CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS Chapter 8

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS Chapter 8 Location Planning and Analysis Irwin/Mc. Graw-Hill ©The Mc. Graw-Hill Companies, Inc. , 1999 8 -1

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS Need for Location Decisions • Marketing Strategy • Growth • Depletion of Resources • Cost of Doing Business Irwin/Mc. Graw-Hill ©The Mc. Graw-Hill Companies, Inc. , 1999 8 -2

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS Nature of Location Decisions • Importance – Long term commitment/costs • Objectives – Profit potential • Options Expand existing facilities – Add new facilities – Shut down at one location and Move to another ©The Mc. Graw-Hill Companies, Inc. , 1999 Irwin/Mc. Graw-Hill – 8 -3

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS General procedure for location decision making • Decide the criteria for evaluating location alternatives: ex) increased revenues, community service • Identify important factors: ex) market location, raw materials • Develop location alternatives • Evaluate the alternatives and make a Irwin/Mc. Graw-Hill selection 8 -4 ©The Mc. Graw-Hill Companies, Inc. , 1999

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS Location Decision Factors Regional Factors Community Considerations Multiple Plant Strategies Site-related Factors Irwin/Mc. Graw-Hill ©The Mc. Graw-Hill Companies, Inc. , 1999 8 -5

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS Regional factors 1) Location of raw materials 3 reasons firms locate near the source of raw materials • necessity: mining, farming, forest • perishability: canning or freezing fruits, dairy products • transportation cost: cheese making, paper production Irwin/Mc. Graw-Hill ©The Mc. Graw-Hill Companies, Inc. , 1999 8 -6

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS Regional factors 2) Location of markets • Retail sales and services are usually found near the center of the markets they serve: ex) fast food • Distribution cost associated with their products is the main factor Irwin/Mc. Graw-Hill ©The Mc. Graw-Hill Companies, Inc. , 1999 8 -7

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS Regional factors 3) Labor factors • Labor costs • Employees skills • Workers attitudes toward turnover, absenteeism, may differ among potential locations Irwin/Mc. Graw-Hill ©The Mc. Graw-Hill Companies, Inc. , 1999 8 -8

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS Regional factors 4) Other factors • Climate, taxes • Many developing countries offer an abundant supply of cheap labor • International locations Irwin/Mc. Graw-Hill ©The Mc. Graw-Hill Companies, Inc. , 1999 8 -9

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS Community considerations • Community resistance to airport expansion, changes in zoning, construction of nuclear facility • From a company standpoint, facilities for education, shopping, recreation, transportation Irwin/Mc. Graw-Hill ©The Mc. Graw-Hill Companies, Inc. , 1999 8 -10

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS Site-related factors • Primary consideration: land, transportation, zoning • Land costs, room for future expansion, etc. Irwin/Mc. Graw-Hill ©The Mc. Graw-Hill Companies, Inc. , 1999 8 -11

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS Multiple Plant Manufacturing Strategies 1) Product plant strategy • entire products or product lines are produced in separate plants 2) Market area plant strategy • plants are designed to serve a particular geographic segment of a market 3) Process plant strategy Irwin/Mc. Graw-Hill ©The Mc. Graw-Hill Companies, Inc. , 1999 8 -12

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS Multiple Plant Manufacturing Strategies 3) Process plant strategy • different plants concentrate on different aspects of a process: ex)auto: different plants for engines, transmissions, body, etc. Irwin/Mc. Graw-Hill ©The Mc. Graw-Hill Companies, Inc. , 1999 8 -13

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS Trends in Locations • Foreign producers locating in U. S. – “Made in USA” – Currency fluctuations • Just-in-time manufacturing techniques • Microfactories • Information highway Irwin/Mc. Graw-Hill ©The Mc. Graw-Hill Companies, Inc. , 1999 8 -14

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS Evaluating Locations • Cost-volume Analysis – Determine fixed and variable costs – Plot total costs – Determine lowest total costs Irwin/Mc. Graw-Hill ©The Mc. Graw-Hill Companies, Inc. , 1999 8 -15

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS Example 1: Cost-Volume Analysis Fixed and variable costs for four potential locations Irwin/Mc. Graw-Hill ©The Mc. Graw-Hill Companies, Inc. , 1999 8 -16

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS Example 1: Solution Irwin/Mc. Graw-Hill ©The Mc. Graw-Hill Companies, Inc. , 1999 8 -17

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS Example 1: Solution $(000) 800 700 600 500 400 300 200 100 0 0 D B C A A Superior C Superior B Superior 2 4 6 8 10 12 14 16 Annual Output (000) Irwin/Mc. Graw-Hill ©The Mc. Graw-Hill Companies, Inc. , 1999 8 -18

CHAPTER EIGHT LOCATION PLANNING AND ANALYSIS 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 Irwin/Mc. Graw-Hill ©The Mc. Graw-Hill Companies, Inc. , 1999 8 -19

Table 8 -2 LOCATION Irwin/Mc. Graw-Hill CHAPTER EIGHT PLANNING AND ANALYSIS ©The Mc. Graw-Hill Companies, Inc. , 1999 8 -20