Location Planning

and Analysis

McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
 Learning Objectives
 List some of the main reasons organizations need
to make location decisions.
 Explain why location decisions are important.
 Discuss the options that are available for location
decisions.
 Describe some of the major factors that affect
location decisions.
 Outline the decision process for making these
kinds of decisions.
 Use the techniques presented to solve typical
problems.
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 Need for Location Decisions

 Marketing Strategy
 Cost of Doing Business
 Growth
 Depletion of Resources

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 Nature of Location Decisions
 Strategic Importance of location decisions
 Long term commitment/costs
 Impact on investments, revenues, and operations
 Supply chains
 Objectives of location decisions
 Profit potential
 No single location may be better than others
 Identify several locations from which to choose
 Location Options
 Expand existing facilities
 Add new facilities
 Move

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 Making Location Decisions
 Decide on the criteria
 Identify the important factors
 Develop location alternatives
 Evaluate the alternatives
 Identify general region
 Identify a small number of community
alternatives
 Identify site alternatives
 Evaluate and make selection

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 Location Decision Factors
Community
Regional Factors Considerations

Multiple Plant Site-related

Strategies Factors

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 Regional Factors

 Location of raw materials

 Location of markets
 Labor factors
 Climate and taxes

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 Community Considerations

 Quality of life
 Services
 Attitudes
 Taxes
 Environmental regulations
 Utilities
 Developer support

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 Site Related Factors

 Land
 Transportation
 Environmental
 Legal

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 Multiple Plant Strategies
 Product plant strategy
 Market area plant strategy
 Process plant strategy

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 Service and Retail Locations
 Manufacturers – cost focused
 Service and retail – revenue focused
 Traffic volume and convenience most important
 Demographics
 Age
 Income
 Education
 Location, location, location
 Good transportation
 Customer safety
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 Comparison of Service and
Manufacturing Considerations
Table 8.2

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

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 Trends in Locations

 Foreign producers locating in U.S.

 “Made in USA”
 Currency fluctuations
 Just-in-time manufacturing techniques
 Microfactories
 Information Technology

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 Global Locations
 Reasons for globalization
 Benefits
 Disadvantages
 Risks
 Global operations issues

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 Globalization
 Facilitating Factors
 Trade agreements
 Technology
 Benefits
 Markets
 Cost savings
 Legal and regulatory
 Financial

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 Globalization
 Disadvantages
 Transportation costs
 Security
 Unskilled labor
 Import restrictions
 Criticisms
 Risks
 Political
 Terrorism
 Legal
 Cultural
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Table 8.3

Foreign a. Policies on foreign ownership of production facilities

Government Local Content
Import restrictions
Currency restrictions
Environmental regulations
Local product standards
Liability laws
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 ethic
Possible regulations limiting number of foreign employees
Language differences
Resources Availability and quality of raw materials, energy,
transportation infrastructure

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 Evaluating Locations

 Cost-Profit-Volume Analysis
 Determine fixed and variable costs
 Plot total costs
 Determine lowest total costs

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 Location Cost-Volume Analysis
 Assumptions
 Fixed costs are constant
 Variable costs are linear
 Output can be closely estimated
 Only one product involved

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 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 ost C ost
A $ 2 5 0 ,0 0 0 $11
B 1 0 0 ,0 0 0 30
C 1 5 0 ,0 0 0 20
D 2 0 0 ,0 0 0 35

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 Example 1: Solution

Fixed Variable Total

Costs Costs Costs

A $250,000 $11(10,000) $360,000

B 100,000 30(10,000) 400,000
C 150,000 20(10,000) 350,000
D 200,000 35(10,000) 550,000

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 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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 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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