Transcript PowerPoint Presentations Chapter 08

Small Business Management:
A Planning Approach
Joel Corman
Suffolk University, Emeritus
Robert Lussier
Springfield College
Lori Pennel
Bunker Hill Community College
Copyright Atomic Dog Publishing, 2005
PART 3
Planning and Implementation
CHAPTER 8
Location and Layout
Copyright Atomic Dog Publishing, 2005
8-1 The Interrelationship
between Location and Layout
and Other Business Plan
Components
• Location depends on the products to be sold and the target
market.
• In specific organizations common internal designs must be
used to maximize profitability.
• In certain circumstances the production function can affect
location.
• Personnel considerations also play a part in the location
selection.
Copyright Atomic Dog Publishing, 2005
8-2 Location: A Business Decision
• There are times when a business will want to
expand or relocate.
• Growth could force expansion, and may require
the business owner to make a decision about
expanding at the same location, or moving to
another area.
• Economy or demographics may also force a
change of location.
• Relocation causes significant expenditure.
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8-3 General Location Factors
• Careful investigation is needed to reveal the good
and bad aspects of any location.
• General factors to be considered are:
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Personal preference
Geographic considerations
Economic aspects
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8-3a Personal Preferences
• Location selection steps:
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Determine the geographic region of the country best
suited for your type of enterprise.
Pick a city within the region that would yield maximum
profitability.
Narrow down the city location to a specific area within
a city.
Pick the specific site in the area.
• Often a decision is made to locate in the home
community area—ensure that location
weaknesses do not overpower the choice.
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8-4 Location Selection Criteria
• Each selection factor must be looked at with
specific reference to the business:
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Freight costs
Weight loss
- Process weight loss is the loss of raw materials that occurs.
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Proximity to market
Transportation facilities
- Raw materials, finished goods, and also employees
transportation
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Availability of raw materials
Labor supply
Community attitude
Water power
- Supply and price of water and free availability
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8-4 Location Selection
Criteria (contd.)
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Cost of land
Taxes
Specialized communities
- Firm can obtain required services at relatively low costs.
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Climatic conditions
Complementary plants or warehouse locations
Urban, suburban, or rural
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8-5 Site Selection
• Critical factors to consider while selecting a site:
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Costs
Parking
Customer accessibility
Traffic
Neighborhood conditions
• Manufacturers, wholesalers, and service
companies need not locate in high-rent areas.
• Retailers need adequate parking for customers
and must locate where customers can reach them.
Copyright Atomic Dog Publishing, 2005
8-5a Manufacturing Location
• The important factors while locating a
manufacturing plant are:
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The market
The labor force
Transportation
Raw materials
Site selection
Community interest
Copyright Atomic Dog Publishing, 2005
8-5b Retail Location
• Specific characteristics for deciding on the city:
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Size of the city’s trading area
Population and population trends in the trading area
Total purchasing power and the distribution of purchasing
power
Total retail trade potential for different lines of trade
Number, size, and quality of competition
Progressiveness of competition
• The area or the type of location
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Customer attraction power of the particular store and the
shopping district
Quantitative and qualitative nature of competitive stores
Availability of access routes
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8-5b Retail Location (contd.)
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Nature of zoning regulations
Direction of the area expansion
General appearance of the area
• The specific site
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Adequacy and potential of traffic passing the site
Ability of the site to intercept traffic en route from one
place to another
Complementary nature of adjacent stores
Parking facilities or space
Vulnerability of the site to unfriendly competition
Cost of the site
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8-5b Retail Location (contd.)
• Final checklist
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How much retail, office, storage, or workroom space is needed?
Is adequate parking space available?
Is there a requirement for special lighting, heating or cooling, or other
installations?
Will advertising costs be much higher if a relatively remote location is
chosen?
Is any needed public transportation available?
Can the area serve as a source of supply of employees?
Is there adequate fire and police protection?
Will sanitation or utility supply be a problem?
Is exterior lighting adequate to attract evening shoppers?
Are customer restroom facilities available?
Is the store easily accessible?
Is shelter available against bad weather?
Will crime insurance be prohibitively expensive?
Does it meet any plans to pickup or deliver?
Is the area dependant on seasonal business?
Is the location convenient to where you live?
Do target customers reside nearby?
Is the population density sufficient?
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8-5c Wholesale Locations
• Derived market
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A market that springs up not from people wanting goods
for their personal use but for the use those goods have in
completing a demanded product or process.
• Wholesalers sell to retailers only if the customer
market demands it.
• Wholesalers tend to group themselves together
because they need to be accessible to the same
retailers.
• Wholesalers location are generally influenced by:
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The availability of larger, inexpensive buildings in lesscostly areas within the city or beyond, and proximity to
other wholesalers
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8-5d Service Locations
• Operating a service where you make visits to the
customers provides more flexibility in choosing a
location.
• However, where customers come to you,
accessibility becomes important.
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8-6 Build, Buy, or Lease
• Being in a small business almost guarantees that capital will
be in short supply.
• A lease is an agreement to rent an asset that will be used as
if it were owned.
• Lessee is the party leasing the equipment, who makes
periodic payments to the lessor.
• Lessor is the party who owns the equipment being leased.
• A lease can be got from companies, banks, insurance
companies, and finance companies.
• In some cases, manufacturers directly offer lease options.
Copyright Atomic Dog Publishing, 2005
8-6a Advantages of Leasing
• Reduced capital outflow
• Better maintenance of the equipment
• Easy replacement at the end of lease term
• Tax benefits
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8-6b Disadvantages of Leasing
• Return of asset at end of the lease period may
result in a loss to the extent of the value of that
asset.
• Higher cost over a period of time to cover the profit
to the lessor
• A lease is a legal obligation and as such generally
cannot be canceled, and you may have to pay
even if you are not using it.
• Not saleable to recover investments
Copyright Atomic Dog Publishing, 2005
8-6c Alternative Leases
• Operating leases
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Permits you to use the equipment in your business.
• Sale or leaseback
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Leases are used when you already own the
equipment or building and wish to generate cash to
be used in other parts of the business by leasing
the asset back to a third party.
Copyright Atomic Dog Publishing, 2005
8-7 Buildings and Facilities
• Firms used to, and are still renting or buying
existing office places and fitting their operations
into it.
• As efficiency assumes more importance, the
building is considered to be facilitating equipment
in the productive process.
• Make sure that the facilities are appropriate to the
type of business:
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Construction and design
Function
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8-7a Construction and Design
• Buildings today are designed with primary
consideration given to the function of the building.
• The structure of the building is chosen appropriate
to the type of equipment intend to use in it.
• Plans for expansion, as business grows, is also an
important consideration right at the beginning
itself.
Copyright Atomic Dog Publishing, 2005
8-7b Function
• Manufacturing facilities must preferably be at one
level to facilitate material handling.
• Office space can be on multiple levels.
• Another important factor is the age of the building.
• Adequate number of entrances and exits must be
provided for.
• Many of these factors are dependant on the type
of business.
• Analyze and choose facilities best suited to the
business.
Copyright Atomic Dog Publishing, 2005
8-8 Layout
• The arrangement of the physical facilities in the
most efficient manner for the specific business
• Different approaches to layout can be examined
based on the type of business:
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Manufacturing
- Product line
- Functional
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Retail
Wholesale
Service
Copyright Atomic Dog Publishing, 2005
8-8a Manufacturing
• Layout decisions are taken based on the long-term
plan and often a firm locks these decisions, as
changes in layout involves heavy expenditure.
• Buildings in the past were designed to fulfill a
general function at the least cost, but today they
are custom designed to suit the layout plan.
• Single floor concepts have gained popularity:
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Economic internal transportation patterns
Expansion potential
• Layouts could be:
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Product line type (product)
Functional type (process)
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8-8b Product Line Layout
• The arrangement of machinery and personnel in the
sequential order of the manufacturing process
• Use of product layout enables a business to produce
large volumes of one or a few standardized products at
low unit costs.
Product type layout
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8-8b Product Line Layout (contd.)
Fixed cost to volume ratio
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8-8c Functional Layout
• Machines are grouped according to function.
• Cost of goods produced have a higher cost when compared to
the product line layout.
• However, flexibility is high and suits when a wider product
range is to be manufactured.
Process or functional layout
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8-8d Retail Layout
• The layout of a retail store can help maximize
sales by directing customers to goods providing
maximum profitability.
• Demand items are specific items that a customer
needs to purchase.
• Grid layout, in which the aisles are parallel and
rectangular in arrangement.
• Boutique layout, in which the sales floor is divided
into individual, semi-separate areas, each built
around a particular theme.
• Free-form layout is a informal layout in which
displays may vary in size, shape, and style.
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8-8d Retail Layout (contd.)
Typical drug convenience store layout
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8-8d Retail Layout (contd.)
Typical grocery store layout
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8-8e Wholesale Layout
• Maximizing customer satisfaction in a wholesale
operation is paramount.
• Customers usually phone, mail, or fax their orders,
the wholesaler’s job is to fill these orders as
quickly and efficiently as possible.
• Fast moving goods are usually placed closest to
the shipping and receiving deck.
• Layout is planned to minimize movement to put the
order together.
• Normally have wide aisles with material handling
equipment for fast picking of orders
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8-8e Wholesale Layout (contd.)
Typical wholesale layout
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8-8f Service Layout
• Service establishments are so diverse, it is virtually
impossible to describe a typical layout.
• Service businesses need to examine customer
traffic and traffic flow before making layout
decisions.
• The needs of the business dictates the layout.
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8-8g Sources of Information
• Many publications are available to aid
entrepreneurs in searching for the best location.
• Factors about each area’s population, such as
age, income, home value, and education, are
analyzed.
• Some publications that are useful:
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Introduction to Census data
Sales and Marketing: Survey of Buying Power
Copyright Atomic Dog Publishing, 2005