1. Location Planning
and Analysis

2. Need for Location Decisions
• Marketing Strategy
• Cost of Doing Business
• Growth
• Depletion of Resources

3. Nature of Location Decisions
 Strategic Importance
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Long term commitment/costs
Impact on investments, revenues, and operations
Supply chains
 Objectives
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Profit potential
Identify several locations from which to choose
 Options
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Expand existing facilities
Add new facilities
Move

4. Types of Facilities
• Heavy Industry Facilities
• Light Industry Facilities
• Retail And service facilities

5. Making Location Decisions
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Decide on the criteria
Identify the important factors
Develop location alternatives
Evaluate the alternatives
Make selection

6. General Factors affecting location
decision
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Availability of basic infrastructure
Basic amenities
Proximity to raw material and markets
Residential complexes, schools, hospitals,
clubs etc.
Availability of cheap labour
Govt. policies
Env. And community
Cheap land

7. Locating Foreign operations
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Trade barriers
International Customers
International Competition
Regulations
Additional Resources
Low Costs
Offensive in Competitor’s home country

8. Factors at country level
• Political Risks, Govt. Regulations, attitudes,
incentives
• Cultural and economic issues
• Labour talent, productivity, cost
• Availability of supplies, infrastructure
• Exchange rates and currency risks

9. Location Decision Factors
Regional Factors
Community
Considerations
Multiple Plant
Strategies
Site-related
Factors

10. Regional Factors
• Attractiveness of region(culture, taxes,
climate)
• Labour availability
• Location of raw materials
• Location of markets
• Availability of utilities
• Govt. Incentives andpolicies
• Climate and taxes

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

12. Site Related Factors
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Land
Transportation
Environmental
Legal

13. Multiple Plant Strategies
• Product plant strategy
• Market area plant strategy
• Process plant strategy

14. 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

15. Evaluating Locations
• Cost-Profit-Volume Analysis
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Determine fixed and variable costs
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Plot total costs
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Determine lowest total costs

16. Location Cost-Volume Analysis
• Assumptions
– Fixed costs are constant
– Variable costs are linear
– Output can be closely estimated
– Only one product involved

17. 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

18. Example 1: Solution
F ix e d
C o s ts
A
B
C
D
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

19. Factor-Rating Method
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Six steps:
1. Develop a list of relevant factors.
2. Assign a weight to each factor reflecting its relative
importance to the firm.
3. Develop a rating scale for the factors.
4. Score each location on each factor based on the scale.
5. Multiply the scores by the weights for each factor and total
the weighted scores for each location.
6. Make a recommendation based on the maximum point
score, considering other [quantitative?] factors.

20. Factor Rating Example

21. Evaluating Locations
• Center of Gravity Method
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Decision based on minimum distribution costs
• Load Distance model
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Decision based on evaluating potential locations
based on load distance value.