Location Planning and Analysis

8-1
 Need for Location Decisions

 Marketing Strategy
 Cost of Doing Business
 Growth
 Depletion of Resources

8-2
 Nature of Location Decisions
 Strategic Importance of location decisions
 Long term commitment/costs
 Impact on investments, revenues, 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
 Location Options
 Expand existing facilities
 Add new facilities
 Move

8-3
 Making Location Decisions
 Decide on the criteria
 Identify the important factors
 Develop location alternatives
 Evaluate the alternatives
 Identify general region
 Identify a small number of community alternatives
 Identify site alternatives
 Evaluate and make selection

8-4
 Location Decision Factors
Community
Regional Factors Considerations

Multiple Plant Site-related

Strategies Factors

8-5
 a. Regional Factors

 Location of raw materials

 Location of markets
 Labor factors
 Climate and taxes

8-6
 b. Community Considerations
 Quality of life
 Services
 Attitudes
 Taxes
 Environmental regulations
 Utilities
 Developer support

8-7
 c. Site Related Factors

 Land
 Transportation
 Environmental
 Legal

8-8
 d. Multiple Plant Strategies
 Product plant strategy (with this strategy, products are
produced in separate plants and each plant usually supplies the entire
domestic market)
 Market area plant strategy (with this strategy, plants are
designed to serve a particular geographic segment of a market, i.e. the west
coast, the north east)
 Process plant strategy (with this strategy, different plants
concentrate on different aspects of a process, i.e. automobile manufactures)

8-9
 Service and Retail Locations
 Manufacturers – cost focused
 Service and retail – revenue focused
 Traffic volume and convenience most important
 Demographics
 Age
 Income
 Education
 Location (Comparison among locations)
 Good transportation
 Customer safety
8-10
 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
 Evaluating Locations
 Cost-Profit-Volume Analysis
 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
 The Center of movement in a geographic area based on
transport weight and distance.
 This technique is a quantitative method for locating a facility
such as a warehouse

8-12
 Center of Gravity Model
• Linear transportation cost issue
 xi y
y i
x
n n

• Weighted center of gravity model locates facility closest to demand &

supply sites with heaviest annual shipments (reducing distribution costs)

x
 xW i i
y
 yW i i

W i W i

where,
x, y =coordinates of new facility at center of gravity
xi, yi =coordinates of existing facility i
Wi =annual weight shipped from facility i (Quantity)
n = number of facilities
 Center-of-Gravity Technique

 Locate facility at center of movement in geographic

area
 Based on weight (quantity) and distance traveled;
establishes grid-map of area
 Identify coordinates and weights shipped for each
location
 Grid-Map Coordinates
y n n
 xW i i  yW i i

2 (x2, y2), W2 i=1 i=1

y2 x= n y= n
W i W i

1 (x1, y1), W1 i=1 i=1

y1
where,
x, y =coordinates of new
3 (x3, y3), W3 facility at center of gravity
y3 xi, yi =coordinates of existing
facility i
Wi =annual weight shipped
from facility i (Quantity)

x1 x2 x3 x
 Center-of-Gravity Technique: Example
 A burger restaurant purchases ingredients from four different
food suppliers. The company wants to construct a new
central distribution center to process and package the
ingredients before shipping them to their various restaurants.
The locations of the four suppliers A, B, C and D, and annual
numbers of trailers load (quantity) that will be transported to
the distribution center are shown:

8-16
Center-of-Gravity Technique: Example

y A B C D
700 x 200 100 250 500
C y 200 500 600 300
600 (135)
B Wt 75 105 135 60
500 (105)
Miles

400
D
300
A (60)
200 (75)
100

0 100 200 300 400 500 600 700 x

Miles
Center-of-Gravity Technique: Example
(cont.)

n
 xW
i i
i=1 (200)(75) + (100)(105) + (250)(135) + (500)(60)
x= = = 238
n 75 + 105 + 135 + 60
 W
i
i=1

n
 yW
i i
i=1 (200)(75) + (500)(105) + (600)(135) + (300)(60)
y= n
= = 444
75 + 105 + 135 + 60
 W
i
i=1
Center-of-Gravity Technique: Example (cont.)

 Thus, the suggested coordinates for the new

distribution center location are x = 238 and y = 444.
However, it should be kept in mind that these
coordinates are based on straight-line distances,
and in real situation actual roads might follow more
circuitous routes.

8-19
Center-of-Gravity Technique: Example
(cont.)
y A B C D
700 x 200 100 250 500
C y 200 500 600 300
600 (135)
B Wt 75 105 135 60
500 (105)
Center of gravity (238, 444)
Miles

400
D
300
A (60)
200 (75)
100

0 100 200 300 400 500 600 700 x

Miles
8-21