ch t 8chapter 8 location planning and analysis - 서강대학교...
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Need for Location DecisionsNeed for Location Decisions
• Marketing StrategyMarketing Strategy
• Growth
• Depletion of Resources
• Cost of Doing Business
8-2
N t f L ti D i iNature of Location Decisions• Importancep
– Long term commitment/costs– Impact on investment requirement, operating p q , p g
costs and revenues• Objectivesj
– Profit potential– Acceptable alternativesAcceptable alternatives
• OptionsExpand existing facilities– Expand existing facilities
– Add new facilitiesMove
8-3
– Move– Do nothing
L i D i i FLocation Decision Factors
Regional Factors Community Considerations
Si l d FM l i l Pl S i Site-related FactorsMultiple Plant Strategies
8-4
Regional Factors
L i f i l• Location of raw materials• Location of markets• Labor factors• Other factorsOther factors
– climate– taxes– utilities cost and availability– input cost and availability
8-5
Community Considerations
F ili i f d i h i i • Facilities for education, shopping, recreation, transportation, religious worship, and entertainmententertainment
• Quality of police, fire, and medical servicesL l i d d h • Local attitudes toward the company
• Size of the community• Cost and availability of utilities, environmental
regulations, taxes, and incentives
8-6
Site related FactorsSite-related Factors
• Land• T t ti• Transportation• Zoning or other restrictionsg
8-7
Multiple Plant StrategiesMultiple Plant Strategies
• Product Plant Strategy• M k t A St t• Market Area Strategy• Process Plant Strategygy
8-8
Multiple Plant StrategiesMultiple Plant Strategies
• Product plant strategyti d t li d d i t – entire product lines are produced in separate
plants– decentralized approach– specialization of resourcep
8-9
Multiple Plant StrategiesMultiple Plant Strategies
• Market area strategyMarket area strategy– plants designed to serve a particular geographic
area– rapid delivery and response to customer needs– low transportation cost– operating cost high due to product varietyope at g cost g due to p oduct a ety
8-10
Multiple Plant Strategies (cont.)
• Process plant strategy– plants concentrate on different aspects of a p p
process– coordination is a major issuecoordination is a major issue– plants highly specialized; economies of scale
8-11
S i d R t il L tiService and Retail Locations
• Traffic volume and convenience • Location of other retailers or similar service Location of other retailers or similar service
providersD hi l i f d i • Demographic analysis of drawing area
• Transportation and/or parking facilitiesp / p g• Customer safety and security
8-12
Trends in LocationsTrends in Locations
F i d l ti i U S• Foreign producers locating in U.S.– “Made in USA”– Currency fluctuations
J i i f i h i• Just-in-time manufacturing techniques• MicrofactoriesMicrofactories
– narrow product focus– located near major markets
• Information highway8-13
Information highway
M th d f E l ti L ti Methods of Evaluating Location Alternatives
• Locational Cost-Profit-Volume Analysis
• The Factor Rating Method• The Factor Rating Method• The Transportation Model
– The Center of Gravity Method
8-14
Locational Cost-profit-volume Analysis
– Determine fixed and variable costs– Plot total costs– Determine lowest total costsDetermine lowest total costs
Example: Example: Fixed and variable costs for two potential locations
L ti Fi d t V i bl tLocation Fixed cost Variable costA $800,000 $14,000B $920,000 $13,000
8-15
B $920,000 $13,000
ATotal costcost
B
920,000
X
Optimal total cost line800,000
Volume (units)
Optimal total cost line
8-16
Volume (units)
At a crossover volume, X, the total cost of one alternative equals the total cost of another alternative equals the total cost of another alternative
TC TCTCA = TCB
FCA+VCA(X) = FCB+VCB(X)A A( ) B B( )VCA(X)-VCB(X) = FCB-FCA
(VCA-VCB)(X) = FCB-FCA
X = (FCB-FCA)/(VCA-VCB)X (FCB FCA)/(VCA VCB)
8-17
ATotal cost
B
920,000
120,000800,000
Volume (units)
X = (FCB-FCA)/(VCA-VCB)X = (920,000- 800,000)/(14,000 – 13,000)
8-18
( ) ( )X = 120 units
Factor rating Method (1 of 2)Factor-rating Method (1 of 2)
• Allows consideration of both quantitative and qualitative factors
• Different factors can be assigned Different factors can be assigned different weights
8-19
Factor Rating Method (2 of 2)• The six steps in the factors-rating method
Factor-Rating Method (2 of 2)The six steps in the factors rating method1 Develop a list of relevant factors2 Assign a weight to each factor to reflect its relative 2 Assign a weight to each factor to reflect its relative
importance to the company’s objectives3 Develop a scale for each factor3 eve op a sca e o eac acto4 Have management score each location for each factor,
using the scale developed in the previous stepg p p p5 Multiply the scores times the weights for each factor, and
total the score for each location6 Make a recommendation based on the maximum point
score
8-20
Example
Factor-Rating Method
Scores(out of 100)
Weightedscores
FactorProximity
Weights0.2
(out of 100)Alt 1 Alt 2100 60
scoresAlt 1 Alt 2
0.2*100=20 0.2*60=12TrafficRental cost
0.30.40 1
60 6070 9086 60
0.3*60= 18 0.3*60=180.4*70=28 0.4*90=36
Size 0.11.00
86 60 0.1*86=8.6 0.1*60=674.6 72.0
8-21
E l ti L tiEvaluating Locations• Transportation ModelTransportation Model
– Objective is to determine the best pattern of shipments to minimize production and shipments to minimize production and transportation costsA i l f th li i – A special case of the linear programming problem
– Center of gravity is one method
Candidate
8-22
location
The Center-of-Gravity Method (1 of 2)
• Mathematical technique to minimize distribution costs
• Takes into accountlocation of markets– location of markets
– the volume of goods shipped to those marketsshipping costs– shipping costs
• Assumes that shipping cost is directly ti l t b th di t d l proportional to both distance and volume
shipped
8-23
Determine the coordination of the location that will minimize distribution costminimize distribution cost.
WeeklyDestination (x, y) Quantity( , y) Q y
A 5, 7 15B 6 9 20B 6, 9 20C 3, 9 25D 9, 4 30
90
8-26
h f h dThe Center-of-Gravity Method d i ifdi
n destinatioofcoordinate n destinatioofcoordinate
iyyixx
i
i
==
i bl )(d i il tifdi tn destinatio ofquanity demand iQ
yy
i
i
=
variable)(decision location of coordinate variable)(decision location ofcoordinate
xyxx
==
∑ iiQx ∑ iiQy
∑∑
ii
ii
Q
Qxx = ∑
∑i
i
ii
Q
Qyy =
8-28
∑i
∑i
Chapter 8 Chapter 8 Location Planning and Analysisg y
• Solved problems– 1, 2, 3
• Discussion questions• Discussion questions– 3, 4, 5, 6, 7, , , ,
• Assigned problems- 4, 9, 14
8-30
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