Facility Location Chapter 9 Pages 315 - 322. Importance of Location Decisions Long-term decisions Difficult to reverse Affect fixed & variable costs Transportation.

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Presentation transcript:

Facility Location Chapter 9 Pages

Importance of Location Decisions Long-term decisions Difficult to reverse Affect fixed & variable costs Transportation cost for goods As much as 25% of product price Other costs: Taxes, wages, rent etc. Objective: Maximize benefit of location to firm

Location Strategies Services vs. Manufacturing Service/Retail/Professional Revenue Focus oVolume/revenue oDrawing area, purchasing power oCompetition; advertising/pricing oPhysical quality oParking/access; security/ lighting; appearance/image oCost determinants oRent oManagement caliber oOperations policies (hours, wage rates) Goods-Producing Location Cost Focus  Tangible costs oTransportation cost of raw materials oShipment cost of finished goods oEnergy and utility cost; labor; raw material; taxes, etc. oIntangible and future costs oAttitude toward union oQuality of life oEducation expenditures by state oQuality of state and local government

Location Decision Sequence Country © 1995 Corel Corp. Region/Community © 1995 Corel Corp. Site © 1995 Corel Corp.

Factors Affecting Country Government rules, attitudes, political risk, incentives Culture & economy Market location Labor availability, attitudes, productivity, and cost Availability of supplies, communications, energy © 1995 Corel Corp.

Region Location Decisions Corporate desires Attractiveness of region (culture, taxes, climate, etc.) Labor, availability, costs, attitudes towards unions Costs and availability of utilities Environmental regulations of state and town Government incentives Proximity to raw materials & customers Land/construction costs © 1995 Corel Corp.

Factors Affecting Site Site size and cost Air, rail, highway, and waterway systems Zoning restrictions Nearness of services/supplies needed Environmental impact issues © 1995 Corel Corp.

Location Decision Example BMW decided to build its first major manufacturing plant outside Germany in Greer, South Carolina. © 1995 Corel Corp.

BMW: Country Decision Factors Market location U.S. is world’s largest luxury car market Growing (baby boomers) Labor Lower manufacturing labor costs $17/hr. (U.S.) vs. $27 (Germany) Higher labor productivity 11 holidays (U.S.) vs. 31 (Germany) Other Lower shipping cost ($2,500/car less) New plant & equipment would increase productivity (lower cost/car $2, )

BMW: Region and Community Decision Factors Labor Lower wages in South Carolina (SC) Government incentives $135 million in state & local tax breaks Free-trade zone from airport to plant No duties on imported components or on exported cars State employment security service screened applications Greenville Technical College trained workers