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Lecture 8

OM 300 Lecture 8: OM Chapter 8 Notes

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Operations Management
OM 300
David Cooper

Operations Management Chapter 8 Notes Location Strategies Location Strategy • The objective of location strategy is to maximize the benefit of location to the firm • In other words: where is the best place to put our company, our restaurant, our warehouse, our office, etc. • One of the most important decisions a firm makes • Increasingly global in nature • Significant impact on fixed and variable costs • Decisions made relatively infrequently • The objective is to maximize the benefit of location to the firm Location and Costs • Location decisions based on low cost require careful consideration • Once in place, location-related costs are fixed in place and difficult to reduce • Determining optimal facility location is a good investment Location and Innovation • Cost is not always the most important aspect of a strategic decision • Four key attributes when strategy is based on innovation ➢ High-quality and specialized inputs ➢ An environment that encourages investment and local rivalry ➢ A sophisticated local market ➢ Local presence of related and supporting industries Location Decisions • Long-term decisions • Decisions made infrequently • Decision greatly affects both fixed and variable costs • Once committed to a location, many resource and cost issues are difficult to change • Key success factors (figure 8.1) ➢ Country Decisions o Political risks, government rules, attitudes, incentives o Cultural and economic issues o Location of markets o Labor talent, attitudes, productivity, costs o Availability of supplies, communications, energy o Exchange rates and currency risks ➢ Region/Community Decision o Corporate desires o Attractiveness of region (culture, taxes, climate, etc.) o Labor availability, costs, attitudes toward unions o Cost and availability of utilities o Environmental regulations of state and town o Government incentives and fiscal policies o Proximity to raw materials and customers o Land/construction costs ➢ Site Decision o Site size and cost o Air, rail, highway, and waterway systems o Zoning restrictions o Proximity of services/suppliers needed o Environmental impact issues 7 Factors That Affect Location Decisions 1. Labor productivity • Wage rates are not the only cost • Lower productivity may increase total cost • Labor cost per day/productivity (units per day) = cost per unit 2. Exchange rates and currency risks • Can have a significant impact on costs • Rates change over time 3. Costs • Tangible – easily measured costs such as utilities, labor, materials, taxes • Intangible – less easy to quantify and include education, public transportation, community, quality-of-life • 4. Political risk, values, and culture • National, state, local governments attitudes toward private and intellectual property, zoning, pollution, employment stability may be in flux • Worker attitudes towards turnover, unions, absenteeism • Globally cultures have different attitudes towards punctuality, legal, and ethical issues 5. Proximity to markets • Very important to services • JIT systems or high transportation costs may make it important to manufactures 6. Proximity to suppliers • Perishable goods, high transportation costs, bulky products 7. Proximity to competitors • Called clustering • Often driven by resources such as natural, information, capital, talent • Found in both manufacturing and service industries Factor-Rating Method • Popul
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