Location Planning and Analysis

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8-1 Location Planning and Analysis

CHAPTER

8

Location Planning and Analysis

8-2 Location Planning and Analysis

Need for Location Decisions  Marketing Strategy  Cost of Doing Business  Growth  Depletion of Resources

8-3 Location Planning and Analysis

Nature of Location Decisions  Strategic Importance  Long term commitment/costs  Impact on investments, revenues, and operations  Supply chains  Objectives  Profit potential  No single location may be better than others  Identify several locations from which to choose  Options  Expand existing facilities  Add new facilities  Move

8-4 Location Planning and Analysis

Making Location Decisions  Decide on the criteria  Identify the important factors  Develop location alternatives  Evaluate the alternatives  Make selection

8-5 Location Planning and Analysis

Location Decision Factors

Regional Factors Community Considerations Multiple Plant Strategies Site-related Factors

8-6 Location Planning and Analysis

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

8-7 Location Planning and Analysis

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

8-8 Location Planning and Analysis

Site Related Factors  Land  Transportation  Environmental  Legal

8-9 Location Planning and Analysis

Multiple Plant Strategies  Product plant strategy  Market area plant strategy  Process plant strategy

Table 8.2

Comparison of Service and Manufacturing Considerations

Manufacturing/Distribution Cost Focus Service/Retail Revenue focus

Transportation modes/costs Energy availability, costs Labor cost/availability/skills Building/leasing costs Demographics: age,income,etc Population/drawing area Competition Traffic volume/patterns Customer access/parking

8-11 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

8-12 Location Planning and Analysis

Table 8.3

Foreign Government Cultural Differences

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 Resources

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

8-13 Location Planning and Analysis

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

8-14 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

8-15 Location Planning and Analysis

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

L o c a t i o n

A B C D

F i x e d C o s t

$ 2 5 0 , 0 0 0 1 0 0 , 0 0 0 1 5 0 , 0 0 0 2 0 0 , 0 0 0

V a r i a b l e C o s t

$ 1 1 3 0 2 0 3 5

8-16 Location Planning and Analysis

Example 1: Solution A B C D Fixed Costs $250,000 100,000 150,000 200,000 Variable Costs $11(10,000) 30(10,000) 20(10,000) 35(10,000) Total Costs $360,000 400,000 350,000 550,000

8-17 Location Planning and Analysis

Example 1: Solution

$(000) 800 700 600 500 400 300 200 100 0 0 C Superior B Superior 2 4 6 8 10 Annual Output (000) 12 A Superior 14 16 D B C A

8-18 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

8-19 Location Planning and Analysis

Design/Facility STA04 Layout choices at St. Alexius Hospital

8-20 Location Planning and Analysis

Flow Charts/Assessment BP3 Example, Tri State Industries

8-21 Location Planning and Analysis

Team/Visual/System PI6 Interview at McDonalds

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