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

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