1. Critically discuss the factors that influence location decisions.
Explain three steps to locational cost-
volume analysis (20 marks). How important are location decisions?
Why decisions must be made for locations:
The main objective of location strategy is that to maximize the benefit of location to the firm (Render & Heizer, 2011) Cost-focus: Location involves careful consideration as once committed to a specific location, costs are fixed and are difficult to reduce Innovation Focus: Four attributes that affect overall competitiveness 1. Presence of high-and specialized inputs (e.g. scientific talent) 2. An environment that encourages investment and intense local rivalry 3. Pressure and insight gained from a sophisticated local market 4. Local presence of related and supporting industries Approach to location selection: 1. Select country with Key Success Factors for operations 2. Region 3. Site 7 major factors that affect location decisions: 1. Labor productivity 2. Foreign exchange 3. Culture 4. Changing attitudes toward the industry 5. Proximity to markets 6. Suppliers 7. Competitors
Labor Productivity Management is concerned with the combination of production and wage rate Final cost is the critical factor and low productivity can contradict low cost
Exchange Rates and Currency Risk Unfavorable exchange rates for facilities in foreign countries may negate any savings from low wage costs Firms can take advantage of favorable rates by relocating or exporting to foreign countries Currencies however rise and fall, therefore a current favorable location could be disastrous in 10years time currency-wise Costs
Political Risk, Values, and Culture Attitudes towards private and intellectual property, zoning, pollution, and employment stability are influenced by those in leadership at time of deciding location Worker values and views are also important in deciding location Cultural variations also affect decisions for location
Proximity to Markets Location near customers(market) o Service industries_ essential especially for drugstores, restaurants, post offices, etc.. o Manufacturing_ proximity to customers are essential when transporting expensive and difficult goods
2. Critically discuss some of the techniques used by service organizations to select locations (20 marks).