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• Reasons for location decisions

  • Marketing strategy
  • Need for expansion in other location because of growth demand
  • Depletion of basic inputs
  • Shift in markets
  • Increased costs in doing business at particular location
• Strategic importance of location decisions

  • Closely tied to an organization's strategies
  • Entail a long-term commitment
  • Have impact on capacity and flexibility, competitive advantage, supply chain, investment requirements, operating costs, revenues and operations

  
• Objectives of location decisions

  • Profit-oriented organization - base decisions on profit potential
  • Nonprofit organizations - strive to achieve a balance between cost and the level of customer service
  • Most organizations hope to find a number of acceptable locations from which to choose rather than identifying the one best location

  
• Supply chain considerations


  • Beginning of supply chain - locate near source or raw materials
  • Middle of the chain - locate near suppliers or near their markets
  • Retail end of a chain - focus more on accessibility, consumer demographics, traffic patterns, and local customs
• Options in location planning

  • Expand an existing facility
  • Add new locations while retaining existing ones
  • Shut down at one location and move to another
  • Do nothing
• Globalization


  Increased dispersion of manufacturing and service operations around the world
• Facilitating factors of globalization

  • Trade agreements
  • Technology
• Benefits of globalization in operations

  • Expands markets for goods and services
  • Cost savings in transportation, labor, raw materials, and taxes
  • More favorable legal and regulatory environment
  • Can avoid impact of currency changes and tariffs; state incentives
  • New ideas for products and services; new perspectives on operations
• Disadvantages of globalization in operations

  • High transportation costs from poor infrastructure and shipping over great distances
  • High security costs from increased security risk and theft; slow shipment because of security at international borders
  • Unskilled labor resulting in low quality and productivity; needs employee training
  • Import restrictions
  • Criticism because of cost savings from unfair practices (low wage, poor work conditions etc.)
  • Lower productivity
• Risks of globalization in operations


  • Protecting intellectual property rights
  • Political risk for personnel and asset safety from political instability and unrest
  • Terrorism
  • Economic risk of inflation or deflation from economic instability
  • Legal changes in laws and regulations
  • Ethical risk of corruption and bribery
  • Cultural differences which can increase the risk of miscommunication and interfere with developing trust
  • Lenient quality controls
• Automation


  Businesses rethink on decision of where to produce goods because of advances in automation, along with benefits of short transportation times with domestic locations, and rising labor costs in some developing countries and poor safety records
• General procedure for making location decisions

  • Decide on the criteria for evaluating location alternatives
  • Identify important factors
  • Develop location alternatives: identify a country, identify the general region, identify a small number of community alternatives, identify site alternatives
  • Evaluate the alternatives and make a selection

  
• Identifying a Region

  • Location of raw materials
  • Location of markets
  • Labor factors
  • Other factors like climate and taxes
• Factors determining the desirability of a community


  • Facilities for education, shopping, recreation, transportation, religious worship, and entertainment
  • Quality of police, fire, and medical services
  • Local attitudes toward the company
  • Size of the community
  • Cost and availability of utilities
  • Environmental regulations, taxes, and enticements offered by state or local governments
• Microfactory


  Small factory with a narrow product focus, located near major markets to reduce response time
• Ethical issues - have policies to keep ethical aspects of decisions in mind while negotiating favorable treatment
• Factors affecting location decisions

  • Land
  • Transportation
  • Zoning or other restrictions
• Multiple plant manufacturing strategies

  • Product plant strategy - entire products or product lines are produced in separate plants, each plant supplies the entire domestic market
  • Market area plant strategy - plants are designed to serve a particular geographic segment of a market
• Ethical Issues


  • Have policies to keep ethical aspects of decisions in mind while negotiating favorable treatment
• Considerations for identifying a site

  • Land
  • Transportation
  • Zoning or other restrictions
• Product Plant Strategy


  Entire products or product lines are produced in separate plants; each plant supplies the entire domestic market
• Decentralized approach


  Plants focus on narrow set of requirements that entails specialization of labor, materials, and equipment along product lines
• Market Area Plant Strategy


  Plants are designed to serve a particular geographic segment of a market
• Market Area Plant Strategy

  Higher cost than Product Plan strategy but saves on shipping costs for comparable products
• Market Area Plant Strategy requires centralized coordination of decisions to add or delete plants, or to expand or downsize current plants due to changing market conditions
• Process Plant Strategy


  • Best suited to products that have numerous components
  • Individual plants are highly specialized and generate volumes that yield economies of scale
  • Additional shipping costs
• General-Purpose Plant Strategy


  Plants are flexible and capable of handling a range of products
• General-Purpose Plant Strategy


  • Allows for quick response to product or market changes
• Geographic Information Systems (GIS)


  Computer-based tool for collecting, storing, retrieving, and displaying demographic data on maps
• Ways business use GIS

  • Logistics companies - for planning fleet activities (e.g. routes and schedules) based on the locations of their customers
  • Publishers - analyze circulation and attract advertisers
  • Real Estate - make maps available online to prospective home and business buyers
  • Banks - deciding bank locations; understand the composition and needs of different market segments
  • Insurance Companies - determine premiums based on population distribution, crime figures, and the likelihood of natural disasters
  • Retailers - for marketing strategies, and linking information about sales, customers, and demographics to geographic locations in planning locations
  • Utility companies - balance supply and demand, and identify problem areas
  • Emergency services - allocate resources to locations to provide adequate coverage where they are needed
• Service


  • Concerned with customer access
  • Profit or Revenue oriented - concerned with demographics such as age, income, and education, population/drawing area, competition, traffic volume/patterns, and customer access/parking
• Manufacturing


  Cost-focused - concerned with labor, energy, and material costs and availability, distribution costs
• Retail sales and services

  • Found near the center of the markets they serve
  • Rely on convenience to attract customers since product are so similar
  • Seek locations with high population densities or high traffic
  • Locate near other retailers (CLUSTERING - when similar types of businesses locate near each other)
  • Other factors: Customer safety and security, good transportation/parking facilities
• Locational cost-profit-volume analysis


  Technique for evaluating location choices in economic terms

  
• Locational cost-profit-volume analysis procedure

  1. Determine the fixed and variable costs associated with each location alternative

  2. Plot the total-cost lines for all location alternatives on the same graph

  3. Determine which location will have the lowest total cost for the expected level of output. Alternatively, determine which location will have the highest profit
• Locational cost-profit-volume analysis assumes: Fixed costs are constant for the range of probable output, Variable costs are linear for the range of probable output, The required level of output can be closely estimated, Only one product is involved
• The Transportation Model


  A special-purpose algorithm used to determine the minimum transportation cost that would result if a potential new location were to be added to an existing system
• Factor Rating


  General approach to evaluating locations that includes quantitative and qualitative inputs
• The Center-of-Gravity Method


  Method for locating a distribution center that minimizes distribution cost
• Location decisions confront both new and existing organizations. Growth, market shifts, depletion of raw materials, and the introduction of new products and services are among the reasons organizations are concerned with location decisions. The importance of these decisions is underscored by the long term commitment they typically involve and by their potential impact on the operating system.