8-1

Location Planning and Analysis

CHAPTER

Location Planning
and Analysis

8-2

Location Planning and Analysis

Need for Location Decisions

Marketing Strategy

Cost of Doing Business

Growth

Depletion of Resources

8-3

Location Planning and Analysis

Strategic Importance

Long term commitment/costs

Impact on investments, revenues, and operations

Objectives

Profit potential
No single location may be better than others

Options

Expand existing facilities

Add new facilities
Move

8-4

Location Planning and Analysis

Making Location Decisions

Decide on the criteria
Identify the important factors
Develop location alternatives
Evaluate the alternatives
Make selection

8-5

Location Planning and Analysis

Location Decision Factors

1. Regional Factors

4. Multiple Plant
Strategies

2. Community
Considerations

3. Site-related
Factors

8-6

Location Planning and Analysis

Regional Factors
Location of raw materials
Location of markets
Labor factors
Climate and taxes

8-7

Location Planning and Analysis

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

8-8

Location Planning and Analysis

Site Related Factors

Land
Transportation
Environmental
Legal

8-9

Location Planning and Analysis

Multiple Plant Strategies

Product plant strategy
Market area plant strategy
Process plant strategy

8-10 Location Planning and Analysis

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

8-11 Location Planning and Analysis

Evaluating Locations

Cost-Profit-Volume Analysis

Determine fixed and variable costs

Plot total costs

Determine lowest total costs

8-12 Location Planning and Analysis

Example 1: Cost-Volume Analysis

Fixed and variable costs of four potential
locations for 10,000 units.

8-13 Location Planning and Analysis

Example 1: Solution

A
B
C
D

F ix e d
C o s ts

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

8-14 Location Planning and Analysis

Example 1: Solution
$(000)
800
700
600
500
400
300
200
100
0
0

D
B
C
A
A Superior
C Superior
B Superior

10

Annual Output (000)

12

14

16

8-15 Location Planning and Analysis

Location Cost-Volume Analysis

Assumptions
Fixed costs are constant
Variable costs are linear
Output can be closely estimated
Only one product involved