Facility Location Operations Management Dr Ron Lembke Location

Facility Location Operations Management Dr. Ron Lembke

Location Decisions n Long-term decisions ¨ Difficult n to change Affect fixed & variable costs ¨ Transportation costs (25% of price) ¨ Other costs: taxes, wages, rent Affect revenues: customers know you where you are n Objective: find best location for firm n

What factors should we consider? Skilled workforce n Environmental laws / cost of compliance n Cost of utilities, labor, taxes n ¨ Freeport Law in NV – no inventory tax Suppliers close by – fast & cheap access n Customers close by n Competitors close by? Skilled labor pool n International - control issues? n

Service Facilities – Traffic focus n Revenue changes a huge amount, depending on the location. ¨ Old Navy in Stead because of cheap land? ¨ Location, location: you need traffic ¨ Make it convenient! ¨ vitamins: need enough, but it has to be the right kind ¨ people who would want to buy your products when they are there. n Cost probably doesn’t change nearly as much, by location ¨ All malls have high rent

Northtowne Center Wal-Mart Office Max Win. Co Toys Party

A Tale of Two Stores W K

Kmart Access “I-80 & Mc. Carran” sounds great. Kmart Sins: Can’t see from anywhere - see where we’re going Very circuitous entry - feels inconvenient, no matter how long it actually takes

Wal-Mart Access

Street Views

Give Me Convenience

Cost Focus n Revenue does not vary much, depending on the location. ¨ Customers don’t care if your warehouse is in Sparks or Sacramento n Location is a major cost driver ¨ Impacts shipping, labor, production costs ¨ Varies greatly by location

Cost Minimization Identify the costs that will vary most with the location you choose. ¨ Transportation, taxes, labor, ¨ Facility construction cost, utilities Other considerations ¨ Proximity of services, suppliers ¨ Quality of life ¨ Government incentives

Cost Focus Process Overview 1. Identify general region to locate in n 2. Identify a list of candidate cities n n 3. Usually based on mostly on transp. costs Choose cities with good transp. Access Estimate labor cost & availability, facilities costs Select metro area, identify candidate properties. n n n Find cost of building or leasing individual properties Estimate costs of the facilities How good will the service to our customers be?

Biggest Freight Lanes

Summary Service/Retail– impact on revenues n Production/Distribution – impact on costs n High traffic is not enough n ¨ Must n be the right kind, must be easy Transportation lanes important consideration