8-1 Location Planning and Analysis

CHAPTER8

Location Planning and Analysis

8-2 Location Planning and Analysis

Need for Location DecisionsNeed for Location Decisions Marketing Strategy Cost of Doing Business Growth Depletion of Resources

8-3 Location Planning and Analysis

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

ObjectivesObjectives Profit potential No single location may be better than others

OptionsOptions Expand existing facilities Add new facilities Move

8-4 Location Planning and Analysis

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

8-5 Location Planning and Analysis

Location Decision FactorsLocation Decision Factors

1. Regional Factors

3. Site-related Factors

4. Multiple Plant Strategies

2. Community Considerations

8-6 Location Planning and Analysis

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

Regional FactorsRegional Factors

8-7 Location Planning and Analysis

Quality of life Services Attitudes Taxes Environmental regulations Utilities Developer support

Community ConsiderationsCommunity Considerations

8-8 Location Planning and Analysis

Land Transportation Environmental Legal

Site Related FactorsSite Related Factors

8-9 Location Planning and Analysis

Product plant strategy Market area plant strategy Process plant strategy

Multiple Plant StrategiesMultiple Plant Strategies

8-10 Location Planning and AnalysisComparison of Service and Comparison of Service and Manufacturing ConsiderationsManufacturing 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

8-11 Location Planning and Analysis

Evaluating LocationsEvaluating Locations Cost-Profit-Volume Analysis

Determine fixed and variable costs Plot total costs Determine lowest total costs

8-12 Location Planning and Analysis

Example 1: Cost-Volume AnalysisExample 1: Cost-Volume Analysis

Fixed and variable costs of four potential locations for 10,000 units.

Location Fixed Cost

Variable Cost/unit

A B C D

$250,000 100,000 150,000 200,000

$11 30 20 35

8-13 Location Planning and Analysis

Example 1: SolutionExample 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

8-14 Location Planning and Analysis

Example 1: SolutionExample 1: Solution

800700600500400300200100

0

Annual Output (000)

$(000)

8 10 12 14 166420

A

BC

B SuperiorC Superior

A Superior

D

8-15 Location Planning and Analysis

Location Cost-Volume AnalysisLocation Cost-Volume Analysis Assumptions

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