LOCATION

STRATEGY
 Major Topics

Strategic Importance of Location

Factors that Affect Location Decisions
Methods of Evaluating Location Alternatives
Service Location Strategy
Let us smell the roses!
METHODS OF EVALUATING LOCATION
ALTERNATIVES

Location Break Even Analysis

Center of Gravity Method
Transportation Model
Factor Rating Method
 Location Break Even Analysis
Fixed Costs - remains constant regardless of the volume of the production
Variable Costs - depends on the volume of production

Fixed Costs Variable Costs

Akron 30,000 75

Bowling Green 60,000 45

Chicago 110,000 25

Expected Demand = 2,000 per year

Total Costs = Fixed Costs + Variable Costs

For Akron
Total Costs= 30,000 + 75(2,000)=180,000

For Bowling Green

Total Costs=60,000 + 45(2,000)=150,000

For Chicago
Total Costs=110,000 + 25(2,000)=160,000
 Akron

200,000 Bowling Green

180,000 Chicago
B
160,000
Total Annual Costs

140,000

120,000

100,000 A

80,000

60,000

40,000

20,000

500 1,000 1,500 2,000 2,500 3,000

Units
At point A, TCBG =TCA

TCBG= 60,000 + 45 (X)

TCA=30,000 + 75 (X) z

60,000 + 45 (X) = 30,000 + 75 (X)

X = 1,000

At point B, TCBG=TCC

TCBG= 60,000 + 45 (Z)

TCC=110,000 + 25 (Z)

60,000 + 45 (Z) = 30,000 + 75 (Z)

Z = 2,500
 Akron

200,000 Bowling Green

180,000 Chicago
B
160,000
Total Annual Costs

140,000

120,000
A
100,000
80,000

60,000

40,000

20,000

500 1,000 1,500 2,000 2,500 3,000

Units
 At Break Even Total Costs=Total Revenue
Selling Price = 120
Q = units at break even level
For Akron
Total Costs= 30,000 + 75(Q)
Total Revenue=120Q
120 (Q) = 30,000 + 75(Q)
Q = 667

For Bowling Green

Total Costs=60,000 + 45(Q)=120Q
Total Revenue=120Q
120Q =60,000 + 45Q
Q = 800

For Chicago
Total Costs=110,000 + 25(Q)=160,000
Total Revenue=120Q
120Q=110,000 + 25(Q)
Q=1,158
Center of Gravity Method
New York - 1,000
Detroit -2,000

Pittsburgh - 1,000

Atlanta - 2,000
Center of Gravity Method
New York - 1,000
Detroit -2,000

Pittsburgh - 1,000

Atlanta - 2,000
 Center of Gravity Method

sum (dix) (Qi)

dxcg =
sum (Qi)
dxcg = distance of the center of gravity from the x axis

dix = distance of location i from the x axis

(Qi) = volume of units intended for location i

 Center of Gravity Method

sum (diy) (Qi)

dycg =
sum (Qi)
dycg = distance of the center of gravity from the y axis

diy = distance of location i from the y axis

(Qi) = volume of units intended for location i

 Center of Gravity Method
80 New York - 1,000
70
Detroit -2,000
60

50
Pittsburgh - 1,000
40
30

20
Atlanta - 2,000
10

10 20 30 40 50 60 70 80 90 100
 Center of Gravity Method
80 New York - 1,000
70
Detroit -2,000
60

50
Pittsburgh - 1,000
40
30

20
Atlanta - 2,000
10

10 20 30 40 50 60 70 80 90 100
 Center of Gravity Method

1,000 x 95 + 2,000 x 20 + 1,000 x 68 + 2,000 x 35

dxcg =
1,000 + 2,000 + 1,000 + 2,000

dxcg = 45.5

1,000 x 72 + 2,000 x 62 + 1,000 x 45 + 2,000 x 20

dycg =
1,000 + 2,000 + 1,000 + 2,000

dycg = 46.8
 Center of Gravity Method
80 New York - 1,000
70
Detroit -2,000
60

50 CG=45.5,46.8
Pittsburgh - 1,000
40
30

20
Atlanta - 2,000
10

10 20 30 40 50 60 70 80 90 100
 Factor Rating Method

Success Factors Weight Score

Economic Development

Manpower Skills

Peace and Order

Political Maturity

Infrastructures

Communications Ability-English

Access to International Transport

 Factor Rating Method

Success Factors Weight Score

Economic Development .20

Manpower Skills .15

Peace and Order .10

Political Maturity .20

Infrastructures .15

Communications Ability-English .10

Access to International Transport .10

 Factor Rating Method
Thailand/Philippines

Success Factors Score-Thailand Score-RP

Economic Development 90 80

Manpower Skills 90 95

Peace and Order 95 75

Political Maturity 85 90

Infrastructures 90 90

Communications Ability-English 85 95

Access to International Transport 90 95

 Factor Rating Method
Philippines

Success Factors Weight Score

Economic Development .20 80

Manpower Skills .15 95

Peace and Order .10 75

Political Maturity .20 90

Infrastructures .15 90

Communications Ability-English .10 95

Access to International Transport .10 95

Factor Rating Method
Philippines

Success Factors Weight Score Weighted Score

Economic Development .20 80 16.0

Manpower Skills .15 95 14.3

Peace and Order .10 75 7.5

Political Maturity .20 90 18.0

Infrastructures .15 90 13.5

Communications Ability- .10 95 9.5

English
Access to International .10 95 9.5
Transport
88.3
 Factor Rating Method
Thailand

Success Factors Weight Score

Economic Development .20 90

Manpower Skills .15 90

Peace and Order .10 95

Political Maturity .20 85

Infrastructures .15 90

Communications Ability-English .10 85

Access to International Transport .10 90

Factor Rating Method
Thailand

Success Factors Weight Score Weighted Score

Economic Development .20 90 18.0

Manpower Skills .15 90 13.5

Peace and Order .10 95 9.5

Political Maturity .20 85 17.0

Infrastructures .15 90 13.5

Communications Ability- .10 85 8.5

English
Access to International .10 90 9.0
Transport
89.0