Location Planning and

Analysis
 IDENTIFY SOME OF THE MAIN
REASONS ORGANIZATIONS NEED
TO MAKE LOCATION DECISIONS
 Overview
Location selections play a major role in almost every organization's
strategic planning process.

In this, we will examine location analysis. We will begin at the

overview of the reason why it is important to make location
decisions, the nature of it, and a general procedure for developing
and evaluating location alternatives.
 The Need For Location Decision
Locations are also marketing strategy
When an organization grows
Depletion of inputs

Ex:
Fast food chains and other business that will start
Expansion putting up- additional branch Mining
 Nature of Location Decisions
Has a significant effect on the business.

Strategic Importance of Location Decisions

Low-cost
Convenience
Capacity and Flexibility
Investment requirement
Operating Cost
Revenues
Operations
Supply Chains
 Objectives of Location Decision
Choose the best one not the available or just acceptable one.

Supply Chain Considerations

Determining number of suppliers, product facilities and warehouses and
distribution centers.
Centralized distribution yields scale economies as well as tighter control.

Decentralized tends to be more responsive to local needs.

 Location Options
Choose the best one not the available or just acceptable one.

Expand an Existing Facility

Add new location while retaining existing ones

Shutdown at one location to move another

Do nothing
 GLOBAL LOCATIONS
FACILITATING FACTORS
Trade Agreements. Barriers to international trade such as tariffs and quotas can
have a detrimental effect on trade, while trade agreements that are fair to all sides
can help trade to flourish.

Technology. Technological advances in communication and information sharing

have been very helpful. These include texting, e-mail, cell phones, teleconferencing,
and the internet.
 BENEFITS
Markets. Companies often seek opportunities for expanding markets for their goods and
services as well as better serving existing customers by being more attuned to local needs and
having a quicker response time when problems occur.
Cost savings. Among the areas for potential cost savings are transportation costs labor costs,
raw material costs and taxes.

Legal and regulatory. There may be more favorable liability and labor laws and less.
restrictive environmental and other regulations.
Financial. Companies can avoid the impact of currency changes and tariffs that can
occur when goods are produced in one country and sold in other countries. Also a variety
of incentives may be offered by national, regional or local governments to attract
businesses that will create jobs and boost the local economy.

Other. Globalization may provide new sources of ideas for products and services new
perspectives on operations, and solutions to problems.
 DISADVANTAGES
Transportation costs. High transportation costs can occur due to poor infrastructure or
having to ship over great distances and the resulting costs can offset savings in labor and materials costs

Security costs. Increased security risks and theft can increase costs. Also, security at international borders can
slow shipments to other countries.

Unskilled labor. Low labor skills may negatively impact quality and productivity and the work ethic may differ
from that in the home country. Addicional employee training may be required.

Import restrictions. Some countries place restrictions on the importation of manufactured goods thus having
local suppliers avoids those issues.

Criticisms. Critics may argue that cost savings are being generated through unfair practices such as using
sweatshops, in which employees are paid low wages and made to work in poor conditions, using child labor,
and operating in countries that have less stringent environmental requirements.

Productivity. Low labor productivity may offset low labor costs or other advantages.
 RISKS
Risks with global operations can be substantial. Among the most troublesome are the
following:

Protecting intellectual property rights. Companies that outsource production to foreign

countries need to have assurance that intellectual property rights will be preserved.

Political. Political instability and political unrest can create risks for personnel safety and
the safety of assets. Moreover, a government might decide to nationalize facilities, taking
them over.

Terrorism. Terrorism continues to be a threat in many parts of the world. putting

personnel and assets at risk and decreasing the willingness of domestic personnel to
travel to or work in certain areas.

Economic. Economic instability might create inflation or deflation, either of which can
negatively impact profitability.
 RISKS
Legal. Laws and regulations may change, reducing or eliminating what may have been
key benefits.

Ethical. Corruption and bribery, common in some countries, may be illegal in a company's
home country. This poses a number of issues. One is how to maintain operations without
resorting to bribery. Another is how to prevent employees from doing this, especially
when they may be of local origin and used to transacting business in this way.

Cultural. Cultural differences may be more real than apparent. Walmart discovered that
fact when it opened stores in Japan. Although Walmart has thrived in many countries on
its reputation for low-cost items, Japanese consumers associated low cost with low
quality, so Walmart had to rethink its strategy for the Japanese market.

Quality. Lax quality controls can lead to recalls and liability issues.
 The way an organization approaches location decisions

GENERAL
often depends on its size and the nature or scope of its
operations.

PROCEDURE New or small organizations tend to adopt a rather informal

approach to location decisions.

FOR MAKING New firms typically locate in a certain area simply because
the owner lives there.

LOCATION 1 firms often want to keep

Similarly, managers of small
operations in their backyard, so they tend to focus almost

DECISIONS exclusively on local alternatives.

Large established companies, particularly those that already

operate in more than one location, tend to take a more formal
approach. Moreover, they usually consider a wider range of
geographic locations.
 The general procedure for making location
decisions usually consists of the following steps:
Decide on the criteria to use for evaluating location
1 alternatives, such as increased revenues, decreased cost, or
community service.

Identify important factors, such as the location of markets or

2 raw materials. The factors will differ depending on the type of
facility.

Develop location alternatives:

a. Identify a country or countries for a location.
3 b. Identify the general region for a location.
c. Identify a small number of community alternatives.
d. Identify site alternatives among the community
alternatives.

4 Evaluate the alternatives and make a selection.

 IDENTIFYING A
COUNTRY, REGION,
AND COMMUNITY
 Factors that influence location decisions Basic factors that can
affect business in choosing locations:
Availability of energy and water Traffic patterns
Proximity to raw materials Proximity to markets
Transportation cost Location of competitors

Once important factors have been determined an organization will narrow down alternatives to a
specific geographic region. These factors that influence location selection are often different.
depending on whether the firm is a manufacturing or service firm. When deciding on a location,
mangers must take into account the cuture shock employees might face after a location move.
Culture shock can have a big impact on employees which might affect workers productivity, so
it is important that managers look at this.

One of the examples why they strategically use other country as location is to use transfer pricing
rules where they record profits oversea so that the income they would earn will be recorded in the
foreign subsidiary
 IDENTIFYING A COUNTRY a. Policies on foreign ownership of production
facilities
Local content requirements
Import restrictions
Government Currency restrictions
Environmental regulations
Liability laws
Local product standards
A decision maker must b. Stability issues

understand the benefits Living circumstances for foreign workers and their
Cultural dependents
differences Ways of doing business
and risks as well as the Religious holidays/traditions

probabilities of them Customer

preferences Possible "buy locally" sentiment

occurring so that they Level of training and education of workers

Wage rates
can make an informed Labor productivity
Labor Work ethic
judgement on whether Possible regulations limiting number of foreign
employees
Language differences
locating in a country is
Resources
Availability and quality of raw materials, energy,
desirable. transportation infrastructure

Financial
Financial incentives, tax rates, inflation rates, interest
rates

Technological Rate of technological change, rate of innovations

Market Market potential, competition

Safety Crime, terrorism threat

IDENTIFYING A REGION
The primary regional factors involve raw materials, markets, and labor
consideration.

IDENTIFYING A COMMUNITY
There are many important factors for deciding upon the community in
which to move a business. They include facilities for education,
shopping , recreation and transportation among many others. From a
business standpoint these factors include utilities, raxes, and
environmental regulation. Microfactory small factory with a narrow
product focus, located near major markets.

Ethical issues it may arise during location search so companies and

government should have policies before it happen
IDENTIFYING A SITE
The main considerations in choosing a sire are land,
transportation, zoning and many others. When identifying
a site it is important to consider to see if the company
plans on growing at this location. If so the firm must
consider whether or not location is suitable for expansion.
There are many decisions that go into choosing exactly
where a firm will establish its operations.
Location of Raw Materials: The three most important reasons for a
firm to locate in a particular region includes raw materials,
perishability, and transportation cost. This often depends on what
business the firm is in.

Location of Markets: Profit maximizing firms locate near markets that

they want to serve as part of their competitive strategy. A Geographic
information system (GIS) is a computer based tools for collecting,
storing, retrieving, and displaying demographic data on maps.

Labor Factors: Primary considerations include labor availability, wage

rates, productivity, attitudes towards work, and the impact unions may
have.

Other: Climate is sometimes a consideration because bad weather

can disrupt operations. Taxes are also an important factor due to
the fact that taxes affect the bottom line in some financial
statements.
 When companies have several manufacturing facilities there
are several different ways for a company to organize their
operations. These ways include: assigning different product
lines to different plants, assigning different market areas to

Multiple Plant
different plants, or assigning different processes to different
plants.
These strategies carry their own cost and managerial

Manufacturing implications, but they also carry a certain competitive

advantage. There are four different types of plant strategies:

Strategies Product Plant Strategy 1

Market area plant strategy

Process Plant Strategy

General-Purpose Plant Strategy

 Product Plant Strategy
Products or product lines are produced in separate plants, and each plant is usually
responsible for supplying the entire domestic market.
It is a decentralized approach as each plant focuses on a narrow set of requirements that
includes specialization of labor, materials, and equipment along product lines.
Specialization involved in this strategy usually results in economies of scale and, compared
to multipurpose plants, lower operating costs.
The plant locations may either be widely scattered or placed relatively close to one another.

Market area plant strategy

Here, plants are designed to serve a particular geographic segment of a market.
the individual plants can produce either most, or all of the company's products and supply a
limited geographical area.
The operating costs of this strategy are often times higher than those of product plants, but
savings on shipping costs for comparable products can be made.
This strategy is useful when shipping costs are high due to volume, weight, or other factors.
It can also bring the added benefits of faster delivery and response times to local needs.
It requires a centralized coordination of decisions to add or delete plants, or to expand or
downsize current plants because of changing market conditions.
 Process Plant Strategy
Here, different plants concentrate on different aspects of a process.
This strategy is most useful when products have numerous components; separating the
production of components results in less confusion than if all the production were done in
the same location.
A major issue with this strategy is the coordination of production throughout the system,
and it requires a highly informed, centralized administration in order to be an effective
operation.
It can bring about additional shipping costs, but a key benefit is that individual plants are
highly specialized and generate volumes that brings economies of scale.

General-Purpose Plant Strategy

It is a business model that focuses on a plant's ability to adapt to changing product needs.
Companies that use this strategy value flexibility over specific plant charters.
Defense contractors are a common example of companies that use this strategy.
Geographic The following are some ways businesses use geographic
information systems:

Information
Logistics companies use GIS data to plan fleet activities such as routes and
schedules based on the locations of their customers.
Publishers of magazines and newspapers use a GIS to analyze circulation

Systems
and attract advertisers.
Real estate companies rely heavily on a GIS to make maps available online
to prospective home and business buyers.
Banks use a GIS to help decide where to locate branch banks and to
A geographic information system understand the composition and needs of different market segments.
Insurance companies use a GIS to determine premiums based on
(GIS) is a computer based tool
population distribution, crime figures and the likelihood of natural
for collecting, storing, retrieving. 1 locations, and to manage risk.
disasters such as flooding in various
and displaying demographic data Retailers are able to link information about sales customers, and
on maps. A GIS relies on an demographics to geo-graphic locations in planning locations. They also use
a GIS to develop marketing strategies and for customer mapping site
integrated systems of computer
selection sales projections promotions, and other store portfolio
hardware, software data, and management applications.
trained personnel to make Utility companies use a GIS to balance supply and demand and identify
available a wide range of problem areas. Emergency services use a GIS to allocate resources to
locations to provide adequate coverage where they are needed
geographically referenced
Emergency services use a GIS to allocate resources to locations to provide
information. adequate coverage where they are needed.
 Service and Retail Location
Service and retail are typically governed by somewhat different considerations than
manufacturing organizations in making location decisions. Service and retail businesses
tend to be profit or revenue focused, concerned with demographics such as age, income,
and education, population/drawing area, competition, traffic volume/patterns, and
customer access/parking.
Retail sales and services are usually found near the center of the markets they
serve.
Retail and service organizations typically place traffic volume and convenience
high on the list of important factors. Specific types of retail or service businesses
may pay more attention to certain factors due to the nature of their business or
their customers.
When businesses locate near similar businesses, it is referred to as clustering.
Example:
Medical services are often located near hospitals for the convenience of patients.
Good transportation and/or parking facilities can be vital to retail establishments.
 1. Locational Cost-Profit-Volume Analysis
Locational cost-profit-volume analysis is a method of
determining the volume of production where a

Evaluating
company breaks even with costs and profits.

Location
Alternatives
 2. The Transportation Model
The transportation model addresses the concept of moving a thing from one place to
another without change. It assumes that any damage in route has negative
consequences, and so it's used to analyze transportation systems and find the most
efficient route for resource allocation. The model requires only a few data elements:

Origin of supply
Destination
Unit cost of shipping (per-unit cost)

3. The Center of Gravity Method

The center of gravity method is a method to determine the location of a facility that
will minimize shipping costs or travel time to various destinations. The method treats
distribution cost as a linear function of the distance and the quantity shipped. The
quantity to be shipped to each destination is assumed to be fixed (ie, will not change
over time).
 4. Factor Rating
Factor rating is a technique that can
be applied to a wide range of
decisions ranging from personal
(buying a car, deciding where to live)
to professional (choosing a career,
choosing among job offers).
THANK YOU