Location Planning and Analysis

1. Location Planning and Analysis

2. 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.

3. Needs for Location Decisions • Marketing Strategy • Cost of Doing Business • Growth • Depletion of Resources

4. 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

5. 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

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

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

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

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

10. 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

11. Comparison of Service and Manufacturing Considerations

12. Trends in Locations • Foreign producers locating in Developed countries. • “Made in USA” • Currency fluctuations • Just-in-time manufacturing techniques • Microfactories • Information Technology

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

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

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

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

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

18. 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)

19. 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

20. Factor-Rating Example Critical Scores Success (out of 100) Weighted Scores Factor Weight France Denmark France Denmark Labor availability and attitude.25 70 60 (.25)(70) = 17.5 (.25)(60) = 15.0 People-tocar ratio .05 50 60 (.05)(50) = 2.5 (.05)(60) = 3.0 Per capitaincome .10 85 80 (.10)(85) = 8.5 (.10)(80) = 8.0 Tax structure .39 75 70 (.39)(75) = 29.3 (.39)(70) = 27.3 Educationand health .21 60 70 (.21)(60) = 12.6 (.21)(70) = 14.7 Totals 1.00 70.4 68.0

21. Center-of-Gravity Method ∑dixQi ∑Qi i x - coordinate = i ∑diyQi ∑Qi i y - coordinate = i where dix = x-coordinate of location i diy = y-coordinate of location i Qi = Quantity of goods moved to or from location i

22. Center-of-Gravity Method North-South New York (130, 130) 120 – 90 – 60 – 30 – – Chicago (30, 120) Pittsburgh (90, 110) Atlanta (60, 40) | | | | | | 30 60 90 120 150 East-West Arbitrary origin

23. Center-of-Gravity Method Number of Containers Store Location Shipped per Month Chicago (30, 120) 2,000 Pittsburgh (90, 110) 1,000 New York (130, 130) 1,000 Atlanta (60, 40) 2,000 (30)(2000) + (90)(1000) + (130)(1000) + (60)(2000) 2000 + 1000 + 1000 + 2000 x-coordinate = = 66.7 (120)(2000) + (110)(1000) + (130)(1000) + (40)(2000) 2000 + 1000 + 1000 + 2000 y-coordinate = = 93.3

24. Center-of-Gravity Method North-South New York (130, 130) 120 – 90 – 60 – 30 – – Chicago (30, 120) Pittsburgh (90, 110) + Center of gravity (66.7, 93.3) Atlanta (60, 40) | | | | | | 30 60 90 120 150 East-West Arbitrary origin

25. Requirements for Transportation Model • List of origins and each one’s capacity • List of destinations and each one’s demand • Unit cost of shipping

26. Transportation Model Assumptions • Items to be shipped are homogeneous • Shipping cost per unit is the same • Only one route between origin and destination

27. The Transportation Problem D (demand) S (supply) S (supply) D (demand) D (demand) S (supply) D (demand)

28. A Transportation Table Warehouse A B C D Factory 7 4 7 1 Factory 1 can supply 100 units per period 100 1 3 8 8 12 200 2 10 16 8 5 150 3 Total supply capacity per period 450 80 90 120 160 Demand 450 Total demand per period Warehouse B can use 90 units per period

29. Excel Template

30. Special Problems • Unequal supply and demand • Dummy: Imaginary number added equal to the difference between supply and demand when these are unequal