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Unit 5

Unit 5. Operations Management Location. Learning Objectives. To be able to explain the causes and consequences of location and relocation – domestically and internationally. Start with this. Which location is better and why?. Location. Location decisions have three key characteristics

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Unit 5

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  1. Unit 5 Operations Management Location

  2. Learning Objectives • To be able to explain the causes and consequences of location and relocation – domestically and internationally

  3. Start with this Which location is better and why?

  4. Location • Location decisions have three key characteristics • Strategic in nature • Difficult to reverse • Taken at the highest management level and not delegated

  5. Optimal Location • One that selects the best site for expansion of the business or for its relocation, given current information • It is a compromise that balances • High fixed costs with convenience for customers • Low costs of a remote site with limited supply of suitably qualified labour • Quantitative factors with qualitative ones • Opportunities of receiving government grants in areas of high unemployment with the risks of low sales as average incomes in the area may be low

  6. Optimal Location • List some of the disadvantages to a business of non optimal location decisions using the examples below Example

  7. Factors influencing location decisions Quantitative Factors Measurable in financial terms and will have a direct impact on either the costs of a site or the revenues from it and its profitability Qualitative Factors Non-measurable factors that may influence business decisions

  8. Transport Costs Businesses that use heavy and bulky raw materials will incur high transport costs if suppliers are far. Service industries, such as hotels, need to be conveniently located. Site and other capital costs Vary greatly from region to region within a country and between countries Once these quantitative factors have been identified, and cost and revenues estimated, the following techniques can be used to assist in location decisions LabourCosts Businesses which are labour intensive, where wages make up a high percentage of costs, look closely at average wages at possible locations for their business. A business has to pay highly for skilled labour if they locate to an area which lacks those skilled workers. Quantitative factors Government Grants May be necessary to stimulate the economy of a location. Grants may be given or funds to help with wages or for training. Sales revenue potential Level of sales made can depend directly on Location. Confectionary shops have to be just that – convenient

  9. Payback ARR Average rate of return How long will it take the company to pay back the loan? % return on your investment which you can use to compare different strategies • Profit Estimates • Investment Appraisal • Break-Even Analysis Investment Appraisal methods NPV Net Present Value Future return put into today’s values

  10. Room for further expansion Expensive to relocate if a site proves to be too small. If there is room to expand managers should take this into consideration when deciding whether to buy or not. Labour Supply Quantity of workers must be taken into account. This is how many workers would have access to the business. Quality (skill level) of workers must be taken into account. This is whether workers with necessary skills will have access to the business. Safety Avoid potential risk to the public and damage to the company’s reputation. Ethical Considerations For example a move from the UK to India – think about all the issues this could flag up Managers Preferences In small businesses managers’ personal preferences regarding desirable work could influence options Environmental Concerns A business may be reluctant to set up in an area where there is particular sensitivity to the environment Qualitative factors Infrastructure To ensure delivery systems can still be put into place

  11. Other locational issues • The pull of the market – What do they want? The move towards internet shopping • Planning restrictions • External economies of scale • Multi site locations – have a lot of advantages and disadvantages for both customers and the business

  12. Change of Location • Relocation due to business growth or decline • A business may decide to relocate for two main reasons • If a business does well and sees an increase in demand for goods or services then they would increase capacity by relocating to larger premises • If a business is struggling and sees a lack of demand for the goods or services it sells then a possible solution would be to move to a smaller location to reduce costs

  13. Change of Location • Re-development of current location to meet business needs • A business may need to re-develop a site rather than move • A business may be too big to actually move to another location so the current site would be re-developed. • The cost of moving may be dramatically higher than re-development costs • The installation of new technologies may not require a move but a business may need to update its premises

  14. So is it impossible to succeed once you have made a bad location decision? • Article – thriving in a bad location

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