chapter eight location planning and analysis chapter 8 location planning and analysis
TRANSCRIPT
CHAPTER EIGHTLOCATION PLANNING AND ANALYSIS
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Need for Location Decisions
• Marketing Strategy
• Growth
• Depletion of Resources
• Cost of Doing Business
CHAPTER EIGHTLOCATION PLANNING AND ANALYSIS
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Nature of Location Decisions (1 of 2)
• Importance– Long term commitment– Impact on investment requirements, operating
costs and revenues
• Objectives– Profit potential– Acceptable alternatives
CHAPTER EIGHTLOCATION PLANNING AND ANALYSIS
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Nature of Location Decisions (2 of 2)
• Options– Expand existing facilities– Add new facilities– Shut down and move– Do nothing
CHAPTER EIGHTLOCATION PLANNING AND ANALYSIS
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General Procedures forMaking Location Decisions
• Decide on the criteria
• Identify important factors
• Develop location alternatives– identify general region– identify a small number of community alternatives– identify site alternatives
• Evaluate alternatives and make a selection
CHAPTER EIGHTLOCATION PLANNING AND ANALYSIS
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Location Decision Factors
Regional Factors
Site-related FactorsMultiple Plant Strategies
Community Considerations
CHAPTER EIGHTLOCATION PLANNING AND ANALYSIS
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Regional Factors• Location of raw materials• Location of markets• Labor factors• Other factors
– climate– taxes– utilities cost and availability– input cost and availability– culture
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Community Considerations
• Facilities for education, shopping, recreation, transportation, religious worship, and entertainment
• Quality of police, fire , and medical services
• Local attitudes toward the company
• Size of the community
• Cost and availability of utilities, environmental regulations, taxes, and incentives
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Site-Related Factors
• Land
• Transportation
• Zoning or other restrictions
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Multiple Plant Manufacturing Strategies (1 of 2)
• Product plant strategy– entire product lines are produced in separate plants– decentralized approach– specialization of resources
• Market area strategy– plants designed to serve a particular geographic area– operating cost high; transportation cost low– rapid delivery and response to customer needs
CHAPTER EIGHTLOCATION PLANNING AND ANALYSIS
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Multiple Plant Manufacturing Strategies (2 of 2)
• Process plant strategy– plants concentrate on different aspects of a
process– coordination is a major issue– plants highly specialized; economies of scale
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Service and Retail Locations
• Traffic volume and convenience important
• Location of other retailers or similar service providers
• Demographic analysis of drawing area
• Transportation and/or parking facilities
• Customer safety and security
• Competitors’ locations
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• Foreign producers locating in U.S.– “Made in USA”
– currency fluctuations
• Just-in-time manufacturing techniques
• Microfactories– narrow product focus
– located near major markets
• Information highway
Trends in Locations
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ForeignGovernment
a. Policies on foreign ownership of production facilitiesLocal ContentImport restrictionsCurrency restrictionsEnvironmental regulationsLocal product standards
b. Stability issuesCulturalDifferences
Living circumstances for foreign workers / dependentsReligious holidays/traditions
CustomerPreferences
Possible buy locally sentiment
Labor Level of training and education of workersWork practicesPossible regulations limiting number of foreign employeesLanguage differences
Resources Availability and quality of raw materials, energy,transportation
Table 8-2
Global Locations
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Methods of Evaluating Location Alternatives
• Locational Cost-Profit-Volume Analysis
• The Transportation Model
• The Factor Rating Method
• The Center of Gravity Method
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Locational Cost-Profit-Volume Analysis
• Uses cost-volume analysis to make economic comparison of location alternatives
• The three steps in locational break-even analysis1 Determine the fixed and variable costs for each
location2 Plot the costs for each location, with costs on the
vertical axis of the graph and annual volume on the horizontal axis
3 Select the location that has the lowest total cost for the expected production volume
CHAPTER EIGHTLOCATION PLANNING AND ANALYSIS
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Problem 3, page 384
Fixed and variable costs for two potential locations
Location FixedCost
VariableCost
AB
$800,000920,000
$14,00013,000
CHAPTER EIGHTLOCATION PLANNING AND ANALYSIS
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The Transportation Model
• Objective is to determine the best pattern of shipments to minimize production and transportation costs
• A special case of the linear programming problem
• Special-purpose algorithms have been developed to solve this type of problem
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The Factor-Rating Method (1 of 2)
• Allows consideration of both quantitative and qualitative factors
• Different factors can be assigned different weights
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Factor-Rating (2 of 2)
• The six steps in the factor-rating method1 Develop a list of relevant factors2 Assign a weight to each factor to reflect its relative
importance to the company’s objectives3 Develop a scale for each factor4 Have management score each location for each factor,
using the scale developed in the previous step5 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, considering the results of quantitative approaches as well
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The Center-of-Gravity Method (1 of 2)
• Mathematical technique to minimize distribution costs
• Takes into account– location of markets– the volume of goods shipped to those markets– shipping costs
• Assumes that shipping cost is directly proportional to both distance and volume shipped
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Center-of-Gravity (2 of 2)
• Find the center of gravity along each axis using
and
i
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ii
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Qxx =
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Qyy =
CHAPTER EIGHTLOCATION PLANNING AND ANALYSIS
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Problem 12, page 386
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A
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D