Operations Management Chap 8 Location Strategies
Which of the following methods best considers intangible costs related to a location decision?
A) transportation method
B) assignment method
C) locational break-even analysis
D) factor-rating method
A) The focus in manufacturing is revenue maximization, while the focus in service is cost minimization.
B) The focus in service is revenue maximization, while the focus in manufacturing is cost minimization.
C) The focus in manufacturing is on labor, while the focus in service is on raw materials.
D) There is no difference in focus.
A) environmental focus
B) labor focus
C) revenue focus
D) cost focus
A) revenue focus.
B) labor focus.
C) environmental focus.
D) cost focus.
A) labor availability
B) zoning restrictions
C) location of markets
D) government rules
A) transportation systems
B) environmental impact issues
C) site size
D) cultural issues
A) locational break-even
D) transportation model
a) uses both qualitative and quantitative factors.
B) performs a cost-volume analysis.
C) finds the location of a distribution center that minimizes distribution costs.
D) determines the best pattern of shipments from several points of supply to several points of demand.
C) San Diego
D) Virginia Beach
Open Hint for Question 10 in a new window.
A) appearance and image.
B) utility and labor costs.
C) parking and access.
D) security and lighting.
A) traffic counts
B) crossover charts
C) factor-rating method
D) transportation method
A) proximity to markets.
B) proximity to suppliers.
C) proximity to competitors.
D) proximity to intangible costs
Open Hint for Question 14 in a new window.
C) El Paso
One factor affecting the country location decision is exchange rates.
Intangible costs can be measured with precision.
Manufacturing firms find it useful to be close to customers when transportation of finished goods is expensive.
One of the greatest challenges in a global operations decision is dealing with another country’s culture.
The factor rating method is used to determine which location will result in the lowest transportation costs.
A geographic information system has both demographic and topographic information in its database.
What is the purpose of the center-of-gravity method? What are the assumptions that accompany this model? Concoct a location scenario where the assumptions are less likely to be violated and another scenario in which the assumptions are clearly violated and the analysis is invalid.
The center-of-gravity method assumes that cost is directly proportional to both the distance and volume shipped. These two values are multiplied for each site to provide a measure of the magnitude of each site’s contribution in determining the location of the central point. While this has some intuitive appeal, it should be noted that transportation costs may vary dramatically as distances and volumes change. Smaller volumes might be transported by an independent carrier as a partial load in a truck. Larger volumes may be moved via waterway, railcar, or by a fleet of trucks. Depending on infrastructure, different transportation costs per ton per mile may apply; this is a reality that the basic center-of-gravity model does not address.
The model also finds the geometric center or balancing point of all sites without regard to actual transportation route. One analogy for the center-of-gravity model is the balancing point for a serving tray at a restaurant. In reality, transportation is rarely accomplished on a straight line, instead conforming to the realities of a grid system of streets or availability of access to the desired carriers.
The model is well suited where all volumes are reasonably static from shipment to shipment and there is one transportation method available to all sites. On a small scale, this might be a method of locating a photocopy machine in an office and, on a larger scale, might be the location of a fire department in an urban setting. The model does not work well when volumes are dramatically different from period to period or where there are significant disparities in the costs between available transportation modes, such as might exist when two port cities might use ocean liners but cities further inland must cross a mountain range and spend time breaking bulk and then trucking materials to their destination.
Discuss tangible and intangible cost factors that affect location decisions and the impact of these cost factors on productivity.
Productivity is calculated as output divided by input, so the calculation at its most basic level considers quantity or value of outputs compared with the quantity or value of the input or inputs. These inputs are the tangible costs that are explicitly identified in the formula. However, your authors make clear that intangible costs play a role in productivity. The quality and attitude of employees is an intangible cost, but it cannot be denied that low morale, perhaps fueled by poor management or by poor community attitudes towards the company, can adversely impact productivity. It cannot be said with any certainty which set of factors has the greatest impact on productivity, but it is reasonable to assume that both tangible and intangible costs factor into the firm’s productivity.
These factors are distinct from the concerns of a typical manufacturer because they are more focused on customers and the potential revenue derived from them. A manufacturer focuses more on costs since the price of the manufactured good, with few exceptions, is more stable from region to region.
The center-of-gravity method requires the modeler to assume that costs per volume-distance are the same for all sites and that there is equal accessibility to all sites. The costs, distances, and volumes could be determined by the firm without too much difficulty.
The factor-rating method requires the modeler to select a set of factors that are most important and then to assign degree of importance to the factors. Each site under consideration must be scored for each factor so that a site’s overall score can be determined. The greatest difficulty arises in the assignment of the scores and weights for the factors; it is likely that a slight change in either would yield a different choice as a best location. The subjectivity quotient of the factor-rating method leaves it open to greater skepticism than the center-of-gravity method.