CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS Chapter 8 Location Planning and Analysis

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management Need for Location Decisions Marketing Strategy Growth Depletion of Resources Cost of Doing Business

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management Nature of Location Decisions (1 of 2) Importance –Long term commitment –Impact on investment requirements, operating costs and revenues Objectives –Profit potential –Acceptable alternatives

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management Nature of Location Decisions (2 of 2) Options –Expand existing facilities –Add new facilities –Shut down and move –Do nothing

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management 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

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management Location Decision Factors Regional Factors Site-related FactorsMultiple Plant Strategies Community Considerations

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management Regional Factors Location of raw materials Location of markets Labor factors Other factors –climate –taxes –utilities cost and availability –input cost and availability –culture

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management 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

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management Site-Related Factors Land Transportation Zoning or other restrictions

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management 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

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management 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

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management 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

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management 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 Trends in Locations

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management Table 8-2 Global Locations

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management Methods of Evaluating Location Alternatives Locational Cost-Profit-Volume Analysis The Transportation Model The Factor Rating Method The Center of Gravity Method

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management Locational Cost-Profit-Volume Analysis Uses cost-volume analysis to make economic comparison of location alternatives The three steps in locational break-even analysis 1Determine the fixed and variable costs for each location 2Plot the costs for each location, with costs on the vertical axis of the graph and annual volume on the horizontal axis 3Select the location that has the lowest total cost for the expected production volume

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management Problem 3, page 384 Fixed and variable costs for two potential locations

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management 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

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management The Factor-Rating Method (1 of 2) Allows consideration of both quantitative and qualitative factors Different factors can be assigned different weights

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management Factor-Rating (2 of 2) The six steps in the factor-rating method 1Develop a list of relevant factors 2Assign a weight to each factor to reflect its relative importance to the company’s objectives 3Develop a scale for each factor 4Have management score each location for each factor, using the scale developed in the previous step 5Multiply the scores times the weights for each factor, and total the score for each location 6Make a recommendation based on the maximum point score, considering the results of quantitative approaches as well

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management 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

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management Center-of-Gravity (2 of 2) Find the center of gravity along each axis using and

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management Problem 12, page A B C D

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS MTSU Management