A Bug’s Life

(1998)

Car factory1986)

Film clip restaurant

FilmTitleDirector

Dinner rush

ClipStartFinish

00:58:58Duration 00:03:07

What clip shows A group of chef who are trying make new food

Key learning objective

The characteristics of a:•Process or functional layout•Repeat –low volume service delivery system

Service or product type, process and layout

Film clip Bird

FilmTitleDirector (year)

A Bug’s LifeJohn Lasseter and Andrew Stanton (1998)

ClipStartFinish

00:47:0000:51:22

What clip showsThe bugs building a bird to protect their community

Key learning objective

The characteristics of a:•Fixed position layout•Project manufacturing process

Choosing a layoutService or product type, process and layout

Film clip Factory

FilmTitleDirector (year)

Gung HoRon Howard (1986)

ClipStartFinish

01:33:1301:34:31

What clip shows Cars being manufactured on a production line

Key learning objective

The characteristics of a:•Product layout•Line manufacturing process

Choosing a layoutService or product type, process and layout

Question restaurant Bird Car

Service or product

Process

Layout

Repeatdelivery system

Project manufacturing process

Process or functional Fixed position

Mass product

Product

Service shop

Special productMade on-site

Line manufacturing process

Choosing a layoutService or product type, process and layout

Critical reflections

• The choice of location and layout significantly impacts COSTS and SALES

• Therefore, they must clearly reflect the NEEDS of

- CUSTOMER and MARKET (external)- BUSINESS (internal)

• In particular, the CHOICE of location is:- DIFFICULT to change

Summary• TASKS of deciding location and layout- Distinct, but related

• Decisions need to be made at a number of LEVELS

- Continent/region, country, area/city and site

• Various FACTORS impact the choice of location

- Exiting sites, proximity, political, economic, etc

• Three basic TYPES of layout- Fixed position, process or functional, service or

product