Unit 2

Management of Conversion System

Chapter 6: Facility location
Lesson 20 : Tutorial 5

Good Morning students, today we are going to have a tutorial session for the
previous lesson. The overall objective is to appreciate how the theoretical concepts
are translated and applied into practical business situations. We would start with a
few problems to review our conceptual understanding and wind up the session with
a well designed case study.
I hope the session results into value addition for all of us.
Let’s put our thinking caps and start now.

1. Which of the following methods best considers intangible costs related to a

location decision?
(a) weighted method
(b) locational break-even analysis
(c) transportation method
(d) assignment method
(e) none of the above

2. What is the major difference in focus between location decisions in the service
sector and in the manufacturing sector?
(a) there is no difference in focus
(b) the focus in manufacturing is revenue maximization, while the focus in
service is cost minimization
(c) the focus in service is revenue maximization, while the focus in
manufacturing is cost minimization
(d) the focus in manufacturing is on raw materials, while the focus in service
is on labour

3. Service / retail / professional locational analysis typically has a:

(a) cost focus
(b) revenue focus
(c) labour focus
(d) environmental focus
4. The factors involved in location decisions include
(a) foreign exchange
(b) attitudes
(c) labour productivity
(d) all of the above
(e) none of the above

5. Industrial locational analysis typically has a

(a) cost focus
(b) revenue focus
(c) labour focus
(d) environmental focus

6. Hotel chain find regression analysis useful in site location

(a) True
(b) False

7. The telemarketing industry seeks locations that have

(a) good electronic movement of data
(b) low cost labour
(c) adequate availability of labour
(d) all of the above

8. Factors affecting location decisions include

(a) proximity to markets, proximity to suppliers, proximity to athletic
facilities
(b) site costs, transpotation availability, labour availability
(c) average age of labour force, labour costs, number of females in college
(d) utility costs, zoning, altitude of city
(e) all of the above

9. Break into teams. Select two organizations, one in services and one in
manufacturing, that are known to some of your team members. What are the key
factors that each organization would consider in locating a new facility? What
data would you want to collect before evaluating the location options, and how
would you collect it? Would additional factors or data be needed if some of the
location options were in another country? Explain.

10. Bindley Corporation has a one-year contract to supply motors for all washing
machines produced by Rinso Ltd. Rinso manufactures the washers at four
locations around the country: New York, Fort Worth, San Diego, and
Minneapolis. Plans call for the following numbers of washing machines to be
produced at each location:

New York 50,000

Fort Worth 70,000
 San Diego 60,000
Minneapolis 80,000

Bindley has three plants that can produce the motors. The plants and production
capacities are

Boulder 100,000
Macon 100,000
Gary 150,000

Due to varying production and transportation costs, the profit Bindley earns on each
1,000 units depends on where they were produced and where they were shipped. The
following table gives the accounting department estimates of the rupee profit per unit.
(Shipment will be made in lots of 1000)

Produced at New York Fort Worth San Diego Minneapolis

Boulder 7 11 8 13
Macon 20 17 12 10
Gary 8 18 13 16

Given profit maximization as a criterion, Bindley would like to determine how many
motors should be produced at each plant and how many motors should be shipped from
each plant to each destination.

(a) Develop a transportation table for this problem

(b) Find the optimal solution.

11. Case: Manufacturing Site Selection in China

A Fortune 500 auto parts producer sought to place its first wholly-owned factory in
China. Where to put the factory in such a vast country? There were numerous options,
based on where the major centers of car production were in China. The South of China, in
the Guangdong region, represents about 2% of China’s car manufacturing power.
Chongqing, in the mountainous central portion of the country, has about 5% of the
automobile market. The North of China,
around Beijing and Tianjin, represents
about a third of China’s automobile
manufacturing capability.

Meanwhile, the central east coast of

China represents the lion’s share of
activity in China’s burgeoning car market.
Within a 200 km radius of Shanghai is
more than half the total manufacturing
activity in China’s automobile industry.
Companies like Shanghai VW, Shanghai GM, Fiat, Geely, and SAIC provide the engine
of growth for the fast-paced car market in China.

Silk Road Communications (SRC) consultants decided that since this was the company’s
first and primary investment in China, it would be best to seed it in the heart of the
Chinese market – the Yangtze Delta region. Silk Road Communications focused the site
survey on two provinces: Jiangsu Province and Zhejiang province. The provinces are like
butterfly wings to Shanghai: Jiangsu Province to the north; Zhejiang Province to the
south. The Silk Road team considered including Anhui Province in the search for a time,
but then felt the economic development level and infrastructure conditions would not be
able to support a relatively large ($10 million) investment of a progressive technology
company. Further, Silk Road felt the client’s first investment would have enough of a
learning curve without challenges being compounded by a “Wild West” environment.

Silk Road worked closely with

executives of the client company to
tailor a survey to the company’s
specific requirements both in America
and according to the strategy it had
laid out for itself in China. SRC staff
then translated the 20-question survey
into Chinese language. Silk Road
consultants contacted the government
officials of more than thirty Economic
Development Zones (EDZs) in Jiangsu
and Zhejiang and asked them to
complete the survey. The survey was a
profile of the Zone that would give the
Team some idea of whether the Zone merited a visit. All but one of the zones completed
the survey and returned it to SRC.

SRC ranked the surveys by the viability of the EDZ each survey presented. SRC Chinese
staff in America and in China then coordinated a schedule with twenty-two of the EDZs
for visits by SRC staff (see Figure 3). Armed with the completed surveys, a video camera
and a notebook, SRC researchers visited the twenty-two EDZs in eleven consecutive
business days.

The SRC survey team interviewed scores of government officials in the EDZs and the
local city governments, walked the land proposed for its client’s investment, and met
company representatives that had already invested in the EDZ. SRC collected literature
and Powerpoint presentations and videos each of the EDZs offered SRC staff to educate
the staff about the EDZ.
 SRC team members in
Beijing and in Chicago
assembled the team’s
findings to present its “top
picks” to Client executives.
The Team developed a
weighted ranking of the
EDZs, using an expanded
list of 30 criteria it
developed refined while
visiting the EDZs.

Client executives
confirmed the top picks
and asked SRC to arrange
a trip that would involve
their seeing the top eight
EDZs with their own eyes.

Within four months of originally commissioning SRC to identify potential sites for their
investment, the Client had settled on three EDZs in which it was willing to invest.

Within six months of initiating the search it signed an agreement with one of the EDZs to
launch its investment in the location.

Dear students, with this I would like to conclude the today’s tutorial. I hope it has
been a great learning process for all of you and that this exercise has resulted in
immense value addition.
O.K. Then. See you all in the next lecture.
Take care.
Bye.