S P CHHEDA & CO

8-1 Location Planning and Analysis

William J. Stevenson

Operations Management

8th edition

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8-2 Location Planning and Analysis

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8-3 Location Planning and Analysis

Need for Location Decisions

Marketing Strategy

Cost of Doing Business

Growth

Depletion of Resources

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8-4 Location Planning and Analysis

Nature of Location Decisions

Strategic Importance Long term commitment/costs Impact on investments, revenues, and operations Supply chains

Objectives Profit potential No single location may be better than others Identify several locations from which to choose

Options Expand existing facilities Add new facilities Move

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8-5 Location Planning and Analysis

Making Location Decisions Decide on the criteria Identify the important factors Develop location alternatives Evaluate the alternatives Make selection

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8-6 Location Planning and Analysis

Location Decision FactorsRegional Factors

Site-related Factors

Multiple Plant Strategies

Community Considerations

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8-7 Location Planning and Analysis

Location of raw materials Location of markets Labor factors Climate and taxes

Regional Factors

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8-8 Location Planning and Analysis

Quality of life Services Attitudes Taxes Environmental regulations Utilities Developer support

Community Considerations

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8-9 Location Planning and Analysis

Land Transportation Environmental Legal

Site Related Factors

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8-10 Location Planning and Analysis

Product plant strategy Market area plant strategy Process plant strategy

Multiple Plant Strategies

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8-11 Location Planning and AnalysisComparison 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

Table 8.2

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8-12 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 Technology

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8-13 Location Planning and Analysis

ForeignGovernment

a. Policies on foreign ownership of production facilitiesLocal ContentImport restrictionsCurrency restrictionsEnvironmental regulationsLocal product standards

b. Stability issuesCulturalDifferences

Living circumstances for foreign workers / dependentsReligious holidays/traditions

CustomerPreferences

Possible buy locally sentiment

Labor Level of training and education of workersWork practicesPossible regulations limiting number of foreign employeesLanguage differences

Resources Availability and quality of raw materials, energy,transportation

Table 8.3

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8-14 Location Planning and Analysis

Evaluating Locations

Cost-Profit-Volume Analysis Determine fixed and variable costs

Plot total costs

Determine lowest total costs

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8-15 Location Planning and Analysis

Location Cost-Volume Analysis Assumptions

Fixed costs are constant Variable costs are linear Output can be closely estimated Only one product involved

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8-16 Location Planning and AnalysisExample 1: Cost-Volume Analysis

Fixed and variable costs for four potential locations

L o c a t i o n F i x e dC o s t

V a r i a b l eC o s t

ABCD

$ 2 5 0 , 0 0 01 0 0 , 0 0 01 5 0 , 0 0 02 0 0 , 0 0 0

$ 1 13 02 03 5

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8-17 Location Planning and Analysis

Example 1: Solution

F i x e dC o s t s

V a r i a b l eC o s t s

T o t a lC o s t s

ABCD

$ 2 5 0 , 0 0 01 0 0 , 0 0 01 5 0 , 0 0 02 0 0 , 0 0 0

$ 1 1 ( 1 0 , 0 0 0 )3 0 ( 1 0 , 0 0 0 )2 0 ( 1 0 , 0 0 0 )3 5 ( 1 0 , 0 0 0 )

$ 3 6 0 , 0 0 04 0 0 , 0 0 03 5 0 , 0 0 05 5 0 , 0 0 0

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8-18 Location Planning and Analysis

Example 1: Solution

800700600500400300200100

0

Annual Output (000)

$(000)

8 10 12 14 166420

A

BC

B SuperiorC Superior

A Superior

D

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8-19 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