8

Location Planning
and Analysis

McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
 Learning Objectives
 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.
 Need for Location Decisions
 Marketing Strategy
 Cost of Doing Business
 Growth
 Depletion of Resources
 Need for Location Decisions

 Strategic Importance of location decisions

 Long term commitment/costs
 Impact on investment, revenue, and operations
 Supply chains

 Objectives of location decisions

 Profit potential
 No single location may be better than others
 Identify several locations from which to choose
 Need for Location Decisions

 Location Options
 Expand existing facilities
 Add new facilities
 Move
 Location Decision Factors
Community
Regional Factors Considerations

Multiple Plant Site-related

Strategies Factors
 Regional Factors
 Location of raw materials
 Location of markets
 Labor factors
 Climate and taxes
 Community Considerations
 Quality of life
 Services
 Attitudes
 Taxes
 Environmental regulations
 Utilities
 Developer support
 Site Related Factors
 Land
 Transportation
 Environmental
 Legal
 Multiple Plant Strategies
 Product plant strategy
 Market area plant strategy
 Process plant strategy
 Global Locations
 Reasons for globalization
 Benefits
 Disadvantages
 Risks
 Global operations issues
Disadvantages of Globalization

Disadvantage Risk
Transportation cost Political
Security Terrorism
Unskilled labour Legal
Import restriction Cultural
Criticism
Global Location Factors
 Evaluating Locations

 Cost-Profit-Volume Analysis
 Determine fixed and variable costs
 Plot total costs
 Determine lowest total costs
 Location Cost-Volume Analysis
 Assumptions
 Fixed costs are constant
 Variable costs are linear
 Output can be closely estimated
 Only one product involved
 Example 1: Cost-Volume Analysis

Fixed and variable costs for four potential

locations
Location Fixed Cost ($) Variable Cost ($)
A 250,000 15
B 100,000 30
C 150,000 20
D 200,000 35
 Example 1: Solution

Location Fixed Cost ($) Variable Total

Cost ($) Cost ($)
A 250,000 11 (10,000) 360,000
B 100,000 30 (10,000) 400,000
C 150,000 20 (10,000) 350,000
D 200,000 35 (10,000) 550,000
 Example 1: Solution
$(000)
800 D
700
600 B
500 C
400 A
300 A Superior
200 C Superior
100 B Superior
0
0 2 4 6 8 10 12 14 16

Annual Output (000)

 Evaluating Locations
 Transportation Model
 Decision based on movement costs of raw
materials or finished goods
 Factor Rating
 Decision based on quantitative and
qualitative inputs
 Center of Gravity Method
 Decision based on minimum distribution
costs
Center of Gravity Method
 Center of Gravity Method
 Determine the coordinates of the center of gravity method
using the given information. Assume that the shipments
from the center of gravity to each of the four destinations
will be equal quantities.

Destination x y

D1 2 2

D2 3 5

D3 5 4

D4 8 5
 Center of Gravity Method
 Determine the coordinates of the center of gravity method
using the given information.

Weekly
Destination x y
Quantity

A 5 7 15

B 6 9 20

C 3 9 25

D 9 4 30