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CHAPTER EIGHT

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LOCATION PLANNING AND ANALYSIS

8-1

Location Planningand Analysis

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Need for Location Decisions

•Marketing Strategy

•Growth

•Depletion of Resources

•Cost of Doing Business

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Nature of Location Decisions

•Importance –Long term commitment/costs

•Objectives –Profit potential

•Options –Expand existing facilities

 – Add new facilities

 –Shut down at one location and Move toanother

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General procedure for locationdecision making

•Decide the criteria for evaluating location

alternatives: ex) increased revenues,community service

•Identify important factors: ex) marketlocation, raw materials

• Develop location alternatives

•Evaluate the alternatives and make aselection

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LOCATION PLANNING AND ANALYSIS

8-5

Location Decision Factors

Regional Factors

Site-related FactorMultiple Plant Strategies

Community Consideration

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Regional factors

1) Location of raw materials

 3 reasons firms locate near the source

of raw materials•necessity: mining, farming, forest

•perishability: canning or freezing

fruits, dairy products•transportation cost: cheese making,paper production

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The McGraw-Hill Companies, Inc.,1999

LOCATION PLANNING AND ANALYSIS

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Regional factors

2) Location of markets

•Retail sales and services are usually

found near the center of the marketsthey serve: ex) fast food

•Distribution cost associated with

their products is the main factor

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The McGraw-Hill Companies, Inc.,1999

LOCATION PLANNING AND ANALYSIS

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Regional factors

3) Labor factors

•Labor costs

•Employees skills• Workers attitudes toward turnover,absenteeism, may differ among

potential locations

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The McGraw-Hill Companies, Inc.,1999

LOCATION PLANNING AND ANALYSIS

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Regional factors

4) Other factors

•Climate, taxes

•Many developing countries offer anabundant supply of cheap labor

•International locations

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The McGraw-Hill Companies, Inc.,1999

LOCATION PLANNING AND ANALYSIS

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Community considerations

•Community resistance to airportexpansion, changes in zoning,

construction of nuclear facility•From a company standpoint,facilities for education, shopping,

recreation, transportation

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The McGraw-Hill Companies, Inc.,1999

LOCATION PLANNING AND ANALYSIS

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Site-related factors

•Primary consideration: land,transportation, etc.

•Land costs, room for futureexpansion, etc.

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The McGraw-Hill Companies, Inc.,1999

LOCATION PLANNING AND ANALYSIS

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Evaluating Locations

•Cost-volume Analysis

 –Determine fixed and variable costs

 –Plot total costs

 –Determine lowest total costs

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LOCATION PLANNING AND ANALYSIS

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Example 1: Cost-Volume Analysis

Fixed and variable costs forfour potential locations

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Example 1: Solution

800700600500400300200

1000

Annual Output (000)

8 10 12 14 166420

$(000)

A

B

C

B Superior 

C Superior 

A Superior 

D

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The McGraw-Hill Companies, Inc.,1999

LOCATION PLANNING AND ANALYSIS

8-16

Evaluating Locations

•Transportation Model –Decision based on movement costs of raw materials orfinished goods

•Factor Rating –Decision based on quantitative and qualitative inputs

•Center of Gravity Method –Decision based on minimum distribution costs

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