Download Facility Location

Capacity Planning and
Facility Location
Chapter 9
MGMT 326
Foundations
of Operations
Products &
Processes
Quality
Assurance
Introduction
Managing
Projects
Managing
Quality
Product
Design
Statistical
Process
Control
Strategy
Process
Design
Just-in-Time & Lean Systems
Capacity
and
Facilities
Capacity
and
Location
Planning
& Control
Capacity Planning
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Capacity is the maximum output rate of a
production or service facility
Capacity planning is the process of establishing the
output rate that is likely to be needed at a facility.
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Capacity is usually purchased in “chunks”
Long-term issues: how much and when to spend capital
for additional facility & equipment
Short-term issues: workforce & inventory levels, & dayto-day use of equipment
Measuring Capacity Examples

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There is no one best way to measure capacity
Output measures like kegs per day are easier to
understand
With multiple products, input measures work better
Capacity Information Needed

Design capacity:
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Maximum output rate under ideal conditions
A bakery can make 30 custom cakes per day
when pushed at holiday time
Effective capacity:
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Maximum output rate under normal (realistic)
conditions
On the average this bakery can make 25
custom cakes per day
Importance of Location Decisions

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Long-term decisions
Difficult to reverse
Affect fixed & variable costs

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Transportation cost for goods
 As much as 25% of product price
Other costs: Taxes, wages, rent etc.
Objective: Maximize benefit of location to
firm
Facility Location Decisions in
Manufacturing and Services
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In manufacturing, location decisions are
based primarily on costs.
In services, location decisions are based
primarily on revenue and profitability.
Service Location Factors
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Revenue: area from which the firm would draw
customers, income levels, demographic factors
Site factors: convenience and access, lighting and
security, appearance and image, utilities, zoning,
drawing power of the site, nearby businesses
Costs
Manufacturing Location Factors

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Availability and costs of raw materials - needed
materials may not be available everywhere
Closeness to suppliers - Reduce transportation costs
of perishable or bulky raw materials
Nearness to customers
 Manufacturing customers may require technical
service or frequent deliveries
 Being close to customers helps you learn about
your market
Manufacturing Location Factors (2)
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Labor skills, availability, costs, and productivity
Community attitudes toward the facility: is it wanted
or not?
Quality of life: climate, education, sports, culture,
commuting, housing availability and costs, etc.
Site considerations: local taxes, zoning and other
regulations, financial incentives, utility availability and
costs; access to highways, railroads, ports, airports
Reasons that Companies Globalize
(Advantages of Globalization)

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To get access to cheaper labor
To get access to materials
To enter new markets and gain market
knowledge
To avoid paying tariffs
Potential Disadvantages of
Globalization

Political risk: the risk that a government will do
things that hurt your business

Example: 6 major U. S. and European oil companies
owned oil wells and pipelines in Venezuela. The
Venezuelan government forced the companies to
either shut down or sell a controlling interest in their
businesses to the government.
Potential Disadvantages of
Globalization (2)

Loss of control of proprietary technology

Example: General Motors produces a sub-compact
car, the Chery, in China. GM’s Chinese partner used
GM’s product and process technology to produce a
very similar car and compete with GM.
Potential Disadvantages of
Globalization (3)

Infrastructure (roads, railroads, utilities, ports,
and communication systems) may be
inadequate.

Example: Many manufacturing plants in China are
located in remote areas. Goods for U. S. markets
must be transported to a Chinese port for shipment
to the U.S. Poor roads increase the time required to
transport goods to a port. Similar problems occur in
many developing countries.
Potential Disadvantages of
Globalization (4)

Productivity is often lower than it is in the
U. S.
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Production rates may be lower than expected.
Production costs may be higher than expected.
The quality of goods or services may be lower
than expected.
Different languages and communication styles
Potential Disadvantages of
Globalization (5)

Laws and regulations are different
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Example: The European Union has
different product standards from the U.S.
Business cultures and practices are
different.

Example: Suppliers in Mexico may not be
accustomed to delivering raw materials on
a strict schedule.
Deciding Whether to Pursue
a Global Opportunity

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Set strategic goals.
Gather data about costs, benefits, and
risks.
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Market analysis
Financial analysis
Operations analysis
Risk analysis and management
Make a decision