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Ch 8 - Location Strategies

  1. Location Factors (See Fig 8.1, p319)
    1. Country
      1. Government stability, attitudes.
      2. Exchange rates.
      3. Location of markets.
    2. Region
      1. Government regulations, taxes, incentives.
      2. Cost and availability of labor, utilities, raw materials.
      3. Quality of educational & recreational facilities.
    3. Site
      1. Site size and cost.
      2. Shipping and receiving costs.
      3. Local attitudes, zoning .
  2. *Factor Rating Method with Ben Franklin's Prudential Algebra     (p323)
    1. Procedure -  Click here for details - www.patlyons.com/research/PrudentialAlgebra.htm 
      1. Assign a weight, wi , to each factor to reflect its importance, so that  å wi = 1.  
      2. Assign a score, si j , for each location and each factor, so that  si j  is between 0 and 100.
      3. Sum wi si j for each location.
      4. Select the site with the highest sum as the best candidate.
      5. Form a comparison matrix by subtracting each site’s wi si j from the best candidate’s wi si j .
      6. Qualitatively compare each site with the best candidate using the least number of positive factors to outweigh all negative factors.
      7. Conclude that best candidate is best or revise weights and scores.
    2. Example 1 - page 323 - Site C added.
                    si j           wi   *  si j     Comparison
      Factor  wi         A       B       C        A        B        C     A-B        A-C     
      Labor 0.25   70   60   50 17.5 15.0 12.5   2.5    5
      People-to-car 0.05   50   60   40   2.5   3.0   2.0 -0.5 0.5
      Per capita income  0.10   85   80   90   8.5   8.0   9.0   0.5  -0.5
      Taxes 0.39   75   70   80 29.3 27.3 31.2   2.0 -1.9
      Education 0.21   60   70   60 12.6 14.7 12.6 -2.1    0
      Totals 1.00       70.4 68.0 67.3    

    Site A’s favorable Labor and Taxes
    outweigh site B’s favorable People-to-car Ratio and Education.

    Site A’s favorable Labor
    outweighs site C’s favorable Per Capita Income and Taxes.

    Therefore, Site A is best.
                    Do Assigned HW

  3. Location Strategies - Service vs. Manufacturing  (See Table 8.6, p 330)
        Service Operation     Manufacturing Operation
    Location is a major determinant of revenue     Location is a major determinant of cost       
    High customer contact issues are critical Low customer contact issues are critical
    *Focus on:
        Customer traffic
        Competition
        Appearance    		 *Focus on:
        Transportation costs
        Utilities
        Labor
  4. *Transportation Method (p328, Module C, p734-741)
    1. Objective - to determine the best pattern of shipments from several origins to several destinations so as to minimize total production and transportation costs.
    2. Example - Arizona Plumbing - page 734
    3. Linear Programming Formulation
      1. Transportation Costs per bathtub - this table defines the matrix, a i j.
         

          j - Destinations
          i - Origins 1 - Albuquerque 2 - Boston 3 - Cleveland
          1 - Des Moines 5 4 3
          2 - Evansville 8 4 3
          3 - Fort Lauderdale 9 7 5
      2. Define decision variables
        X i j = Number of tubs transported from origin i to destination j
                                       or
        X11 = Number of tubs transported from origin 1 to destination 1
        X12 = Number of tubs transported from origin 1 to destination 2
        X13 = Number of tubs transported from origin 1 to destination 3
        X21 = Number of tubs transported from origin 2 to destination 1
        X22 = Number of tubs transported from origin 2 to destination 2
        X23 = Number of tubs transported from origin 2 to destination 3
        X31 = Number of tubs transported from origin 3 to destination 1
        X32 = Number of tubs transported from origin 3 to destination 2
        X33 = Number of tubs transported from origin 3 to destination 3

        Either of the above definitions may be used.
             The definition with the i j subscripts is preferable, however,
              the second lengthy definition is given to clarify the first.
         
      3. Define objective function
        Minimize transportation cost = S a i j X i j  
                                       or
                   5 X11 + 4 X12 + 3 X13
               + 8 X21 + 4 X22 + 3 X23
               + 9 X31 + 7 X32 + 5 X33
      4. Define constraints
            Origin 1   X11 + X12 + X13 £ 100
            Origin 2   X21 + X22 + X23 £ 300
            Origin 3   X31 + X32 + X33 £ 300

            Destination 1    X11 + X21 + X31 = 300
            Destination 2    X12 + X22 + X32 = 200
            Destination 3    X13 + X23 + X33 = 200
    4. Solution - page 744
      X11 =   100 X12 =      0 X13 =      0
       X21 =      0 X22 = 200 X23 =   100
      X31 =   200 X32 =      0 X33 = 100

                                    Do Assigned HW
                                                        (This page was last edited on January 15, 2010 .)