Professional Documents
Culture Documents
Location Analysis
capacity to respective market area Government sometimes play an important role in the choice of the location keeping in view the national benefits Location depends on size and nature of business. A large scale industry needs huge investment and option for extension and cannot be shifted in future.
the customers quickly and efficiently. Location affects the competitive advantage. Optimum location reduces transportation cost, labor cost, taxes, etc.
transportation costs of perishable or bulky raw materials high population areas, close to JIT partners
Proximity to customers:
E.g.:
Proximity to labor:
Local
wage rates, attitude toward unions, availability of special skills (e.g.: silicon valley)
Inside track to foreign markets, avoid trade barriers, gain access to cheaper labor
Potential disadvantages: Political risks may increase, loss of control of proprietary technology, local infrastructure (roads & utilities) may be inadequate, high inflation Other issues: Language barriers, different laws & regulations, different business cultures
alternatives include
Factor rating method A procedure that can be used to evaluate multiple alternative locations based on a number of selected factors.
Factor Rating
Antonio is evaluating two different locations for his new Italian restaurant. Costs are comparable at all two locations. He has identified 5 factors that he considers important and has decided to use factor rating to evaluate his two location alternatives based on a five-point scale, with 1 being poor and 5 excellent.
Load-distance model A procedure for evaluating location alternatives based on distance. The objective of the model is to select a location that minimizes the total amount of loads moved weighted by the distance traveled.
A load represents the goods moved in or out of a facility or the number of movements between facilities. For Example, if 200 boxes of Kelloggs cereal are shipped
between the local warehouse and a grocery store, that is load between the warehouse and grocery store. The idea is to reduce the amount of distance between facilities that have a high load between them.
The shortest distance between two points measured by using only north-south and east-west movements.
Step 2 Identify Loads Step 3 Calculate the Load-Distance Score for Each Location
A Load-Distance Model Example: Matrix Manufacturing is considering where to locate its warehouse in order to service its four Ohio stores located in Cleveland, Cincinnati, Columbus, Dayton. Two sites are being considered; Mansfield and Springfield, Ohio. Use the load-distance model to make the decision. Calculate the rectilinear distance: dAB 30 10 40 15 45 miles
Multiply by the number of loads between each site and the four cities
Dayton
|3-6|
|6-6.5|
= 3.5
Distance to Mansfield
City Cleveland Columbus Cincinnati Dayton |11-11| |4-11| |3-11| + + + |22-14| |7-14| |1-14| |6-14| =8 =8 = 20 = 16 |10-11| +
City
Cleveland Columbus Cincinnati Dayton
15 10 12 4
Manufacturing
Xc.g.
l X l
i i
l Y l
i i
436 10.6 41
goods required to be sold to just cover costs Break-even analysis includes fixed and variable costs Remember the break even equations used for calculation total cost of each location and for calculating the breakeven quantity Q.
Total cost = F + cQ
Total revenue = pQ Break-even is where Total Revenue = Total Cost
Q = F/(p-c)
Q = break-even quantity p = price/unit c = variable cost/unit F = fixed cost
Break-Even Analysis
Break-even analysis can be used for location
Step 1: For each location, determine the fixed and variable costs Step 2: Plot the total costs for each location on one graph Step 3: Identify ranges of output for which each location has the lowest total cost Step 4: Solve algebraically for the break-even points over the identified ranges
Example using Break-even Analysis: Clean-Clothes Cleaners is considering four possible sites for its new operation. They expect to clean 10,000 garments. The table and graph below are used for the analysis.
Example 9.6 Using Break-Even Analysis Location Fixed Cost Variable Cost Total Cost A $350,000 $ 5(10,000) $400,000 B $170,000 $25(10,000) $420,000 C $100,000 $40(10,000) $500,000 D $250,000 $20(10,000) $450,000
From the graph you can see that the two lowest cost intersections
occur between C & B (4667 units) and B & A (9000 units) The best alternative up to 4667 units is C, between 4667 and 9000 units the best is B, and above 9000 units the best site is A
can be used to solve specific location problems It could be used to evaluate the cost impact of adding potential location sites to the network of existing facilities It could also be used to evaluate adding multiple new sites or completely redesigning the network
Highlights
analysis. Factor rating is a tool that helps managers evaluate qualitative factors. The loaddistance model and center of gravity approach evaluate the location decision based on distance. Break-even analysis is used to evaluate location decisions based on cost values. The transportation method is an excellent tool for evaluating the cost impact of adding sites to the network of current facilities.
QUIZ
1. It is the process of identifying the best geographic location for a service or production facility. 2. It is the process of locating facilities around the world. 3. It provides input to finalize capacity decisions. 4. It impacted by the organizational capacity and location to customers. 5. A procedure that can be used to evaluate multiple alternative locations based on a number of selected factors. 6-11. Factors Affecting Location Decisions 12-14. 3 Step Procedure for Making Local Decisions
15. This approach requires that the analyst find the center of gravity of the geographic area being considered. 16. A procedure for evaluating location alternatives based on distance. 17. It computes the amount of goods required to be sold to just cover costs. 18. It could be used to evaluate the cost impact of adding potential location sites to the network of existing facilities. 19. The shortest distance between two points measured by using only north-south and east-west movements. 20.