McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.

88

Location Planning and Analysis

8-2

Learning ObjectivesLearning Objectives

List some of the main reasons organizations need to make location decisions.

Explain why location decisions are important. Discuss the options that are available for location

decisions. Describe some of the major factors that affect

location decisions. Outline the decision process for making these

kinds of decisions. Use the techniques presented to solve typical

problems.

8-3

Need for Location DecisionsNeed for Location Decisions

Marketing Strategy

Cost of Doing Business

Growth

Depletion of Resources

8-4

Nature of Location DecisionsNature of Location Decisions

Strategic Importance of location decisions Long term commitment/costs Impact on investments, revenues, and operations Supply chains

Objectives of location decisions Profit potential No single location may be better than others Identify several locations from which to choose

Location Options Expand existing facilities Add new facilities Move

8-5

Making Location DecisionsMaking Location Decisions

Decide on the criteria Identify the important factors Develop location alternatives Evaluate the alternatives

Identify general region Identify a small number of community

alternatives Identify site alternatives

Evaluate and make selection

8-6

Location Decision FactorsLocation Decision Factors

Regional Factors

Site-related Factors

Multiple Plant Strategies

Community Considerations

8-7

Location of raw materials Location of markets Labor factors Climate and taxes

Regional FactorsRegional Factors

8-8

Quality of life Services Attitudes Taxes Environmental regulations Utilities Developer support

Community ConsiderationsCommunity Considerations

8-9

Land Transportation Environmental Legal

Site Related FactorsSite Related Factors

8-10

Product plant strategy Market area plant strategy Process plant strategy

Multiple Plant StrategiesMultiple Plant Strategies

8-11

Service and Retail LocationsService and Retail Locations

Manufacturers – cost focused Service and retail – revenue focused

Traffic volume and convenience most important Demographics

Age Income Education

Location, location, location Good transportation Customer safety

8-12

Comparison of Service and Comparison of Service and Manufacturing ConsiderationsManufacturing Considerations

Manufacturing/Distribution Service/Retail

Cost Focus Revenue focus

Transportation modes/costs Demographics: age,income,etc

Energy availability, costs Population/drawing area

Labor cost/availability/skills Competition

Building/leasing costs Traffic volume/patterns

Customer access/parking

Table 8.2

8-13

Trends in LocationsTrends in Locations

Foreign producers locating in U.S. “Made in USA” Currency fluctuations

Just-in-time manufacturing techniques Microfactories Information Technology

8-14

Global LocationsGlobal Locations

Reasons for globalization Benefits Disadvantages Risks Global operations issues

8-15

GlobalizationGlobalization

Facilitating Factors Trade agreements Technology

Benefits Markets Cost savings Legal and regulatory Financial

8-16

GlobalizationGlobalization

Disadvantages Transportation costs Security Unskilled labor Import restrictions Criticisms

Risks Political Terrorism Legal Cultural

8-17

Foreign Government

a. Policies on foreign ownership of production facilities Local Content Import restrictions Currency restrictions Environmental regulations Local product standards Liability laws

b. Stability issues

Cultural Differences

Living circumstances for foreign workers / dependents Religious holidays/traditions

Customer Preferences

Possible buy locally sentiment

Labor Level of training and education of workers Work ethic Possible regulations limiting number of foreign employees Language differences

Resources Availability and quality of raw materials, energy, transportation infrastructure

Table 8.3

8-18

Evaluating LocationsEvaluating Locations

Cost-Profit-Volume Analysis Determine fixed and variable costs

Plot total costs

Determine lowest total costs

8-19

Location Cost-Volume AnalysisLocation Cost-Volume Analysis

Assumptions Fixed costs are constant Variable costs are linear Output can be closely estimated Only one product involved

8-20

Example 1: Cost-Volume AnalysisExample 1: Cost-Volume Analysis

Fixed and variable costs for four potential locations

L o c a t i o n F i x e dC o s t

V a r i a b l eC o s t

ABCD

$ 2 5 0 , 0 0 01 0 0 , 0 0 01 5 0 , 0 0 02 0 0 , 0 0 0

$ 1 13 02 03 5

8-21

Example 1: SolutionExample 1: Solution

F i x e dC o s t s

V a r i a b l eC o s t s

T o t a lC o s t s

ABCD

$ 2 5 0 , 0 0 01 0 0 , 0 0 01 5 0 , 0 0 02 0 0 , 0 0 0

$ 1 1 ( 1 0 , 0 0 0 )3 0 ( 1 0 , 0 0 0 )2 0 ( 1 0 , 0 0 0 )3 5 ( 1 0 , 0 0 0 )

$ 3 6 0 , 0 0 04 0 0 , 0 0 03 5 0 , 0 0 05 5 0 , 0 0 0

8-22

Example 1: SolutionExample 1: Solution

800700600500400300200100

0

Annual Output (000)

$(000)

8 10 12 14 166420

A

BC

B SuperiorC Superior

A Superior

D

8-23

Evaluating LocationsEvaluating Locations

Transportation Model Decision based on movement costs of raw

materials or finished goods

Factor Rating Decision based on quantitative and

qualitative inputs

Center of Gravity Method Decision based on minimum distribution

costs