location planning and analysis
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CHAPTER 8 Location Planning and Analysis
CHAPTER 8 Location Planning and Analysis
© 2011 geomentum, inc. all rights reserved.
10 Yards
• Location decisions arise for a variety of reasons:– Addition of new facilities
• As part of a marketing strategy to expand markets
• Growth in demand• Depletion of basic inputs
requires relocation• Shift in markets• Cost of doing business at a
particular location
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The Objectives of Location DecisionsThe Objectives of
Location Decisions
Location decisions for many types of
businesses are made infrequently ,but they
tendTo have a significant
impact on the organization.
Most organization do not set out with
intention of identifying the one
best location: rather, they hope to find a
number of acceptable locations from which
to choose .
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Effect capacity and flexibility
Represent a long-term commitment of resources
Effect investment requirements, operating costs, revenues, and operations
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Impact competitive advantage
Importance to supply chains
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Existing companies generally have four options available in location planning:
1. Expand an existing facility2. Add new locations while
retaining existing facilities3. Shut down one location
and move to another4. Do nothing
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2. Identify important factors, such as location of markets or raw materials
Steps:
3. Develop location alternativesa. Identify the country or countries for locationb. Identify the general region for locationc. Identify a small number of community alternativesd. Identify the site alternatives among the community
alternatives
1. Decide on the criteria to use for evaluating location alternatives.
4. Evaluate the alternatives and make a decision
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•Product plant strategy•Market area plant
strategy•Process plant strategy
•Location of raw materials•Location of markets
•Labor factors•Climate and taxes
•Land•Transportation•Environmental
•Legal
•Quality of life•Services•Attitudes
•Taxes•Environmental regulations
•Utilities •Developer support
COMMUNITY CONSIDERATIONS
REGIONAL FACTORS
MULTIPLE PLANT
STRATEGY SITE-RELATED FACTORS
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A computer based tool for collecting, storing,
retrieving, and displaying demographic data on
maps.
REGIONAL FACTORS
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PRODUCT PLANT STRATEGY
PROCESS PLANT STRATEGY
MARKET AREA PLANT STRATEGY
MULTIPLE PLANT MANUFACTURING STRATEGYMULTIPLE PLANT MANUFACTURING STRATEGY
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•Products or product lines are produced in separate plants, and each plant is usually responsible for supplying the entire domestic market.•It is a decentralized approach as each plant focuses on a narrow set of requirements that includes specialization of labor, materials, and equipment along product lines.•Specialization involved in this strategy usually results in economies of scale and, compared to multipurpose plants, lower operating costs.
•Here, plants are designed to serve a particular geographic segment of a market.•The individual plants can produce either most, or all of the company's products and supply a limited geographical area.•The operating costs of this strategy are often times higher than those of product plants, but savings on shipping costs for comparable products can be made.•This strategy is useful when shipping costs are high due to volume, weight, or other factors.
•Here, different plants concentrate on different aspects of a process.•This strategy is most useful when products have numerous components; separating the production of components results in less confusion than if all the production were done in the same location.•A major issue with this strategy is the coordination of production throughout the system, and it requires a highly informed, centralized administration in order to be an effective operation.
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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
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Two key factors have contributed to the attractiveness of globalization:
- Trade Agreements such as•North American Free Trade Agreement (NAFTA)•General Agreement on Tarriffs and Trade (GATT)•U.S.-China Trade Relations Act•EU and WTO efforts to facilitate trade
- Technology•Advances in communication and information technology
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Other Other Cost
savingsCost
savings
MarketsMarkets
Legal and
regulatoryLegal and
regulatory
Financial Financial
A wide range of benefits have
accrued to organizations that
have globalized operations:
Microfactory
-A small factory with
narrow product
focus, located near
major markets.
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Foreign Government
a. Policies on foreign ownership of production facilities Local Content Import restrictions Currency restrictions Environmental regulations Local product standards
b. Stability issues Cultural Differences
Living circumstances for foreign workers / dependents Religious holidays/traditions
Customer Preferences
Possible buy locally sentiment
Labor Level of training and education of workers Work practices Possible regulations limiting number of foreign employees Language differences
Resources Availability and quality of raw materials, energy, transportation
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Cost-Profit-Volume Analysis
Determine fixed and variable costs
Plot total costs
Determine lowest total costs
Example 1: Cost-Profit-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
-AssumptionsFixed costs are constantVariable costs are linearOutput can be closely estimatedOnly one product involved
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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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800700600500400300200100
0
Annual Output (000)
$(000)
8 10 12 14 166420
A
BC
B SuperiorC Superior
A Superior
D
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© 2011 geomentum, inc. all rights reserved.
From Group 5
for listening!
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