Facility Location Decisions and Production Methods: A Comprehensive Overview

QUESTION

1. Explain the difference between production and manufacturing.
2. What are the three factors in the facility location decision? Provide examples of businesses most affected by each facility location factor.
3. Define physical variables that affect facility locations and provide an example.
4. Discuss the factors a firm should consider when deciding whether to make, buy, or lease components.
5. List and define the four production processes
6. Explain the three major production methods and provide examples.
7. How does an environmental impact study influence the location decision?
8. Describe why quality is important to an organization.

ANSWER

Facility Location Decisions and Production Methods: A Comprehensive Overview

Introduction

In the dynamic world of business operations, making informed decisions regarding facility location and production methods is critical for an organization’s success. This essay will explore various aspects of facility location decisions, the factors influencing them, and delve into the different production processes and methods. Additionally, we will discuss the significance of environmental impact studies and the importance of quality in an organization.

Facility Location Decision Factors

Selecting the right location for a facility is a crucial strategic decision that can significantly impact a company’s operations and success. Three primary factors influence this decision: proximity to the market, labor availability, and infrastructure.

Proximity to the Market

The distance between a facility and its target market affects the transportation costs and lead times. Industries such as perishable food items, retail, and e-commerce heavily rely on the proximity to the market to ensure timely deliveries and reduce logistical expenses.

Labor Availability

Access to a skilled and cost-effective workforce is vital for most industries. Labor-intensive businesses, like manufacturing and assembly operations, are greatly influenced by this factor. For example, automotive manufacturers seek locations with a skilled labor pool to support their production lines efficiently.

Infrastructure

The presence of reliable infrastructure, such as transportation networks, utilities, and access to raw materials, plays a significant role in the facility location decision. Industries like heavy manufacturing and chemical production depend heavily on robust infrastructure.

Physical Variables Affecting Facility Location

Various physical variables can influence facility location decisions. One such variable is climate. For instance, companies engaged in tourism and agriculture prefer locations with favorable weather conditions. Similarly, data centers often seek cooler climates to mitigate cooling costs and improve equipment efficiency.

Deciding to Make, Buy, or Lease Components

When it comes to production, firms have three choices: making, buying, or leasing components. This decision relies on several factors, including cost considerations, core competencies, and supply chain reliability.

Making Components

Companies choose to manufacture components in-house when they possess the necessary expertise and can achieve cost-efficiency. This strategy provides better control over quality and production timelines. For example, tech companies often manufacture specialized microchips themselves to maintain confidentiality and quality.

Buying Components

If certain components are readily available in the market at competitive prices, companies opt to purchase them from external suppliers. This allows the firm to focus on their core competencies and reduce production costs. Automotive manufacturers frequently buy components like tires or electronics from specialized suppliers.

Leasing Components

Leasing components is a strategy used when certain parts are required for a limited period or for specialized projects. This approach can be cost-effective and provide access to cutting-edge technology. For example, construction companies may lease heavy machinery instead of purchasing them outright.

Four Production Processes

Production processes can be broadly categorized into four types:

Job Production

Job production involves the creation of custom-made products or services tailored to individual customer requirements. This process is typical in industries like luxury fashion, art, and specialized manufacturing.

Batch Production

Batch production entails producing a specific quantity of identical products before switching to a different product. It is common in the food and beverage industry and the production of pharmaceuticals.

Mass Production

Mass production focuses on producing large quantities of standardized products using assembly lines and automation. Industries like automotive and electronics heavily rely on mass production techniques.

 Continuous Production

Continuous production involves non-stop production of goods or services without interruption. Industries such as oil refineries and power generation exemplify continuous production processes.

Three Major Production Methods

Make-to-Order (MTO)

The make-to-order method involves manufacturing products only after receiving customer orders. This approach is prevalent in industries where customization is essential, like high-end furniture or custom-made machinery.

 Make-to-Stock (MTS)

In the make-to-stock method, products are produced based on demand forecasts and stored in inventory until customers make purchases. Fast-moving consumer goods, such as packaged foods and toiletries, follow this production method.

Engineer-to-Order (ETO)

The engineer-to-order method involves designing and manufacturing products based on specific customer requirements. This method is common in the construction of large infrastructure projects like bridges or power plants.

Environmental Impact Studies and Location Decisions

Environmental impact studies play a crucial role in facility location decisions. These studies assess the potential environmental consequences of establishing a facility in a particular area. Factors like air and water quality, biodiversity, and noise pollution are considered to ensure compliance with environmental regulations and minimize adverse effects. Industries such as mining, chemical manufacturing, and energy generation are particularly affected by environmental impact studies due to their potential to impact the surrounding environment significantly.

The Significance of Quality in an Organization

Quality is of paramount importance to an organization for several reasons. Firstly, it directly affects customer satisfaction and loyalty. High-quality products and services build trust and enhance a company’s reputation, leading to increased customer retention and word-of-mouth referrals. Secondly, quality impacts operational efficiency and cost-effectiveness. Superior quality reduces rework, waste, and customer complaints, thus improving overall productivity. Additionally, it fosters employee pride and morale, driving a culture of excellence within the organization.

Conclusion

Making informed decisions regarding facility location and production methods is essential for a company’s success and sustainability. Proximity to the market, labor availability, and infrastructure are critical factors in facility location decisions, while climate and other physical variables can also play a significant role. Companies must carefully consider whether to make, buy, or lease components based on cost, expertise, and supply chain considerations. Understanding the various production processes and methods allows companies to tailor their operations to meet customer demands effectively. Furthermore, environmental impact studies are crucial in ensuring sustainable and responsible business practices. Finally, prioritizing quality in all aspects of an organization leads to customer satisfaction, operational efficiency, and a positive company image in the market.