1. Location Planning and Analysis
Chapter 8
Location Planning and Analysis

2. Need for Location Decisions
Marketing Strategy
Growth
Depletion of Resources
Cost of Doing Business
Management 3620
Chapter 8 Location Planning and Analysis

3. Nature of Location Decisions (1 of 2)
Importance
long term commitment
impact on investment requirements, operating costs and revenues
Objectives
profit potential
acceptable alternatives
Management 3620
Chapter 8 Location Planning and Analysis

4. Nature of Location Decisions (2 of 2)
Options
expand existing facilities
add new facilities
shut down and move
do nothing
Management 3620
Chapter 8 Location Planning and Analysis

5. General Procedures for Making Location Decisions
Decide on the criteria
Identify important factors
Develop location alternatives
identify general region
identify a small number of community alternatives
identify site alternatives
Evaluate alternatives and make a selection
Management 3620
Chapter 8 Location Planning and Analysis

6. Location Decision Factors
Community
Considerations
Regional Factors
Site-related
Factors
Multiple Plant Strategies
Management 3620
Chapter 8 Location Planning and Analysis

7. Chapter 8 Location Planning and Analysis
Regional Factors
Location of resources
Location of markets
Labor factors
Other factors
climate
taxes
utilities cost and availability
input cost and availability
culture
Management 3620
Chapter 8 Location Planning and Analysis

8. Community Considerations
Facilities for education, shopping, recreation, transportation, religious worship, and entertainment
Quality of police, fire , and medical services
Local attitudes toward the company
Size of the community
Cost and availability of utilities, environmental regulations, taxes, and incentives
Management 3620
Chapter 8 Location Planning and Analysis

9. Chapter 8 Location Planning and Analysis
Site-Related Factors
Land
Transportation
Zoning or other restrictions
Management 3620
Chapter 8 Location Planning and Analysis

10. Multiple Plant Manufacturing Strategies (1 of 2)
Product plant strategy
entire product lines are produced in separate plants
decentralized approach
specialization of resources
Market area strategy
plants designed to serve a particular geographic area
operating cost high; transportation cost low
rapid delivery and response to customer needs
Management 3620
Chapter 8 Location Planning and Analysis

11. Multiple Plant Manufacturing Strategies (2 of 2)
Process plant strategy
plants concentrate on different aspects of a process
coordination is a major issue
plants highly specialized; economies of scale
Management 3620
Chapter 8 Location Planning and Analysis

12. Service and Retail Locations
Traffic volume and convenience important
Location of other retailers or similar service providers
Demographic analysis of drawing area
Transportation and/or parking facilities
Customer safety and security
Competitors’ locations
Management 3620
Chapter 8 Location Planning and Analysis

13. Trends in Location Decisions
Foreign producers locating in U.S.
“Made in USA”
currency fluctuations
Just-in-time manufacturing techniques
Microfactories
narrow product focus
located near major markets
Information highway
Management 3620
Chapter 8 Location Planning and Analysis

14. Comparison of Service and Manufacturing Considerations
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
Management 3620
Chapter 8 Location Planning and Analysis

15. Chapter 8 Location Planning and Analysis
Global Locations
Table 8-2
Management 3620
Chapter 8 Location Planning and Analysis

16. Methods of Evaluating Location Alternatives
Locational Cost-Profit-Volume Analysis
The Transportation Model
The Factor Rating Method
The Center of Gravity Method
Management 3620
Chapter 8 Location Planning and Analysis

17. Locational Cost-Profit-Volume Analysis
Uses cost-volume analysis to make economic comparison of location alternatives
The three steps in locational break-even analysis
Determine the fixed and variable costs for each location
Plot the costs for each location, with costs on the vertical axis of the graph and annual volume on the horizontal axis
Select the location that has the lowest total cost for the expected production volume
Management 3620
Chapter 8 Location Planning and Analysis

18. Example 1 Cost-Volume Analysis
Fixed and variable costs for four potential locations
Management 3620
Chapter 8 Location Planning and Analysis

19. Chapter 8 Location Planning and Analysis
Example 1 Solution
Management 3620
Chapter 8 Location Planning and Analysis

20. Chapter 8 Location Planning and Analysis
Example 1 Solution
800
700
600
500
400
300
200
100
Annual Output (000) 8 10 12 14 16 6 4 2
$(000) A B C
B Superior
C Superior
A Superior D
XBC
XCA
Management 3620
Chapter 8 Location Planning and Analysis

21. Example 1 Crossover Volume
Management 3620
Chapter 8 Location Planning and Analysis

22. The Transportation Model
Objective is to determine the best pattern of shipments to minimize production and transportation costs
A special case of the linear programming problem
Special-purpose algorithms have been developed to solve this type of problem
Management 3620
Chapter 8 Location Planning and Analysis

23. The Factor-Rating Method (1 of 2)
Allows consideration of both quantitative and qualitative factors
Different factors can be assigned different weights
Management 3620
Chapter 8 Location Planning and Analysis

24. Chapter 8 Location Planning and Analysis
Factor-Rating (2 of 2)
The six steps in the factor-rating method
Develop a list of relevant location factors
Assign a weight to each factor to reflect its relative importance to the company’s objectives
Develop a scoring scale for each factor
Have management score each alternative for each factor, using the scale developed in the previous step
For each alternative, multiply each factor’s score times its weight; then total the score
Make a recommendation based on the maximum point score, considering the results of quantitative approaches as well
Management 3620
Chapter 8 Location Planning and Analysis

25. The Center-of-Gravity Method (1 of 2)
Mathematical technique to minimize distribution costs
Takes into account
location of markets
the volume of goods shipped to those markets
shipping costs
Assumes that shipping cost is directly proportional to both distance and volume shipped
Management 3620
Chapter 8 Location Planning and Analysis

26. Center-of-Gravity (2 of 2)
Find the center of gravity along each axis using
and
Management 3620
Chapter 8 Location Planning and Analysis