Operation Management Essay example

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C H A P T E R

Location Strategies

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DISCUSSION QUESTIONS
1. FedEx’s key location concept is the central hub concept, with Memphis selected for several reasons, including its being in the middle of the country and having very few hours of bad weather closures. 2. The major reason for U.S. firms to locate overseas is often lower labor costs, but as this chapter and Chapter 2 suggest, there are a number of considerations. 3. The major reason foreign firms build in the U.S. is to satisfy the demand for foreign goods in the United States while reducing transportation cost and foreign exchange risk; in addition, U.S. locations allow foreign firms to circumvent quotas and/or tariffs. 4. Clustering is the tendency of firms to locate near competitors. 5. Different weights can be given to different factors. Personal preferences are included. 6. The qualitative approach usually considers many more factors, but its results are less exact. 7. Clustering examples in the service sector include fast-food restaurants, shoe and jewelry stores in a shopping mall, and theme parks. 8. Factors to consider when choosing a country:
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Environmental regulations Incentives Proximity to raw materials/customers Land/construction costs

10. Franchise operations may add new units per year; Exxon, McDonald’s and Wal-Mart add hundreds of units per year, almost a daily location decision. For such organizations, the location decision becomes more structured, more routine. Perhaps by repeating this process they discover what makes their strategic locations decisions successful. 11. Factors affecting location decisions: labor productivity, foreign exchange, changing attitudes toward the industry, unions, employment, zoning, pollution, and taxes. 12. The center of gravity method assumes that cost is directly proportional to both distance and volume shipped. For service facilities, revenue is assumed to be directly proportional to proximity to markets. 13. Locational break-even analysis three steps:
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Exchange rates Government stability (political risk) Communications systems within the country and to the home office Wage rates Productivity Transportation costs Language Tariffs Taxes Attitude towards foreign investors/incentives Legal system Ethical standards Cultural issues Supplies availability Market locations Corporate desires Attractiveness of region Labor issue Utilities

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Step 1: Determine fixed and variable cost for each location. Step 2: Plot the costs for each location, with costs on the vertical axis of the graph and annual volume on the horizontal axis. Step 3: Select the location that has the lowest total cost for the expected production volume.

14. The issue of weight or volume gain and weight or volume loss during processing is important, and supports the manufacturing side of the saying (weight loss during mining and refining, for example, suggests shipping after processing). But JIT may be more easily accomplished when suppliers are clustered near the customer. And some services (such as Internet sales) can take place at tremendous distances without sacrificing close contact. 15. Besides low wage rates, productivity should be considered also. Employees with poor training, poor education, or poor work habits are not a good buy. Moreover, employees who cannot or will not reach their place of work are not much good to the organization. 16. Service location techniques: regression models to determine importance of various factors, factor rating method, traffic counts, demographic analysis of drawing area, purchasing power analysis of area, center-of-gravity method, and geographic information system. 17. The distributor is more concerned with transportation and storage costs, and the supermarket more concerned with proximity to markets. The distributor will focus more on roads, overall population density (store density), while the supermarket will focus

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Factors to consider in a
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