CHAPTER EIGHT

LOCATION PLANNING AND ANALYSIS

Location Planning
and Analysis

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CHAPTER EIGHT

LOCATION PLANNING AND ANALYSIS

Need for Location Decisions

Marketing Strategy
Growth
Depletion of Resources
Cost of Doing Business

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CHAPTER EIGHT

LOCATION PLANNING AND ANALYSIS

Nature of Location Decisions

Importance

Long term commitment/costs

Objectives

Profit potential

Options

Expand existing facilities

Add new facilities
Shut down at one location and Move to
another

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CHAPTER EIGHT

LOCATION PLANNING AND ANALYSIS

General procedure for location

decision making
Decide the criteria for evaluating location
alternatives: ex) increased revenues,
community service
Identify important factors: ex) market
location, raw materials
Develop location alternatives
Evaluate the alternatives and make a
selection
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CHAPTER EIGHT

LOCATION PLANNING AND ANALYSIS

Location Decision Factors

Regional Factors Community Considerations

Multiple Plant Strategies Site-related Factors

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CHAPTER EIGHT

LOCATION PLANNING AND ANALYSIS

Regional factors

1) Location of raw materials

3 reasons firms locate near the source
of raw materials
necessity: mining, farming, forest
perishability: canning or freezing
fruits, dairy products
transportation cost: cheese making,
paper production
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CHAPTER EIGHT

LOCATION PLANNING AND ANALYSIS

Regional factors
2) Location of markets
Retail sales and services are usually
found near the center of the markets
they serve: ex) fast food
Distribution cost associated with
their products is the main factor

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CHAPTER EIGHT

LOCATION PLANNING AND ANALYSIS

Regional factors
3) Labor factors
Labor costs
Employees skills
Workers attitudes toward turnover,
absenteeism, may differ among
potential locations

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CHAPTER EIGHT

LOCATION PLANNING AND ANALYSIS

Regional factors
4) Other factors
Climate, taxes
Many developing countries offer an
abundant supply of cheap labor
International locations

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CHAPTER EIGHT

LOCATION PLANNING AND ANALYSIS

Community considerations
Community resistance to airport
expansion, changes in zoning,
construction of nuclear facility
a
company
standpoint,
From
facilities for education, shopping,
recreation, transportation

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CHAPTER EIGHT

LOCATION PLANNING AND ANALYSIS

Site-related factors
Primary consideration: land,
transportation, etc.
Land costs, room for future
expansion, etc.

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CHAPTER EIGHT

LOCATION PLANNING AND ANALYSIS

Evaluating Locations
Cost-volume Analysis

Determine fixed and variable costs

Plot total costs

Determine lowest total costs

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CHAPTER EIGHT

LOCATION PLANNING AND ANALYSIS

Example 1: Cost-Volume Analysis

Fixed and variable costs for
four potential locations

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CHAPTER EIGHT

LOCATION PLANNING AND ANALYSIS

Example 1: Solution

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CHAPTER EIGHT

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

12

14

16

Annual Output (000)

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CHAPTER EIGHT

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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Table 8-2
Foreign
Government

Cultural
Differences

CHAPTER EIGHT

LOCATION PLANNING AND ANALYSIS

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
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CHAPTER EIGHT

LOCATION PLANNING AND ANALYSIS

THANK YOU!

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