Aragones, Alvincel G.

BUSMAN 106 - C
Location Planning and Analysis

Location Planning
● Deciding where you manufacture and ultimately build your business.

The Need for Location Decisions

Location decisions arise for a variety of reasons:
● Addition of new facilities
○ As part of a marketing strategy to expand markets
○ Growth in demand that cannot be satisfied by expanding existing facilities
● Location decisions are strategically important:
○ Are closely tied to an organization's strategies
○ Effect capacity and flexibility
○ Represent a long-term commitment of resources
○ Impact competitive advantage
○ Importance to supply chains

Location Decisions: Objectives

Location decisions are based on:
● Profit potential or cost and customer service
● Finding several acceptable locations from which to choose
● Position in the supply chain
● Web-based retail organizations are effectively location-independent
● Supply chain management issues such as supply chain configuration
○ *It is important to note that location decisions must be tied to the supply chain
and easily integrated into the current business system.

Location Decision: General Procedure

Steps
1. Decide on the criteria to use for evaluating location alternatives
a. Have specific criteria on what you want for your location
i. ex. You want your location to be close to your raw materials etc.
2. Identify important factors, such as location of markets or raw materials
a. Specify factors that influence your decision
3. Develop location alternatives. It is important to note that here we continuously narrow
down our search for the location to get the most efficient choice of location.
a. Identify the country or countries for location
i. Consider a country that has a stable government
ii. Consider the match of culture for your country of choice
iii. Consider the various business-related laws of the country
b. Identify the general region for the location
i. Primary regional factors:
1. Locating near the raw materials
2. Locating near markets
 3. Distribution costs and perishability
4. Labor Factors
5. Other factors
a. Climates and taxes may play an important role in location
decisions
c. Identify a small number of community alternatives
i. Many communities actively attempt to attract new businesses they
perceive to be a good fit for the community
ii. Various businesses also actively seek attractive communities based on
such factors as:
1. Quality of life
2. Services
3. Attitudes
4. Taxes
5. Environmental regulations
6. Utilities
7. Development support
d. Identify the site alternatives among the community alternatives
i. Primary site location considerations are
1. Land
2. Transportation
3. Zoning
4. Other restrictions
ii. Service and Retail Consideration
1. Nearness to raw materials is not usually a consideration
2. Customer access is a
a. Prime consideration for some: restaurants, hotels, etc.
b. Not an important consideration for others: service call
centers, etc.
3. Tend to be profit or revenue-driven, and so are
a. Concerned with demographics, competition, traffic/volume
patterns, and convenience
e. Evaluate the alternatives and make a decision. The following are the common
techniques:
i. Location cost-volume-profit analysis
1. Technique for evaluating location choices in economic terms
2. Steps:
a. Determine the fixed and variable costs for each alternative
b. Plot the total cost lines for all alternatives on the same
graph
c. Determine the location that will have the lowest total cost
(or highest profit) for the expected level of output
ii. Factor rating
 1. General approach to evaluating locations that include quantitative
and qualitative inputs
2. Procedure:
a. Determine which factors are relevant
b. Assign a weight to each factor that indicates its relative
importance compared with all other factors
c. Decide on a common scale for all factors
d. Score each location's alternative
e. Calculate the weighted factor sum for each alternative
f. Choose the alternative that has the highest composite
score
iii. Center of gravity method
1. Method for locating a distribution center that minimizes distribution
costs
2. This does not directly locate the business in the middle of the
desired destinations but rather takes into account various factors
such as the majority of sales per destination.
3. Method:
a. Treats distribution costs as a linear function of the distance
and the quantity shipped
b. The quantity to be shipped to each destination is assumed
to be fixed
c. The method includes the use of a map that shows the
locations of destinations
i. The map must be accurate and drawn to scale
d. A coordinate system is overloaded on the map to
determine relative locations
iv. Transportation model
1. This method takes into account the most efficient routes when
determining where and how to deliver your products.

Reflection
● The main reason for running a business is to gain profit or revenue, hence directly
considering the availability of your product to the customer is essential for any business.
In making the product more accessible to various customers falls under one main factor -
location. Therefore, any business should take into account where to locate their
business premises based on the factors that they have set or criteria that they want to
meet. For example, when building a school supply shop, you want to be situated near
schools and offices since it is expected that the population near these areas needs the
product that you are selling. On the other hand, when you are a manufacturing business
you want to locate your factory near the source of raw materials in order to cut
transportation and cost and ultimately increase your net income. Every business entity is
unique therefore one must study its needs and wants to match the location of where the
business will be situated.