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Group 4 - Report
Group 4 - Report

Objectives

At the end of the report the students must be able to:

1.

Understand the need for location planning

2.

Identify the importance of Strategic Location decision

3.

Identify location options

4.

Understand Global locations; pros and cons.

5.

Know the procedure in making location decisions

6.

Service and Retail location

7.

Evaluation location alternatives

8.

Analyze locational cost-profit-volume

9.

Center of gravity method

Nature of Location Decision - Location decisions for businesses are made infrequently but they tend to have significant impact to the organization.

Why is there a need for Location Decision?

Marketing Strategy Adding new location to expand the markets.

Depletion of basic Inputs When resources are exhausted, organizations or businesses are forced to relocate.

Shift in market/ Costs The cost of doing business at a particular location seems cheaper and feasible for more customers.

Strategic Importance of Location Decision

Organizational Strategy Customer Increasing Low Cost Satisfaction/ Profit Convenience
Organizational
Strategy
Customer
Increasing
Low Cost
Satisfaction/
Profit
Convenience

Low Cost If the strategy of the firm is to reduce cost, the location needs to

where labor and material costs are low

Increasing Profit Increase in market share might result to relocating to a high traffic area or a business district.

Customer Satisfaction/ Convenience Ensure locations are many where customers can transact businesses and make purchases conveniently.

Importance of Strategic Location Decisions:

1. They entail long term commitment. There is less room for mistakes because

once encountered, these are hard to overcome.

2. Impact on investment requirement; Poor choice of location might result in

high operating cost, shortage of labor and loss of competitive advantage.

3. For services, it may result to lack of customer and higher operating costs.

Supply Chain

- Is the system of organizations, people, activities, information and

resources involved in the movement of the product or services from the

SUPPLIER TO THE CUSTOMER. Supply chain activities transform raw

materials to finish products/ services.

Raw

Materials

Factory

Raw M a t e r i a l s Factory Distributor Retail

Distributor

Raw M a t e r i a l s Factory Distributor Retail

Retail

Raw M a t e r i a l s Factory Distributor Retail

Consumer

Location Options

1. Expand existing facility

2. Add new locations/ retain existing ones.

3. Shut down the location and move to another (RELOCATE)

4. Not to move at all

Global Locations Globalization opened new markets and it has increased dispersion of

manufacturing and service operations around the world.

Facilitating factors:

1. Trade Agreements Barriers to international trades such as quotas and tariffs

were reduced or eliminated.

2. Technology Technological advances in communication and information

sharing have been very helpful and useful.

Benefits:

1.

Markets

2.

Cost Savings

3.

Legal and Regulatory

4.

Financial

5.

Others

Disadvantages:

1. Transportation Costs

2. Security Costs

3. Unskilled labor

4. Import restrictions

5. Criticisms

Risks:

1.

Political

2.

Terrorism

3.

Economic

4.

Legal

5.

Ethical

General procedures for Making Location Decisions

1.

Decide on the criteria to use for evaluating location alternatives.

2.

Identify Important factors.

3.

Develop location alternatives

A. Identify a country or countries for location

B. Identify the general region for the location

C. Identify a small number of community alternatives

D. Identify site alternatives over the community alternatives

4. Evaluate the alternatives and make the decision.

Regional Factors: Community

Regional

Factors:

Community

Regional Factors: Community

Site

Regional Location of raw materials or supplies, Location of markets, Labor. Community Quality of life, Services, Attitudes, Taxes, Environmental Regulations, Utilities, Development Support. Site Land, Transportation, Environmental and Legal

Multiple Plant Manufacturing Strategies

1. Product Plan Strategy

- In this strategy, entire products or product lines are produced in

separate plants. Each plant usually supplies the whole domestic markets.

2. Market Area Plant Strategy

- In this strategy, plants are designed to serve a particular geographic

segment or markets.

3. Process Plant Strategy

- In this strategy, different plants concentrate on different aspects of a

process.

4. General Purpose Plant Strategy

- This strategy, Plants are flexible and capable of handling a range of

products. This allows for quick response to product or market changes.

Service and Retail Locations

- This is governed by different considerations than manufacturing type

of business in terms of location decision.

Factors:

1.

Profit/ Revenue

2.

Demographics

3.

Customer Access / Convenience

4.

High Population Densities

5.

Customer Safety/ security

6.

Competitor’s location

Manufacturing/

Distribution

Cost Focus

Service/ Retail

Revenue

Focus

Evaluating Location Alternatives

1. Location Cost Volume Analysis - Economic comparison of location alternatives which can be done numerically or graphically.

Steps:

1. Determine the fixed and variable costs associated with each location

alternatives.

2. Plot the total cost line for all location alternatives on the same graph.

3. Determine which location will have the lowest total cost for the expected

level of output. Alternatively, determine which location will have the

highest profit.

Assumption:

1.

Fixed cost are constant for the range of probable output.

2.

Variable costs are linear for the range of probable output.

3.

The required level of output can be closely estimated.

4.

Only one product is involved.

Total Cost = FC + v x Q

Where FC = Fixed Cost

v = Variable cost per unit

Q = Quantity or volume of output

Example:

Location

Fixed cost per year

Variable cost per unit

Location A Location B

250,000 PHP 100,000 PHP

11.00 PHP 30.00 PHP

Location C

150,000 PHP

20.00 PHP

Location D

200, 000 PHP

35.00 PHP

Volume output per year = 10, 000 units

Computation:

Location A

A = 250,000 + 11(10,000)

A = 360,000 PHP

Location C

C = 150,000 + 20(10,000)

C = 350,000

Location B B = 100,000 + 30(10,000) B = 400,000PHP

Location D D = 200,000 + 35(10,000)

D = 550,000

The location with the lowest TOTAL COST for the estimated output is