Dr.

Marwa Abd Elghany

Lecture (3): Location planning

First: Location definition:

Location: Is the place where the organization's facilities are located.

Location planning: Is all the necessary activities to determine the place

where it is easier for the organization to obtain inputs, perform conversion
operations and distribute products in the long run efficiently and effectively.

Identifying the location is one of the important issues facing

management, which must be completely studied before making a decision. If
the management makes a mistake in choosing the correct location, the result
of this mistake will continue to be a heavy load on the management and an
obstacle to achieve degrees of success that would have been possible if the
location was chosen right from the beginning. As a rule there is no so-called
"optimal location" but there is a so-called "best location".
Second: The need for location decisions:
There are several situations where the need to take a decision on the
determination of the location is necessary:
- Expand their markets; the location decisions in this case reflect the
addition of new location to an existing one. Firms such as banks,
fast-food chains, supermarkets, and retail stores view locations as
part of "marketing strategy", and they look for locations that will
help them to expand their markets. The location decisions in those
cases reflect the addition of new locations to an existing system.
- A growth in demand that cannot be satisfied by expansion at an
existing location.
- Decrease of basic inputs, for example: fishing at a giving location,
mining and petroleum operations face the same sort of situation.
- A shift in markets causes them to consider relocation.
- Costs of doing business at a particular location reach a point where
other locations begin to look more attractive.
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Note: From the above, it is clear that the organization can expand vertically
or horizontally.

Horizontal expansion: Is geographical expansion that takes place.

Vertical expansion: expansion of the current production capacity of the

organization within the same location occupied by the organization.

Third: Importance of location decisions:

The importance of location decisions is due to the following reasons:

1. Marketing strategy, the decision to choose a location is firstly a

marketing strategy because the starting point is marketing, it is
important that the selling aspect reach to its highest levels.
2. Good location selection affects the expected return on investment of
this location.
3. The decision to choose a location is essential for expansion purposes.
The organization is legally viewed as natural person. An important
and central reason for choosing the location is to expand it vertically
or horizontally. An organization that does not expand will die and
end.
4. Location decision requires a long-term commitment, which makes
mistakes difficult to overcome.
5. If the Location decision is wrong, it means additional daily operating
costs until the end of the project life on this location.
6. A difficult decision that is not easily change.
7. Is taken once at the beginning of the project life.

Fourth: Location alternatives:

There are four alternatives in location planning:

The first alternative: Expand on the existing location; this option can be
attractive especially if the location has desirable features that are not
available elsewhere. Expansion costs are often less than those of other
alternatives.

The second alternative: Add new location to the existing one, as is done
in many retail businesses.
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 The third alternative: shut down the existing location and move to
another one, an organization must weigh the costs and benefits of move
against the costs and benefits of remaining in an existing location. Shifts
in markets, inadequate raw materials, and loss of competitive advantage
often cause organizations to consider this option seriously.

The fourth alternative: Organization has the option of doing nothing. If

the detailed analysis fails to choose one of the previous three alternatives,
the organization may decide to maintain in the existing location at least at
the time being.

Fifth: Procedure for making location decision:

The procedure for making location decision usually consists of the

following steps:

1. Determine the criteria that will be used to evaluate alternative

locations such as revenue or community service.
2. Identify important influencing factors such as location of markets or
sources of raw materials.
3. Determine location alternatives.
4. Evaluate the alternatives and make the decision to choose the best
one.

Sixth: factors that affect location decision:

Many factors influence location decision. However, it often happens

that one or few factors are so important that they dominate the decision. For
example, nuclear reactors require large amount of water for cooling, heavy
industries such as steel and aluminum production need large amount of
electricity, and so on. In particular, the choice of the plant location should be
based on the following factors:
- Location of raw materials.
We must choose the location near the raw materials especially in
extractive Industries such as mining operations, in farming, and
fishing.
- Closeness to markets. Especially for breakable items and items that
likely to decay or go bad quickly.

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- Employee cost. Employee consideration which relates to the cost
and availability of employee is very important. Such as hotels and
resorts in Hurghada and Sharm el-Sheikh, which provide housing
for their employees. So, availability of facilities, services and a
good housing facility with adequate number of shops, restaurants,
local transport system and sufficient supply of gas and water as
well as provision for drainage and disposal of waste, etc., can
easily attract good staff.
- Climate, the climatic conditions like humidity, temperature and
other atmospheric conditions should be favorable for the plant; for
example, a very damp climate may not favor the textile and cotton
industries.
- Land and geological factors. The cost of the land is important
factor, soil characteristics such as the soil likely to be influenced to
earthquakes and volcanoes. The subsoil of the location should be
able to support the load likely to be placed on it.
- Available funding.
- Closeness to suppliers, especially for breakable items and items
that likely to decay or go bad quickly.
- Communication facilities.
- The proposed location should not break local regulations and by-
laws for the construction of buildings etc.
- Safety requirements. Industries like nuclear power stations using
processes that are explosive in nature and chemical process likely
to pollute the atmosphere should be located in remote areas, on the
outskirts of a city or village, away from the residential areas.
- The availability of different means of transportation.
- Infrastructure services such as water and electricity sources.
- Facilities which are given by the government in some locations.
- Competitors' locations. The closeness to competitors is important
in some cases as car dealers, auto repair car and fast food
restaurants because the so-called critical density is created. The
existence of several competing companies in one location attracts
more customers than the total number of customers who shop in
the same shops when they are scattered.

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 After these factors have been determined, the company will identify
examine the pros and cons of establishing operations in these locations.

Seventh: Location quality characteristics:

Although the location selection decision is a strategic decision

taken at the beginning of the life of the production system, a change in one
or more of the location selection factors may cause a problem on the
location.

A good location is an infinite goal. For example, 100 years ago, the
city center was the best location for factories, because the availability of
employees, transportation, and infrastructure services and closeness to
customers. Now due to the Population crisis, the locations inside cities
become bad for factories, and suitable for banks, fast food restaurants,
cinemas, theater. So the good location today may not be good tomorrow.

In general, the location is good if:

1. Reduces the cost of obtaining inputs.

2. Reduces the cost of product transfer and the cost of after-sale service.
3. Provides the appropriate climate for the transformation process.
4. Provide adequate physical working conditions.
5. Reduces construction costs and operating costs.
6. Reduces the cost of infrastructure services.
7 - Geologically fit for the construction of buildings with the required
specifications.
8. Integrates with the rest of the organization's factories.
9. Accepts public acceptance.
10. Close to suppliers.
11. Provides competitive advantage.
12. Expansion is allowed at an appropriate cost.

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 It is noted that the location characteristics of service production systems
are directly related to customer satisfaction, so this location should be:
- Be close to customers.
- Easy to reach.
- Provide a good climate for service delivery
Eighth: Quantitative Methods for evaluating location Alternatives:
- Total cost.
- Factors rating.