Location Planning and Analysis

Learning Objectives List some of the main reasons organizations need to make location decisions. Explain why location decisions are important. Discuss the options that are available for location decisions. Describe some of the major factors that affect location decisions. Outline the decision process for making these kinds of decisions. Use the techniques presented to solve typical problems.

Needs for Location Decisions Marketing Strategy Cost of Doing Business Growth Depletion of Resources

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

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

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

Community Considerations Quality of life Services Attitudes Taxes Environmental regulations Utilities Developer support

Site Related Factors Land Transportation Environmental Legal

Multiple Plant Strategies Product plant strategy Market area plant strategy Process plant strategy

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

Comparison of Service and Manufacturing Considerations Manufacturing/Distribution Service/Retail Cost Focus Revenue focus Transportation model/costs Demographics: age,income,etc Energy availability, costs Population/drawing area Labor cost/availability/skills Competition Building/leasing costs Traffic volume/patterns Customer access/parking

Trends in Locations Foreign producers locating in Developed countries. “Made in USA” Currency fluctuations Just-in-time manufacturing techniques Microfactories Information Technology

Globalization Facilitating Factors Benefits Trade agreements Technology Benefits Markets Cost savings Legal and regulatory Financial

Globalization Disadvantages Risks Transportation costs Security Unskilled labor Import restrictions Criticisms Risks Political Terrorism Legal Cultural

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

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

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

Example 1: Solution 800 700 600 500 400 300 200 100 Annual Output (000) $(000) 8 10 12 14 16 6 4 2 A B C B Superior C Superior A Superior D

Evaluating Locations Transportation Model Factor Rating 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

Factor-Rating Example Critical Scores Success (out of 100) Weighted Scores Factor Weight France Denmark France Denmark Labor availability and attitude .25 70 60 (.25)(70) = 17.5 (.25)(60) = 15.0 People-to car ratio .05 50 60 (.05)(50) = 2.5 (.05)(60) = 3.0 Per capita income .10 85 80 (.10)(85) = 8.5 (.10)(80) = 8.0 Tax structure .39 75 70 (.39)(75) = 29.3 (.39)(70) = 27.3 Education and health .21 60 70 (.21)(60) = 12.6 (.21)(70) = 14.7 Totals 1.00 70.4 68.0

Center-of-Gravity Method x - coordinate = ∑dixQi ∑Qi i ∑diyQi ∑Qi i y - coordinate = where dix = x-coordinate of location i diy = y-coordinate of location i Qi = Quantity of goods moved to or from location i

Center-of-Gravity Method North-South East-West 120 – 90 – 60 – 30 – – | | | | | | 30 60 90 120 150 Arbitrary origin Chicago (30, 120) New York (130, 130) Pittsburgh (90, 110) Atlanta (60, 40)

Center-of-Gravity Method Number of Containers Store Location Shipped per Month Chicago (30, 120) 2,000 Pittsburgh (90, 110) 1,000 New York (130, 130) 1,000 Atlanta (60, 40) 2,000 x-coordinate = (30)(2000) + (90)(1000) + (130)(1000) + (60)(2000) 2000 + 1000 + 1000 + 2000 = 66.7 y-coordinate = (120)(2000) + (110)(1000) + (130)(1000) + (40)(2000) 2000 + 1000 + 1000 + 2000 = 93.3

Center-of-Gravity Method North-South East-West 120 – 90 – 60 – 30 – – | | | | | | 30 60 90 120 150 Arbitrary origin Chicago (30, 120) New York (130, 130) Pittsburgh (90, 110) Atlanta (60, 40) Center of gravity (66.7, 93.3) +

Requirements for Transportation Model List of origins and each one’s capacity List of destinations and each one’s demand Unit cost of shipping

Transportation Model Assumptions Items to be shipped are homogeneous Shipping cost per unit is the same Only one route between origin and destination

The Transportation Problem D (demand) S (supply)

A Transportation Table Warehouse 4 7 1 100 12 3 8 200 10 16 5 150 450 80 90 120 160 A B C D 2 Factory Factory 1 can supply 100 units per period Total supply capacity per period Total demand per period Demand Warehouse B can use 90

Excel Template

Special Problems Unequal supply and demand Dummy: Imaginary number added equal to the difference between supply and demand when these are unequal