1. Location Planning and Analysis
CT - Chapter 8

2. Need for Location Decisions
Marketing Strategy
Cost of Doing Business
Growth
Depletion of Resources

3. Nature of Location Decisions
Strategic Importance
Long term commitment/costs
Impact on investments, revenues, and operations
Supply chains
Objectives
Profit potential
Minimize travel distance/cost/time
No single location may be better than others
Identify several locations from which to choose
Options
Expand existing facilities
Add new facilities
Move

4. Making Location Decisions
Decide on the objective
Identify the important factors
Develop location alternatives
Evaluate the alternatives
Make selection

5. Regional Factors Proximity to raw materials Proximity to customers
Location of markets
Labor factors - cost, availability, skill, productivity
Taxes at the federal, state, county, and local levels
Construction costs and land price
Government and political stability
Regional competition
Insurance

6. Community Considerations & Site Related Factors
Demographics
Services - schools, hospitals, recreation, etc.
Environmental regulations
Utilities
Transportation system
Geographic Information System (GIS) technology

7. Global Location Decisions
Country Decision
Critical Success Factors
Political risks, government rules, attitudes, incentives
Cultural and economic issues
Location of markets
Labor availability, attitudes, productivity, costs
Availability of supplies, communications, energy
Exchange rates and currency risks

8. Comparison of Service and Manufacturing Considerations
Table 8.2
Manufacturing/Distribution
Service/Retail
Cost Focus
Revenue focus
Transportation modes/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

9. Locations of Industry Industry Locations Reason for clustering
Wine makers
Napa Valley (US) Bordeaux region (France)
Natural resources of land and climate
Software firms
Silicon Valley, Boston, Bangalore (India)
Talent resources of bright graduates in scientific/technical areas, venture capitalists nearby
Race car builders
Huntington/North Hampton region (England)
Critical mass of talent and information

10. Locations of Industry – Contd.
Reason for clustering
Theme parks
Orlando
A hot spot for entertainment, warm weather, tourists, and inexpensive labor
Electronic firms
Northern Mexico
NAFTA, duty free export to US
Computer hardware manufacturers
Singapore, Taiwan
High technological penetration rate and per capita GDP, skilled/educated workforce with large pool of engineers
Fast food chains
Sites within one mile of each other
Stimulate food sales, high traffic flows
General aviation aircraft
Wichita, Kansas
Mass of aviation skills

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

12. Cost-Volume & Locational Break-Even Analysis
Three locations:
Akron $30,000 $75 $180,000
Bowling Green $60,000 $45 $150,000
Chicago $110,000 $25 $160,000
Selling price = $120
Expected volume = 2,000 units
Fixed Variable Total
City Cost Cost Cost
Total Cost = Fixed Cost + Variable Cost x Volume

13. Evaluating Locations Factor Rating Center of Gravity Method
Decision based on quantitative and qualitative inputs
Center of Gravity Method
Decision based on minimum distribution costs
Transportation Model
Decision based on movement costs of raw materials or finished goods

14. Factor-Rating Method
Popular because a wide variety of factors can be included in the analysis
Six steps in the method
Develop a list of relevant factors called critical success factors
Assign a weight to each factor
Develop a scale for each factor
Score each location for each factor
Multiply score by weights for each factor for each location
Recommend the location with the highest point score

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

16. Center of Gravity: An Example
Determine the center of gravity for the destinations shown on the following map. Monthly shipments will be the quantities listed in the table.
DC #
Coordinate
Weekly
Shipment Qty
DC1
(2,2)
800
DC2
(3,5)
900
DC3
(5,4)
200
DC4
(8,5)
100
DC2
DC4
DC3
DC1

17. Transportation Problem CT – Chapter 8S
Objective:
determination of a transportation plan of a single commodity
from a number of sources
to a number of destinations,
such that total cost of transportation is minimized
Sources may be plants, destinations may be warehouses
Question:
how many units to transport
from source i
to destination j
such that supply and demand constraints are met, and
total transportation cost is minimized

18. A Transportation Table
Table 8S.1
Warehouse 1 2 3 4
Factory 4 7 7 1
Factory 1
can supply 100
units per period
100 1 12 3 8 8 2
200 8 10 16 5
150 3
Total supply
capacity per
period
450
Demand 80 90
120
160
450
Warehouse B’s demand is 90
units per period
Total demand
per period

19. Solution in Management Scientist
Total transportation cost = 4(80) + 7(0) + 7(10)+ 1(10) + 12(0) + 3(90) + 8(110) + 8(0) + 8(0) +10(0) + 16(0) +5 (150) = $2300

20. Transportation Model – Tool for Site Location: An Example
A large tire manufacturer is contemplating construction of a new manufacturing facility.
Two leading candidate location: Cincinnati and Columbus, OH
The new facility would have a supply capacity of 160 units a week
Transportation costs
Between each candidate location and existing locations (A, B, C), and
between pairs of existing locations
Choose the best candidate location.
From Columbus to
Cost
per
unit
From Cincinnati to
Cost per unit A
$18 $7 B 8 17 C 13 A B C
Supply per week 1 10 14
210 2 12 17 20
140 3 11
150
Demand per week
220

21. Set up transportation table for Columbus

22. Set up transportation table for Cincinnati
Choose Columbus