CHAPTER EIGHT
LOCATION PLANNING AND ANALYSIS
Chapter 8
Location Planning
and Analysis
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CHAPTER EIGHT
LOCATION PLANNING AND ANALYSIS
Need for Location Decisions
• Marketing Strategy
• Growth
• Depletion of Resources
• Cost of Doing Business
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CHAPTER EIGHT
LOCATION PLANNING AND ANALYSIS
Nature of Location Decisions
• Importance
–
Long term commitment/costs
• Objectives
–
Profit potential
• Options
Expand existing facilities
– Add new facilities
– Shut down at one location and Move to
another
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CHAPTER EIGHT
LOCATION PLANNING AND ANALYSIS
General procedure for location decision
making
• Decide the criteria for evaluating
location alternatives: ex) increased
revenues, community service
• Identify important factors: ex) market
location, raw materials
• Develop location alternatives
• Evaluate the alternatives and make a
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CHAPTER EIGHT
LOCATION PLANNING AND ANALYSIS
Location Decision Factors
Regional Factors Community Considerations
Multiple Plant Strategies Site-related Factors
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CHAPTER EIGHT
LOCATION PLANNING AND ANALYSIS
Regional factors
1) Location of raw materials
3 reasons firms locate near the source
of raw materials
• necessity: mining, farming, forest
• perishability: canning or freezing
fruits, dairy products
• transportation cost: cheese making,
paper production
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CHAPTER EIGHT
LOCATION PLANNING AND ANALYSIS
Regional factors
2) Location of markets
• Retail sales and services are usually
found near the center of the markets
they serve: ex) fast food
• Distribution cost associated with their
products is the main factor
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CHAPTER EIGHT
LOCATION PLANNING AND ANALYSIS
Regional factors
3) Labor factors
• Labor costs
• Employees skills
• Workers attitudes toward turnover,
absenteeism, may differ among
potential locations
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CHAPTER EIGHT
LOCATION PLANNING AND ANALYSIS
Regional factors
4) Other factors
• Climate, taxes
• Many developing countries offer an
abundant supply of cheap labor
• International locations
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CHAPTER EIGHT
LOCATION PLANNING AND ANALYSIS
Community considerations
• Community resistance to airport
expansion, changes in zoning,
construction of nuclear facility
• From a company standpoint, facilities
for education, shopping, recreation,
transportation
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CHAPTER EIGHT
LOCATION PLANNING AND ANALYSIS
Site-related factors
• Primary consideration: land,
transportation, zoning
• Land costs, room for future
expansion, etc.
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CHAPTER EIGHT
LOCATION PLANNING AND ANALYSIS
Multiple Plant Manufacturing Strategies
1) Product plant strategy
• entire products or product lines are
produced in separate plants
2) Market area plant strategy
• plants are designed to serve a
particular geographic segment of a
market
3) Process plant strategy
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CHAPTER EIGHT
LOCATION PLANNING AND ANALYSIS
Multiple Plant Manufacturing Strategies
3) Process plant strategy
• different plants concentrate on
different aspects of a process:
ex)auto: different plants for engines,
transmissions, body, etc.
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CHAPTER EIGHT
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 highway
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CHAPTER EIGHT
LOCATION PLANNING AND ANALYSIS
Evaluating Locations
• Cost-volume Analysis
–
Determine fixed and variable costs
–
Plot total costs
–
Determine lowest total costs
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CHAPTER EIGHT
LOCATION PLANNING AND ANALYSIS
Example 1: Cost-Volume Analysis
Fixed and variable costs for
four potential locations
L o c a tio n
A
B
C
D
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F ix e d
C ost
$ 2 5 0 ,0 0
1 0 0 ,0 0
1 5 0 ,0 0
2 0 0 ,0 0
0
0
0
0
V a r ia b le
C ost
$11
30
20
35
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CHAPTER EIGHT
LOCATION PLANNING AND ANALYSIS
Example 1: Solution
Fixed
Costs
A
B
C
D
$250,000
100,000
150,000
200,000
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Variable
Costs
Total
Costs
$11(10,000)
30(10,000)
20(10,000)
35(10,000)
$360,000
400,000
350,000
550,000
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CHAPTER EIGHT
LOCATION PLANNING AND ANALYSIS
Example 1: Solution
$(000)
800
700
600
500
400
300
200
100
0
0
D
B
C
A
A Superior
C Superior
B Superior
2
4
6
8
10
12
14
16
Annual Output (000)
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CHAPTER EIGHT
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
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CHAPTER EIGHT
Table 8-2
Foreign
Government
Cultural
Differences
LOCATION PLANNING AND ANALYSIS
a. Policies on foreign ownership of production facilities
Local Content
Import restrictions
Currency restrictions
Environmental regulations
Local product standards
b. Stability issues
Living circumstances for foreign workers / dependents
Religious holidays/traditions
Customer
Preferences
Possible buy locally sentiment
Labor
Level of training and education of workers
Work practices
Possible regulations limiting number of foreign employees
Language differences
Availability and quality of raw materials, energy,
transportation
Resources
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