Location Planning
and Analysis
Learning Objectives
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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.
Needs for Location Decisions
 Marketing Strategy
 Cost of Doing Business
 Growth
 Depletion of Resources
Nature of Location Decisions
 Strategic Importance of location decisions
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Long term commitment/costs
Impact on investments, revenues, and operations
Supply chains
 Objectives of location decisions
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Profit potential
No single location may be better than others
Identify several locations from which to choose
 Location Options
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Expand existing facilities
Add new facilities
Move
Making Location Decisions
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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
Regional Factors
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Location of raw materials
Location of markets
Labor factors
Climate and taxes
Community Considerations
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Quality of life
Services
Attitudes
Taxes
Environmental regulations
Utilities
Developer support
Site Related Factors
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Land
Transportation
Environmental
Legal
Multiple Plant Strategies
 Product plant strategy
 Market area plant strategy
 Process plant strategy
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
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
Trends in Locations
 Foreign producers locating in Developed
countries.

“Made in USA”
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Currency fluctuations
 Just-in-time manufacturing techniques
 Microfactories
 Information Technology
Globalization
 Facilitating Factors
 Trade agreements
 Technology
 Benefits
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Markets
Cost savings
Legal and regulatory
Financial
Globalization
 Disadvantages
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Transportation costs
Security
Unskilled labor
Import restrictions
Criticisms
 Risks
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Political
Terrorism
Legal
Cultural
Evaluating Locations
 Cost-Profit-Volume Analysis
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Determine fixed and variable costs
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Plot total costs
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Determine lowest total costs
Location Cost-Volume Analysis
 Assumptions
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Fixed costs are constant
Variable costs are linear
Output can be closely estimated
Only one product involved
Example 1: Cost-Volume Analysis
Fixed and variable costs for
four potential locations
L o c a tio n
A
B
C
D
F ix e d
Cost
$ 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 ia b le
Cost
$11
30
20
35
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
Annual Output (000)
12
14
16
Evaluating Locations
 Transportation Model
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Decision based on movement costs of raw
materials or finished goods
 Factor Rating
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Decision based on quantitative and
qualitative inputs
 Center of Gravity Method
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Decision based on minimum distribution
costs
Factor-Rating Example
Critical
Success
Factor
Labor
availability
and attitude
People-to
car ratio
Per capita
income
Tax structure
Education
and health
Totals
Scores
(out of 100)
Weight France Denmark
Weighted Scores
France
Denmark
.25
70
60
.05
50
60
.10
.39
85
75
80
70
(.10)(85) = 8.5 (.10)(80) = 8.0
(.39)(75) = 29.3 (.39)(70) = 27.3
.21
60
70
(.21)(60) = 12.6 (.21)(70) = 14.7
1.00
(.25)(70) = 17.5 (.25)(60) = 15.0
(.05)(50) = 2.5
70.4
(.05)(60) = 3.0
68.0
Center-of-Gravity Method
∑dixQi
x - coordinate =
i
∑Qi
i
∑diyQi
y - coordinate =
i
∑Qi
i
where
dix = x-coordinate of location i
diy = y-coordinate of location i
Qi = Quantity of goods moved to
or from location i
Center-of-Gravity Method
North-South
New York (130, 130)
Chicago (30, 120)
120 –
Pittsburgh (90, 110)
90 –
60 –
30 –
|
–
Atlanta (60, 40)
|
30
Arbitrary
origin
|
|
|
|
60
90
120
150
East-West
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
(30)(2000) + (90)(1000) + (130)(1000) + (60)(2000)
x-coordinate =
2000 + 1000 + 1000 + 2000
= 66.7
(120)(2000) + (110)(1000) + (130)(1000) + (40)(2000)
y-coordinate =
2000 + 1000 + 1000 + 2000
= 93.3
Center-of-Gravity Method
North-South
New York (130, 130)
Chicago (30, 120)
120 –
Pittsburgh (90, 110)
+
90 –
Center of gravity (66.7, 93.3)
60 –
30 –
|
–
Atlanta (60, 40)
|
30
Arbitrary
origin
|
|
|
|
60
90
120
150
East-West
Requirements for Transportation
Model
 List of origins and each one’s capacity
 List of destinations and each one’s
demand
 Unit cost of shipping
Transportation Model
Assumptions
1. Items to be shipped are homogeneous
2. Shipping cost per unit is the same
3. Only one route between origin and
destination
The Transportation Problem
D
(demand)
D
(demand)
S
(supply)
S
(supply)
D
(demand)
S
(supply)
D
(demand)
A Transportation Table
A
Factory
Warehouse
C
B
4
D
7
7
1
100
1
3
12
8
8
200
2
10
8
16
5
150
3
Demand
80
90
120
Warehouse B can use 90
units per period
Factory 1
can
supply
100
units per
period
160
Total
supply
450 capacity
per
450
period
Total demand
per period
Excel Template
Special Problems
 Unequal supply and demand
 Dummy: Imaginary number added
equal to the difference between supply
and demand when these are unequal