8-1
Location Planning and Analysis
McGraw-Hill Ryerson
Operations Management, 2nd Canadian Edition, by Stevenson & Hojati
Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
8-2
Location Planning and Analysis
Chapter 8
Location Planning
and Analysis
McGraw-Hill Ryerson
Operations Management, 2nd Canadian Edition, by Stevenson & Hojati
Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
8-3
Location Planning and Analysis
Need for Location Decisions
• Marketing Strategy
• Cost of Doing Business
• Growth
• Depletion of Resources
McGraw-Hill Ryerson
Operations Management, 2nd Canadian Edition, by Stevenson & Hojati
Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
8-4
Location Planning and Analysis
Nature of Location Decisions
• Importance
– Long term commitment/costs
• Objectives
– Profit potential
• Options
– Expand existing facilities
– Add new facilities
– Move
McGraw-Hill Ryerson
Operations Management, 2nd Canadian Edition, by Stevenson & Hojati
Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
8-5
Location Planning and Analysis
Location Decision Factors
Regional Factors
Community
Considerations
Multiple Plant
Strategies
Site-related
Factors
McGraw-Hill Ryerson
Operations Management, 2nd Canadian Edition, by Stevenson & Hojati
Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
8-6
Location Planning and Analysis
Regional Factors
•
•
•
•
•
Location of raw materials
Location of markets
Labour factors
Climate and taxes
Foreign locations
McGraw-Hill Ryerson
Operations Management, 2nd Canadian Edition, by Stevenson & Hojati
Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
8-7
Location Planning and Analysis
Community Considerations
•
•
•
•
•
•
Quality of life
Services
Attitudes
Taxes
Environmental regulations
Developer support
McGraw-Hill Ryerson
Operations Management, 2nd Canadian Edition, by Stevenson & Hojati
Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
8-8
Location Planning and Analysis
Site Related Factors
•
•
•
•
Land
Transportation
Environmental
Legal
McGraw-Hill Ryerson
Operations Management, 2nd Canadian Edition, by Stevenson & Hojati
Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
8-9
Location Planning and Analysis
Multiple Plant Strategies
• Product plant strategy
• Market area plant strategy
• Process plant strategy
McGraw-Hill Ryerson
Operations Management, 2nd Canadian Edition, by Stevenson & Hojati
Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
8-10
Location Planning and Analysis
•
•
•
•
Why Should Foreign Companies
Locate in Canada?
Shortened delivery time and reduced
delivery costs
Access to natural resources
Lower wage and exchange rates
Skilled labour
 Auto industry
 Computer companies
 Pharmaceutical
companies
McGraw-Hill Ryerson
Operations Management, 2nd Canadian Edition, by Stevenson & Hojati
Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
8-11
Location Planning and Analysis
Comparison of Service and
Manufacturing Considerations
Manufacturing/Distribution
Service/Retail
Cost Focus
Revenue focus
Transportation modes/costs
Demographics: age,income,etc
Energy availability, costs
Population/drawing area
Labour cost/availability/skills
Competition
Building/leasing costs
Traffic volume/patterns
Customer access/parking
McGraw-Hill Ryerson
Operations Management, 2nd Canadian Edition, by Stevenson & Hojati
Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
8-12
Location Planning and Analysis
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
Labour
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
McGraw-Hill Ryerson
Operations Management, 2nd Canadian Edition, by Stevenson & Hojati
Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
8-13
Location Planning and Analysis
Evaluating Locations
• Cost-Profit-Volume Analysis
– Determine fixed and variable costs
– Plot total costs
– Determine lowest total costs
McGraw-Hill Ryerson
Operations Management, 2nd Canadian Edition, by Stevenson & Hojati
Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
8-14
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
McGraw-Hill Ryerson
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
Operations Management, 2nd Canadian Edition, by Stevenson & Hojati
Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
8-15
Location Planning and Analysis
Example 1: Solution
Fixed
Costs
A
B
C
D
$250,000
100,000
150,000
200,000
McGraw-Hill Ryerson
Variable
Costs
$11(10,000)
30(10,000)
20(10,000)
35(10,000)
Total
Costs
$360,000
400,000
350,000
550,000
Operations Management, 2nd Canadian Edition, by Stevenson & Hojati
Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
8-16
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)
McGraw-Hill Ryerson
Operations Management, 2nd Canadian Edition, by Stevenson & Hojati
Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
8-17
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
• Centre of Gravity Method
– Decision based on minimum distribution costs
McGraw-Hill Ryerson
Operations Management, 2nd Canadian Edition, by Stevenson & Hojati
Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.