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Location Planning and Analysis For managerial decisions
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- 2. Location Theories • Locationtheory is concerned with the geographic location of economic activity; it has become an integral part of economic geography, regional science, and spatial economics. • Location theory addresses questions of what economic activities are located where and why. • Location theory rests—like microeconomic theory generally—on the assumption that agents act in their own self-interest. • Firms thus choose locations that maximize their profits and individuals choose locations that maximize their utility.
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- 6. Need for LocationDecisions • Marketing Strategy • Cost of Doing Business • Growth • Depletion of Resources
- 7. Nature of LocationDecisions • 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
- 8. Making Location Decisions •Decide on the criteria • Identify the important factors • Develop location alternatives • Evaluate the alternatives • Make selection
- 9. Location Decision Factors RegionalFactors Site-related Factors Multiple Plant Strategies Community Considerations
- 10. • Location ofraw materials • Location of markets • Labor factors • Climate and taxes Regional Factors
- 11. • Quality oflife • Services • Attitudes • Taxes • Environmental regulations • Utilities • Developer support Community Considerations
- 12. • Land • Transportation •Environmental • Legal Site Related Factors
- 13. • Product plantstrategy • Market area plant strategy • Process plant strategy Multiple Plant Strategies
- 14. Comparison of Serviceand Manufacturing 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 Table 8.2
- 15. Trends in Locations •Foreign producers locating in U.S. – “Made in USA” – Currency fluctuations • Just-in-time manufacturing techniques • Microfactories • Information Technology
- 16. Foreign Government a. Policies onforeign ownership of production facilities Local Content Import restrictions Currency restrictions Environmental regulations Local product standards b. Stability issues Cultural Differences Living circumstances for foreign workers / dependents Religious holidays/traditions Customer Preferences Possible buy locally sentiment 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 Table 8.3
- 17. Evaluating Locations • Cost-Profit-VolumeAnalysis – Determine fixed and variable costs – Plot total costs – Determine lowest total costs
- 18. Location Cost-Volume Analysis •Assumptions – Fixed costs are constant – Variable costs are linear – Output can be closely estimated – Only one product involved
- 19. Evaluating Locations • TransportationModel – 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
- 20. © Wiley 201020 Location Analysis Three most important factors in real estate: 1. Location 2. Location 3. Location Facility location is the process of identifying the best geographic location for a service or production facility
- 21. © Wiley 201021 Factors Affecting Location Decisions • Proximity to source of supply: – Reduce transportation costs of perishable or bulky raw materials • Proximity to customers: – High population areas, close to JIT partners • Proximity to labor: – Local wage rates, attitude toward unions, availability of special skills (silicon valley)
- 22. © Wiley 201022 More Location Factors • Community considerations: – Local community’s attitude toward the facility (prisons, utility plants, etc.) • Site considerations: – Local zoning & taxes, access to utilities, etc. • Quality-of-life issues: – Climate, cultural attractions, commuting time, etc. • Other considerations: – Options for future expansion, local competition, etc.
- 23. © Wiley 201023 Globalization – Should Firm Go Global? Globalization is the process of locating facilities around the world • Potential advantages: – Inside track to foreign markets, avoid trade barriers, gain access to cheaper labor • Potential disadvantages: – Political risks may increase, loss of control of proprietary technology, local infrastructure (roads & utilities) may be inadequate, high inflation • Other issues to consider: – Language barriers, different laws & regulations, different business cultures
- 24. © Wiley 201024 Making Location Decisions Analysis should follow 3 step process: 1. Identify dominant location factors 2. Develop location alternatives 3. Evaluate locations alternatives Procedures for evaluation location alternatives include – Factor rating method – Load-distance model – Center of gravity approach – Break-even analysis – Transportation method