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Location decision

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Location decision

  1. 1. Location Planning and Analysis
  2. 2. Need for Location Decisions • Marketing Strategy • Cost of Doing Business • Growth • Depletion of Resources
  3. 3. Nature of Location Decisions  Strategic Importance    Long term commitment/costs Impact on investments, revenues, and operations Supply chains  Objectives   Profit potential Identify several locations from which to choose  Options    Expand existing facilities Add new facilities Move
  4. 4. Types of Facilities • Heavy Industry Facilities • Light Industry Facilities • Retail And service facilities
  5. 5. Making Location Decisions • • • • • Decide on the criteria Identify the important factors Develop location alternatives Evaluate the alternatives Make selection
  6. 6. General Factors affecting location decision • • • • • • • • Availability of basic infrastructure Basic amenities Proximity to raw material and markets Residential complexes, schools, hospitals, clubs etc. Availability of cheap labour Govt. policies Env. And community Cheap land
  7. 7. Locating Foreign operations • • • • • • • Trade barriers International Customers International Competition Regulations Additional Resources Low Costs Offensive in Competitor’s home country
  8. 8. Factors at country level • Political Risks, Govt. Regulations, attitudes, incentives • Cultural and economic issues • Labour talent, productivity, cost • Availability of supplies, infrastructure • Exchange rates and currency risks
  9. 9. Location Decision Factors Regional Factors Community Considerations Multiple Plant Strategies Site-related Factors
  10. 10. Regional Factors • Attractiveness of region(culture, taxes, climate) • Labour availability • Location of raw materials • Location of markets • Availability of utilities • Govt. Incentives andpolicies • Climate and taxes
  11. 11. Community Considerations • • • • • • • Quality of life Services Attitudes Taxes Environmental regulations Utilities Developer support
  12. 12. Site Related Factors • • • • Land Transportation Environmental Legal
  13. 13. Multiple Plant Strategies • Product plant strategy • Market area plant strategy • Process plant strategy
  14. 14. 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 Labor cost/availability/skills Competition Building/leasing costs Traffic volume/patterns Customer access/parking
  15. 15. Evaluating Locations • Cost-Profit-Volume Analysis – Determine fixed and variable costs – Plot total costs – Determine lowest total costs
  16. 16. Location Cost-Volume Analysis • Assumptions – Fixed costs are constant – Variable costs are linear – Output can be closely estimated – Only one product involved
  17. 17. 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 o s t $ 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 o s t $ 1 1 3 0 2 0 3 5
  18. 18. Example 1: Solution F ix e d C o s ts A B C D V a r ia b le C o s ts T o ta l C o s ts $ 2 5 0 ,0 0 0 1 0 0 ,0 0 0 1 5 0 ,0 0 0 2 0 0 ,0 0 0 $ 1 1 (1 0 ,0 0 0 ) 3 0 (1 0 ,0 0 0 ) 2 0 (1 0 ,0 0 0 ) 3 5 (1 0 ,0 0 0 ) $ 3 6 0 ,0 0 0 4 0 0 ,0 0 0 3 5 0 ,0 0 0 5 5 0 ,0 0 0
  19. 19. Factor-Rating Method • Six steps: 1. Develop a list of relevant factors. 2. Assign a weight to each factor reflecting its relative importance to the firm. 3. Develop a rating scale for the factors. 4. Score each location on each factor based on the scale. 5. Multiply the scores by the weights for each factor and total the weighted scores for each location. 6. Make a recommendation based on the maximum point score, considering other [quantitative?] factors.
  20. 20. Factor Rating Example
  21. 21. Evaluating Locations • Center of Gravity Method – Decision based on minimum distribution costs • Load Distance model – Decision based on evaluating potential locations based on load distance value.
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