location planning and analysis

© 2011 geomentum, inc. all rights reserved.

CHAPTER 8 Location Planning and Analysis

CHAPTER 8 Location Planning and Analysis


10 Yards

• Location decisions arise for a variety of reasons:– Addition of new facilities

• As part of a marketing strategy to expand markets

• Growth in demand• Depletion of basic inputs

requires relocation• Shift in markets• Cost of doing business at a

particular location

STRATEGIC OPERATIONS MANAGEMENT GROUP 5 January 29, 2013


The Objectives of Location DecisionsThe Objectives of

Location Decisions

Location decisions for many types of

businesses are made infrequently ,but they

tendTo have a significant

impact on the organization.

Most organization do not set out with

intention of identifying the one

best location: rather, they hope to find a

number of acceptable locations from which

to choose .


Effect capacity and flexibility

Represent a long-term commitment of resources

Effect investment requirements, operating costs, revenues, and operations


Impact competitive advantage

Importance to supply chains


Existing companies generally have four options available in location planning:

1. Expand an existing facility2. Add new locations while

retaining existing facilities3. Shut down one location

and move to another4. Do nothing


2. Identify important factors, such as location of markets or raw materials

Steps:

3. Develop location alternativesa. Identify the country or countries for locationb. Identify the general region for locationc. Identify a small number of community alternativesd. Identify the site alternatives among the community

alternatives

1. Decide on the criteria to use for evaluating location alternatives.

4. Evaluate the alternatives and make a decision


•Product plant strategy•Market area plant

strategy•Process plant strategy

•Location of raw materials•Location of markets

•Labor factors•Climate and taxes

•Land•Transportation•Environmental

•Legal

•Quality of life•Services•Attitudes

•Taxes•Environmental regulations

•Utilities •Developer support

COMMUNITY CONSIDERATIONS

REGIONAL FACTORS

MULTIPLE PLANT

STRATEGY SITE-RELATED FACTORS

© 2011 geomentum, inc. all rights reserved.STRATEGIC OPERATIONS MANAGEMENT GROUP 5 January 29, 2013

A computer based tool for collecting, storing,

retrieving, and displaying demographic data on

maps.

REGIONAL FACTORS


PRODUCT PLANT STRATEGY

PROCESS PLANT STRATEGY

MARKET AREA PLANT STRATEGY

MULTIPLE PLANT MANUFACTURING STRATEGYMULTIPLE PLANT MANUFACTURING STRATEGY


•Products or product lines are produced in separate plants, and each plant is usually responsible for supplying the entire domestic market.•It is a decentralized approach as each plant focuses on a narrow set of requirements that includes specialization of labor, materials, and equipment along product lines.•Specialization involved in this strategy usually results in economies of scale and, compared to multipurpose plants, lower operating costs.

•Here, plants are designed to serve a particular geographic segment of a market.•The individual plants can produce either most, or all of the company's products and supply a limited geographical area.•The operating costs of this strategy are often times higher than those of product plants, but savings on shipping costs for comparable products can be made.•This strategy is useful when shipping costs are high due to volume, weight, or other factors.

•Here, different plants concentrate on different aspects of a process.•This strategy is most useful when products have numerous components; separating the production of components results in less confusion than if all the production were done in the same location.•A major issue with this strategy is the coordination of production throughout the system, and it requires a highly informed, centralized administration in order to be an effective operation.


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



Two key factors have contributed to the attractiveness of globalization:

- Trade Agreements such as•North American Free Trade Agreement (NAFTA)•General Agreement on Tarriffs and Trade (GATT)•U.S.-China Trade Relations Act•EU and WTO efforts to facilitate trade

- Technology•Advances in communication and information technology


Other Other Cost

savingsCost

savings

MarketsMarkets

Legal and

regulatoryLegal and

regulatory

Financial Financial

A wide range of benefits have

accrued to organizations that

have globalized operations:

Microfactory

-A small factory with

narrow product

focus, located near

major markets.

STRATEGIC OPERATIONS MANAGEMENT


Foreign Government

a. Policies on foreign ownership of production facilities Local Content Import restrictions Currency restrictions Environmental regulations Local product standards

b. Stability issues Cultural Differences

Living circumstances for foreign workers / dependents Religious holidays/traditions

Customer Preferences

Possible buy locally sentiment

Labor Level of training and education of workers Work practices Possible regulations limiting number of foreign employees Language differences

Resources Availability and quality of raw materials, energy, transportation



Cost-Profit-Volume Analysis

Determine fixed and variable costs

Plot total costs

Determine lowest total costs

Example 1: Cost-Profit-Volume Analysis

Fixed and variable costs for four potential locations

L o c a t i o n F i x e dC o s t

V a r i a b l eC o s t

ABCD

$ 2 5 0 , 0 0 01 0 0 , 0 0 01 5 0 , 0 0 02 0 0 , 0 0 0

$ 1 13 02 03 5

-AssumptionsFixed costs are constantVariable costs are linearOutput can be closely estimatedOnly one product involved

STRATEGIC OPERATIONS MANAGEMENT


F i x e dC o s t s

V a r i a b l eC o s t s

T o t a lC o s t s

ABCD

$ 2 5 0 , 0 0 01 0 0 , 0 0 01 5 0 , 0 0 02 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 04 0 0 , 0 0 03 5 0 , 0 0 05 5 0 , 0 0 0



800700600500400300200100

0

Annual Output (000)

$(000)

8 10 12 14 166420

A

BC

B SuperiorC Superior

A Superior

D



From Group 5

for listening!


location planning and analysis

Business

location ofmarkets

tendbest location

location alternativesa

location decisions arisefor

location planning andchapter

product lines

site alternatives

market area plantstrategyhere