LOCATION THEORY Obaid Ali Fatima Aftab Andleeb Pervaiz

LOCATION THEORY Obaid Ali Fatima Aftab Andleeb Pervaiz Danish Mehr Abrar Khan Manzoor Hussain Sundas Liaqat

FACILITY LOCATION Once a firm has decided to open a new facility OR relocate an existing facility, It must decide where that facility should be located.

FACILITY LOCATION �Facility location problem involves the evaluation of various sites for a new facility. �There are several factors that influence the Facility Location Decision:

INTRUSTRIAL LOCATION DECISIONS Primary Location Factors � Labor � Energy Resources � Transportation � Proximity to market for output � Government regulation � Raw material availability Secondary Location Factors � Physical Environment � State and local Government attitude and policies

Factors Related to Resources �Labor availability, Labor cost, Labor Skills; �Materials Availability, Material cost, material quality; �Equipment availability, Equipment Cost; �Land availability, Land suitability, Land cost; �Energy availability, energy cost; �Water availability, water quality, water cost.

Profitability analysis at each potential site ATTRACTIVENESS OF AREA Input costs and availability Labor, capital, energy and raw material Proximity to national and regional markets Transportation availability Government influences Taxes and tax rates Labor union influence CHARACTERISTICS OF THE PLANT Market orientation Regional, National, International Production Process Skill level needed Transportation requirements Mission of plant Profit or cost center Growth rate and volume Location Decisions

LOCATION � Most of the Facility Location factors vary with time: �The accelerated changes in the economic environment are impacting the frequency of Facility Location decisions. � Changes in the economic environment: � International level competition among companies. � Appearance of new markets and unification of others. � Increase of competition pressure. � Logistics factors are more important and complex. � Companies are reviewing their facility locations in order not to loose competitiveness.

�Changes in the economic environment: �Industry processes automation. �Labor qualification, flexibility and mobility has become more important factors. �However, labor costs are still a main factor in some industries and in certain manufacturing processes of others: Relocation to Mexico, Taiwan, Singapore, India, China, etc.

Factors Related to the Market Proximity to the firm’s market, size of the market, potential needs of the market.

Factors Related to the Infrastructure �Availability of Financial Institutions, Strength of Financial Institutions �Government Stability, Government taxes, Import and Export restrictions. �Quality of life, Cultural issues, �Environmental regulations, Transportation availability, Transportation cost �And finally, Competitors’ size, strength and attitude in that region.

Locating Firm In Global Economy �Raw material supplies �Extending market power �Comparative advantage

FACILITY LOCATION �There are many analytical techniques that can be used in facility location decision. �Some of these are: 1) Factor Rating 2) Cost-Profit-Volume analysis 3) Center of Gravity Method, etc

Example �The firm is considering 2 alternative sites for its new facility, France and Denmark �After evaluating the firm’s Needs, the Managers have Narrowed the list of Important Selection Criteria down into 5 major Factors. �Labor availability and attitude �People to car ratio �Per capita income �Tax structure �Education and Health

Factor Rating Example �Since factor weights, selected factors, and assigned scores are all determined subjectively, the managers should be very careful in selecting these items and numbers.

Cost-Profit-Volume Analysis

Cost-Profit-Volume Analysis

Cost-Profit-Volume Analysis Since Bowling Green has the lowest Total Cost at the volume being produced, it will be chosen as the site of new facility

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