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McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
88
Location Planning and Analysis
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Learning ObjectivesLearning 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.
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Need for Location DecisionsNeed for Location Decisions
Marketing Strategy
Cost of Doing Business
Growth
Depletion of Resources
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Nature of Location DecisionsNature 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
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Making Location DecisionsMaking 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
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Location Decision FactorsLocation Decision Factors
Regional Factors
Site-related Factors
Multiple Plant Strategies
Community Considerations
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Location of raw materials Location of markets Labor factors Climate and taxes
Regional FactorsRegional Factors
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Quality of life Services Attitudes Taxes Environmental regulations Utilities Developer support
Community ConsiderationsCommunity Considerations
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Land Transportation Environmental Legal
Site Related FactorsSite Related Factors
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Product plant strategy Market area plant strategy Process plant strategy
Multiple Plant StrategiesMultiple Plant Strategies
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Service and Retail LocationsService 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
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Comparison of Service and Comparison of Service and Manufacturing ConsiderationsManufacturing Considerations
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
Table 8.2
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Trends in LocationsTrends in Locations
Foreign producers locating in U.S. “Made in USA” Currency fluctuations
Just-in-time manufacturing techniques Microfactories Information Technology
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Global LocationsGlobal Locations
Reasons for globalization Benefits Disadvantages Risks Global operations issues
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GlobalizationGlobalization
Facilitating Factors Trade agreements Technology
Benefits Markets Cost savings Legal and regulatory Financial
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GlobalizationGlobalization
Disadvantages Transportation costs Security Unskilled labor Import restrictions Criticisms
Risks Political Terrorism Legal Cultural
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Foreign Government
a. Policies on foreign ownership of production facilities Local Content Import restrictions Currency restrictions Environmental regulations Local product standards Liability laws
b. Stability issues
Cultural Differences
Living circumstances for foreign workers / dependents Religious holidays/traditions
Customer Preferences
Possible buy locally sentiment
Labor Level of training and education of workers Work ethic Possible regulations limiting number of foreign employees Language differences
Resources Availability and quality of raw materials, energy, transportation infrastructure
Table 8.3
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Evaluating LocationsEvaluating Locations
Cost-Profit-Volume Analysis Determine fixed and variable costs
Plot total costs
Determine lowest total costs
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Location Cost-Volume AnalysisLocation Cost-Volume Analysis
Assumptions Fixed costs are constant Variable costs are linear Output can be closely estimated Only one product involved
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Example 1: Cost-Volume AnalysisExample 1: Cost-Volume Analysis
Fixed and variable costs for four potential locations
L o c a t i o n F i x e dC o s t
V a r i a b l eC o s t
ABCD
$ 2 5 0 , 0 0 01 0 0 , 0 0 01 5 0 , 0 0 02 0 0 , 0 0 0
$ 1 13 02 03 5
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Example 1: SolutionExample 1: Solution
F i x e dC o s t s
V a r i a b l eC o s t s
T o t a lC o s t s
ABCD
$ 2 5 0 , 0 0 01 0 0 , 0 0 01 5 0 , 0 0 02 0 0 , 0 0 0
$ 1 1 ( 1 0 , 0 0 0 )3 0 ( 1 0 , 0 0 0 )2 0 ( 1 0 , 0 0 0 )3 5 ( 1 0 , 0 0 0 )
$ 3 6 0 , 0 0 04 0 0 , 0 0 03 5 0 , 0 0 05 5 0 , 0 0 0
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Example 1: SolutionExample 1: Solution
800700600500400300200100
0
Annual Output (000)
$(000)
8 10 12 14 166420
A
BC
B SuperiorC Superior
A Superior
D
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Evaluating LocationsEvaluating 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