Location Planning &

Analysis

Dr. T. T. Kachwala
Overview of Location Planning
 Need for Location Decisions
 Location Criteria
 Location Factors for Manufacturing Plant
 Relative importance of location factors in the Type of facilities
 Factors relating to Foreign locations
 Methods of Evaluating Location Alternatives
Need for Location Decisions

1. Expand an existing facility. This option can be attractive if there is

adequate room for expansion, especially if the location has desired

features that are not readily available elsewhere. Expansion costs

are often less than those of other alternatives.

2. Adding locations: When an organization experiences a growth in

demand for its products or services that cannot be satisfied by

expansion at an existing location, the addition of a new location to

complement an existing system is often a realistic alternative.

Slide 3
Need for Location Decisions
 Adding locations can also be a defensive strategy designed to
maintain a market share or to prevent competitors from entering a
market. Firms such as banks, fast-food chains, supermarkets, and
retail stores look for locations that will help them to expand their
markets by the addition of new locations to an existing system.
 Shut down at one location and move to another. A shift in
markets & exhaustion of raw materials often cause firms to
consider this option seriously. For some firms, the costs of
doing business at a particular location reach a point where
other locations begin to look more attractive.
Location Criteria
1. All organizations attempt to identify the “best” location available. In many instances,

no single location may be significantly better than the others. There may be numerous

acceptable locations from which to choose.

2. Location criteria can depend on where a business is in the supply chain.

Businesses at the beginning of a supply chain are often located near the source of

the raw materials. Businesses in the middle of the chain may locate near suppliers

or near their markets, depending on a variety of circumstances. Business at the

retail end of a chain, site selection tends to focus more on accessibility, consumer

demographics (population density, age distribution, average buyer income), traffic

patterns, and local customs.

Slide 5
Location Factors for Manufacturing Plant
1. Availability of Land
2. Availability of Infrastructure
3. Availability of skilled Labour
4. Availability of Transport
5. Availability of Raw Material
6. Proximity to Market
7. Climatic Conditions

8. Statutes
9. Government Subsidies

10. Tax Concessions

11. Safety
12. Overall Cost

Slide 6
Location Factors for Manufacturing Plant
 There is no clear cut best location but rather there are
several good locations, each with its strengths and
weakness & location decision becomes a trade-off
decision. You can gain one type of benefit only by giving
up another.
 In a practical situation, depending on the needs of the
product & the manufacturing process, one or more
factors are considered while deciding the location of a
new factory site.
Slide 7
Relative importance of location factors in the Type of facilities

1. Heavy manufacturing / capital intensive facilities: (1)

near raw material sources, (2) inexpensive land &
construction costs, (3) ease of waste disposal, (4)
availability of an abundant supply of utilities and (5)
proximity of rail road service
2. Light manufacturing facilities: Availability and cost of
labour is important for Items such as electronic
components, small mechanical parts. Transportation
cost is of lesser importance.
Slide 8
Relative importance of location factors in the Type of facilities
3. Warehouses facilities: The dominant factors are those
affecting incoming and outgoing transportation costs
although it is desirable and indeed frequently necessary to
be near enough to markets

4. Retailing facilities: are located near concentrations of

target customers

5. Hospital and emergency: The minimizing of property loss

and loss of life is the overriding consideration in these
locations.

6. Exercise on Importance of factors

Slide 9
Factors relating to Foreign locations

1. Foreign Government: The dominant factors are

Government Policies, Import Restrictions, Currency
Restrictions, Environment Regulations
2. Cultural differences: Living circumstances for foreign
workers, Religion & Traditions
3. Labour & Other Resources: Level of education of
workers, language differences, availability of quality
raw material, infrastructure availability etc.

Slide 10
Methods of Evaluating Location Alternatives

Four major methods are used for solving location problems:

1. Factor rating method:
1. Develop a list of relevant factors called critical success
factors
2. Assign a weight to each factor to reflect its relative
importance in the company’s objective
3. Develop a scale for each factor (for example 1 to 5, 1 to
100)
4. Score each location for each factor using scale in step 3,
5. Multiply the score by the weights for each factor and total
the score for each location
6. Make a recommendation based on the maximum point
score
Slide 11
Methods of Evaluating Location Alternatives

Four major methods are used for solving location problems:

2. Location break even analysis:
1. Determine the fixed and variable cost for each
location,
2. Plot the cost for each location, with cost on the
vertical axis of graph and annual volume on the
horizontal axis,
3. Select the location that has the lowest total cost for
the expected production volume.

Slide 12
Methods of Evaluating Location Alternatives
Four major methods are used for solving location problems:
3. Center-of-gravity method:
 The first step in the center-of-gravity method is to
place the locations on a coordinate system.
 The relative distances are correctly represented by
placing a grid over an ordinary map.
 The center of gravity is determined using appropriate
formulas.
 The Method assumes that cost is directly proportional
to both distance and volume shipped. The ideal
location is that which minimizes the weighted
distance between the warehouse & its retail outlets

Slide 13
Methods of Evaluating Location Alternatives
Four major methods are used for solving location problems:
4. Transportation Model: The objectives of the
transportation Model is to determine the best
pattern of shipments from several sources to
several destinations so as to minimize total
production & transportation cost. Although the
Linear programming technique can be used to
solve this type of problem, more efficient, special
purpose algorithms have been developed for the
transportation application. The transportation
model finds an initial feasible solution and then
makes step-by-step improvement until an optimum
solution is reached.
Slide 14
Thanks and Good Luck

Have a nice Day

Dr. T. T. Kachwala