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Location Planning
and Analysis
McGraw-Hill/Irwin
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
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.
7-2
Need for Location Decisions
 Marketing Strategy
 Cost of Doing Business
 Growth
 Depletion of Resources
7-3
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
7-4
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
7-5
Location Decision Factors
Regional Factors
Community
Considerations
Multiple Plant
Strategies
Site-related
Factors
7-6
Regional Factors
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Location of raw materials
Location of markets
Labor factors
Climate and taxes
7-7
Community Considerations
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Quality of life
Services
Attitudes
Taxes
Environmental regulations
Utilities
Developer support
7-8
Site Related Factors
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Land
Transportation
Environmental
Legal
7-9
Multiple Plant Strategies
 Product plant strategy
 Market area plant strategy
 Process plant strategy
7-10
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
7-11
Comparison of Service and
Manufacturing Considerations
Table 7.2
Manufacturing/Distribution
Service/Retail
Cost Focus
Revenue focus
Transportation modes/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
7-12
Trends in Locations
 Foreign producers locating in U.S.
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“Made in USA”
Currency fluctuations
 Just-in-time manufacturing techniques
 Microfactories
 Information Technology
7-13
Global Locations
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Reasons for globalization
Benefits
Disadvantages
Risks
Global operations issues
7-14
Globalization
 Facilitating Factors
 Trade agreements
 Technology
 Benefits
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Markets
Cost savings
Legal and regulatory
Financial
7-15
Globalization
 Disadvantages
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Transportation costs
Security
Unskilled labor
Import restrictions
Criticisms
 Risks
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Political
Terrorism
Legal
Cultural
7-16
Table 7.3
Foreign
Government
a. Policies on foreign ownership of production facilities
Local Content
Import restrictions
Currency restrictions
Environmental regulations
Local product standards
Liability laws
b. Stability issues
Cultural
Differences
Living circumstances for foreign workers / dependents
Religious holidays/traditions
Customer
Preferences
Labor
Possible buy locally sentiment
Resources
Availability and quality of raw materials, energy,
transportation infrastructure
Level of training and education of workers
Work ethic
Possible regulations limiting number of foreign employees
Language differences
7-17
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
7-18
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
7-19
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
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
7-20
Example 1: Solution
Fixed
Costs
A
B
C
D
$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
7-21
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)
7-22
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
7-23
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