McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved. 8 Location Planning and Analysis

8-2 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.

8-3 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)

8-4 Need for Location Decisions  Marketing Strategy  Cost of Doing Business  Growth  Depletion of Resources

8-5 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

8-6 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

8-7 Location Decision Factors Regional Factors Site-related Factors Multiple Plant Strategies Community Considerations

8-8  Location of raw materials  Location of markets  Labor factors  Climate and taxes Regional Factors

8-9  Quality of life  Services  Attitudes  Taxes  Environmental regulations  Utilities  Developer support Community Considerations

8-10  Land  Transportation  Environmental  Legal Site Related Factors

8-11  Product plant strategy  Market area plant strategy  Process plant strategy Multiple Plant Strategies

8-12 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

8-13 Comparison of Service and Manufacturing Considerations Manufacturing/DistributionService/Retail Cost FocusRevenue focus Transportation modes/costsDemographics: age,income,etc Energy availability, costsPopulation/drawing area Labor cost/availability/skillsCompetition Building/leasing costsTraffic volume/patterns Tax rebates and other incentivesCustomer access/parking Table 8.2

8-14 Trends in Locations  Foreign producers locating in U.S.  “Made in USA”  Currency fluctuations  Just-in-time manufacturing techniques  Microfactories  Information Technology

8-15 Global Locations  Reasons for globalization  Benefits  Disadvantages  Risks  Global operations issues

8-16 Globalization  Facilitating Factors  Trade agreements  Technology  Benefits  Markets  Cost savings  Legal and regulatory  Financial

8-17 Globalization  Disadvantages  Transportation costs  Security  Unskilled labor  Import restrictions  Criticisms  Risks  Political  Terrorism  Legal  Cultural

8-18 Evaluating Locations  Cost-Profit-Volume Analysis  Determine fixed and variable costs  Plot total costs  Determine lowest total costs

8-19 Location Cost-Volume Analysis  Assumptions  Fixed costs are constant  Variable costs are linear  Output can be closely estimated  Only one product involved

8-20 Example 1: Cost-Volume Analysis Fixed and variable costs for four potential locations

8-21 Example 1: Solution

8-22 Example 1: Solution Annual Output (000) $(000) A B C B Superior C Superior A Superior D

8-23 Used to determine location when minimizing shipping costs or travel time is the primary objective. Center of Gravity Method

8-24 Center of Gravity Method Identify destinations using a coordinate system (x and y axis). If all weights are equal then: y axis x axis

8-25 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