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Strategic Location Decisions for Business Success

Understand the reasons, importance, options, and factors influencing location decisions. Learn the decision process and problem-solving techniques to evaluate and select the best location for growth and profitability.

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Strategic Location Decisions for Business Success

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  1. 8 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. Need 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 • Identify general region • Identify a small number of community alternatives • Identify site alternatives • Evaluate alternatives and make selection

  6. Location Decision Factors Community Considerations Regional Factors Multiple Plant Strategies Site-related Factors 8-6

  7. Location of raw materials Location of markets Labor factors Climate and taxes Regional Factors 8-7

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

  9. Site-Related Factors • Land • Transportation • Environmental • Legal

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

  11. 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

  12. Comparison of Service and Manufacturing Considerations Table 8.2

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

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

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

  16. Table 8.3

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

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

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

  20. Example 1: Solution

  21. 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)

  22. 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

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