Strategic important of location decision

• It is a long-term commitment, which makes mistakes difficult

to overcome
• Location decisions often have an impact on investment
requirements, operating costs and revenues

The focus in industrial sector location analysis

is on minimizing cost
The focus in service sector is on maximizing
revenue
Factor affect location decision

 Labor productivity
Employee with poor training, poor education, or
poor work habits may not be a good buy even at
low wages
 Exchange rates and currency risk

Change in the values of foreign currencies could

make what was a good location now a disastrous
one later
 Cost

Tnagible costs : labor, material, taxes …

Intangilbe costs : qulaity of education , public
transortation facilities, and quality and attitue of
prospectiver employees
Factor affect location decision

 Attitudes
Worker views regaridgn turnover, unions, and
absenteeism
It differ from country to country, region to region
Ex . Turnover is extremly hight in saudi arabia espeicially
saudi labor
 Proximity to markets

For many firms it is extremely important to locate near

customers . Particularly, service organization such as
resturants, drugstores
 Proximity to suppliers

Ex al marai relocate its factory to be close to the source

of woter
 Proximity to competitors ( clusterting)
 Methods of evaluating location

The factor-ratin
methods
1 2 3 4 5
Critical success weight Score Weighted score Weighted
factors scores scores

Labor availability 2*1 4*1

Tax
Education
Wage
total 1 ∑3 ∑5
Locational break-even analysis

Riyadh Jeddah
Damame
6000
Annual cost

4000

Jeddah
3000 Damame

2000

Riyadh
1000

500 1000 1500 2000 2500 3000

volume
Locational break-even analysis

10,000 12000 14000 16000

fixed variable total total total total

A 250,000 11 360,000 382,000 404,000 426,000

B 100,000 30 400,000 460,000 520,000 580,000

C 150,000 20 350,000 390,000 430,000 470,000

D 200,000 35 550,000 620,000 690,000 760,000

Crossover point for A and B Crossover point for C and B
250000+11X=100000+30X X=5000
X=7895

Crossover point for C and A

X=11111

5000 6895 11111

Center- of – gravity methods

= X coordinate of the center of gravity = y coordinate of the center of gravity

∑Qi∑ / xiQi ∑Qi∑ / YiQi

North- south

20,30

15 ,60

East- west
Center- of – gravity methods

destination X,y quantity

D1 2,2 800
D2 3,5 900
D3 5,4 200
D4 8,5 100
2000

X=2*800+3*900+5*200+8*100/2000=3
Y=2*800+5*900+4*200+5*100/2000=3.7
Service location strategy

Factor the affect service location

 Purchasing power of the customer

 Competion in the area and quality of competition
 Uniqueness of the firm’s and competitors
locations
 Physical qualities of facilities and neighboring
locations