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8-1 Location Planning and Analysis
William J. Stevenson
Operations Management
8th edition
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8-2 Location Planning and Analysis
CHAPTER
8
Location Planningand Analysis
McGraw-Hill/Irwin
Operations Management, Eighth Edition, by William J. StevensonCopyright 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
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8-3 Location Planning and Analysis
Need for Location Decisions Marketing Strategy, part ofe.g banks , fast food chains ,
retails stores , In these cases location helps to expand their mkts
Cost of Doing Business
Growth in demand may require new locations
Depletion of Resources, fishing
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8-4 Location Planning and Analysis
Other Reasons for location
Fishing and Logging operations
Mining and petroleum operations , they generally
have a longer time horizon
Shift in MarketsNature of Location Decisions
Infrequent
But have a significant impact
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8-5 Location Planning and Analysis
Nature of Location Decisions
Strategic Importance Long term commitment/costs ( low cost strategy )
Impact on investments, revenues, and operations
Supply chains
Objectives of LD Profit potential
No single location may be better than others
Identify several locations from which to choose
Also where u are in the supply chain
Web based businesses can operate from anywhere
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8-6 Location Planning and Analysis
Location Options
Options, Four in Nb Generally
Expand existing facilities, if there is adequate room forexpansion
Add new facilities, e.g retail operations . This can be adefensive startegy to increase mkt presence and share . Take
care that it dosent cannibalise the existing ones Move: Shut down at one and move to another e.g US to
China , Nortel Networks , canada to China , Comdev.
Status Quo : if the alternatives do not yield anything
substantial , maintain the present status
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8-7 Location Planning and Analysis
Procedure for Making Location
Decisions
Decide on the criteria e.g inc revenue or customer service
Identify the important factors in the supply
chain
Develop location alternatives Evaluate the alternatives
Make selection
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8-8 Location Planning and Analysis
Location Decision FactorsRegional Factors
Site-relatedFactors
Multiple PlantStrategies
CommunityConsiderations
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8-9 Location Planning and Analysis
Location of raw materials Location of markets
Labor factors
Climate and taxes
Regional Factors
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8-10 Location Planning and Analysis
Raw Materials
Three reasons for proximity to RM
Neccessity: Mining , farming, forestry & fishes
Perishability : Canning & freezing of food
products Transportation Costs
8 11 l d A l
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8-11 Location Planning and Analysis
Some factors may dominate sometimes
Energy in Mfr
Water Supply
Cooling for Nuclear Reactors
Traffic Patterns in Service Industry Convenience in service e.g car rental near airport
Competitor location in Service
8 12 L i Pl i d A l i
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8-12 Location Planning and Analysis
Quality of life Services
Attitudes
Taxes
Environmental regulations
Utilities
Developer support
Community Considerations
8 13 L i Pl i d A l i
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8-13 Location Planning and Analysis
Land Transportation
Environmental
Legal
Site Related Factors
8 14 L ti Pl i d A l i
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8-14 Location Planning and Analysis
Product plant strategy Market area plant strategy
Process plant strategy
Multiple Plant Strategies
8 15 L ti Pl i d A l i
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8-15 Location Planning and Analysis
Comparison of Service andManufacturing 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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8-16 Location Planning and Analysis
Trends 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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8-17 Location Planning and Analysis
ForeignGovernment
a. Policies on foreign ownership of production facilitiesLocal ContentImport restrictionsCurrency restrictionsEnvironmental regulationsLocal product standards
b. Stability issuesCulturalDifferences
Living circumstances for foreign workers / dependentsReligious holidays/traditions
CustomerPreferences
Possible buy locally sentiment
Labor Level of training and education of workersWork practicesPossible regulations limiting number of foreign employeesLanguage differences
Resources Availability and quality of raw materials, energy,transportation
Table 8.3
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8-18 Location Planning and Analysis
Evaluating Locations Cost-Profit-Volume Analysis
Determine fixed and variable costs
Plot total costs
Determine lowest total costs
8 19 Location Planning and Analysis
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8-19 Location Planning and Analysis
Location 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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8-20 Location Planning and Analysis
Example 1: Cost-Volume AnalysisFixed and variable costs forfour potential locations
L o c a t i o n F i x e d
C o s t
V a r i a b l e
C o s tABCD
$ 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
8-21 Location Planning and Analysis
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8-21 Location Planning and Analysis
Example 1: SolutionFixedCosts
VariableCosts
TotalCosts
ABCD
$250,000100,000150,000200,000
$11(10,000)30(10,000)20(10,000)35(10,000)
$360,000400,000350,000550,000
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8-22 Location Planning and Analysis
Example 1: Solution800700600
500400300200100
0
Annual Output (000)
$(000)
8 10 12 14 166420
A
B
C
B SuperiorC Superior
A Superior
D
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8 23 Location Planning and Analysis
Evaluating 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