o

Identify and understand b Analyze the General

the significance and j Procedure for making
nature of Location Location Decisions and
Decisions e developing Location
Alternatives
c
t
Assess the i Apply Factor Rating
opportunities, Technique and Center
drawbacks, and risks of v of Gravity Method in
Global Locations e Location Analysis

s
Marcus Joseph Sieff says…

"The three most important

things in retailing are – location,
location and location."
 LET’S TALK
ABOUT
LOCATIONS
HAVE YOU
BEEN TO
JOLLIBEE?
It can be observed that there
are several branches of
Jollibee, to the point that
anywhere we go or anywhere
we turn to, we can see and
we are tempted by the
Jollibee sign.
The company’s effective
location decisions paved
way for Jollibee’s
prominence around the
globe. It can be deduced
that JFC utilizes a
strategic location
decision.
Philip Kotler says…

“Marketing Mix is a set of

controllable variables that
the firm can use to
influence the buyer’s
response.”
L O C A T I O N
Existing Organizations
make location decisions
to expand their
markets.This reflect
the addition of new Existing Organizations
locations to existing also resort to finding
systems. new locations when
the existing location
cannot satisfy the
increase in the demand
for their When there is a
products/services. depletion of basic
inputs, location
decisions are made.
 New Organizations New Organizations
make location decisions consider location
as a key part of their decisions as a critical
strategic planning determinant of their
process. profitability.

LOCATION DECISIONS

New Organizations: One-time problem

Existing Organizations: Bigger stake in

these kinds of decision
Nature of
Decision
Locations
Examples

They locate in places where labor or

Low-cost materials are low. Also, they may locate
Producer near markets or raw materials to reduce
transportation costs.

Businesses aiming to increase market

Profit- share prefer locating in high-traffic areas
Oriented and establish various branches to
emphasize convenience.
Location choices can impact
capacity and flexibility.
Location Decisions affecting CAPACITY.

Certain locations may be subject to space

constraints that limit future expansion options.

Location decisions that are based on poor

grounds may restrict the production or service
process.
Location Decisions affecting FLEXIBILITY.

The business’ flexibility is jeopardized when

location decisions are taken for granted.

Local restrictions may restrict the types of

products or services that can be offered, thus,
limiting future options for new products or
services.
Location
Decisions These kinds of decisions
entail produce long-term effects to
the business.
long-term
commitment.
Location Investment requirements,
Decisions operations costs and
impact revenues, and operations are
often dependent to the
profitability. business’ location.
Location
Decisions are With respect to the supply
important to chain, the decisions made
for locations have significant
supply chain. effects.
Profit-oriented organizations base
their decisions on profit potential.

Nonprofit organizations strive to

achieve a balance between cost
and level of customer service
they provide.
 BEST LOCATIONS

It is not about finding the one best

location. Instead, it is about hoping to
find a number of acceptable locations
from which to choose.
LOCATION CRITERIA

Depend on where a business is

in the supply chain
Supply Chain Management must
address Supply Chain Configuration.
• Determining the number and location of suppliers
• Determining production facilities
• Determining warehouses
• Determining distribution centers
What do
managers
consider in
location
planning?
 Add new Shut down at
Expand an
location while one location
existing retaining and move to Do Nothing
facility existing ones another
 Global
Locations
Globalization has opened
new markets.

It has meant increasing dispersion

of manufacturing and service
operations around the world.
What are
the
facilitating
factors?
There are a number of factors that made
globalization attractive and feasible for
business organizations. Two key factors are
trade agreements and technological advances.
Trade Agreements

Barriers to international trade

such as tariffs and quotas have
been reduced or eliminated with
trade agreements
Technological Advances

Technological advances in
communication and information
sharing have been very helpful.
 BENEFITS

Companies are discovering a wide range

of benefits in globalizing their operations.
However, it is important to be mindful
that these are not always applicable to
every situation.
B MARKETS
E
N Companies often seek opportunities for
expanding markets for their goods and
E services, as well as better serving existing

F customers by being more attuned to local

needs and having a quicker response time
I when problems occur.

T
S
B COST SAVINGS
E
N Among the areas for potential cost savings
are transportation costs, labor costs, raw
E material costs, and taxes. High production

F cost is Germany have contributed to a

number of German Companies locating some
I of their production facilities in lower-cost
countries.
T
S
B LEGAL AND REGULATORY
E
N
E There may be more favorable liability and
labor laws, and less-restrictive environmental
F and other regulations.

I
T
S
B FINANCIAL
E
N Companies can avoid the impact of currency
changes that can occur when goods are
E produced in one country and sold in other

F countries. Also, a variety of incentives may be

offered by national, regional, or local
I governments to attract businesses that will
create jobs and boost local economy.
T
S
B OTHER
E
N
Globalization may provide new sources of
E ideas for products and services, new
F perspective on operations, and solutions to
problems.
I
T
S
Issues Language
and
cultural

to differences

Management

deal styles may

be different Decreased
tendency for

with
face-to-face
meetings and
management
site visits
Issues Managers
may have to
deal with

to corruption
and bribery
Making the

deal integration
of new
technologies
Domestic

with
more difficult
personnel
may resist
relocating,
even
temporarily
General Procedure
for Making
Location Decisions
 New or small
organizations tend to
The way an organization
adopt a rather informal
approaches location
approach to location
decision often depends on
decisions. New firms
its size and the nature or
typically locate in a
scope of its operations
certain area simply the
owner live there
Similarly, the managers of
Large established
small firms often want to
companies, particularly
keep operations in their
those that operate in
backyard, so they can
more than one location,
tend to focus most
tend to take a more
exclusively on local
formal approach.
alternatives.
 The general
procedure for making
location decisions
usually consists of the
following steps:
 Decide on the
criteria to use for
evaluating location
STEP 1 alternatives, such as
increased revenues
or community
service.
 Identify
important
factors, such as
STEP 2 location of
markets or raw
materials.
 Develop location
alternatives.
• Identify a country or
STEP 3 countries for location.
• Identify the general region
for location
• Identify a small number of
community alternatives.
• Identify the site alternatives
among the community
alternatives.
 Evaluate the
alternatives and
STEP 4 make a
selection.
 Location
Alternatives
Identifying FACTORS
a Country Government
Cultural
Differences
Customer
Preferences
Labor
Resources
Financial
Technological
Market
Safety
G
O
a.) Policies on foreign ownership of
V production facilities
E • Local content requirements
R • Import restrictions
• Environmental regulations
N • Local products standards
M • Liability laws
E b.) Stability issues
N
T
C D
I
U F
L F • Living circumstances for foreign
E workers and their dependents
T
R
U E
• Ways on doing business

R N • Religious holiday/traditions
C
A E
L S
C P
R
U E
S F
E
T
R Possible "buy locally" sentiment
O E
M N
C
E E
R S
L • Level of training and education
A of workers
• Wage rates

B • Labor productivity
• Work ethic
• Possible regulations limiting
O number of foreign employees
• Language indifference
R
R
E
S
O Availability and quantity of raw
U materials, energy, transportation,
R and infrastructure

C
E
S
F
I
N
A Financial incentives, tax rates,
N inflation rates, and interest rates
C
I
A
L
T
E
C
H
N
O Rate of technological change and
L rate of innovations
O
G
I
C
A
L
M
A
R Market potential, competition

K
E
T
S
A
F Crime, terrorism, threat

E
T
Y
Identifying
a Region The primary regional
factors involves raw
materials, markets, and
labor considerations.
L M
O A • Necessity(farming ,forestry,
fishing etc.
C T
R E
A • Perishability(canning, freezing
A R of fruits and vegetables etc.)
T I
W
I A
• Transportation cost
(aluminum reduction, cheese
O L making, paper production)
N S
L M
O A Profit-oriented firms frequently
C locate near the markets they
R intend to serve as part of their
A
K competitive strategy, where as
T non-profit organization choose
I E location relative to the needs
O T of the users of their service.

N S
 F
L A Primary labor considerations are
the cost and availability of labor, wage
A C rates in an area, labor productivity
and attitudes towards work
B T
O O Workers’ attitude in different
parts of the country may be
R markedly different.
R
S
O
T
H Climate and taxes sometimes play

E a role in location decision.

R
S
Identifying FACTORS

a Quality of
Life

Community
Services
Attitudes

Taxes
Environmental
Regulations

Utilities
Development
Support
Q
U
L
A Schools, churches, shopping,
O I housing, transportation,
L entertainment, recreation,
F F
I cost of living
E
T
Y
S
E
R
V
Medical, fire, and police
I
C
E
S
A
T
T
I
T Pros/cons
U
D
E
S
T
A
X State/Local
Indirect/Direct

E
S
E R
N
V
E
I G
R U
O L
N A State/Local
M T
E I
N
O
T
A
N
L S
U
T
I
L
I Cost and Availability
T
I
E
S
D
E S
V U
E
L P
Bond issues, tax abatement,
O P low-cost loans, grants
P
M
O
E R
N T
T
MICROFACTORIES
ETHICAL ISSUES
Identifying
a Site FACTORS
Land

Transportation

Environmental/
Legal
L
Cost, degree of development
A required, soil characteristics and
drainage, room for expansion,
N parking

D
T
R
A
N
S
P
O Type-access roads, rail spurs, air
R freight
T
A
T
I
O
N
E
N
V
I L
R
O
E
N G Zoning restrictions
M
E A
N
T L
A
L
Multiple Plant
Manufacturing
Strategies
Product
Plant Decentralized Approach
Strategy
With each plant focusing on a narrow
set of requirements that entails
specialization of labor, materials, and
equipment along product lines.
Product
Plant Specialization often result in
economies of scale and, compared

Strategy
with multipurpose plants, lower
operating costs.

Plant locations may be widely

scattered or clustered relatively close
to one another.
Market
Area Plant Individual plants produce most, if not
all, of a company’s products and
supply a limited geographical area.

Although operating costs tend to be

higher than those of product plants,
significant savings on shipping costs
for comparable products can be
made.
Market
Area Plant This arrangement is particularly
desirable when shipping costs are
high due to volume, weight, or other
factors.

This approach requires, centralized

coordination of decisions to add or
delete plants, or to expand or
downsize current plants due to
changing market conditions.
Process
Plant This approach is best suited to

Strategy products that have numerous

components; separating the
production of components
results in less confusion than if
all production were carried out
at the same location.
Process When an organization uses
process plants, coordination of
Plant production throughout the
system becomes a major issue

Strategy and requires a highly informed,

centralized administration to
achieve effective operation.

A key benefit is that individual

plants are highly specialized
and generate volumes that yield
economies of scale.
General-
Purpose
Plant
This allows for quick
response to product or
market changes, although it
Strategy can be less productive than
a more focused approach.
General- Multiple plants have an
additional benefit: the increase
Purpose in learning opportunities that
occurs when similar operations

Plant are being done in different

plants.

Strategy Similar problems tend to arise,

and solutions to those problems
as well as improvements in
general in products and
processes made at one plant
can be shared with other plants.
Geographic
Information
Systems
 Geographic Information System

It relies on an
A geographic information
integrated system of
system (GIS) is a Internet mapping
computer hardware,
computer-based tool for programs used to
software, data, and
collecting, storing, obtain travel directions
trained personnel to
retrieving, and displaying are an example of a
make available a wide
demographic data on GIS.
range of geographically
maps.
referenced information
 Geographic Information System

Factors include
population density, age, Local governments use
For location analysis, a incomes, ethnicity, a GIS to organize,
GIS make it relatively traffic patterns, analyze, plan, and
easy to obtain detailed competitor locations, communicate
information on factors. educational institutions, information about
shopping centers, crime community resources.
statistics to name a few.
How do businesses use
Geographic Information
Systems?
 Logistic
Companies
fleet activities

Publishing
Companies
analyze circulation
Real Estate make maps
Companies available online

Banks locating branch banks

Insurance
Companies
determine premiums

information about
Retailers
sales, customers, and
demographics
 Utility balance supply and
Companies demand

Emergency allocate resources

Services to locations
Service and
Retail
Locations
 Service and Retail Locations

Retail sales and services

Service and retail are
are usually found near
typically governed by
They tend to be profit the center of the
somewhat different
or revenue focused, markets they serve (e.g.
considerations than
concerned with fast food restaurants,
manufacturing
demographics. service stations, dry
organizations in making
cleaners, and
decisions.
supermarkets).
 Service and Retail Locations
Medical services are often
located near the hospitals for
the convenience of the
patients.

Specific types of retail

Retail and service
or service business may
organizations typically
pay more attention to Good transportation and/ or
place traffic volume and
certain factors due to parking facilities can be vital to
convenience high on retail establishments.
the nature of their
the list of important
business or their
factors.
customers.
Customers’ safety and security
can be key factors, particularly
in urban settings, for all types
of services that involve
customers coming to the
service location.
 Factor Rating
Technique that can be applied to a
wide range of decisions ranging
from personal (buying a car,
deciding where to live) to
professional (choosing a career,
choosing among job offers).

A typical location decision

involves both qualitative and
quantitative inputs, which tends to
vary from situation to situation
depending on the needs of each
organizations.
 Factor Rating
Factor rating is a general
approach that is useful for
evaluating a given
alternative and comparing
alternatives.

The value of factor is provides a

rational basis for evaluation and
facilities comparison among
alternatives by establishing a
composite value for each
alternative that summarizes all
related factors.
Procedure Determine which factors are relevant

in
(location of market, water supply,
parking facilities, revenue potential)

Developing Assign a weight to each factor that

indicates its relative importance

Factor
compared with all other factors.

Rating
Decide on a common scale for all
factors and set a minimum acceptable
score if necessary.
Procedure
Score each location alternative.
in
Developing
Multiply the factor weight by the
score for each factor and sum the
results for each location alternative.

Factor Choose the alternative that has the

Rating highest composite score, unless it fails

to meet the minimum acceptable
score.
Using A photo – processing company intends to open a new branch store.
The following table contains information on two potential locations. Which is
better alternative?

Factor Scores (out of 100) Weighted Scores

Rating to Factor weight Alt.1 Alt.2 Alternative 1 Alternative 2

Compare
Proximity to .10 100 60 .10 (100)=10 .10(60)=6
existing
store.

Alternatives
Traffic .05 80 80 .05(80)=4 .05(80)=4
volume
Rental costs .40 70 90 .40(70)=28 .40(90)=36

Size .10 86 92 .10(86)=8.6 .10(92)=9.2

Layout .20 40 70 .20(40)=8 .20(70)=14
Operating .15 80 90 .15(80)=12 .15(90)=13.5
costs -------------- -------------

70.6 82.7
 THE CENTER OF GRAVITY METHOD

A METHOD TO DETERMINE THE LOCATION OF A FACILITY THAT WILL MINIMIZE

SHIPPING COSTS OR TRAVEL TIME TO VARIOUS DESTINATIONS.

AN APPROACH WHERE THE MAIN INPUTS THAT IT CONSIDERS ARE:

MARKETS VOLUME OF GOODS SHIPPED SHIPPING COSTS

HOW TO USE THE CENTER OF GRAVITY METHOD

PLACE EXISTING LOCATIONS IN A COORDINATE GRID

1  Overlay a coordinate system on the map
 Observe relative distances
D3

D4
D1
D5
D2 D6
PLACE EXISTING LOCATIONS IN A COORDINATE GRID

D3
(3 , 5)
D4
(7 , 4)
(1 , 3)
D1 (9 , 3)
D5
(3 , 2) (7 , 2)
D2 D6
 HOW TO USE THE CENTER OF GRAVITY METHOD
IF THE QUANTITIES TO BE SHIPPED TO EVERY LOCATION ARE

THE COORDINATES OF THE CENTER OF GRAVITY CAN BE OBTAINED BY

2
σ 𝑦𝑖
𝑦ത =
𝑛
WHERE:
𝑥𝑖 = x coordinate of destination i σ 𝑥𝑖
𝑦𝑖 = x coordinate of destination i 𝑥ҧ =
𝑛 = Number of destinations 𝑛
 HOW TO USE THE CENTER OF GRAVITY METHOD
IF THE QUANTITIES TO BE SHIPPED TO EVERY LOCATION ARE

THE COORDINATES OF THE CENTER OF GRAVITY CAN BE DETERMINED BY

2
σ 𝑦𝑖 𝑄𝑖
𝑦ത =
σ 𝑄𝑖
WHERE:
𝑥𝑖 = x coordinate of destination i
𝑦𝑖 = x coordinate of destination i
σ 𝑥𝑖 𝑄𝑖
𝑄𝑖 = Quantity to be shipped to
𝑥ҧ =
σ 𝑄𝑖
destination i
 ASSUME THAT THE SHIPMENTS FROM THE CENTER OF GRAVITY TO EACH OF
THE FOUR DESTINATIONS WILL BE EQUAL QUANTITIES.

DETERMINE THE COORDINATES OF THE CENTER OF GRAVITY.

EXAMPLE #1

Destination x y
D1 1 3 D3
(3 , 5)
D2 3 2 D4
(7 , 4)
D3 3 5 (1 , 3)
D1 (9 , 3)
D4 7 4 D5
(3 , 2) (7 , 2)
D5 9 3 D2 D6
D6 7 2
 ASSUME THAT THE SHIPMENTS FROM THE CENTER OF Destination x y
GRAVITY TO EACH OF THE FOUR DESTINATIONS WILL BE
EQUAL QUANTITIES. D1 1 3
D2 3 2
DETERMINE THE COORDINATES OF THE CENTER OF
GRAVITY. D3 3 5
EXAMPLE #1

D4 7 4
D5 9 3
σ 𝑥𝑖 30 D6 7 2
𝑥ҧ = = =5
𝑛 6 30 19

D3
(3 , 5)
D4
σ 𝑦𝑖 19 (1 ,D1
3)
(7 , 4)
𝑦ത = = = 3.2 D5 (9 , 3)
𝑛 6 D2
(3 , 2)
D6
(7 , 2)
 HOW TO USE THE CENTER OF GRAVITY METHOD

ONCE THE X AND Y COORDINATES ARE CALCULATED, PLOT THE

3 LOCATION ON THE MAP
Hence, the center of gravity is at (5, 3.2).

D3
(3 , 5) CENTER OF GRAVITY
D4
(7 , 4)
(1 ,D1
3)
D5
(9 , 3)
(3 , 2) (7 , 2)
D2 D6
 ASSUME THAT THE SHIPMENTS FROM THE CENTER OF GRAVITY TO EACH OF
THE FOUR DESTINATIONS ARE NOT EQUAL QUANTITIES.

DETERMINE THE COORDINATES OF THE CENTER OF GRAVITY.

EXAMPLE #2

Destination x y Weekly
Quantity D3
D1 1 3 500 (3 , 5)
D4
D2 3 2 700 (7 , 4)
(1 , 3)
D3 3 5 300 D1 (9 , 3)
D5
D4 7 4 950 (3 , 2) (7 , 2)
D2 D6
D5 9 3 800
D6 7 2 400
3650
 ASSUME THAT THE SHIPMENTS FROM THE CENTER OF GRAVITY TO EACH OF THE FOUR DESTINATIONS ARE
NOT EQUAL QUANTITIES.

DETERMINE THE COORDINATES OF THE CENTER OF GRAVITY.

σ 𝑥𝑖 𝑄𝑖 1 500 + 3 700 + 3 300 + 7 950 + 9 800 + 7(400)
𝑥ҧ = =
EXAMPLE #2

σ 𝑄𝑖 3650
500+2100+900+6650+7200+2800
= = 5.5
3650

Destination x y Weekly
Quantity
D3
D1 1 3 500 (3 , 5)
D2 3 2 700 D4
(7 , 4)
D3 3 5 300 (1 ,D1
3)
D5 (9 , 3)
D4 7 4 950 (3 , 2) (7 , 2)
D2 D6
D5 9 3 800
D6 7 2 400
3650
 ASSUME THAT THE SHIPMENTS FROM THE CENTER OF GRAVITY TO EACH OF THE FOUR DESTINATIONS ARE
NOT EQUAL QUANTITIES.

DETERMINE THE COORDINATES OF THE CENTER OF GRAVITY.

σ 𝑦𝑖 𝑄𝑖 3 500 + 2 700 + 5 300 + 4 950 + 3 800 + 2(400)
𝑦ത = =
EXAMPLE #2

σ 𝑄𝑖 3650
1500+1400+1500+3800+2400+800
= = 3.1
3650

Destination x y Weekly
Quantity
D3
D1 1 3 500 (3 , 5)
D2 3 2 700 D4
(7 , 4)
D3 3 5 300 (1 ,D1
3)
D5 (9 , 3)
D4 7 4 950 (3 , 2) (7 , 2)
D2 D6
D5 9 3 800
D6 7 2 400
3650
Hence, the center of gravity is at (5.5, 3.1).

D3
(3 , 5) CENTER OF GRAVITY
D4
(7 , 4)
(1 ,D1
3)
D5
(9 , 3)
(3 , 2) (7 , 2)
D2 D6
 ASSUME THAT THE SHIPMENTS FROM THE CENTER OF GRAVITY TO EACH OF
THE FOUR DESTINATIONS ARE NOT EQUAL QUANTITIES.

DETERMINE THE COORDINATES OF THE CENTER OF GRAVITY.

PROBLEM #1

Destination x y Weekly
Quantity
D1 2 4 400
D3
D2 3 1 200
D3 4 6 600
D1 D6
D4 5 2 350
D4 D5
D5 9 2 860
D6 7 4 500 D2
 ASSUME THAT THE SHIPMENTS FROM THE CENTER OF GRAVITY TO EACH OF
THE FOUR DESTINATIONS ARE EQUAL QUANTITIES.

DETERMINE THE COORDINATES OF THE CENTER OF GRAVITY.

PROBLEM #2

Destination x y
D1 2 4
D2 3 1 D3
D3 4 6
D4 5 2 D1 D6
D5 9 2 D5
D4
D6 7 4
D2