1. CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS Chapter 8 Location Planning and Analysis

2. CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management 3628-2 Need for Location Decisions Marketing Strategy Growth Depletion of Resources Cost of Doing Business

3. CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management 3628-3 Nature of Location Decisions (1 of 2) Importance –Long term commitment –Impact on investment requirements, operating costs and revenues Objectives –Profit potential –Acceptable alternatives

4. CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management 3628-4 Nature of Location Decisions (2 of 2) Options –Expand existing facilities –Add new facilities –Shut down and move –Do nothing

5. CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management 3628-5 General Procedures for Making Location Decisions Decide on the criteria Identify important factors Develop location alternatives –identify general region –identify a small number of community alternatives –identify site alternatives Evaluate alternatives and make a selection

6. CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management 3628-6 Location Decision Factors Regional Factors Site-related FactorsMultiple Plant Strategies Community Considerations

7. CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management 3628-7 Regional Factors Location of raw materials Location of markets Labor factors Other factors –climate –taxes –utilities cost and availability –input cost and availability –culture

8. CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management 3628-8 Community Considerations Facilities for education, shopping, recreation, transportation, religious worship, and entertainment Quality of police, fire, and medical services Local attitudes toward the company Size of the community Cost and availability of utilities, environmental regulations, taxes, and incentives

9. CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management 3628-9 Site-Related Factors Land Transportation Zoning or other restrictions

10. CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management 3628-10 Multiple Plant Manufacturing Strategies (1 of 2) Product plant strategy –entire product lines are produced in separate plants –decentralized approach –specialization of resources Market area strategy –plants designed to serve a particular geographic area –operating cost high; transportation cost low –rapid delivery and response to customer needs

11. CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management 3628-11 Multiple Plant Manufacturing Strategies (2 of 2) Process plant strategy –plants concentrate on different aspects of a process –coordination is a major issue –plants highly specialized; economies of scale

12. CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management 3628-12 Service and Retail Locations Traffic volume and convenience important Location of other retailers or similar service providers Demographic analysis of drawing area Transportation and/or parking facilities Customer safety and security Competitors’ locations

13. CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management 3628-13 Foreign producers locating in U.S. – “Made in USA” – currency fluctuations Just-in-time manufacturing techniques Microfactories –narrow product focus –located near major markets Information highway Trends in Locations

14. CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management 3628-14 Table 8-2 Global Locations

15. CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management 3628-15 Methods of Evaluating Location Alternatives Locational Cost-Profit-Volume Analysis The Transportation Model The Factor Rating Method The Center of Gravity Method

16. CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management 3628-16 Locational Cost-Profit-Volume Analysis Uses cost-volume analysis to make economic comparison of location alternatives The three steps in locational break-even analysis 1Determine the fixed and variable costs for each location 2Plot the costs for each location, with costs on the vertical axis of the graph and annual volume on the horizontal axis 3Select the location that has the lowest total cost for the expected production volume

17. CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management 3628-17 Problem 3, page 384 Fixed and variable costs for two potential locations

18. CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management 3628-18 The Transportation Model Objective is to determine the best pattern of shipments to minimize production and transportation costs A special case of the linear programming problem Special-purpose algorithms have been developed to solve this type of problem

19. CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management 3628-19 The Factor-Rating Method (1 of 2) Allows consideration of both quantitative and qualitative factors Different factors can be assigned different weights

20. CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management 3628-20 Factor-Rating (2 of 2) The six steps in the factor-rating method 1Develop a list of relevant factors 2Assign a weight to each factor to reflect its relative importance to the company’s objectives 3Develop a scale for each factor 4Have management score each location for each factor, using the scale developed in the previous step 5Multiply the scores times the weights for each factor, and total the score for each location 6Make a recommendation based on the maximum point score, considering the results of quantitative approaches as well

21. CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management 3628-21 The Center-of-Gravity Method (1 of 2) Mathematical technique to minimize distribution costs Takes into account –location of markets –the volume of goods shipped to those markets –shipping costs Assumes that shipping cost is directly proportional to both distance and volume shipped

22. CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management 3628-22 Center-of-Gravity (2 of 2) Find the center of gravity along each axis using and

23. CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management 3628-23 Problem 12, page 386 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 A B C D

24. CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management 3628-24