CHAPTER EIGHT Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 LOCATION PLANNING AND ANALYSIS 8-1 Chapter 8 Location Planning and Analysis

CHAPTER EIGHT Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 LOCATION PLANNING AND ANALYSIS 8-2 Need for Location Decisions Marketing Strategy Growth Depletion of Resources Cost of Doing Business

CHAPTER EIGHT Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 LOCATION PLANNING AND ANALYSIS 8-3 Nature of Location Decisions Importance – Long term commitment/costs Objectives – Profit potential Options – Expand existing facilities – Add new facilities – Shut down at one location and Move to another

CHAPTER EIGHT Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 LOCATION PLANNING AND ANALYSIS 8-4 General procedure for location decision making Decide the criteria for evaluating location alternatives: ex) increased revenues, community service Identify important factors: ex) market location, raw materials Develop location alternatives Evaluate the alternatives and make a selection

CHAPTER EIGHT Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 LOCATION PLANNING AND ANALYSIS 8-5 Location Decision Factors Regional Factors Site-related FactorsMultiple Plant Strategies Community Considerations

CHAPTER EIGHT Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 LOCATION PLANNING AND ANALYSIS 8-6 Regional factors 1) Location of raw materials 3 reasons firms locate near the source of raw materials necessity: mining, farming, forest perishability: canning or freezing fruits, dairy products transportation cost: cheese making, paper production

CHAPTER EIGHT Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 LOCATION PLANNING AND ANALYSIS 8-7 Regional factors 2) Location of markets Retail sales and services are usually found near the center of the markets they serve: ex) fast food Distribution cost associated with their products is the main factor

CHAPTER EIGHT Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 LOCATION PLANNING AND ANALYSIS 8-8 Regional factors 3) Labor factors Labor costs Employees skills Workers attitudes toward turnover, absenteeism, may differ among potential locations

CHAPTER EIGHT Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 LOCATION PLANNING AND ANALYSIS 8-9 Regional factors 4) Other factors Climate, taxes Many developing countries offer an abundant supply of cheap labor International locations

CHAPTER EIGHT Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 LOCATION PLANNING AND ANALYSIS 8-10 Community considerations Community resistance to airport expansion, changes in zoning, construction of nuclear facility From a company standpoint, facilities for education, shopping, recreation, transportation

CHAPTER EIGHT Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 LOCATION PLANNING AND ANALYSIS 8-11 Site-related factors Primary consideration: land, transportation, zoning Land costs, room for future expansion, etc.

CHAPTER EIGHT Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 LOCATION PLANNING AND ANALYSIS 8-12 Multiple Plant Manufacturing Strategies 1) Product plant strategy entire products or product lines are produced in separate plants 2) Market area plant strategy plants are designed to serve a particular geographic segment of a market 3) Process plant strategy

CHAPTER EIGHT Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 LOCATION PLANNING AND ANALYSIS 8-13 Multiple Plant Manufacturing Strategies 3) Process plant strategy different plants concentrate on different aspects of a process: ex)auto: different plants for engines, transmissions, body, etc.

CHAPTER EIGHT Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 LOCATION PLANNING AND ANALYSIS 8-14 Trends in Locations Foreign producers locating in U.S. – “Made in USA” – Currency fluctuations Just-in-time manufacturing techniques Microfactories Information highway

CHAPTER EIGHT Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 LOCATION PLANNING AND ANALYSIS 8-15 Evaluating Locations Cost-volume Analysis – Determine fixed and variable costs – Plot total costs – Determine lowest total costs

CHAPTER EIGHT Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 LOCATION PLANNING AND ANALYSIS 8-16 Example 1: Cost-Volume Analysis Fixed and variable costs for four potential locations

CHAPTER EIGHT Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 LOCATION PLANNING AND ANALYSIS 8-17 Example 1: Solution

CHAPTER EIGHT Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 LOCATION PLANNING AND ANALYSIS 8-18 Example 1: Solution Annual Output (000) $(000) A B C B Superior C Superior A Superior D

CHAPTER EIGHT Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 LOCATION PLANNING AND ANALYSIS 8-19 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

CHAPTER EIGHT Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 LOCATION PLANNING AND ANALYSIS 8-20 Table 8-2