Strategic Location Planning Trends and Analysis

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