Chapter 8: Location Planning and Analysis

Identify some of the main reasons organizations need to make locations decisions…
Part of a marketing strategy to expand markets
Growth in demand that cannot be satisfied by expanding existing facilities
Depletion of basic inputs requires relocation
Explain why location decisions are important?
Low cost
convenience to attract market share
represent a long term commitment of resources
Discuss the options that are available for location decisions?
expand an existing facility
add new locations while retaining existing facilities
do nothing
Give examples of the major factors that affect locations decision
Trade agreements – NAFTA, GATT
Outline the decision the decision process for making these kinds of decision?
1 Decide on the criteria to use for evaluating location alternatives
2. Identify the country or countries for location
3 Identify a small number of community alternatives
Use the technique presented to solve typical problems?
Global location: Benefits
markets, cost savings, legal and regulatory, financial,
Disadvantages of Global ……
transportation costs, security costs, unskilled labor, import restrictions
Risks involved in Global ……
political instability and unrest, terrorism, economic instability, legal regulation, ethical considerations
Global operations……
risk of communication, development of trust, different management styles, corruption and bribery, increased travel costs
How to identify a region ….
location of raw materials is necessity, perishability, transportation costs, location of markets, attitude toward work, labor productivity
How to identify a community…..
quality of life, services, taxes
Identifying a site…..
land, zoning, other restrictions
Multiple plant manufacturing strategies…..
organizing operations, market area plant strategy, process plant strategy, general purpose, plant strategy
geographic information systems….
GIS – computer based tool for collecting storing, retrieving and displaying demographic data on maps, portraying relevant information on a map makes it easier for decision makers to understand
Service and Retail locations…..
nearness to raw materials is not usually a consideration, customer access is a prime consideration for some restaurants, hotels, etc
Tend to be profit or revenue driven and so are clustering
Evaluating location alternatives….
transportation model,
factor rating,
center of gravity method
Locational cost profit volume analysis….
Determine the fixed and variable costs for each alternative
Plot the total cost lines for all alternatives on the same graph
Location cost profit volume analysis…
Assume that fixed cost are constant for the range of probable output

variable costs are linear for the range of probably output

Only one product is involved

Location cost profit volume analysis……continues
Total cost = FC + V * Q
Factor Rating ………
general approach to evaluating locations that includes quantitative and qualitative inputs

Procedure: determine which factors are relevant,
assign a weight to each factor that indicates its relative importance compared with all other factors,

decide on a common scale for all factors and set a minimum acceptable score

Center of gravity method….
treats distribution cost as a linear function of the distance and quantity shimmed
the quantity to be shipped to each destination is assumed to be fixed
the method includes the use of a map that shows the locations of destinations
COG continues….
when the quantities to be shipped to every location are unequal, you can obtain the coordinates of the center of gravity by finding the weighted average of the x coordinates and the average of the y coordinates.
A “micro” factory is a small automated facility with a narrow product focus located near major markets.
Retail businesses generally prefer locations that are not near other retailers, as this reduces their competition.
Location choice I has monthly fixed costs of $100,000 and per-unit variable costs of $10. Location choice J has monthly fixed costs of $150,000 and per-unit variable costs of $9. At what volume would these locations have equal total costs?
In location planning, the location of raw materials, the location of markets, and labor factors are:
regional factors
Global Positioning Systems (GPS) use the Center of Gravity method to establish starting grid co-ordinates.
Nearness to raw materials would be most important to a …
manufacturing company
You can’t make a mistake by locating where labor costs are low.
For service organizations, the dominant factors in location analysis usually are market-related
Which of the following is the last step in the procedure for making location decisions?
evaluate alternatives and make a selection
For service and retail stores, a prime factor in location analysis is customer access
Location choice I has monthly fixed costs of $100,000 and per-unit variable costs of $10. What would its total cost be at a monthly volume of 550 units?
The method for evaluating location alternatives which minimizes shipping costs between multiple sending and receiving locations is
transportation model analysis
One of the reasons for the importance of location decisions is its strategic importance to the supply chains.
Some communities offer financial and other incentives to ______ new businesses.
Which of the following is not a location option that management can consider in location planning?
e) all are possible options
The fact that most types of firms are located in every section of the country suggests that in many cases, location decisions are not overly important; one location typically is as good as another.
Location decisions are closely tied to an organization’s strategies.
Location decisions are basically one-time decisions usually made by new organizations.
Advanced communications has aided globalization.
The center of gravity method is a location planning technique that determines a composite score from weighted factor evaluation.
Which of the following circumstances would be least likely to lead to a need for a new location?
Growth in demand that is leading to greater utilization of existing capacity.
Facilities, personnel and operations that are located around the world are called:
The lower cost of foreign labor is often offset by lower levels of productivity.
Web-based, retail businesses should be located near the customer to reduce their long distance phone charges.
Location choice I has monthly fixed costs of $100,000 and per-unit variable costs of $10. What would its total cost be at a monthly volume of 250 units?