Chapter 4

CHAPTER 4
LOCATION PLANNING AND ANALYSIS;

DESIGN OF WORK SYSTEM; AND
PROJECT MANAGEMENT
© Copyright 2018, Vietnam Logistics Research

and Development Institute
Learning Objectives
• List some of the main reasons organizations need to make

location decisions.
• Explain why location decisions are important.
• Discuss the options that are available for location decisions.
• Describe some of the major factors that affect location
decisions.
• Outline the decision process for making these kinds of
decisions.
• Use the techniques presented to solve typical problems.
8-2
3
Need for Location Decisions
• Marketing Strategy
• Cost of Doing Business
• Growth
• Depletion of Resources
4
Nature of Location Decisions
• Strategic Importance of location decisions

– Long term commitment/costs
– Impact on investments, revenues, and operations
– Supply chains
• Objectives of location decisions
– Profit potential
– No single location may be better than others
– Identify several locations from which to choose
• Location Options
– Expand existing facilities
– Add new facilities
– Move
5
Making Location Decisions
• Decide on the criteria
• Identify the important factors
• Develop location alternatives
• Evaluate the alternatives
– Identify general region
– Identify a small number of community alternatives
– Identify site alternatives
• Evaluate and make selection
6
Location Decision Factors
Community
Regional Factors Considerations
Multiple Plant Site-related

Strategies Factors
7
Regional Factors
• Location of raw materials

• Location of markets
• Labor factors
• Climate and taxes
8
Community Considerations
• Quality of life
• Services
• Attitudes
• Taxes
• Environmental regulations
• Utilities
• Developer support
9
Site Related Factors
• Land
• Transportation
• Environmental
• Legal
10
Multiple Plant Strategies
• Product plant strategy

• Market area plant strategy
• Process plant strategy
11
Service and Retail Locations
• Manufacturers – cost focused

• Service and retail – revenue focused
– Traffic volume and convenience most important
– Demographics
• Age
• Income
• Education
– Location, location, location
– Good transportation
– Customer safety 12
Comparison of Service and
Manufacturing Considerations
Manufacturing/Distribution Service/Retail
Cost Focus Revenue focus
Transportation modes/costs Demographics: age,income,etc
Energy availability, costs Population/drawing area
Labor cost/availability/skills Competition
Building/leasing costs Traffic volume/patterns
Customer access/parking
1-13
Trends in Locations
• Foreign producers locating in U.S.

– “Made in USA”
– Currency fluctuations
• Just-in-time manufacturing techniques
• Microfactories
• Information Technology
14
Global Locations
• Reasons for globalization

• Benefits
• Disadvantages
• Risks
• Global operations issues
15
Globalization
• Facilitating Factors
– Trade agreements
– Technology
• Benefits
– Markets
– Cost savings
– Legal and regulatory
– Financial
16
Globalization
• Disadvantages
– Transportation costs
– Security
– Unskilled labor
– Import restrictions
– Criticisms
• Risks
– Political
– Terrorism
– Legal
– Cultural
17
Foreign a. Policies on foreign ownership of production facilities
Government Local Content
Import restrictions
Currency restrictions
Environmental regulations
Local product standards
Liability laws
b. Stability issues
Cultural Living circumstances for foreign workers / dependents
Differences Religious holidays/traditions
Customer Possible buy locally sentiment
Preferences
Labor Level of training and education of workers
Work ethic
Possible regulations limiting number of foreign employees
Language differences
Resources Availability and quality of raw materials, energy,
transportation infrastructure
18
Evaluating Locations
• Cost-Profit-Volume Analysis
– Determine fixed and variable costs
– Plot total costs
– Determine lowest total costs
19
Location Cost-Volume Analysis
• Assumptions
– Fixed costs are constant
– Variable costs are linear
– Output can be closely estimated
– Only one product involved
20
Example 1: Cost-Volume Analysis
Finding the Lowest-Cost Range for Multiple Alternatives.
Fixed and variable costs for four potential locations are shown as follow:
L o c a tio n F ix e d V a r ia b le
C ost C ost
A $ 2 5 0 ,0 0 0 $11
B 1 0 0 ,0 0 0 30
C 1 5 0 ,0 0 0 20
D 2 0 0 ,0 0 0 35
a) Plot the total-cost lines for these locations on a single graph.

b) Identify the range of output for which each alternative is superior
(i.e., has the lowest total cost).
c) If expected output at the selected location is to be 8,000 units per
year, which location would provide the lowest total cost?
21
Example 1: Solution
Fixed Variable Total

Costs Costs Costs
A $250,000 $11(10,000) $360,000

B 100,000 30(10,000) 400,000
C 150,000 20(10,000) 350,000
D 200,000 35(10,000) 550,000
22
Example 1: Solution
$(000)
800 D
700
600 B
500 C
400 A
300 A Superior
200 C Superior
100 B Superior
0
0 2 4 6 8 10 12 14 16
Annual Output (000)

23
Example 1: Solution
24
Example 1: Solution
From the graph, you can see that for 8,000 units per
year, location C provides the lowest total cost.
Using formula: Total cost = FC+VC*Q
25
Evaluating Locations
• Transportation Model
– Decision based on movement costs of raw
materials or finished goods
• Factor Rating
– Decision based on quantitative and
qualitative inputs
• Center of Gravity Method
– Decision based on minimum distribution
costs
Reading: Stevenson (2018): Chapter 8 + exercises
26
Project Management
• Projects are unique, one-time

operations designed to accomplish a
specific set of objectives in a limited
time frame
• Example: Keangnam project, Thu

Thiem project, Red river project, etc...
• Any more examples?

Key decisions for project management
• Deciding which projects to implement.

• Selecting the project manager.
• Selecting project team.
• Planning and designing the project.
• Managing and controlling project resources.
• Deciding if and when a project should be terminated

Project Manager
• Responsible for performance goals in term of
quality, time and costs.
• Dealing with human resources effectively.
• Capable of communicating.

Planning and scheduling
GANTT CHARTS CPM and PERT

Gantt charts
• Popular tool for simple projects
How to draw?
• Identify the major activities required.
• Estimate time for each activity.
• Determine the sequence of activity.
• Eg: how to make Teddy bear for kids?

Gantt charts
Activity 1 2 3 4 5 6 7 8 9 10 11 12 13
Cut fur
Stuff and sew fur
Cut material
Sew clothes
Embroider T-shirt
Cut accessories
Sew accessories
Dress bears
Package bears
Ship Bears
• Lot size: 100 bears

• All activities are scheduled to begin at their and Development Institute

Gantt charts
• Lot size: 100 bears

• All activities are scheduled to begin at their
earliest start time
• Completed work
• Work to be completed

Gantt charts
Project managers are able to know:
- Activities and planned duration

- When they were to occur
- Activities were on time and ones delayed
- Direct attention for the one needed most

Gantt charts
• Advantages:
- Easy to do
- Know the sequence of activity and time to do it
- Determine total time to terminate jobs
• Disadvantages:
- Can’t maximize the benefit of resources (materials, time...)

GANTT CHART - Example
A set of activities needed for making a new product
+ A – working hours: 4h
+ B – 3h
+ C – 5h
+ D – 6h
+ E – 4h
Requirement: B and D start after A completes; C after B; E
after D.
Draw Gantt Charts to present these activities and determine
the total working hours.
Critical Path Method (CPM)
• For planning and coordinating large projects
• Developed by Remington Rand Corporation and

Dupont in 1950s.

How to do?
• Draw a network diagram.
• Determine a critical path.
• Calculate EF (earliest finish), LF (latest finish)
• Calculate slack
• Calculate ES (earliest start), LS (latest start)

A network diagram
• Depict major project activities and their
sequential relationships
• Constructing by AOA (activity-on-arrow)
- Arrows designate activities, which consume resources
and/or time.
- Show the sequence of activities
a c e
2 4
1
5
b 3
d
A critical path
• The longest path which determines expected project
duration.
• Critical activities are ones on the critical path, which
have to be completed immediately . If delayed, it will
affect the completion time of project.
• Note: no slack time for critical activities

Earliest Finish (EF) Latest Finish (LF)

• For the first activity of a • For the last activity of a
project: EF1 = t1 project: LFn = EFn
(t: time for completing the

activity)
• For activity i:
• For activity i:
EFi = max{ EFj } + ti LFi = min {LFj - tj }
(Activity j precedes activity i) (Activity j follows activity i)

Slack
• Allowable slippage for a path
• Paths that are shorter than the critical path:
experience some delays without affecting the overall
project completion time
• For activity i: Si = LFi - EFi

Earliest start (ES) – Latest start (LS)
ES = EF - t
LS = LF - t

CPM - Example
Activities Preceding Completion time (days)
Activity
A - 20
B A 10
C B 8
D A 11
E C,D 7
F E 6
G D 12
H E 13
I G, H 5
CPM - Example
Requirements:
• Draw a network diagram
• Determine a critical path
• Calculate EF, LF, S, ES, LS
of each activity

Exercise 1
Activities Preceding Completion time
Activity (days) • Draw a diagram
A - 12 • Determine the
B A 6 critical path
C A 9 • Calculate ES,
D B 14 LS, EF, LF, S
E C 5
F C 5
G D 8
H E 13
I G 7
J H, F, I 14

Chapter 4

Uploaded by

Copyright:

Available Formats

You might also like

Chapter 4

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chapter 4

Uploaded by

Copyright:

Available Formats

CHAPTER 4

LOCATION PLANNING AND ANALYSIS;

© Copyright 2018, Vietnam Logistics Research

• List some of the main reasons organizations need to make

• Strategic Importance of location decisions

Multiple Plant Site-related

• Location of raw materials

• Product plant strategy

• Manufacturers – cost focused

Cost Focus Revenue focus

Transportation modes/costs Demographics: age,income,etc

Energy availability, costs Population/drawing area

Labor cost/availability/skills Competition

Building/leasing costs Traffic volume/patterns

• Foreign producers locating in U.S.

• Reasons for globalization

a) Plot the total-cost lines for these locations on a single graph.

Fixed Variable Total

A $250,000 $11(10,000) $360,000

Annual Output (000)

Using formula: Total cost = FC+VC*Q

• Projects are unique, one-time

• Example: Keangnam project, Thu

© Copyright 2018, Vietnam Logistics Research

• Deciding which projects to implement.

© Copyright 2018, Vietnam Logistics Research

© Copyright 2018, Vietnam Logistics Research

GANTT CHARTS CPM and PERT

© Copyright 2018, Vietnam Logistics Research

• Popular tool for simple projects

© Copyright 2018, Vietnam Logistics Research

• Lot size: 100 bears

• All activities are scheduled to begin at their and Development Institute

• Lot size: 100 bears

© Copyright 2018, Vietnam Logistics Research

- Activities and planned duration

© Copyright 2018, Vietnam Logistics Research

© Copyright 2018, Vietnam Logistics Research

• Developed by Remington Rand Corporation and

© Copyright 2018, Vietnam Logistics Research

© Copyright 2018, Vietnam Logistics Research

© Copyright 2018, Vietnam Logistics Research

Earliest Finish (EF) Latest Finish (LF)

(t: time for completing the

(Activity j precedes activity i) (Activity j follows activity i)

© Copyright 2018, Vietnam Logistics Research

© Copyright 2018, Vietnam Logistics Research

© Copyright 2018, Vietnam Logistics Research

You might also like