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Chapter8LocationPlanningandAnalysisTheNeedforLocationDecisionsLocationdecisionsariseforavarietyofreasons:AdditionofnewfacilitiesAspartofamarketingstrategytoexpandmarketsGrowthindemandthatcannotbesatisfiedbyexpandingexistingfacilitiesDepletionofbasicinputsrequiresrelocationShiftinmarketsCostofdoingbusinessataparticularlocationmakesrelocationattractiveLocationDecisions:StrategicallyImportantLocationdecisions:Arecloselytiedtoanorganization’sstrategiesLow-costConveniencetoattractmarketshareEffectcapacityandflexibilityRepresentalong-termcommitmentofresourcesEffectinvestmentrequirements,operatingcosts,revenues,andoperationsImpactcompetitiveadvantageImportancetosupplychainsLocationDecisions:ObjectivesLocationdecisionsarebasedon:ProfitpotentialorcostandcustomerserviceFindinganumberofacceptablelocationsfromwhichtochoosePositioninthesupplychainEnd:accessibility,consumerdemographics,trafficpatterns,andlocalcustomsareimportantMiddle:locatenearsuppliersormarketsBeginning:locatenearthesourceofrawmaterialsWeb-basedretailorganizationsareeffectivelylocationindependentSupplychainmanagementissuessuchassupplychainconfigurationCentralizedvs.decentralizeddistributionLocation:OptionsExistingcompaniesgenerallyhavefouroptionsavailableinlocationplanning:ExpandanexistingfacilityAddnewlocationswhileretainingexistingfacilitiesShutdownonelocationandmovetoanotherDonothingLocationDecision:GeneralProcedureSteps:DecideonthecriteriatouseforevaluatinglocationalternativesIdentifyimportantfactors,suchaslocationofmarketsorrawmaterialsDeveloplocationalternativesIdentifythecountryorcountriesforlocationIdentifythegeneralregionforlocationIdentifyasmallnumberofcommunityalternativesIdentifythesitealternativesamongthecommunityalternativesEvaluatethealternativesandmakeadecisionGlobalLocation:FacilitatingFactorsTwokeyfactorshavecontributedtotheattractivenessofglobalization:TradeAgreementssuchasNorthAmericanFreeTradeAgreement(NAFTA)GeneralAgreementonTarriffsandTrade(GATT)U.S.-ChinaTradeRelationsActEUandWTOeffortstofacilitatetradeTechnologyAdvancesincommunicationandinformationtechnologyGlobalLocation:BenefitsAwiderangeofbenefitshaveaccruedtoorganizationsthathaveglobalizedoperations:MarketsCostsavingsLegalandregulatoryFinancialOtherGlobalLocation:DisadvantagesThereareanumberofdisadvantagesthatmayarisewhenlocatingglobally:TransportationcostsSecuritycostsUnskilledlaborImportrestrictionsCriticismforlocatingout-of-countryGlobalLocation:RisksOrganizationslocatinggloballyshouldbeawareofpotentialriskfactorsrelatedto:PoliticalinstabilityandunrestTerrorismEconomicinstabilityLegalregulationEthicalconsiderationsCulturaldifferencesManagingGlobalOperationsManagerialimplicationsforglobaloperations:LanguageandculturaldifferencesRiskofmiscommunicationDevelopmentoftrustDifferentmanagementstylesCorruptionandbriberyLeveloftechnologyandresistancetotechnologicalchangeDomesticpersonnelmayresistlocating,eventemporarilyLocation:IdentifyingaCountryLocation:IdentifyingaRegionPrimaryregionalfactors:LocatingneartherawmaterialsNecessityPerishabilityTransportationcostsLocatingnearofmarketsAspartofaprofit-orientedcompany’scompetitivestrategySonot-for-profitscanmeettheneedsoftheirserviceusersDistributioncostsandperishabilityLocation:IdentifyingaRegion(contd.)LaborfactorsCostoflaborAvailabilityofsuitablyskilledworkersWageratesintheareaLaborproductivityAttitudestowardworkWhetherunionsposeaseriouspotentialproblemOtherfactorsClimateandtaxesmayplayanimportantroleinlocationdecisionsGeographicInformationSystem(GIS)GISAcomputer-basedtoolforcollecting,storing,retrieving,anddisplayingdemographicdataonmapsAidsdecisionmakersinTargetingmarketsegmentsIdentifyinglocationsrelativetotheirmarketpotentialPlanningdistributionnetworksPortrayingrelevantinformationonamapmakesiteasierfordecisionmakerstounderstandLocation:IdentifyingaCommunityManycommunitiesactivelyattempttoattractnewbusinessestheyperceivetobeagoodfitforthecommunityBusinessesalsoactivelyseekattractivecommunitiesbasedonsuchfactorssuchas:QualityoflifeServicesAttitudesTaxesEnvironmentalregulationsUtilitiesDevelopmentsupportLocation:IdentifyingaSitePrimarysitelocationconsiderationsareLandTransportationZoningOtherrestrictionsMultiplePlantManufacturingStrategiesOrganizingoperationsProductplantstrategyEntireproductsorproductlinesareproducedinseparateplants,andeachplantusuallysuppliestheentiredomesticmarketMarketareaplantstrategyPlantsaredesignatedtoserveaparticulargeographicsegmentofthemarketPlantsproducemost,ifnotall,ofacompany’sproductsMultiplePlantManufacturingStrategiesOrganizingoperationsProcessplantstrategyDifferentplantsfocusondifferentaspectsofaprocessautomobilemanufacturers–engineplant,bodystampingplant,etc.CoordinationacrossthesystembecomesasignificantissueGeneral-purposeplantstrategyPlantsareflexibleandcapableofhandlingarangeofproductsServiceandRetailLocationsConsiderations:NearnesstorawmaterialsisnotusuallyaconsiderationCustomeraccessisaPrimeconsiderationforsome:restaurants,hotels,etc.Notanimportantconsiderationforothers:servicecallcenters,etc.Tendtobeprofitorrevenuedriven,andsoareConcernedwithdemographics,competition,traffic/volumepatterns,andconvenienceEvaluatingLocationAlternativesCommontechniques:Locationalcost-volume-profitanalysisFactorratingCenterofgravitymethodTransportationmodelLocationalCost-Profit-VolumeAnalysisLocationalCost-Profit-VolumeAnalysisTechniqueforevaluatinglocationchoicesineconomictermsSteps:DeterminethefixedandvariablecostsforeachalternativePlotthetotal-costlinesforallalternativesonthesamegraphDeterminethelocationthatwillhavethelowesttotalcost(orhighestprofit)fortheexpectedlevelofoutputLocationalCost-Profit-VolumeAnalysisAssumptionsFixedcostsareconstantfortherangeofprobableoutputVariablecostsarelinearfortherangeofprobablyoutputTherequiredlevelofoutputcanbecloselyestimatedOnlyoneproductisinvolvedLocationalCost-Profit-VolumeAnalysisForacostanalysis,computethetotalcostforeachalternativelocation:Example:Cost-Profit-VolumeAnalysisFixedandvariablecostsforfourpotentialplantlocationsareshownbelow:LocationFixedCostperYearVariableCostperUnitA$250,000$11B$100,000$30C$150,000$20D$200,000$35Example:Cost-Profit-VolumeAnalysisExample:Cost-Profit-VolumeAnalysisBSuperiorCSuperiorASuperiorExample:Cost-Profit-VolumeAnalysisRangeapproximationsBSuperior(upto4,999units)CSuperior(>5,000to11,111units)Asuperior(11,112unitsandup)FactorRatingFactorRatingGeneralapproachtoevaluatinglocationsthatincludesquantitativeandqualitativeinputsFactorRatingProcedure:DeterminewhichfactorsarerelevantAssignaweighttoeachfactorthatindicatesitsrelativeimportancecomparedwithallotherfactors.Weightstypicallysumto1.00Decideonacommonscaleforallfactors,andsetaminimumacceptablescoreifnecessaryScoreeachlocationalternativeMultiplythefactorweightbythescoreforeachfactor,andsumtheresultsforeachlocationalternativeChoosethealternativethathasthehighestcompositescore,unlessitfailstomeettheminimumacceptablescoreExample:FactorRatingAphoto-processingcompanyintendstoopenanewbranchstore.Thefollowingtablecontainsinformationontwopotentiallocations.Whichisbetter?Scores(Outof100)FactorWeightAlt1Alt2Proximitytoexistingsource.1010060Trafficvolume.058080Rentalcosts.407090Size.108692Layout.204070OperatingCost.1580901.00Example:FactorRatingAphoto-processingcompanyintendstoopenanewbranchstore.Thefollowingtablecontainsinformationontwopotentiallocations.Whichisbetter?Scores(Outof100)WeightedScoresFactorWeightAlt1Alt2Alt1Alt2Proximitytoexistingsource.1010060.10(100)=10.0.10(60)=6.0Trafficvolume.058080.05(80)=4.0.05(80)=4.0Rentalcosts.407090.40(70)=28.0.40(90)=36.0Size.108692.10(86)=8.6.10(92)=9.2Layout.204070.20(40)=8.0.20(70)=14.0OperatingCost.158090.15(80)=12.0.15(90)=13.51.0070.682.7CenterofGravityMethodCenterofGravityMethodMethodforlocatingadistributioncenterthatminimizesdistributioncostsTreatsdistributioncostsasalinearfunctionofthedistanceandthequantityshippedThequantitytobeshippedtoeachdestinationisassumedtobefixedThemethodincludestheuseofamapthatshowsthelocationsofdestinationsThemapmustbeaccurateanddrawntoscaleAcoordinatesystemisoverlaidonthemaptodeterminerelativelocationsCenterofGravityMethodCenterofGravityMethodIfquantitiestobeshippedtoeverylocationareequal,youcanobtainthecoordinatesofthecenterofgravitybyfindingtheaverageofthex-coordinatesan
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