8-1 Location Planning and Analysis
Operations Management
William J. Stevenson
8th edition
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8-2 Location Planning and Analysis
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8-3 Location Planning and Analysis
Need for Location Decisions
Marketing Strategy
Cost of Doing Business
Growth
Depletion of Resources
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8-4 Location Planning and Analysis
Nature of Location Decisions
Strategic Importance
Long term commitment/costs
Impact on investments, revenues, and operations
Supply chains
Objectives
Profit potential
No single location may be better than others
Identify several locations from which to choose
Options
Expand existing facilities
Add new facilities
Move
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8-5 Location Planning and Analysis
Making Location Decisions
Decide on the criteria
Identify the important factors
Develop location alternatives
Evaluate the alternatives
Make selection
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8-6 Location Planning and Analysis
Location Decision Factors
Community
Regional Factors Considerations
Multiple Plant Site-related
Strategies Factors
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8-7 Location Planning and Analysis
Regional Factors
Location of raw materials
Location of markets
Labor factors
Climate and taxes
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8-8 Location Planning and Analysis
Community Considerations
Quality of life
Services
Attitudes
Taxes
Environmental regulations
Utilities
Developer support
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8-9 Location Planning and Analysis
Site Related Factors
Land
Transportation
Environmental
Legal
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8-10 Location Planning and Analysis
Multiple Plant Strategies
Product plant strategy
Market area plant strategy
Process plant strategy
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Comparison of Service and
8-11 Location Planning and Analysis
Manufacturing Considerations
Table 8.2
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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8-12 Location Planning and Analysis
Trends in Locations
Foreign producers locating in U.S.
“Made in USA”
Currency fluctuations
Just-in-time manufacturing techniques
Microfactories
Information Technology
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8-13 Location Planning and Analysis
Table 8.3
Foreign a. Policies on foreign ownership of production facilities
Government Local Content
Import restrictions
Currency restrictions
Environmental regulations
Local product standards
b. Stability issues
Cultural Living circumstances for foreign workers / dependents
Differences Religious holidays/traditions
Customer Possible buy locally sentiment
Preferences
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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8-14 Location Planning and Analysis
Evaluating Locations
Cost-Profit-Volume Analysis
Determine fixed and variable costs
Plot total costs
Determine lowest total costs
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8-15 Location Planning and Analysis
Location Cost-Volume Analysis
Assumptions
Fixed costs are constant
Variable costs are linear
Output can be closely estimated
Only one product involved
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8-16 Location Planning and Analysis
Example 1: Cost-Volume Analysis
Fixed and variable costs for
four potential locations
L o c a tio n F ix e d V a r ia b le
C o s t C o s t
A $ 2 5 0 ,0 0 0 $ 1 1
B 1 0 0 ,0 0 0 3 0
C 1 5 0 ,0 0 0 2 0
D 2 0 0 ,0 0 0 3 5
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8-17 Location Planning and Analysis
Example 1: Solution
F ix e d V a r ia b le T o ta l
C o s ts C o s ts C o s ts
A $ 2 5 0 ,0 0 0 $ 1 1 (1 0 ,0 0 0 ) $ 3 6 0 ,0 0 0
B 1 0 0 ,0 0 0 3 0 (1 0 ,0 0 0 ) 4 0 0 ,0 0 0
C 1 5 0 ,0 0 0 2 0 (1 0 ,0 0 0 ) 3 5 0 ,0 0 0
D 2 0 0 ,0 0 0 3 5 (1 0 ,0 0 0 ) 5 5 0 ,0 0 0
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8-18 Location Planning and Analysis
Example 1: Solution
$(000)
800 D
700
600 B
500 C
400 A
300 A Superior
200 C Superior
100 B Superior
0
0 2 4 6 8 10 12 14 16
Annual Output (000)
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8-19 Location Planning and Analysis
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
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