1. Copyright Atomic Dog Publishing, 2005 Small Business Management: A Planning Approach Joel Corman Suffolk University, Emeritus Robert Lussier Springfield College Lori Pennel Bunker Hill Community College

2. Copyright Atomic Dog Publishing, 2005 CHAPTER 8 Location and Layout PART 3 Planning and Implementation

3. Copyright Atomic Dog Publishing, 2005 8-1 The Interrelationship between Location and Layout and Other Business Plan Components Location depends on the products to be sold and the target market. In specific organizations common internal designs must be used to maximize profitability. In certain circumstances the production function can affect location. Personnel considerations also play a part in the location selection.

4. Copyright Atomic Dog Publishing, 2005 8-2 Location: A Business Decision There are times when a business will want to expand or relocate. Growth could force expansion, and may require the business owner to make a decision about expanding at the same location, or moving to another area. Economy or demographics may also force a change of location. Relocation causes significant expenditure.

5. Copyright Atomic Dog Publishing, 2005 8-3 General Location Factors Careful investigation is needed to reveal the good and bad aspects of any location. General factors to be considered are:  Personal preference  Geographic considerations  Economic aspects

6. Copyright Atomic Dog Publishing, 2005 8-3a Personal Preferences Location selection steps:  Determine the geographic region of the country best suited for your type of enterprise.  Pick a city within the region that would yield maximum profitability.  Narrow down the city location to a specific area within a city.  Pick the specific site in the area. Often a decision is made to locate in the home community area—ensure that location weaknesses do not overpower the choice.

7. Copyright Atomic Dog Publishing, 2005 8-4 Location Selection Criteria Each selection factor must be looked at with specific reference to the business:  Freight costs  Weight loss -Process weight loss is the loss of raw materials that occurs.  Proximity to market  Transportation facilities -Raw materials, finished goods, and also employees transportation  Availability of raw materials  Labor supply  Community attitude  Water power -Supply and price of water and free availability

8. Copyright Atomic Dog Publishing, 2005 8-4 Location Selection Criteria (contd.)  Cost of land  Taxes  Specialized communities -Firm can obtain required services at relatively low costs.  Climatic conditions  Complementary plants or warehouse locations  Urban, suburban, or rural

9. Copyright Atomic Dog Publishing, 2005 8-5 Site Selection Critical factors to consider while selecting a site:  Costs  Parking  Customer accessibility  Traffic  Neighborhood conditions Manufacturers, wholesalers, and service companies need not locate in high-rent areas. Retailers need adequate parking for customers and must locate where customers can reach them.

10. Copyright Atomic Dog Publishing, 2005 8-5a Manufacturing Location The important factors while locating a manufacturing plant are:  The market  The labor force  Transportation  Raw materials  Site selection  Community interest

11. Copyright Atomic Dog Publishing, 2005 8-5b Retail Location Specific characteristics for deciding on the city:  Size of the city’s trading area  Population and population trends in the trading area  Total purchasing power and the distribution of purchasing power  Total retail trade potential for different lines of trade  Number, size, and quality of competition  Progressiveness of competition The area or the type of location  Customer attraction power of the particular store and the shopping district  Quantitative and qualitative nature of competitive stores  Availability of access routes

12. Copyright Atomic Dog Publishing, 2005 8-5b Retail Location (contd.)  Nature of zoning regulations  Direction of the area expansion  General appearance of the area The specific site  Adequacy and potential of traffic passing the site  Ability of the site to intercept traffic en route from one place to another  Complementary nature of adjacent stores  Parking facilities or space  Vulnerability of the site to unfriendly competition  Cost of the site

13. Copyright Atomic Dog Publishing, 2005 8-5b Retail Location (contd.) Final checklist  How much retail, office, storage, or workroom space is needed?  Is adequate parking space available?  Is there a requirement for special lighting, heating or cooling, or other installations?  Will advertising costs be much higher if a relatively remote location is chosen?  Is any needed public transportation available?  Can the area serve as a source of supply of employees?  Is there adequate fire and police protection?  Will sanitation or utility supply be a problem?  Is exterior lighting adequate to attract evening shoppers?  Are customer restroom facilities available?  Is the store easily accessible?  Is shelter available against bad weather?  Will crime insurance be prohibitively expensive?  Does it meet any plans to pickup or deliver?  Is the area dependant on seasonal business?  Is the location convenient to where you live?  Do target customers reside nearby?  Is the population density sufficient?

14. Copyright Atomic Dog Publishing, 2005 8-5c Wholesale Locations Derived market  A market that springs up not from people wanting goods for their personal use but for the use those goods have in completing a demanded product or process. Wholesalers sell to retailers only if the customer market demands it. Wholesalers tend to group themselves together because they need to be accessible to the same retailers. Wholesalers location are generally influenced by:  The availability of larger, inexpensive buildings in less- costly areas within the city or beyond, and proximity to other wholesalers

15. Copyright Atomic Dog Publishing, 2005 8-5d Service Locations Operating a service where you make visits to the customers provides more flexibility in choosing a location. However, where customers come to you, accessibility becomes important.

16. Copyright Atomic Dog Publishing, 2005 8-6 Build, Buy, or Lease Being in a small business almost guarantees that capital will be in short supply. A lease is an agreement to rent an asset that will be used as if it were owned. Lessee is the party leasing the equipment, who makes periodic payments to the lessor. Lessor is the party who owns the equipment being leased. A lease can be got from companies, banks, insurance companies, and finance companies. In some cases, manufacturers directly offer lease options.

17. Copyright Atomic Dog Publishing, 2005 8-6a Advantages of Leasing Reduced capital outflow Better maintenance of the equipment Easy replacement at the end of lease term Tax benefits

18. Copyright Atomic Dog Publishing, 2005 8-6b Disadvantages of Leasing Return of asset at end of the lease period may result in a loss to the extent of the value of that asset. Higher cost over a period of time to cover the profit to the lessor A lease is a legal obligation and as such generally cannot be canceled, and you may have to pay even if you are not using it. Not saleable to recover investments

19. Copyright Atomic Dog Publishing, 2005 8-6c Alternative Leases Operating leases  Permits you to use the equipment in your business. Sale or leaseback  Leases are used when you already own the equipment or building and wish to generate cash to be used in other parts of the business by leasing the asset back to a third party.

20. Copyright Atomic Dog Publishing, 2005 8-7 Buildings and Facilities Firms used to, and are still renting or buying existing office places and fitting their operations into it. As efficiency assumes more importance, the building is considered to be facilitating equipment in the productive process. Make sure that the facilities are appropriate to the type of business:  Construction and design  Function

21. Copyright Atomic Dog Publishing, 2005 8-7a Construction and Design Buildings today are designed with primary consideration given to the function of the building. The structure of the building is chosen appropriate to the type of equipment intend to use in it. Plans for expansion, as business grows, is also an important consideration right at the beginning itself.

22. Copyright Atomic Dog Publishing, 2005 8-7b Function Manufacturing facilities must preferably be at one level to facilitate material handling. Office space can be on multiple levels. Another important factor is the age of the building. Adequate number of entrances and exits must be provided for. Many of these factors are dependant on the type of business. Analyze and choose facilities best suited to the business.

23. Copyright Atomic Dog Publishing, 2005 8-8 Layout The arrangement of the physical facilities in the most efficient manner for the specific business Different approaches to layout can be examined based on the type of business:  Manufacturing -Product line -Functional  Retail  Wholesale  Service

24. Copyright Atomic Dog Publishing, 2005 8-8a Manufacturing Layout decisions are taken based on the long-term plan and often a firm locks these decisions, as changes in layout involves heavy expenditure. Buildings in the past were designed to fulfill a general function at the least cost, but today they are custom designed to suit the layout plan. Single floor concepts have gained popularity:  Economic internal transportation patterns  Expansion potential Layouts could be:  Product line type (product)  Functional type (process)

25. Copyright Atomic Dog Publishing, 2005 8-8b Product Line Layout The arrangement of machinery and personnel in the sequential order of the manufacturing process Use of product layout enables a business to produce large volumes of one or a few standardized products at low unit costs. Product type layout

26. Copyright Atomic Dog Publishing, 2005 8-8b Product Line Layout (contd.) Fixed cost to volume ratio

27. Copyright Atomic Dog Publishing, 2005 8-8c Functional Layout Machines are grouped according to function. Cost of goods produced have a higher cost when compared to the product line layout. However, flexibility is high and suits when a wider product range is to be manufactured. Process or functional layout

28. Copyright Atomic Dog Publishing, 2005 8-8d Retail Layout The layout of a retail store can help maximize sales by directing customers to goods providing maximum profitability. Demand items are specific items that a customer needs to purchase. Grid layout, in which the aisles are parallel and rectangular in arrangement. Boutique layout, in which the sales floor is divided into individual, semi-separate areas, each built around a particular theme. Free-form layout is a informal layout in which displays may vary in size, shape, and style.

29. Copyright Atomic Dog Publishing, 2005 8-8d Retail Layout (contd.) Typical drug convenience store layout

30. Copyright Atomic Dog Publishing, 2005 8-8d Retail Layout (contd.) Typical grocery store layout

31. Copyright Atomic Dog Publishing, 2005 8-8e Wholesale Layout Maximizing customer satisfaction in a wholesale operation is paramount. Customers usually phone, mail, or fax their orders, the wholesaler’s job is to fill these orders as quickly and efficiently as possible. Fast moving goods are usually placed closest to the shipping and receiving deck. Layout is planned to minimize movement to put the order together. Normally have wide aisles with material handling equipment for fast picking of orders

32. Copyright Atomic Dog Publishing, 2005 8-8e Wholesale Layout (contd.) Typical wholesale layout

33. Copyright Atomic Dog Publishing, 2005 8-8f Service Layout Service establishments are so diverse, it is virtually impossible to describe a typical layout. Service businesses need to examine customer traffic and traffic flow before making layout decisions. The needs of the business dictates the layout.

34. Copyright Atomic Dog Publishing, 2005 8-8g Sources of Information Many publications are available to aid entrepreneurs in searching for the best location. Factors about each area’s population, such as age, income, home value, and education, are analyzed. Some publications that are useful:  Introduction to Census data  Sales and Marketing: Survey of Buying Power