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Location Planning and Analysis: Unit-05 Operations Management

Location decisions are strategic and long-term commitments that impact costs, revenues, and operations. When making location decisions, companies evaluate multiple factors like regional market access, labor availability, and site-specific issues. The decision process involves identifying criteria, alternatives, evaluating alternatives using techniques like cost-volume analysis, and selecting the best location. Cost-volume analysis compares total costs at different output levels to determine the location with the lowest costs.

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233 views17 pages

Location Planning and Analysis: Unit-05 Operations Management

Location decisions are strategic and long-term commitments that impact costs, revenues, and operations. When making location decisions, companies evaluate multiple factors like regional market access, labor availability, and site-specific issues. The decision process involves identifying criteria, alternatives, evaluating alternatives using techniques like cost-volume analysis, and selecting the best location. Cost-volume analysis compares total costs at different output levels to determine the location with the lowest costs.

Uploaded by

harryjohnlyall
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Location Planning and

Analysis
Unit-05
OPERATIONS MANAGEMENT
Chapter Objectives
• List some of the main reasons organizations need to make location
decision
• Explain why location decision are important.
• Discuss the options that are available for locations decision.
• Outline the decision process.
• Use the technique presented to solve typical problem
The Nature of Location Decisions
• Strategic Importance
• Long term commitment/costs
• Impact on investments, revenues, and operations
• Supply chains
• Objectives
• Profit potential
• No single location may be better than others
• Identify several locations from which to choose
• Options
• Expand existing facilities
• Add new facilities
• Move
Making Location Decisions
• Decide on the criteria
• Identify the important factors
• Develop location alternatives
• Evaluate the alternatives
• Make selection
Location Decision Factors
Community
Regional Factors Considerations

Multiple Plant Site-related


Strategies Factors
Regional Factors

• Location of raw materials


• Location of markets
• Labor factors
• Climate and taxes
Community Considerations

• Quality of life
• Services
• Attitudes
• Taxes
• Environmental regulations
• Utilities
• Developer support
Site Related Factors
• Land
• Transportation
• Environmental
• Legal
Multiple Plant Strategies
• Product plant strategy
• Market area plant strategy
• Process plant strategy
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
Trends in Locations

• Foreign producers locating in U.S.


• “Made in USA”
• Currency fluctuations
• Just-in-time manufacturing techniques
• Microfactories
• Information Technology
Factors affecting Location Decisions
Level Factors Consideration
Regional Location of raw Proximity, modes and costs of
materials or supplies transportation, quantity available
Location of markets Proximity, distribution costs,
target market, trade
practices/restriction
Labor Availability, wages
Community Quality of Life Schools, shopping
Services Medical, fire and police
Attitudes Positive/neg
Taxes State, local
Environmental State, local
Regulations
Utilities Cost and availability
Site Land Cost, development work
Transportation Type ,access to roads
Environmental/legal Zoning restrictions
Evaluating Locations
• Cost-Profit-Volume Analysis
• Determine fixed and variable costs
• Plot total costs
• Determine lowest total costs
Location Cost-Volume Analysis
• Assumptions
• Fixed costs are constant
• Variable costs are linear
• Output can be closely estimated
• Only one product involved
Example 1: Cost-Volume Analysis
Fixed and variable costs for
four potential locations

L o c a tio n F ix e d V a r ia b le
C ost C ost
A $ 2 5 0 ,0 0 0 $11
B 1 0 0 ,0 0 0 30
C 1 5 0 ,0 0 0 20
D 2 0 0 ,0 0 0 35
Example 1: Solution

Fixed Variable Total


Costs Costs Costs

A $250,000 $11(10,000) $360,000


B 100,000 30(10,000) 400,000
C 150,000 20(10,000) 350,000
D 200,000 35(10,000) 550,000
Example 1: Solution
$(000)
800 D
700
600 B
500 C
400 A
300 A Superior
200 C Superior
100 B Superior
0
0 2 4 6 8 10 12 14 16

Annual Output (000)

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