7 Location Factors For Manufacturing

Time For Game Time! For this activity,the class will be split into two teams A & B. The Objective of this game is to test everyones knowledge about Location Factors & Manufacturing and to see which team can succeed as the winner. Political Factors They wanted to expand into North. Factors to Consider When Choosing a Business Location Before you start looking for a business location, you should have a clear picture of what you have and what you want to have in future. Coming up with that picture is a time-consuming process, which is both tedious and exciting – but you need to give it the attention that it deserves. Step 1 Identify Dominant Location Factors. In this step managers identify the location factors that are dominant for the business. This requires managerial judgment and knowledge. Step 2 Develop Location Alternatives. Once managers know what factors are dominant, they can identify location alternatives that satisfy the selected factors. 7.1 General Controls 7.2 Receipt and Quarantine 7.3 Sampling and Testing of Incoming Production Materials 7.4 Storage 7.5 Re-evaluation 8 Production and In-Process Controls 8.1 Production Operations 8.2 Time Limits 8.3 In-process Sampling and Controls 8.4 Blending Batches of Intermediates or APIs 8.5 Contamination Control. Industrial location factors. Footloose industries are those that are less dependent on factors that tie them to a specific geographical location. Unlike manufacturing industries, tertiary.

1. 7 Location Factors For Manufacturing Costs
2. 7 Location Factors For Manufacturing

Learning Objectives

1. Define operations management, and discuss the role of the operations manager in a manufacturing company.
2. Describe the decisions made in planning the production process in a manufacturing company.

Like PowerSki, every organization—whether it produces goods or provides services—sees Job 1 as furnishing customers with quality products. Thus, to compete with other organizations, a company must convert resources (materials, labor, money, information) into goods or services as efficiently as possible. The upper-level manager who directs this transformation process is called an operations manager. The job of operations management (OM), then, consists of all the activities involved in transforming a product idea into a finished product, as well as those involved in planning and controlling the systems that produce goods and services. In other words, operations managers manage the process that transforms inputs into outputs. Figure 11.1 “The Transformation Process” illustrates this traditional function of operations management.

In the rest of this chapter, we’ll discuss the major activities of operations managers. We’ll start by describing the role that operations managers play in the various processes designed to produce goods and offer services. Next, we’ll look at the production of goods in manufacturing firms; then, we’ll describe operations management activities in companies that provide services. We’ll wrap up the chapter by explaining the role of operations management in such processes as quality control and outsourcing.

Operations Management in Manufacturing

Like PowerSki, all manufacturers set out to perform the same basic function: to transform resources into finished goods. To perform this function in today’s business environment, manufacturers must continually strive to improve operational efficiency. They must fine-tune their production processes to focus on quality, to hold down the costs of materials and labor, and to eliminate all costs that add no value to the finished product. Making the decisions involved in the effort to attain these goals is the job of the operations manager. That person’s responsibilities can be grouped as follows:

• Production planning. During production planning, managers determine how goods will be produced, where production will take place, and how manufacturing facilities will be laid out.
• Production control. Once the production process is under way, managers must continually schedule and monitor the activities that make up that process. They must solicit and respond to feedback and make adjustments where needed. At this stage, they also oversee the purchasing of raw materials and the handling of inventories.
• Quality control. Finally, the operations manager is directly involved in efforts to ensure that goods are produced according to specifications and that quality standards are maintained.

Let’s take a closer look at each of these responsibilities.

Planning the Production Process

The decisions made in the planning stage have long-range implications and are crucial to a firm’s success. Before making decisions about the operations process, managers must consider the goals set by marketing managers. Does the company intend to be a low-cost producer and to compete on the basis of price? Or does it plan to focus on quality and go after the high end of the market? Perhaps it wants to build a reputation for reliability. What if it intends to offer a wide range of products? To make things even more complicated, all these decisions involve trade-offs. Upholding a reputation for reliability isn’t necessarily compatible with offering a wide range of products. Low cost doesn’t normally go hand in hand with high quality.

With these factors in mind, let’s look at the specific types of decisions that have to be made in the production planning process. We’ve divided these decisions into those dealing with production methods, site selection, facility layout, and components and materials management.

Production-Method Decisions

The first step in production planning is deciding which type of production process is best for making the goods that your company intends to manufacture. In reaching this decision, you should answer such questions as the following:

• How much input do I receive from a particular customer before producing my goods?
• Am I making a one-of-a-kind good based solely on customer specifications, or am I producing high-volume standardized goods to be sold later?
• Do I offer customers the option of “customizing” an otherwise standardized good to meet their specific needs?

One way to appreciate the nature of this decision is by comparing three basic types of processes or methods: make-to-order, mass production, and mass customization. The task of the operations manager is to work with other managers, particularly marketers, to select the process that best serves the needs of the company’s customers.

Make-to-Order

At one time, most consumer goods, such as furniture and clothing, were made by individuals practicing various crafts. By their very nature, products were customized to meet the needs of the buyers who ordered them. This process, which is called a make-to-order strategy, is still commonly used by such businesses as print or sign shops that produce low-volume, high-variety goods according to customer specifications.

Mass Production

Figure 11.2

Automakers produce a high volume of cars in anticipation of future demand.

By the early twentieth century, however, a new concept of producing goods had been introduced: mass production (or make-to-stock strategy) is the practice of producing high volumes of identical goods at a cost low enough to price them for large numbers of customers. Goods are made in anticipation of future demand (based on forecasts) and kept in inventory for later sale. This approach is particularly appropriate for standardized goods ranging from processed foods to electronic appliances.

Mass Customization

But there’s a disadvantage to mass production: customers, as one contemporary advertising slogan puts it, can’t “have it their way.” They have to accept standardized products as they come off assembly lines. Increasingly, however, customers are looking for products that are designed to accommodate individual tastes or needs but can still be bought at reasonable prices. To meet the demands of these consumers, many companies have turned to an approach called mass customization, which (as the term suggests) combines the advantages of customized products with those of mass production.

This approach requires that a company interact with the customer to find out exactly what the customer wants and then manufacture the good, using efficient production methods to hold down costs. One efficient method is to mass-produce a product up to a certain cut-off point and then to customize it to satisfy different customers.

The list of companies devoting at least a portion of their operations to mass customization is growing steadily. One of the best-known mass customizer is Nike, which has achieved success by allowing customers to configure their own athletic shoes, apparel, and equipment through Nike’s iD program. The Web has a lot to do with the growth of mass customization. Levi’s, for instance, lets a woman find a pair of perfect fitting jeans by going through an online fitting process that first identifies her “curve” type: slight (straight figure), demi (evenly proportioned), bold (curvy figure, which experiences waist gapping in the back), and supreme (curviest shape, which needs a higher rise in the back). Oakley offers customized sunglasses, goggles, watches, and backpacks, while Mars, Inc. can make M&M’s in any color the customer wants (say, school colors) as well as add text and pictures to the candy¹.

Naturally, mass customization doesn’t work for all types of goods. Most people don’t care about customized detergents or paper products (although a customized Kleenex tissue box with your picture on it and a statement that says, “go ahead…cry over me!” might come in handy after a relationship breakup with your significant other (Windisman, 2008).) And while many of us like the idea of customized clothes, footwear, or sunglasses from Levi’s, Nike, or Oakley, we often aren’t willing to pay the higher prices they command.

Facilities Decisions

After selecting the best production process, operations managers must then decide where the goods will be manufactured, how large the manufacturing facilities will be, and how those facilities will be laid out.

Site Selection

In choosing a location, managers must consider several factors:

7 Location Factors For Manufacturing Costs

• To minimize shipping costs, both for raw materials coming into the plant and for finished goods going out, managers often want to locate plants close to suppliers, customers, or both.
• They generally want to locate in areas with ample numbers of skilled workers.
• They naturally prefer locations where they and their families will enjoy living.
• They want locations where costs for resources and other expenses—land, labor, construction, utilities, and taxes—are low.
• They look for locations with a favorable business climate—one in which, for example, local governments might offer financial incentives (such as tax breaks) to entice them to do business in their locales.

Managers rarely find locations that meet all these criteria. As a rule, they identify the most important criteria and aim at satisfying them. In deciding to locate in San Clemente, California, for instance, PowerSki was able to satisfy three important criteria: (1) proximity to the firm’s suppliers, (2) availability of skilled engineers and technicians, and (3) favorable living conditions. These factors were more important than operating in a low-cost region or getting financial incentives from local government. Because PowerSki distributes its products throughout the world, proximity to customers was also unimportant.

Capacity Planning

Now that you know where you’re going to locate, you have to decide on the quantity of products that you’ll produce. You begin by forecasting demand for your product. As we discussed in Chapter 10 “Product Design and Development”, forecasting isn’t easy. To estimate the number of units that you’re likely to sell over a given period, you have to understand the industry that you’re in and estimate your likely share of the market by reviewing industry data and conducting other forms of research.

Once you’ve forecasted the demand for your product, you can calculate the capacity requirements of your production facility—the maximum number of goods that it can produce over a given time under normal working conditions. In turn, having calculated your capacity requirements, you’re ready to determine how much investment in plant and equipment you’ll have to make, as well as the number of labor hours required for the plant to produce at capacity.

Like forecasting, capacity planning is difficult. Unfortunately, failing to balance capacity and projected demand can be seriously detrimental to your bottom line. If you set capacity too low (and so produce less than you should), you won’t be able to meet demand, and you’ll lose sales and customers. If you set capacity too high (and turn out more units than you should), you’ll waste resources and inflate operating costs.

Key Takeaways

• The job of operations management is to oversee the process of transforming resources into goods and services.
• The role of operations managers in the manufacturing sector includes production planning, production control, and quality control.
• During production planning, managers determine how goods will be produced (production process), where production will take place (site selection), and how manufacturing facilities will be laid out (layout planning).
• In selecting the appropriate production process, managers compare three basic methods: make-to-order strategy (goods are made to customer specifications), mass production or make-to-stock strategy (high volumes of goods are made and held in inventory for later sale), and mass customization (high volumes of customized goods are made).
• In choosing the site for a company’s manufacturing operations, managers look for locations that minimize shipping costs, have an ample supply of skilled workers, provide a favorable community for workers and their families, offer resources at low cost, and have a favorable business climate.
• Managers estimate the quantity of products to be produced by forecasting demand for their product and then calculating the capacity requirements of the production facility—the maximum number of goods that it can produce over a given period under normal working conditions.

Exercises

1. (AACSB) Analysis

   Two former surfers invented a material for surfboards that’s lighter and stronger than anything manufacturers now use. They have received funding to set up a production facility, and they want you to help them select a location. In addition to your recommendation, identify the factors that you considered in reaching your decision.

2. (AACSB) Analysis

   Compare and contrast three common types of production processes: make-to-order, make-to-stock, and mass customization. What are the advantages and disadvantages of each? Why are more companies devoting at least a portion of their operations to mass customization? Identify three goods that could probably be adapted to mass customization and three that probably couldn’t.

¹See these websites for examples of customized products: Nike (http://nikeid.nike.com/nikeid/index.jsp), Levi (http://us.levi.com/shop/index.jsp?categoryId=4370093), Oakley (http://www.oakley.com/custom), and Mar’s M&M’s (http://www.mymms.com/utility.aspx?src=) (accessed November 2, 2011).

References

Windisman, A., “Personalized Packaging: Kleenex Offers Customizable Tissue Boxes,” One of a Kind Publishing, Inc., January 3, 2008, http://blogs.oneofakindpublishing.com/index.php?/archives/77-Personalized-Packaging-Kleenex-Offers Customizable-Tissue-Boxes.html (accessed November 1, 2011).

There are a lot of variables in play when building a new industrial food plant, and site selection is one of the most important decisions you’ll make — so there are several things to keep in mind.

It’s not just a matter of securing a piece of property and breaking ground or renovating. The location you choose will have a direct impact on the financial success of your new facility.

Here are seven things you must consider when selecting a site for your new food plant.

1. Geographical logistics

Even if you hated it in high school, geography matters when it comes to site selection. Geographical logistics actually have the biggest impact on the bottom line. Is the land, for example, buildable as is or will it require moving earth or improving soils? Those costs can quickly add up.

The distance to sources of raw materials and your customers is definitely something to keep in mind. To manage costs, you don’t want to be too far from either of them. In addition, the surrounding transportation infrastructure is crucially important. Robust access is key, both for transporting materials and finished products to and from the site, and for a reasonable employee commute.

Something else to consider is whether the region you choose is prone to extreme weather events or natural disasters. Some areas of the country experience hurricanes, tornadoes, earthquakes and harsh winters more frequently than others. These can all disrupt business operations; therefore, open discussion and proper planning will assist in the selection process.

2. Environmental impacts

The immediate surroundings of your new site are also important. A neighboring facility, for example, may produce air emissions that will impact your operations. You’ll also need to keep in mind environmental regulations and make sure you can comply in terms of any expected emissions your baking facility will generate. The same goes for wastewater. What can the local area receive? Will you need to pretreat the wastewater before it goes to the municipal utility?

3. Local labor market

This is another big one. You must assess the labor market in the city or region you are considering for a new facility. This includes understanding the unemployment rate, available labor, overall economy and other factors. If you require a significant labor force, for example, a site far away from a major metropolitan area or town would not be ideal.

Something else to consider is whether locals have the skills and training your facility demands. Is the area known for a particular kind of workforce with certain abilities? Perhaps a factory used to be located there that employed people with the knowledge and experience you’ll need.

4. Government incentives

The investment incentives offered by various governments vary greatly. It’s always good to compare what’s out there and how certain offers will affect your bottom line. Certain regions offer tax breaks for economic improvement zones that they’re trying to revitalize. You may be able to negotiate favorable terms for the zoning and permitting process as well. Some municipalities also offer lower impact fees or a stipend to cover the cost of training the population. It pays to know what’s on offer before you commit to a site.

5. Government regulations

Ah, red tape. There’s no avoiding it — but carefully choosing a site for your new facility can help minimize headaches. As noted above, you might be able to negotiate certain things when it comes to permitting and zoning. But it is likely some regulations you’ll just have to live with, so make sure those are known as soon as possible, in order to not negatively impact your bottom line.

6. Facility type

It’s not just the site, but the building you’ll put on it that’s important to think about. Will you build a greenfield facility or retrofit an existing building? Many times, retrofitting isn’t ideal since food manufacturing facilities have unique and specific needs. Your operations will likely have certain food safety, processing and structural requirements, so it’s important to take these into consideration when analyzing a site.

7. Utilities

Your facility will need adequate electricity, gas, water and sewer access. Is everything you need in terms of utilities available at your preferred site? Is the infrastructure in place to meet your needs? If not, additional time and expenses may be required to make the site suitable for your operations.

Prioritizing and getting help

7 Location Factors For Manufacturing

Just reading through the list above might make you think site selection is an impossible process, especially since no one location will check every box. Setting priorities and knowing what your non-negotiables are, however, can make things far easier.

The number one priority is understanding your logistics. That comes first, and everything else flows from it. If the location is too far from raw materials and customers, or there’s no available labor in the area, then you’re not setting yourself up for success. Factors that will negatively affect the bottom line — such as excessive initial costs from infrastructure improvements and site remediation — are also a sign that the site may not be for you.

Have questions about selecting a site for your facility? Stellar advises food manufacturers with site selection and more. Feel free to leave a comment below or send me your questions at tboll@stellar.net