CHAPTER EIGHT

LOCATION PLANNING AND ANALYSIS

Chapter 8
Location Planning
and Analysis
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 CHAPTER EIGHT
LOCATION PLANNING AND ANALYSIS
Need for Location Decisions
• Marketing Strategy
• Growth
• Depletion of Resources
• Cost of Doing Business

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 CHAPTER EIGHT
LOCATION PLANNING AND ANALYSIS
Nature of Location Decisions
• Importance
– Long term commitment/costs
• Objectives
– Profit potential
• Options
– Expand existing facilities
– Add new facilities
– Move
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 CHAPTER EIGHT
LOCATION PLANNING AND ANALYSIS
Location Decision Factors
Regional Factors Community Considerations

Multiple Plant Strategies Site-related Factors

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 CHAPTER EIGHT
LOCATION PLANNING AND ANALYSIS
Trends in Locations
• Foreign producers locating in U.S.
– “Made in USA”
– Currency fluctuations
• Just-in-time manufacturing techniques
• Microfactories
• Information highway

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 CHAPTER EIGHT
LOCATION PLANNING AND ANALYSIS
Evaluating Locations

• Cost-volume Analysis
– Determine fixed and variable costs
– Plot total costs
– Determine lowest total costs

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 CHAPTER EIGHT
LOCATION PLANNING AND ANALYSIS
Example 1: Cost-Volume Analysis
Fixed and variable costs for
four potential locations
L o c a tio n F ix e d V a r ia b le
C o s t C o s t
A $ 2 5 0 ,0 0 0 $ 1 1
B 1 0 0 ,0 0 0 3 0
C 1 5 0 ,0 0 0 2 0
D 2 0 0 ,0 0 0 3 5

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 CHAPTER EIGHT
LOCATION PLANNING AND ANALYSIS
Example 1: Solution

F ix e d V a r ia b le T o ta l
C o s ts C o s ts C o s ts

A $ 2 5 0 ,0 0 0 $ 1 1 (1 0 ,0 0 0 ) $ 3 6 0 ,0 0 0
B 1 0 0 ,0 0 0 3 0 (1 0 ,0 0 0 ) 4 0 0 ,0 0 0
C 1 5 0 ,0 0 0 2 0 (1 0 ,0 0 0 ) 3 5 0 ,0 0 0
D 2 0 0 ,0 0 0 3 5 (1 0 ,0 0 0 ) 5 5 0 ,0 0 0

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 CHAPTER EIGHT
LOCATION PLANNING AND ANALYSIS
Example 1: Solution
$(000)
800 D
700
600 B
500 C
400 A
300 A Superior
200 C Superior
100 B Superior
0
0 2 4 6 8 10 12 14 16
Annual Output (000)
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 CHAPTER EIGHT
LOCATION PLANNING AND ANALYSIS
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

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 CHAPTER EIGHT
Table 8-2 LOCATION PLANNING AND ANALYSIS
Foreign a. Policies on foreign ownership of production facilities
Government Local Content
Import restrictions
Currency restrictions
Environmental regulations
Local product standards
b. Stability issues
Cultural Living circumstances for foreign workers / dependents
Differences Religious holidays/traditions

Customer Possible buy locally sentiment

Preferences

Labor Level of training and education of workers

Work practices
Possible regulations limiting number of foreign employees
Language differences
Resources Availability and quality of raw materials, energy,
transportation
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