Transcript Document
8
Location Planning
and Analysis
McGraw-Hill/Irwin
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
Learning 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.
8-2
Need for Location Decisions
Marketing Strategy
Cost of Doing Business
Growth
Depletion of Resources
8-3
Nature 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
8-4
Making 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
8-5
Location Decision Factors
Regional Factors
Community
Considerations
Multiple Plant
Strategies
Site-related
Factors
8-6
Regional Factors
Location of raw materials
Location of markets
Labor factors
Climate and taxes
8-7
Community Considerations
Quality of life
Services
Attitudes
Taxes
Environmental regulations
Utilities
Developer support
8-8
Site Related Factors
Land
Transportation
Environmental
Legal
8-9
Multiple Plant Strategies
Product plant strategy
Market area plant strategy
Process plant strategy
8-10
Service 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
8-11
Comparison of Service and
Manufacturing Considerations
Table 8.2
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
8-12
Trends in Locations
Foreign producers locating in U.S.
“Made in USA”
Currency fluctuations
Just-in-time manufacturing techniques
Microfactories
Information Technology
8-13
Global Locations
Reasons for globalization
Benefits
Disadvantages
Risks
Global operations issues
8-14
Globalization
Facilitating Factors
Trade agreements
Technology
Benefits
Markets
Cost savings
Legal and regulatory
Financial
8-15
Globalization
Disadvantages
Transportation costs
Security
Unskilled labor
Import restrictions
Criticisms
Risks
Political
Terrorism
Legal
Cultural
8-16
Table 8.3
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
Labor
Possible buy locally sentiment
Resources
Availability and quality of raw materials, energy,
transportation infrastructure
Level of training and education of workers
Work ethic
Possible regulations limiting number of foreign employees
Language differences
8-17
Evaluating Locations
Cost-Profit-Volume Analysis
Determine fixed and variable costs
Plot total costs
Determine lowest total costs
8-18
Location Cost-Volume Analysis
Assumptions
Fixed costs are constant
Variable costs are linear
Output can be closely estimated
Only one product involved
8-19
Example 1: Cost-Volume Analysis
Fixed and variable costs for
four potential locations
L o c a tio n
A
B
C
D
F ix e d
C ost
$ 2 5 0 ,0 0
1 0 0 ,0 0
1 5 0 ,0 0
2 0 0 ,0 0
0
0
0
0
V a r ia b le
C ost
$11
30
20
35
8-20
Example 1: Solution
Fixed
Costs
A
B
C
D
$250,000
100,000
150,000
200,000
Variable
Costs
$11(10,000)
30(10,000)
20(10,000)
35(10,000)
Total
Costs
$360,000
400,000
350,000
550,000
8-21
Example 1: Solution
$(000)
800
700
600
500
400
300
200
100
0
0
D
B
C
A
A Superior
C Superior
B Superior
2
4
6
8
10
12
14
16
Annual Output (000)
8-22
Evaluating 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
8-23