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Why is it said that choice of location for a plant is one of the most neglected aspects of business? Answer-: Every entrepreneur is faced with the problem of deciding the best site for location of his plant or factory. Plant location-: Plant location refers to the choice of region and the selection of a particular site for setting up a business or factory. But the choice is made only after considering cost and benefits of different alternative sites. It is a strategic decision that cannot be changed once taken. If at all changed only at considerable loss, the location should be selected as per its own requirements and circumstances. Each individual plant is a case in itself. Businessman should try to make an attempt for optimum or ideal location. Different firms choose their locations for different reasons. Key determinates of a location decision are a firm's factors of production. For example, a firm that spends a large portion of total costs on unskilled labor will be drawn to locations where labor is relatively inexpensive. A firm with large energy demands will give more weight to locations where energy is relatively inexpensive. In general, firms choose locations they believe will allow them to maximize net revenues: if demand for goods and services is held roughly constant, then revenue maximization is approximated by cost minimization. The typical categories that describe a firm's production function are: • Labor. Labor is often and increasingly the most important factor of production. Other things equal, firms want productivity, in other words, labor output per dollar. Productivity can decrease if certain types of labor are in short supply, which increases the costs by requiring either more pay to acquire the labor that is available, the recruiting of labor from other areas, or the use of the less productive labor that is available locally. • Land. Demand for land depends on the type of firm. Manufacturing firms need more space and tend to prefer suburban locations where land is relatively less expensive and less difficult to develop. Warehousing and distribution firms need to locate close to interstate highways. • Local Infrastructure. An important role of government is to increase economic capacity by improving quality and efficiency of infrastructure and facilities, such as roads, bridges, water and sewer systems, airport and cargo facilities, energy systems, and telecommunications. • Access to Markets. Though part of infrastructure, transportation merits special attention. Firms need to move their product, either goods or services, to the market, and they rely on access to different modes of transportation to do this. While transportation has become relatively inexpensive compared to other inputs, and transportation costs have become a
could shift because of decreasing funds to highway construction. A region that features many quality amenities. and innovative capacity. firms may need intermediate materials: for example. or even more broadly as a spirit of innovation. optimism. and even globally. production factors are likely to be similar. public policy can affect them through: • Regulation. Firms locate in a city because of the presence of factors other than direct factors of production. Incentives are more effective at redirecting growth within a region than they are at providing a competitive advantage between regions. need various materials to develop products that they can sell. they matter only after corporations have made decisions on labor. simplified bureaucracies and straightforward regulations can help firms react quickly in a competitive marketplace. Regulations protect the health and safety of a community. raw materials. But tax rates are not a primary location factor. dimensioned lumber. This input to production may be thought of as good management. These indirect factors include agglomerative economies. • Taxes. Some firms need natural resources: a manufacturing sector like lumber needs trees. But they also depend on public policy. such as good weather. also known industry clusters. transportation. • Financial incentives. cost. • Quality of Life. Firms producing goods. Firms tend to locate in areas where there is already a concentration of firms like their own. increasing congestion. That long-run trend. economic research has shown that most types of incentives have had little significant effect on firm location between regions. The supply. location amenities. so differences in tax levels across communities are more important in the location decision than are differences in tax levels between regions. Within a region. however. However. for manufacturing industries with significant equipment costs. and capital costs. and quality of any of these factors obviously depend on market factors: on conditions of supply and demand locally. and increasing energy prices. Or. Firms tend to seek locations where they can optimize their after-tax profits. • Materials. and help maintain the quality of life. Generally. However. The theory works in practice because firms realize operational savings and have access to a large pool of skilled labor when they congregate in a single location. nationally. . and even firms producing services. and ambition that distinguishes one firm from another even though most of their other factor inputs may be quite similar. • Industry Clusters. In general. farther down the line.less important location factor. access to transportation is still critical. property or investment tax credit or abatement incentives can play a significant role in location decisions. Governments offer firms incentives to encourage growth. • Entrepreneurship.
flexibility. through the provision of services and regulation of development and business activities that are responsive to the changing needs of business Locational analysis is a dynamic process where entrepreneur analyses and compares the appropriateness or otherwise of alternative sites with the aim of selecting the best site for a given enterprise. A region's quality of life attracts skilled workers. and a clean environment attracts people simply because it is a nice place to be. culture. the traffic analysis aims at judging the alternative sites in terms of pedestrian and vehicular traffic passing a site. • Innovative capacity. low crime. He would also see the feasibility of accessing the trade area from alternative sites. Government can be a key part of a community's innovative culture. location. creativity. and adaptability will be essential to keeping MANY cities economically vital and internationally competitive. High-tech companies need to have access to new ideas typically associated with a university or research institute.). (e) Site economics: Alternative sites are evaluated in terms of establishment costs and operational costs under this. Costs of establishment is basically cost incurred for permanent physical facilities but operational costs are incurred for running business on day to day basis. It consists the following: (a) Demographic Analysis: It involves study of population in the area in terms of total population (in no. size and quality of competition in a given trade area. occupational structure etc. educational level. (d) Traffic analysis: To have a rough idea about the number of potential customers passing by the proposed site during the working hours of the shop. Two sites A and B are evaluated in terms of above mentioned two costs as follows: . (b) Trade Area Analysis: It is an analysis of the geographic area that provides continued clientele to the firm. Increasing evidence suggests that a culture promoting innovation. good schools.recreational opportunities. and if the amenities lure enough potential workers to the region. age composition. they are also called as running costs. Innovation is particularly important in industries that require an educated workforce. per capita income. the excess labor supply pushes their wages down so that firms can find skilled labor for a relatively low cost. (c) Competitive Analysis: It helps to judge the nature.
water. freight and carriage Taxes and insurance Labour Water. civil amenities and means of communication are important. e) Availability of Infrastructural facilities such as developed industrial sheds or sites. . d) Access to market: small businesses in retail or wholesale or services should be located within the vicinity of densely populated areas. g) Banking and financial institutions are located nearby. public utilities.) 350000 60000 20000 230000 60000 30000 The above cost statement indicates that site B is preferable to site A keeping in mind economic considerations only although in some respects site A has lower costs.Comparative Costs of Alternative Locations Costs Cost of establishments: Land and Buildings Equipment Transport facilities Cost of operations: Materials. SELECTION CRITERIA The important considerations for selecting a suitable location are given as follows: a) Natural or climatic conditions. especially for small scale businesses. miscellaneous expenses. link roads. site B would be preferred. f) Availability of skilled and non-skilled labour and technically qualified and trained managers. b) Availability and nearness to the sources of raw material. nearness to railway stations. power and fuel Total 34000 10000 100000 10000 584000 24000 7500 70000 8000 429500 Site A (Rs. i) Strategic considerations of safety and security should be given due importance. availability of electricity. By applying the definition of ideal location which is the place of maximum net advantage or which gives lowest unit cost of production and distribution. airports or sea ports. c) Transport costs-in obtaining raw material and also distribution or marketing finished products to the ultimate users. h) Locations with links: to develop industrial areas or business centers result in savings and cost reductions in transport overheads.) Site B (Rs.
rather they arrive just as they are needed. SCM will attempt to centrally control or link the production.JIT' An inventory strategy companies employ to increase efficiency and decrease waste by receiving goods only as they are needed in the production process. subsidies and liberalization. distribution. internal production.j) Government influences: Both positive and negative incentives to motivate an entrepreneur to choose a particular location are made available. Low preference for Government incentives suggests that concessions and incentives cannot compensate for poor infrastructure. Heavy preference to homeland suggests that small-scale enterprise is not freely mobile. k) Residence of small business entrepreneurs want to set up nearby their homelands One study of locational considerations from small-scale units revealed that the native place or homelands of the entrepreneur was the most important factor. 2 Do you see similarities between the concepts and practice of Just-In-Time (JIT) system and that of supply chain management? Can JIT be applied in supply chain management? Give examples. banking transport. shipment and distribution of a product. sales and the inventories of the company's product purchasers. companies are able to cut excess fat and provide products faster. to product development. Answer-: 'Just In Time . The parts needed to manufacture the cars do not arrive before nor after they are needed. Positive includes cheap overhead facilities like electricity. By managing the supply chain. relying on their supply chain to deliver the parts they need to build cars. Q. This method requires that producers are able to accurately forecast demand. A good example would be a car manufacturer that operates with very low inventory levels.SCM' Supply chain management is the streamlining of a business' supply-side activities to maximize customer value and to gain a competitive advantage in the marketplace. 'Supply Chain Management . to the information systems needed to direct these undertakings. Negative incentives are in form of restrictions for setting up industries in urban areas for reasons of pollution control and decentralization of industries. tax relief. thereby reducing inventory costs. Supply chain management (SCM) represents an effort by suppliers to develop and implement supply chains that are as efficient and economical as possible. Supply chains cover everything from production. . This is done by keeping tighter control of internal inventories. Typically.
Another term employed in “Just in time” is Kaizen.strategic and operational. referred to as Kanban. When stock drops to a certain level. but are generally “tickets. As opposed to the traditional view of inventory. “just in time” views inventory as being wasteful. “Just in time” can help a producer improve in such areas as quality. “Just in time” refers to an inventory strategy that it used to improve a business’s return on investment through a reduction of in process inventory and all related costs. behavioral science. It means literally the continuous improvement of the process. Kanban can be visual signals. Just in time is driven by a series of signals. shifts in demand should be forecast until trends are established to reset the correct Kanban level. which tell production processes when it is necessary to make the next part. If the demand rises above that amount. This helps maintain space in the warehouse and keeps costs down to a reasonable amount. new stocks have to be ordered. as well as the return on investment.SCM is based on the idea that nearly every product that comes to market results from the efforts of various organizations called the supply chain. operational decisions are short term. as well as the philosophy’s main principles. strategic decisions are made typically over a longer time horizon.” When implemented in a correct fashion. This does not mean that inventory . producers have started touting a thirteen week average as a better predictor than previous forecasts would provide. rather than adding value to a company. In order to maintain a ninety five percent service rate. On the other hand. Supply Chain Management: JIT Philosophy In the realm of supply chain management. and focus on activities over a day-to-day basis. Around the Kanban. Recently. the way it expresses certain practices within the company’s management. efficiency. These are closely linked to the corporate strategy and guide supply chain policies from a design perspective. such as industrial engineering. The ideas comprising “just in time” philosophy came from many different fields. then inventory will be depleted a lot faster than usual and might cause customer service problems. When it comes to how inventory is treated according to the “just in time” scheme. As the term implies. The effort in these types of decisions is to effectively and efficiently manage the product flow in the "strategically" planned supply chain. one must learn how inventory is to be viewed. the company should always carry two standard deviations of safety stock. One drawback of “Just in time” however is that the re-order level is determined by the previous demand. Supply Chain Decisions We classify the decisions for supply chain management into two broad categories -. statistics. Some feel that recycling Kanban at a quicker pace can help the system flex by up to thirty percent. and production management. in that it incurs costs.
Ans. Question 3. managers adopt the policy that it is best to have the right materials at the right moment in the right place and in the right amount. However. Others have very cyclical maturity phases where declines see the product promoted to regain customers. The Product Life Cycle (PLC) is based upon the biological life cycle. it gains more and more customers as it grows. a seed is planted (introduction). . After a period of development it is introduced or launched into the market. after a long period as an adult the plant begins to shrink and die out (decline). it shoots out leaves and puts down roots as it becomes an adult (maturity). eventually the market stabilises and the product becomes mature. Rather. For example. Explain product life cycle and its phases. In theory it's the same for a product. then after a period of time the product is overtaken by development and the introduction of superior competitors. most products fail in the introduction phase. Within the “just in time” system. it goes into decline and is eventually withdrawn. it expounds the idea that a company could save costs by eliminating inventory that does not compensate for issues related to manufacturing. it begins to sprout (growth). processes must be constantly upgraded so that the need for inventory is reduced.should be removed altogether at the expense of manufacturing. Also.
a skimming price strategy is employed. The product is promoted to create awareness. Limited numbers of product are available in few channels of distribution. Introduction. The need for immediate profit is not a pressure. Growth. If the product has no or few competitors. .Strategies for the differing stages of the Product Life Cycle.
It is not the tools that make you successful in SCM. you can achieve efficiencies and cost savings well beyond those achieved from the traditional approaches of competitive bidding and price negotiations.Competitors are attracted into the market with very similar offerings. Sales grow at a decreasing rate and then stabilize. Supply Chain Management has focused on negotiating long term agreements. Discuss the key processes required to enhance customer focus in the supply chain. Profits can be improved by reducing marketing spend and cost cutting. Price wars and intense competition occur. and the use of SCM software tools. Those products that survive the earlier stages tend to spend longest in this phase. from upstream raw material suppliers to downstream final users of the product or service. For example more innovative products are introduced or consumer tastes have changed. joint ventures and take each other over. There is intense price-cutting and many more products are withdrawn from the market. Promotion becomes more widespread and uses a greater variety of media. Products become more profitable and companies form alliances. it is the relationships. Increased customer satisfaction means greater profitability. The strategy of CFSCM is to establish collaborative relationships up and down the supply chain. At this point there is a downturn in the market. Also. is a strategic approach to acquiring goods and services. and that the supply chain is only as strong as its weakest link. Ans. Producers attempt to differentiate products and brands are key to this. Advertising spend is high and focuses upon building brand. in the long run. Market share tends to stabilize. outsourcing. by dealing with loyal “customer-focused” suppliers. third-party logistics. CFSCM. The mistake that too many companies make is employing the tools and techniques of SCM without having first established collaborative relationships with their customers and suppliers. cost reduction. because loyal satisfied customers provide long term revenues and reduced costs. Question 4. Maturity. Customer Focused Supply Chain Management. It is less costly to maintain satisfied customers than it is to acquire new ones. CFSCM is based on the idea that by enhancing your customers’ overall satisfaction with your product or service. The overriding philosophy of CFSCM is that everyone in a customer’s supply chain is linked to the customer. you will improve the profitability and efficiency of your entire enterprise which includes your supply chain partners. Decline. With CFSCM we seek new and better ways to acquire goods and services that will increase our customers’ satisfaction and improve profitability. At this point the market reaches saturation. Traditionally. Producers begin to leave the market due to poor margins. Collaborative .
where a small change in demand downstream generates increasingly larger demands as it progresses up-stream. and SCM software. This example is one of the many ways that a customer focused approach to Supply Chain Management will improve customer service and profitability. and smooth flow of product and services down the supply chain from suppliers to customers. mutual interests.relationships start with trust. collaborate with them on product design and improvement. . and better resource management can be achieved faster and more effectively through a collaborative supply chain than by the individual efforts of any one member of the supply chain. This is known as the “bullwhip effect”. Once the entire supply chain becomes focused on the needs of the customer. This means that each entity needs to carry inventory in anticipation of customer orders. Key performance factors such as reliability. fulfilment or quality problems. flexibility. each member of the supply chain will tend to “overplan” inventory to assure “good customer service”. Understand their needs. often at the expense of others. the less inventory needed in the supply chain. And. honesty. responsiveness. To prove: In the traditional supply chain with multiple tiers of suppliers and customers. one can begin to employ the tools and techniques of SCM: outsourcing. supply chain collaboration. Establish functional interfaces between your companies. each operation plans production or distribution requirements based on forecasted demand. and mutual benefits. Work with them to solve design. The goal is to establish a smooth flow of information up the supply chain from customers to suppliers. using information technology. greatly reducing the amount of inventory that each entity needs to maintain in order to support customer service goals. Find out what the customer is looking for: low cost? Speed to market? Service? Flexibility? Technological innovation? Only when you truly understand the needs and strategic objectives of your customer can you set operational strategies for your company and the suppliers in your supply chain. “early supplier involvement” (ESI). Typically. 3rd and 4th party logistics. Many of these relationships are competitive based on everyone “getting their share of the pie”. the actual demand captured at the point-of-sale can be communicated up the supply chain. Traditional armslength relationships with suppliers do not support collaboration. Actual demand is only generated by a customer order. lower costs. The more information that suppliers know about their customers’ actual requirements. The first step in implementing a CFSCM program is to establish free and open two-way communications with your customers and suppliers. In a “synchronized supply chain”.
A customer profitability analysis is an evaluation process that focuses on assigning costs and revenues to segments of the customer base. Many businesses use a customer profitability analysis as a means of streamlining processes so they provide the highest degree of efficiency and return. In actual practice. instead of assigning revenues and costs to the actual products. Breaking down the task into segments makes it much easier to identify what is actually working to increase profitability with a major client or a group of clients within the customer base. Increased customer satisfaction means greater profitability. and compare those costs with the gains that result from the processes and procedures connected with the operation of that segment. Approaching profitability through customer profitability can sometimes provide valuable insights into how each step of the process of designing. because loyal satisfied customers provide long term revenues and reduced costs. Importance: Profitability is assessed by efficiency in costs and magnitude of revenues/sales. it’s about concentrating more on the regular or loyal customers. or the units or departments that compose the corporate structure of the producer. The idea is to look closely at the costs that are associated with each of those segments.Question 5. What is Customer Profitability Analysis? Why it has gained importance in the recent times. and ultimately selling a good or service incurs cost and generates revenue. as well as what elements may be inhibiting the potential for earning more revenue from those same clients. Is it ethical to deny a customer that is not profitable? Ans. while generating the lowest degree of cost. . Ethical or not? It’s not about denying customers who are not profitable. It is less costly to maintain satisfied customers than it is to acquire new ones. manufacturing. a customer profitability analysis looks at each segment of the process of creating and selling products to customers.