OPERATIONS
MANAGEMENT-6
SIDDHARTH
PORWAL
2021A4PS1377G
THE NEED FOR LOCATION DECISIONS
These factors influence the decision-making process for location choices, guiding organizations in their efforts to
optimize their operations and sustain growth.
Market Expansion:
Seeking locations to expand market reach.
Enhancing brand visibility and market penetration.
Store Consolidation:
Deciding which stores to retain or close.
Considering factors like profitability, foot traffic, and lease terms.
Demand Growth:
Opening new locations to meet increased customer demand.
Distributing workload and improving service quality.
Resource Depletion:
Relocating due to depletion of natural resources.
Examples include logging, fishing, mining, and petroleum operations.
Market Shifts:
Adapting to changes in consumer preferences or demographics.
Responding to competitive dynamics and evolving market trends.
Cost Considerations:
Assessing operational costs and economic conditions.
Exploring locations with lower costs or better incentives.
Expand an Existing Facility:
Attractive if there's room for expansion and the current location offers desirable features.
Expansion costs are often lower compared to other alternatives.
Add New Locations while Retaining Existing Ones:
Common in retail operations but requires consideration of the impact on the total system.
May draw existing customers from other locations rather than expanding the market.
Can be a defensive strategy to maintain market share or deter competitors.
Shut Down at One Location and Move to Another:
Organizations weigh the costs and benefits of relocation against staying in the current location.
Factors like market shifts, resource depletion, and operational costs influence relocation decisions.
Do Nothing:
If analysis doesn't uncover benefits of the previous options, the firm may choose to maintain the status
quo.
A temporary decision until better opportunities or alternatives arise.
These options provide managers with strategic choices for addressing location needs based on factors
such as growth objectives, market dynamics, resource availability, and cost considerations.
Multiple Plant Manufacturing Strategies
Product Plant Strategy:
Products or product lines are produced in separate plants, each serving the entire domestic market.
Decentralized approach with specialization along product lines.
Benefits include economies of scale, lower operating costs, and specialization of labor, materials, and
equipment.
Plant locations may be scattered or clustered.
Market Area Plant Strategy:
Plants serve specific geographic segments of the market (e.g., West Coast, Northeast).
Each plant produces most, if not all, of the company's products for its designated area.
Higher operating costs compared to product plants but significant savings on shipping costs.
Allows for rapid delivery and response to local needs, requires centralized coordination of decisions.
Process Plant Strategy:
Different plants focus on different aspects of a process (e.g., engines, transmissions, body stamping).
Suited for products with numerous components, resulting in less confusion and specialization.
Requires centralized administration for coordination, generates economies of scale but may involve additional
shipping costs.
General-Purpose Plant Strategy:
Plants are flexible and capable of handling a range of products.
Enables quick response to product or market changes but may be less productive than specialized approaches.
Geographic Information Systems 5. Insurance Companies:
Set premiums based on geographic risk factors,
1. Logistics Companies: such as population density, crime rates, and
Plan fleet activities, such as routes and schedules, environmental hazards.
based on customer locations. Manage risk exposure by identifying high-risk areas
Optimize delivery routes to minimize fuel and adjusting coverage accordingly.
consumption and travel time. 6. Retailers:
2. Publishers of Magazines and Newspapers: Analyze sales data, customer demographics, and
Analyze circulation patterns to target advertising market trends by geographic location.
efforts effectively. Develop targeted marketing strategies, select
Determine distribution areas and identify potential optimal store locations, and forecast sales
new markets. performance.
3. Real Estate Companies: 7. Utility Companies:
Provide online maps to assist home and business Monitor and manage infrastructure assets, such as
buyers in property search. pipelines and power grids, across geographic areas.
Analyze market trends and property values based Optimize resource allocation and maintenance
on geographic data. schedules to ensure reliable service delivery.
4. Banks: 8. Emergency Services:
Determine optimal locations for branch banks Allocate resources, such as fire stations and
based on market demographics and competition. ambulance services, based on population density
Assess risk factors, such as crime rates and natural and emergency incident data.
disaster likelihood, for insurance and lending Plan for disaster response and coordinate rescue
purposes. efforts efficiently.
Locational Cost-Profit-Volume Analysis
Determine Fixed and Variable Costs:
Identify the fixed costs associated with each location alternative, which remain constant regardless of output
level.
Determine the variable costs, which change in proportion to the level of output.
Plot Total-Cost Lines:
On a graph, plot the total-cost lines for each location alternative.
The horizontal axis represents the level of output, while the vertical axis represents total cost.
Each total-cost line represents the sum of fixed and variable costs for a specific location alternative.
Analyze Cost-Volume Relationships:
Determine which location alternative will have the lowest total cost for the expected level of output.
Alternatively, identify which location will generate the highest profit, taking into account revenue and costs.
Assumptions made in this analysis include:
Fixed costs remain constant within the expected range of output.
Variable costs change linearly with output.
The expected level of output can be accurately estimated.
Only one product is involved in the analysis.
The Center-of-Gravity Method
Purpose:
The method is used in various applications, including community planning for public safety centers,
schools, and community facilities, as well as in logistics for distribution centers.
Objective:
The goal is to minimize travel time or shipping costs by locating the facility at the center of mass or
"center of gravity" of the destinations.
Assumptions:
Distribution costs are assumed to be linear functions of distance and quantity shipped.
The quantity shipped to each destination is fixed or has consistent relative proportions (e.g., seasonal
variations).
A map showing the locations of destinations is required, with a coordinate system overlaid for
determining relative locations.
Calculation of Center of Gravity:
If quantities to be shipped to all destinations are equal, the center of gravity (location of the facility)
can be found by averaging the x and y coordinates of all destinations.
Implementation:
Once the coordinates of the center of gravity are calculated, the facility is located at this point on the
map.
