8-1

Location Planning and Analysis

Operations Management

William J. Stevenson

8th edition

8-2

Location Planning and Analysis

CHAPTER

Location Planning
and Analysis

McGraw-Hill/Irwin

Operations Management, Eighth Edition, by William J. Stevenson

Copyright 2005 by The McGraw-Hill Companies, Inc. All rights

8-3

Location Planning and Analysis

Need for Location Decisions

Marketing Strategy

Cost of Doing Business

Growth

Depletion of Resources

8-4

Location Planning and Analysis

Nature of Location Decisions

Strategic Importance

Objectives

Long term commitment/costs

Impact on investments, revenues, and operations
Supply chains
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

8-5

Location Planning and Analysis

Making Location Decisions

Decide on the criteria
Identify the important factors
Develop location alternatives
Evaluate the alternatives
Make selection

8-6

Location Planning and Analysis

Location Decision Factors

Regional Factors

Community
Considerations

Multiple Plant
Strategies

Site-related
Factors

8-7

Location Planning and Analysis

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

8-8

Location Planning and Analysis

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

8-9

Location Planning and Analysis

Site Related Factors

Land
Transportation
Environmental
Legal

8-10 Location Planning and Analysis

Multiple Plant Strategies

Product plant strategy
Market area plant strategy
Process plant strategy

8-11 Location Planning and Analysis

Table 8.2

Comparison of Service and

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

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

8-13 Location Planning and Analysis

Table 8.3
Foreign
Government

Cultural
Differences

a. Policies on foreign ownership of production facilities

Local Content
Import restrictions
Currency restrictions
Environmental regulations
Local product standards
b. Stability issues
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
Availability and quality of raw materials, energy,
transportation

Resources

8-14 Location Planning and Analysis

Evaluating Locations

Cost-Profit-Volume Analysis

Determine fixed and variable costs

Plot total costs

Determine lowest total costs

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

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
A
B
C
D

F ix e d
C o s t
$ 2 5 0 ,0 0
1 0 0 ,0 0
1 5 0 ,0 0
2 0 0 ,0 0

0
0
0
0

V a r ia b le
C o s t
$ 1 1
3 0
2 0
3 5

8-17 Location Planning and Analysis

Example 1: Solution

A
B
C
D

F ix e d
C o s ts

V a r ia b le
C o s ts

T o ta l
C o s ts

$ 2 5 0 ,0 0 0
1 0 0 ,0 0 0
1 5 0 ,0 0 0
2 0 0 ,0 0 0

$ 1 1 (1 0 ,0 0 0 )
3 0 (1 0 ,0 0 0 )
2 0 (1 0 ,0 0 0 )
3 5 (1 0 ,0 0 0 )

$ 3 6 0 ,0 0 0
4 0 0 ,0 0 0
3 5 0 ,0 0 0
5 5 0 ,0 0 0

8-18 Location Planning and Analysis

Example 1: Solution
$(000)
800
700
600
500
400
300
200
100
0
0

D
B
C
A
A Superior
C Superior
B Superior

10

Annual Output (000)

12

14

16

8-19 Location Planning and Analysis

Evaluating Locations

Transportation Model

Factor Rating

Decision based on movement costs of raw

materials or finished goods
Decision based on quantitative and qualitative
inputs

Center of Gravity Method

Decision based on minimum distribution costs