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Location
Setting a location for manufacturing facilities, service outlets, or branch offices is a strategic decision. The location of a company's facilities is very important. When choosing a location, several factors are taken to account. That includes the company's operating costs, the prices it charges for goods and services, and its ability to compete in the marketplace. Facility location is the process of determining a geographic site for a firm's operations (Krajewski, 408).
When choosing a location, managers have to look at different factors. Managers weigh two conditions. The factor must be sensitive to location and the factor must have a high impact on the company's ability to meet its goals (Krajewski, 408). If any factor fails to meet any of the two conditions, managers usually disregard the factors. Managers divide the location factors into two dominant and secondary factors. The dominant factors are those that have a high impact on sales and costs, and those obtained from competitive priorities. Secondary factors are important also. Managers can choose to either lower or even ignore some of the factors if others are more important.
There are six dominant factors in manufacturing. Managers take a look at these factors when deciding where to locate. In order of importance, they are favorable labor climate, proximity to markets, quality of life, proximity to suppliers and resources, proximity to the parent company's facilities, and utilities, taxes, and real estate costs (Krajewski, 408). The first factor, a favorable labor climate, may be the most important factor in location decision-making. Labor climate is a function of wage rates, training requirements, attitudes toward work, worker productivity, and union strength (Krajewski, 408). In case of relocation, it is important that a favorable labor climate to be taken into consideration. The second dominant factor is proximity to markets. Locating close to markets is very important since sometimes, when manufacturing heavy products, outbound transportation rates can be high. For example, manufacturers of heavy goods emphasize proximity to their markets. Quality of life is the third dominant factor. Quality of life is a factor that can sometimes make the difference in location decisions; good schools, recreational facilities, cultural events, and an attractive life-style are all taken into consideration when determining quality of life (Krajewski, 410). The fourth factor, proximity to suppliers and resources is important to firms who are dependent on inputs of bulky materials. Since inbound transportation costs might become dominant, it is important to locate close to its suppliers and resources. Proximity to the parent company's facilities is the fifth factor. Utilities, taxes, and real estate costs are part of the last dominant factor in manufacturing.
The factors mentioned above not only apply to manufacturing but to services too, with one condition the impact that the location might have on sales and customer satisfaction (Krajewski, 410). The first dominant factor in services is proximity to customers. Location is the key factor in determining customer convenience. Transportation costs and proximity to markets is the next factor. It is important to warehousing and distribution operations. For example, with a warehouse nearby, inventories are closer to the customer. Delivery time can become a competitive advantage. Location of competitors is another factor. Management should not only consider the current location of competitors but also try to anticipate their reaction to the firm's new location (Krajewski 411). Avoiding established competition often pays.
Globalization
Globalization is the description of a business's development of facilities and operation around the world (Krajewski 401). Over the years, Ford Motor Co. has built production facilities overseas. Globalization results in more exports to and imports from other countries often called offshore sales and imports. Globalization of services is also widespread.
There are several reasons for globalization. The first one is that there are improved transportation and communication technologies. With new and improved communications technology and transportation, it is now easier from companies, like Ford, to break down the barriers of time and space between countries. For example, Ford has a plant in Korea (Ford Motor Sales and Service Korea). Air transportation can help move goods quickly when needed, from the U.S. to Korea, and vice versa, or other countries. Also communication technologies can help, for example, the president of Ford Korea communicate with someone from the U.S.
The second reason for globalization is that there are opened financial systems. This makes it easier for firms to locate where capital, supplies, and resources are cheapest.
The third reason is that there is increased demand for imports. Import penetration of the major economies is increasing as political barriers to international trade have crumbled (Krajewski 40). Penetration has been increased by locating production facilities in foreign countries because customer aversion to buying imports.
The fourth reason is that there are reduced import quotas and other trade barriers are avoided. The European Union (EU) and the North American Free Trade Agreement (NAFTA) make trade between countries easier; so does GATT, a tariff-cutting world trade agreement and the U.S.-China Trade Relations with China (Krajewski 40). The World Trade Organization facilitates free trade.
There a several disadvantages to globalization. A firm may have to relinquish proprietary technology if it turns over some of its component manufacturing to offshore suppliers (Krajewski 40). Another disadvantage is that there may be political risks. Employee skills may be lower in foreign countries, requiring additional training time (Krajewski 40).
Layout Planning
Layout planning is planning that involves decisions about the physical arrangement of economic activity centers within a facility (Krajewski 445). The goal of layout planning is to allow workers and equipment to operate most effectively.
There are four questions that manager should ask before he can make any decision regarding physical arrangement. The first question is "what centers should the layout include?" Centers must be able to maximize productivity. The second question managers should ask is "how much space and capacity does each center need?" Managers should make sure there will be enough space. If there isn't enough space, productivity can be reduced and employees' privacy deprived. It can also cause health and safety hazard. The third question is "how should each center's space be configured?" The amount of space, its shape, and the elements in a center are interrelated (Krajewski 445). Providing a pleasing atmosphere should also be considered. The last question is "where should each center be located?" Productivity can be affected by location.
The location of a center has two dimensions relative location, which is the placemen of a center relative to other centers, and absolute location, the particular space that the center occupies within the facility (Krajewski 445). Both affect a center's performance.
Supply Chain Management
Supply chain management is the synchronization of a firm's processes and those of its suppliers to match the flow of materials, services, and information with customer demand (Krajewski 48). The automotive supply chain is among the most complex in the world. It includes a variety of suppliers, service providers, outsources, distributors, and dealers (Brown and Chackalackal 1). Many people view supply chain optimization primarily as an exercise in inventory reduction. But the ultimate goal is to garner higher profit margins or finished goods. (Paul ).
Customer Interface
The order-placement process involves the activities required to register the need for a product or service and to confirm the acceptance of the order. The internet has enabled firms to reengineer their order-placement process to benefit. The internet provides the following advantages for a firm's order-placement process.
Cost reduction is an advantage of order placement processes. Customers can select the products and services they want and place an order with the firm without actually talking to anyone (Krajewski 507). As part of the order placement process, a web page can allow customers to enter credit card information or purchase order numbers. Global access and pricing flexibility are two other advantages (Krajewski 507).
The order fulfillment process involves the activities required to deliver a product or service to a customer. This process might be called upon to address any of the competitive priorities falling under the categories of cost, quality, time, or flexibility (Krajewski 507). Devdutt Yellurkar, president and CEO of Yantra Corporation, said that "today order fulfillment processes extend far beyond the enterprise to include suppliers and logistics providers, typically spars multiple sales channels." (1)
The Internet provides a quick and efficient means to share information along the supply chain. Accurate information about customers' operations, such as current inventory positions, future demands and production schedules, or expected orders for the firm's products, enables the firm's order fulfillment process to better anticipate the future needs of its customers (Krajewski 507).
Inventory placement is a fundamental supply chain decision. The firm could keep the entire finished goods inventory at the manufacturing plant. Inventory pooling is a reduction in inventory and safety stock because of the merging of variable demands from customers (Krajewski 508). Another approach is to use forward placement. Forward placement means locating stock closer to customers at a warehouse, DC, wholesaler, or retailer. This can cause faster delivery times and reduced transportation costs.
Postponement is a tactic used by assemble-to-order and mass customization firms that refers to delaying the customizing of a product or service until the last possible moment (Krajewski 510).
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