1. Location Planning and Analysis

2. Learning 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.

3. Needs for Location Decisions
Marketing Strategy
Cost of Doing Business
Growth
Depletion of Resources

4. Nature 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

5. Making 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

6. Regional Factors Location of raw materials Location of markets
Labor factors
Climate and taxes

7. Community Considerations
Quality of life
Services
Attitudes
Taxes
Environmental regulations
Utilities
Developer support

8. Site Related Factors
Land
Transportation
Environmental
Legal

9. Multiple Plant Strategies
Product plant strategy
Market area plant strategy
Process plant strategy

10. Service 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

11. Comparison of Service and Manufacturing Considerations
Manufacturing/Distribution
Service/Retail
Cost Focus
Revenue focus
Transportation model/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

12. Trends in Locations Foreign producers locating in Developed countries.
“Made in USA”
Currency fluctuations
Just-in-time manufacturing techniques
Microfactories
Information Technology

13. Globalization Facilitating Factors Benefits Trade agreements
Technology
Benefits
Markets
Cost savings
Legal and regulatory
Financial

14. Globalization Disadvantages Risks Transportation costs Security
Unskilled labor
Import restrictions
Criticisms
Risks
Political
Terrorism
Legal
Cultural

15. Evaluating Locations Cost-Profit-Volume Analysis
Determine fixed and variable costs
Plot total costs
Determine lowest total costs

16. Location Cost-Volume Analysis
Assumptions
Fixed costs are constant
Variable costs are linear
Output can be closely estimated
Only one product involved

17. Example 1: Cost-Volume Analysis
Fixed and variable costs for four potential locations

18. Example 1: Solution
800
700
600
500
400
300
200
100
Annual Output (000)
$(000) 8 10 12 14 16 6 4 2 A B C
B Superior
C Superior
A Superior D

19. Evaluating Locations Transportation Model Factor Rating
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

20. Factor-Rating Example
Critical Scores
Success (out of 100) Weighted Scores
Factor Weight France Denmark France Denmark
Labor availability and attitude (.25)(70) = 17.5 (.25)(60) = 15.0
People-to car ratio (.05)(50) = 2.5 (.05)(60) = 3.0
Per capita income (.10)(85) = 8.5 (.10)(80) = 8.0
Tax structure (.39)(75) = 29.3 (.39)(70) = 27.3
Education and health (.21)(60) = 12.6 (.21)(70) = 14.7
Totals

21. Center-of-Gravity Method
x - coordinate =
∑dixQi
∑Qi i
∑diyQi
∑Qi i
y - coordinate =
where dix = x-coordinate of location i
diy = y-coordinate of location i
Qi = Quantity of goods moved to or from location i

22. Center-of-Gravity Method
North-South
East-West
120 –
90 –
60 –
30 – –
| | | | | |
Arbitrary origin
Chicago (30, 120)
New York (130, 130)
Pittsburgh (90, 110)
Atlanta (60, 40)

23. Center-of-Gravity Method
Number of Containers
Store Location Shipped per Month
Chicago (30, 120) 2,000
Pittsburgh (90, 110) 1,000
New York (130, 130) 1,000
Atlanta (60, 40) 2,000
x-coordinate =
(30)(2000) + (90)(1000) + (130)(1000) + (60)(2000)
= 66.7
y-coordinate =
(120)(2000) + (110)(1000) + (130)(1000) + (40)(2000)
= 93.3

24. Center-of-Gravity Method
North-South
East-West
120 –
90 –
60 –
30 – –
| | | | | |
Arbitrary origin
Chicago (30, 120)
New York (130, 130)
Pittsburgh (90, 110)
Atlanta (60, 40)
Center of gravity (66.7, 93.3) +

25. Requirements for Transportation Model
List of origins and each one’s capacity
List of destinations and each one’s demand
Unit cost of shipping

26. Transportation Model Assumptions
Items to be shipped are homogeneous
Shipping cost per unit is the same
Only one route between origin and destination

27. The Transportation ProblemD
(demand) S
(supply)

28. A Transportation Table
Warehouse 4 7 1
100 12 3 8
200 10 16 5
150
450 80 90
120
160 A B C D 2
Factory
Factory 1
can supply 100
units per period
Total supply
capacity per
period
Total demand
per period
Demand
Warehouse B can use 90

29. Excel Template

30. Special Problems Unequal supply and demand
Dummy: Imaginary number added equal to the difference between supply and demand when these are unequal