LESSON 7 – LOCATION PLANNING AND o Labor factors

ANALYSIS o Climate and taxes

NEED FOR LOCATION PLANNING 2. Community Considerations

- Marketing Strategy
- Cost of doing business
- Growth
- Depletion of resources
NATURE OF LOCATION DECISIONS
Location decisions for many types of
businesses are made infrequently, but they
tend to have a significant impact on the
organization.
1. Strategic Importance
o Long term commitment/costs
o Impact on investments, revenues,
and operations
o Supply chains
2. Objectives
o Profit potential
o No single location may be better
than others.
3. Options
o Expand existing facilities
o Add new facilities
o Move
o Do nothing
GENERAL PROCEDURES FOR MAKING
LOCATION DECISIONS
1. Decide on the criteria.
 Decide on the criteria to use for
evaluating location alternatives,
such as increased revenues,
decreased cost, or community
service.
2. Identify the important factors.
 Such as location of markets or raw
materials. The factors will differ
depending on the type of facility.
For example, retail, manufacturing,
distribution, healthcare, and
transportation all have differing
factors that guide their location
decisions.
3. Develop location alternatives.
a. Identify a country or countries for
location.
b. Identify the general region for a
location.
c. Identify a small number
community alternatives.
d. Identify site alternatives among the
community alternatives.
4. Evaluate the alternatives.
5. Make selection.
LOCATION DECISION FACTORS
1. Regional Factors
o Location of raw materials
o Location of markets
o Quality of life
o Services
o Attitudes
o Taxes
o Environmental regulations
o Utilities
o Developer support
3. Site Related Factors
o Land
o Transportation/zoning
o Environmental
4. Multiple Plant Strategies
o Product plant strategy
o Market area plant strategy
o Process plant strategy
EVALUATING LOCATION
1. Locational Cost-Profit-Volume Analysis
 Determines fixed and variable
costs.
 Plot total costs.
 Determines lowest total costs.
 The economic comparison of
location alternatives is facilitated
by the use of cost-profit-volume
analysis.
 The analysis can be done
numerically or graphically. The
graphical approach will be
demonstrated here because it
enhances understanding of the
concept and indicates the ranges
over which one of the alternatives
is superior to others.
2. Transportation Model
 Decision based on movement costs
of raw materials or finished goods.
3. Factor Rating
 Decision based on quantitative and
qualitative inputs.
 Factor rating is a 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
of career, choosing among job offers).
4. Center of Gravity Method
 Decision based on minimum
distribution costs.
 The center of gravity method is a
method to determine the location of
facility that will minimize shipping
costs or travel time to various
destinations.
  For example, community planners
use the method to determine the
location of fire and public safety
centers, schools, community
centers and such, taking into
consideration locations of
hospitals, senior living centers,
population density, highways,
airports, and retail businesses.

STRATEGIC IMPORTANCE OF LOCATION

DECISIONS
 Location decisions are closely tied to
an organization’s strategies.
 For example, a strategy of being a low-
cost producer might result in locating
where labor or material costs are low
or locating near markets or raw
materials to reduce transportation
costs.
 Location choices can impact capacity
and flexibility. Certain locations may
be subject to space constraints that
limit future expansion options.
 Location decisions are strategically
important for other reasons as well.
One is that they entail a long-term
commitment, which makes mistakes
difficult to overcome.
 Location decisions often have an
impact on investment requirements,
operating costs and revenues, and
operations.
 A poor choice of location might result
in excessive transportation costs, a
shortage of qualified labor, loss of
competitive advantage, inadequate
supplies of raw materials, or some
similar condition that is unfavorable to
operations.

OBJECTIVES OF LOCATION DECISIONS

Accessibility
 The number of possible locations that
would have to be examined to find the
best location may be too large to make
an exhaustive search on practical
location criteria can depend on where
the business in the supply chain.