Operations management

Business location
By Dr. A.H.Suta
 Supply Considerations
• Supplier location
• Supply system
Centralized/
decentralized
 What is meant by location?
• business location is the geographic
positioning of an organisation in relation
to its customers, resources or other
businesses it deals with
• location is the general area within
which a particular site is selected
• selection of a location is likely to involve
detailed and careful analysis
 The importance of location
• as the founder of Hilton Hotels once
said “the three most important factors in
business are location, location, location”
• location decisions are likely to involve a
large amount of expenditure and be one
certainly
of the keyfor servicefactors
long-term organisations,
for any
location
businesscan often be the difference
between success and failure!
 Nature of Location Decisions
• Importance
– Long term commitment/costs
• Objectives
– Profit potential
• Options
– Expand existing facilities
– Add new facilities
– Move
 Location Decision Factors
Community
Regional Factors Considerations

Multiple Plant Site-related

Strategies Factors
 Regional Factors
• Location of raw materials
• Location of markets
• Labor factors
• Climate and taxes
• Foreign locations
 Community Considerations
• Quality of life
• Services
• Attitudes
• Taxes
• Environmental regulations
• Developer support
 Site Related Factors

• Land
• Transportation
• Environmental
• Legal
 Comparison of Service and
Manufacturing Considerations
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
 Factors of location
• What are the factors that might
influence a businesses location?
üsources of power
üsources of raw materials
ümarket and transport costs
ücommunication and infrastructure links
üavailability and cost of land
 Factors of location
üavailability of labour
ügovernment influence
üindustrial tradition and proximity of other
firms
 Industrial inertia
• this occurs when a business stays in its
original location even though the
original reasons for locating it there
have disappeared
• reasons for this might include
marketing
costs
external
of moving
economies
advantages
are of
tooderived
scale
high exist
from
staying in a traditional location
 International location
• a multinational organisation is a firm
with a number of offices or production
facilities spread around the world
• more and more, businesses are trading
across international boundaries as
globalisation occurs
• this throws up a series of new location
decisions and challenges
International factors of location
• some of the additional factors that
businesses will need to consider are;
ülocation overseas to avoid trade barriers
üimpact of exchange rate fluctuations
üpolitical stability
ülanguage and cultural barriers
 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
 Transportation Method
of Linear Programming

Warehouse
Supply
A B C D
4 7 7 1
1 100
Factory

9 4 8 8
2 200
4 9 6 5
3 150
Demand 80 90 120 160 450 450
 9.5 ?

7.5 ?

8?

What factors are most important?

9?
7.5 ?

What weights do
they receive? 10 ?
 Center of Gravity Method
Y

D2 D4
n n

D3
n

Center of
Gravity N
D1
n W E
S

0 X
 Summary
• financial considerations are often the
basis the
for making
choice final
of a location
locationdecisions
where techniques like investment
will ultimately affect
appraisal andthe
both break-even
costs of analysis
can be used
production and the
revenues
• other qualitative received
factors will play an
important part in the decision but only if
minimum financial criteria are first met