Location Planning and Analysis Learning Objectives

Location Planning and Analysis

Learning Objectives § § § List some of the main reasons organizations need to make location decisions. Explain why location decisions are important. Discuss the options that are available for location decisions. Describe some of the major factors that affect location decisions. Outline the decision process for making these kinds of decisions. Use the techniques presented to solve typical problems. 2

Needs for Location Decisions § Marketing Strategy § Cost of Doing Business § Growth § Depletion of Resources 3

Nature of Location Decisions § Strategic Importance of location decisions § § § Long term commitment/costs Impact on investments, revenues, and operations Supply chains § Objectives of location decisions § § § Profit potential No single location may be better than others Identify several locations from which to choose § Location Options § § § Expand existing facilities Add new facilities Move 4

Making Location Decisions § § Decide on the criteria Identify the important factors Develop location alternatives Evaluate the alternatives § Identify general region § Identify a small number of community alternatives § Identify site alternatives § Evaluate and make selection 5

Regional Factors § § Location of raw materials Location of markets Labor factors Climate and taxes 6

Community Considerations § § § § Quality of life Services Attitudes Taxes Environmental regulations Utilities Developer support 7

Site Related Factors § § Land Transportation Environmental Legal 8

Multiple Plant Strategies § Product plant strategy § Market area plant strategy § Process plant strategy 9

Service and Retail Locations § Manufacturers – cost focused § Service and retail – revenue focused § Traffic volume and convenience most important § Demographics § Age § Income § Education § Location, location § Good transportation § Customer safety 10

Comparison of Service and Manufacturing Considerations Manufacturing/Distribution Service/Retail Cost Focus Revenue focus Transportation model/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 11

Trends in Locations § Foreign producers locating in Developed countries. § “Made in USA” § Currency fluctuations § Just-in-time manufacturing techniques § Microfactories § Information Technology 12

Globalization § Facilitating Factors § Trade agreements § Technology § Benefits § § Markets Cost savings Legal and regulatory Financial 13

Globalization § Disadvantages § § § Transportation costs Security Unskilled labor Import restrictions Criticisms § Risks § § Political Terrorism Legal Cultural 14

Evaluating Locations § Cost-Profit-Volume Analysis § Determine fixed and variable costs § Plot total costs § Determine lowest total costs 15

Location Cost-Volume Analysis § Assumptions § § Fixed costs are constant Variable costs are linear Output can be closely estimated Only one product involved 16

Example 1: Cost-Volume Analysis Fixed and variable costs for four potential locations 17

Example 1: Solution $(000) 800 700 600 500 400 300 200 100 0 D B C A A Superior C Superior B Superior 0 2 4 6 8 10 12 14 16 Annual Output (000) 18

Evaluating Locations § Transportation Model § Decision based on movement costs of raw materials or finished goods § Factor Rating § Decision based on quantitative and qualitative inputs § Center of Gravity Method § Decision based on minimum distribution costs 19

Factor-Rating Example Critical Success Factor Labor availability and attitude People-to car ratio Per capita income Tax structure Education and health Totals Scores (out of 100) Weight France Denmark Weighted Scores France Denmark . 25 70 60 . 05 50 60 . 10. 39 85 75 80 70 (. 10)(85) = 8. 5 (. 10)(80) = 8. 0 (. 39)(75) = 29. 3 (. 39)(70) = 27. 3 . 21 60 70 (. 21)(60) = 12. 6 (. 21)(70) = 14. 7 1. 00 (. 25)(70) = 17. 5 (. 25)(60) = 15. 0 (. 05)(50) = 2. 5 70. 4 (. 05)(60) = 3. 0 68. 0 20

Center-of-Gravity Method x - coordinate = ∑dix. Qi i ∑Qi i y - coordinate = ∑diy. Qi i ∑Qi i where dix = x-coordinate of location i diy = y-coordinate of location i Qi = Quantity of goods moved to or from location i 21

Center-of-Gravity Method North-South New York (130, 130) Chicago (30, 120) 120 – Pittsburgh (90, 110) 90 – 60 – 30 – | – Atlanta (60, 40) | 30 Arbitrary origin | | 60 90 120 150 East-West 22

Center-of-Gravity Method Number of Containers Store Location Shipped per Month Chicago (30, 120) 2, 000 Pittsburgh (90, 110) 1, 000 New York (130, 130) 1, 000 Atlanta (60, 40) 2, 000 (30)(2000) + (90)(1000) + (130)(1000) + (60)(2000) x-coordinate = 2000 + 1000 + 2000 = 66. 7 (120)(2000) + (110)(1000) + (130)(1000) + (40)(2000) y-coordinate = 2000 + 1000 + 2000 = 93. 3 23

Center-of-Gravity Method North-South New York (130, 130) Chicago (30, 120) 120 – Pittsburgh (90, 110) + 90 – Center of gravity (66. 7, 93. 3) 60 – 30 – | – Atlanta (60, 40) | 30 Arbitrary origin | | 60 90 120 150 East-West 24

Requirements for Transportation Model § List of origins and each one’s capacity § List of destinations and each one’s demand § Unit cost of shipping 25

Transportation Model Assumptions 1. Items to be shipped are homogeneous 2. Shipping cost per unit is the same 3. Only one route between origin and destination 26

The Transportation Problem D (demand) S (supply) D (demand) 27

A Transportation Table A Factory Warehouse C B 4 D 7 7 1 100 1 3 12 8 8 200 2 10 8 16 5 150 3 Demand Factory 1 can supply 100 units period 80 90 120 Warehouse B can use 90 units period 160 Total supply 450 capacity per 450 period Total demand period 28

Excel Template 29

Special Problems § Unequal supply and demand § Dummy: Imaginary number added equal to the difference between supply and demand when these are unequal 30