Transcript Document
Location Planning
and Analysis
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.
Needs for Location Decisions
Marketing Strategy
Cost of Doing Business
Growth
Depletion of Resources
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
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
Regional Factors
Location of raw materials
Location of markets
Labor factors
Climate and taxes
Community Considerations
Quality of life
Services
Attitudes
Taxes
Environmental regulations
Utilities
Developer support
Site Related Factors
Land
Transportation
Environmental
Legal
Multiple Plant Strategies
Product plant strategy
Market area plant strategy
Process plant strategy
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
Comparison of Service and
Manufacturing Considerations
Manufacturing/Distribution
Service/Retail
Cost Focus
Revenue focus
Transportation model/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
Trends in Locations
Foreign producers locating in Developed
countries.
“Made in USA”
Currency fluctuations
Just-in-time manufacturing techniques
Microfactories
Information Technology
Globalization
Facilitating Factors
Trade agreements
Technology
Benefits
Markets
Cost savings
Legal and regulatory
Financial
Globalization
Disadvantages
Transportation costs
Security
Unskilled labor
Import restrictions
Criticisms
Risks
Political
Terrorism
Legal
Cultural
Evaluating Locations
Cost-Profit-Volume Analysis
Determine fixed and variable costs
Plot total costs
Determine lowest total costs
Location Cost-Volume Analysis
Assumptions
Fixed costs are constant
Variable costs are linear
Output can be closely estimated
Only one product involved
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
Cost
$ 2 5 0 ,0 0 0
1 0 0 ,0 0 0
1 5 0 ,0 0 0
2 0 0 ,0 0 0
V a r ia b le
Cost
$11
30
20
35
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
Annual Output (000)
12
14
16
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
Factor-Rating Example
Critical
Success
Factor
Labor
availability
and attitude
People-to
car ratio
Per capita
income
Tax structure
Education
and health
Totals
Scores
(out of 100)
Weight France Denmark
Weighted Scores
France
Denmark
.25
70
60
.05
50
60
.10
.39
85
75
80
70
(.10)(85) = 8.5 (.10)(80) = 8.0
(.39)(75) = 29.3 (.39)(70) = 27.3
.21
60
70
(.21)(60) = 12.6 (.21)(70) = 14.7
1.00
(.25)(70) = 17.5 (.25)(60) = 15.0
(.05)(50) = 2.5
70.4
(.05)(60) = 3.0
68.0
Center-of-Gravity Method
∑dixQi
x - coordinate =
i
∑Qi
i
∑diyQi
y - coordinate =
i
∑Qi
i
where
dix = x-coordinate of location i
diy = y-coordinate of location i
Qi = Quantity of goods moved to
or from location i
Center-of-Gravity Method
North-South
New York (130, 130)
Chicago (30, 120)
120 –
Pittsburgh (90, 110)
90 –
60 –
30 –
|
–
Atlanta (60, 40)
|
30
Arbitrary
origin
|
|
|
|
60
90
120
150
East-West
Center-of-Gravity Method
Number of Containers
Store Location
Shipped per Month
Chicago (30, 120)
2,000
Pittsburgh (90, 110)
1,000
New York (130, 130)
1,000
Atlanta (60, 40)
2,000
(30)(2000) + (90)(1000) + (130)(1000) + (60)(2000)
x-coordinate =
2000 + 1000 + 1000 + 2000
= 66.7
(120)(2000) + (110)(1000) + (130)(1000) + (40)(2000)
y-coordinate =
2000 + 1000 + 1000 + 2000
= 93.3
Center-of-Gravity Method
North-South
New York (130, 130)
Chicago (30, 120)
120 –
Pittsburgh (90, 110)
+
90 –
Center of gravity (66.7, 93.3)
60 –
30 –
|
–
Atlanta (60, 40)
|
30
Arbitrary
origin
|
|
|
|
60
90
120
150
East-West
Requirements for Transportation
Model
List of origins and each one’s capacity
List of destinations and each one’s
demand
Unit cost of shipping
Transportation Model
Assumptions
1. Items to be shipped are homogeneous
2. Shipping cost per unit is the same
3. Only one route between origin and
destination
The Transportation Problem
D
(demand)
D
(demand)
S
(supply)
S
(supply)
D
(demand)
S
(supply)
D
(demand)
A Transportation Table
A
Factory
Warehouse
C
B
4
D
7
7
1
100
1
3
12
8
8
200
2
10
8
16
5
150
3
Demand
80
90
120
Warehouse B can use 90
units per period
Factory 1
can
supply
100
units per
period
160
Total
supply
450 capacity
per
450
period
Total demand
per period
Excel Template
Special Problems
Unequal supply and demand
Dummy: Imaginary number added
equal to the difference between supply
and demand when these are unequal