location decision
TRANSCRIPT
Location Planning and Analysis
Need for Location Decisions
• Marketing Strategy
• Cost of Doing Business
• Growth
• Depletion of Resources
Nature of Location Decisions
Strategic Importance Long term commitment/costs Impact on investments, revenues, and operations Supply chains
Objectives Profit potential Identify several locations from which to choose
Options Expand existing facilities Add new facilities Move
Types of Facilities
• Heavy Industry Facilities
• Light Industry Facilities
• Retail And service facilities
Making Location Decisions• Decide on the criteria• Identify the important factors• Develop location alternatives• Evaluate the alternatives• Make selection
General Factors affecting location decision
• Availability of basic infrastructure• Basic amenities• Proximity to raw material and markets• Residential complexes, schools, hospitals,
clubs etc.• Availability of cheap labour• Govt. policies• Env. And community• Cheap land
Locating Foreign operations
• Trade barriers• International Customers• International Competition• Regulations• Additional Resources• Low Costs• Offensive in Competitor’s home country
Factors at country level
• Political Risks, Govt. Regulations, attitudes, incentives
• Cultural and economic issues• Labour talent, productivity, cost• Availability of supplies, infrastructure• Exchange rates and currency risks
Location Decision Factors
Regional Factors
Site-related Factors
Multiple Plant Strategies
Community Considerations
Regional Factors
• Attractiveness of region(culture, taxes, climate)
• Labour availability• Location of raw materials• Location of markets• Availability of utilities• Govt. Incentives andpolicies• Climate and taxes
Community Considerations
• Quality of life• Services• Attitudes• Taxes• Environmental regulations• Utilities • Developer support
Site Related Factors
• Land• Transportation• Environmental• Legal
Multiple Plant Strategies
• Product plant strategy• Market area plant strategy• Process plant strategy
Comparison of Service and Manufacturing Considerations
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
Evaluating Locations
• Cost-Profit-Volume Analysis– Determine fixed and variable costs
– Plot total costs
– Determine lowest total costs
Location Cost-Volume Analysis• Assumptions– Fixed costs are constant– Variable costs are linear– Output can be closely estimated– Only one product involved
Example 1: Cost-Volume Analysis
Fixed and variable costs for four potential locations
L o c a t i o n F i x e dC o s t
V a r i a b l eC o s t
ABCD
$ 2 5 0 , 0 0 01 0 0 , 0 0 01 5 0 , 0 0 02 0 0 , 0 0 0
$ 1 13 02 03 5
Example 1: Solution
F i x e dC o s t s
V a r i a b l eC o s t s
T o t a lC o s t s
ABCD
$ 2 5 0 , 0 0 01 0 0 , 0 0 01 5 0 , 0 0 02 0 0 , 0 0 0
$ 1 1 ( 1 0 , 0 0 0 )3 0 ( 1 0 , 0 0 0 )2 0 ( 1 0 , 0 0 0 )3 5 ( 1 0 , 0 0 0 )
$ 3 6 0 , 0 0 04 0 0 , 0 0 03 5 0 , 0 0 05 5 0 , 0 0 0
Factor-Rating Method
• Six steps:1. Develop a list of relevant factors.2. Assign a weight to each factor reflecting its relative
importance to the firm.3. Develop a rating scale for the factors.4. Score each location on each factor based on the scale.5. Multiply the scores by the weights for each factor and total
the weighted scores for each location.6. Make a recommendation based on the maximum point
score, considering other [quantitative?] factors.
Factor Rating Example
Evaluating Locations
• Center of Gravity Method– Decision based on minimum distribution costs
• Load Distance model– Decision based on evaluating potential locations
based on load distance value.