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Location Planning and Analysis

8. Location Planning and Analysis. Learning Objectives. Discuss importance of location decisions. Discuss factors that influence location decisions. Discuss recent location trends. Use techniques to solve typical location problems: Cost-Profit-Volume Analysis.

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Location Planning and Analysis

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  1. 8 Location Planning and Analysis

  2. Learning Objectives • Discuss importance of location decisions. • Discuss factors that influence location decisions. • Discuss recent location trends. • Use techniques to solve typical location problems: • Cost-Profit-Volume Analysis. • Center of Gravity Method.

  3. Location Planning and Analysis • Location planning is the determination of where to geographically locate your manufacturing or service facilities. • Typically one of the most infrequent activities unless you work for a retail organization that is rapidly expanding (e.g. Starbucks)

  4. Need for Location Decisions • Marketing Strategy • Cost of Doing Business • Growth • Depletion of Resources

  5. 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

  6. 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

  7. Location Decision Factors Community Considerations Regional Factors Site-related Factors Multiple Plant Strategies

  8. Regional Factors • Location of raw materials • Location of markets • Labor factors • Climate and taxes

  9. Community Considerations • Quality of life • Services • Attitudes • Taxes • Environmental regulations • Utilities • Developer support

  10. Site Related Factors • Land • Transportation • Environmental • Legal

  11. Multiple Plant Strategies • Product plant strategy • Market area plant strategy • Process plant strategy

  12. 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

  13. Comparison of Service and Manufacturing Considerations Table 8.2

  14. Trends in Locations • Foreign producers locating in U.S. • “Made in USA” • Currency fluctuations • Just-in-time manufacturing techniques • Microfactories • Information Technology

  15. Global Locations • Reasons for globalization • Benefits • Disadvantages • Risks • Global operations issues

  16. Globalization • Facilitating Factors • Trade agreements • Technology • Benefits • Markets • Cost savings • Legal and regulatory • Financial

  17. Globalization • Disadvantages • Transportation costs • Security • Unskilled labor • Import restrictions • Criticisms • Risks • Political • Terrorism • Legal • Cultural

  18. Evaluating Locations • Cost-Profit-Volume Analysis • Determine fixed and variable costs • Plot total costs • Determine lowest total costs

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

  20. Example 1: Cost-Volume Analysis Fixed and variable costs for four potential locations

  21. Example 1: Solution

  22. Example 1: Solution $(000) 800 700 600 500 400 300 200 100 0 D B C A A Superior C Superior B Superior 0 2 4 6 8 10 12 14 16 Annual Output (000)

  23. Center of Gravity Method • Used to determine location when minimizing shipping costs or travel time is the primary objective.

  24. Center of Gravity Method • Identify destinations using a coordinate system (x and y axis). • If all weights are equal then: y axis x axis

  25. Center of Gravity Method • Identify destinations using a coordinate system (x and y axis). • If all weights are not equal then: y axis x axis

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