Kathleen G.



Existing organizations may need to make location decisions for variety of reasons:
They look for locations that will help them to expand their markets Addition of new locations to an existing system When an organization experiences a growth in demand for its products and services that cannot be satisfied by expansion at an existing location. Addition of a new location to complement an existing system.


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Depletion of basic inputs (e.g. fishing, logging, mining and petroleum operations) Shift in markets Costs of doing business at a particular location. Other locations begin to look more attractive.

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following are some of the options made by the usual objective managers on making location choices.

ATM¶s. fast-food chains) . service stations.` Location decisions are closely tied to organizations strategies. branch banks. or locating near markets or raw materials to reduce transportation costs. A strategy of being a low-cost producer might result in locating where labor costs are low.g. A strategy that emphasizes convenience for the customer might result in having many locations where customers can transact their business or make purchases (e. A strategy of increasing profits by increasing market share might result in locating in high-traffic areas.

operating costs and revenues. and operations .` ` It entails a long-term commitment Often have an impact on investment requirements.

.` ` ` ` ` Excessive transportation costs A shortage of qualified labor Loss of competitive advantage Inadequate supplies of raw materials Some similar conditions that is detrimental to operations.

` Could result in lack of customers and/or high operating costs. ` ` Will have a significant impact on competitive advantage Strategic importance to supply chains .

No single location may be significantly better than the others. both organizations tends to find out the µbest¶ location available. they hope to find a number of acceptable locations from which to choose. rather. however. Most organizations do not set out with the intention of identifying the one best location. .` ` ` Non-profit organizations and profit-oriented organizations have different location decisions.

` Location criteria can depend on where a business is in the supply chain. age distribution. Site selection tends to focus more on accessibility. . traffic patterns and local customs. ` ` Businesses at the beginning of a supply chain (if they are involved in supplying raw materials) they are often located near the source of the raw materials Businesses in the middle of the chain may locate near suppliers or near their markets. depending on a variety of circumstances. average buyer income). consumer demographics (population density.

.(e. they can exist anywhere. businesses involved in storing and distributing goods often choose a central location to minimize distribution costs.g.) * Web-based retail businesses are much less dependent on location decisions.

There are four options which Managers generally consider: 1. ` . To expand existing facility.

. . .expansion costs are often less than the other alternatives ` .There are four options which Managers generally consider: 1.can be attractive if there¶s a room for expansion. To expand existing facility.if location has desirable features that arenot readily available elsewhere.

To expand existing facility.There are four options which Managers generally consider: 1. 2. To add new locations while retaining existing ones. ` .

can be a defensive strategy designed to maintain a market share. .essential to take into account what the impact will be on the total system.g. rather than expand the market) .2. .prevent competitors from entering a market. To add new locations while retaining existing ones. (e.done in many operations . opening a new store may draw customers who already patronize an existing store. .

There are four options which Managers generally consider: 1. To expand existing facility. 2. Shut down one location and move to another. 3. To add new locations while retaining existing ones. ` .

a shift in markets . Shut down one location and move to another. .exhaustion of raw materials . .cost of operations .must weigh the costs of a move and the resulting benefits against the costs and benefits of remaining existing location.3.

3. To expand existing facility. 2.There are four options which Managers generally consider: 1. ` . 4. Organizations have the option of doing NOTHING. To add new locations while retaining existing ones. Shut down one location and move to another.

.4.if detailed analysis of potential locations fails to uncover benefits that make one of the three previous alternatives attractive. . . Organizations have the option of doing NOTHING.maintain the status quo.

Informal approach: small firm managers tends to keep their operations nearby only to focus exclusively on local alternatives. . Formal Approach: consider a wider range of geographic locations.` ` ` ` ` Often depends on its size and the nature or scope of its operations Informal approach: firms located usually from where the owner lives. Formal Approach: Large established companies who operates from one location or more location.

Decide on the criteria to use for evaluating location alternatives (e. 4. increase revenues or community service) Identify important factors (e.g.g. 3. location of markets or raw materials) Develop location alternatives: 1. Evaluate the alternatives and make a selection . Identify the general region for a location Identify a small number of community alternatives Identify site alternatives among the community alternatives. 2. 3. 2.1.


The primary regional factors involve raw materials. PERISHABILITY. making it much less expensive to transport the product or material after processing .Perishability: firms involved canning or freezing of fresh fruit and vegetables. processing of dairy products. TRANSPORTATION COSTS .1 Location of raw materials . . 1. baking. and labor considerations.Firms locate near or at the source of raw materials for three primary reasons: NECESSITY.Some firms choose to locate near the geographic centre of the sources . .Necessity (operations which must be located close to their raw materials) : Mining Operations.Transportation: where processing eliminates much of the bulk connected with the raw material. Forestry & fishing. Farming. markets.

Distribution costs / perishability of a finished product. .2 Location of Markets .Nonprofit Organizations choose locations relative to the needs of the users of their services. .Profit-oriented firms frequently locate near the markets they intend t serve (as part of their competitive strategy) .1.

. fastfood restaurants. .Retail sales and services are usually found near the center of the markets they serve (e. supermarkets) their products and those of their competitors are so similar that they rely on convenience to attract customers. service stations. This type of businesses seek information with high population densities or high traffic. dry cleaners.g.

dentists. drugstores. auto repair shops. . kiosks and shopping centers Doctors. Businesses/firms such as hotels. barbers and beauticians.` Competition / Convenience Factor Typically serve clients who reside within the limited area. motels. newspaper. lawyers.

` Competitive pressures for retail operations a market served by a particular location may be too small to justify two or more competitors A search for potential locations tends to concentrate on locations without competitors. large department stores often locate near each other. .g. x e. small stores like to locate in shopping centers that have large department stores as anchors (the large stores attract large numbers of shoppers who become potential customers in the smaller stores.

they tend to locate within the area they expect to serve.` Some firms must locate close to their markets because of the perishability of their products.g. sand and gravel dealers.g. ` Other types of firms. fresh seafood stores. E.g. usually serve a limited area because of the high distribution costs associated with their products. bakeries. home remodelers. lawn garden services. rug cleaners. tailor shops. flower shops. . E. E. distribution costs are the main factor in closeness to market. home repair services. ` Other firms require close customer contact. cabinet makers.

` ` Locations of many government services are near the markets they are designed to serve. E. Japanese automobile manufacturers .g. Many foreign manufacturing companies have relocated manufacturing operations in the United States it is a major market for their products.

retrieving and displaying demographic data on maps. incomes.‡ Software can be helpful in location analysis ‡ A geographical information system (GIS) is a computerbased tool for collecting. type of housing. type of employment. ‡ The data might involve age. . regional. ‡ The maps maybe global. country. city or town. national. state or province. storing.

. wage rates in the area.some companies offer their current employees jobs f they move to a new location.1. absenteeism.skills of potential employees may be a factor .labor cost are very important for laborintensive organizations. . labor productivity and attitudes toward work.Primary labor considerations are the cost and availability of labor.worker attitudes toward turnover. LABOR FACTORS . and similar factors may differ among potential locations . and whether unions are a serious potential problem. .3.

many companies have been attracted to relocate on low-cost energy or labor. * can cause problems on deliveries * work disruptions used by inability of employees to get to work have been frequent.sometimes play a role in location decisions.tax and monetary incentives are major factors in attracting or keeping professional sports franchises. and tax considerations. . .1.4. climate and Taxes . climate. .

` ` ` Communities try to attract new businesses They are viewed as potential source of future tax revenues and new job opportunities Disadvantage: some firms create pollution problems and lessen the quality of life in the community. Increased level of noise Traffic .

fire. religious worship. ` Other community related factor. Cost and availability of utilities Environmental regulations Taxes . transportation. the quality of police. entertainment..` ADVANTAGES (for company) Desirability of a community to work Place for workers and managers Facilities includes: education.. shopping. recreation. medical services.

load factors and drainage Land costs. future expansion. current utility and sewer capacities. (for heavy manufacturing/erection of large buildings or facilities with special requirements) soil conditions. sufficient parking space for employees and customers. .` ` ` Evaluation of potential sites may require consulting with engineers or architects.

plant locations may be widely scattered or clustered relatively close to one another. materials. PRODUCT PLANT STRATEGY . they can organize operations in several ways: 1. equipment along product lines. . each plant usually supplies the entire domestic market. ` .When companies have multiple manufacturing facilities.decentralized approach . lower operating costs.specialization often results in economies of scale and compared with multipurpose plants. .each plant focusing on a narrow set of requirements that entails specialization of labor. .the entire products are produced in separate plants.

expand or downsize current plants due to changing market conditions. . .operating costs tend to be higher than those of product plants. west coast. . Market Area Plant Strategy . weight. or other factors. northeast) .plants are designed to serve a particular geographic segment of a market (e.2.g.requires centralized coordination of decisions to add or delete plants.have a benefit of rapid delivery and response to local needs.particularly desirable when shipping costs are high due to volume. significant savings on shipping costs for comparable products can be made. .

Process Plant Strategy .3. Benefits: . . centralized administration to achieve effective operation.different plants concentrate on different aspects of a process.automobile manufacturers often use this approach. .coordination of production throughout the system becomes a major issue and requires a highly informed.increase in learning opportunities that occurs when similar operations are being done in different plants.is best suited to products that have numerous components. . .

energy.` ` ` ` Are somewhat different than manufacturing organizations in making location decisions. traffic volume/patterns. Tends to be revenue focused. population/drawing area. competition. income. Manufacturers tends to be cost-focused. and education. customer access/parking. concerned with demographics such as age. Customer access is a prime consideration. material costs. availability and distribution costs. . concerned with labor.

centralized areas with other doctors offices. doctors offices may be located near hospitals. because of the higher traffic volumes and convenience to customers. (e. automobile dealership often tend to locate near each other. (e. public transportation is often a consideration) . and restaurants and specifically stores often locate in and around malls. benefiting from the high traffic) ` Medical services are often located near hospitals for convenience of patients.g.g.` Retail businesses prefer locations that are near other retailers.

` ` Good transportation and/or parking facilities can be vital to retail establishments Customer safety and security can be key factors .

S. Can shorten delivery time and reduce delivery costs Can avoid future tariffs or quotas that might be applied to imports. represents a tremendous market for cars.` ` ` ` ` Recent trends in locating facilities: Foreign producers (automotive firms) locate plants to United States. U. recreational vehicles. . trucks.

Consequently. location within the borders of a country to escape tariffs is now much less of an issue. An ethical issue has been the use of ³sweatshops´.` ` A development that affects location decisions was the passage of GATT in 1994. . one of its provisions was the reduction and elimination of various tariffs. which employ workers at low wages in poor working conditions. consumer protests have caused a number of companies to cease this practice.

firms are reconsidering decisions to locate offshore. which encourage suppliers to locate near their customers to reduce supplier lead times. some U. low-cost labor is becoming less important than nearness to markets Users of electronic components want suppliers that are close to their manufacturing facilities. Light manufacturing (e.S. The possibility of a trend in smaller factories located near markets. . electronics).` ` ` ` Another trend is just-in-time manufacturing techniques.g.

` ` ` ` (in some industries) small. . and manufacturing. marketing. automated microfactories with narrow product focuses will be located near major markets to reduce response time. This will reduce the need for these functions to be located close together. and distribution with design. Advances in information technology will enhance the ability of manufacturing firms to gather. track. Permitting a strategy of locating production facilities near major markets. and distribute information that links purchasing. engineering.

` To counter negative sentiments such as ³not made in this country´ E. but not the price of goods produced within a country.g.S. workers ` Currency fluctuations and devaluations Can have a significant impact on demand and on profits.S. Japanese factories in the U. produce cars made by U. Changes in currency value alter the price of foreign goods. .

facilities.` Trend toward globalization for some organizations has meant having. and operations around the world Challenges for managing scattered and distant operations. or even traveling to other countries. . on going social unrest. political instability. coupled with advanced communications capabilities and other technologies. terrorist attacks that have caused many organizations to be very cautious about locating in. ` Benefits of globalization. personnel.