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Location Strategies
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Dr. Anisah Firli

Source : Jay Heizer, Barry Render, Chuck Munson. Operation Management.

Location Provides Competitive Advantages for FedEx
Fred Smith, founder and CEO has idea
“hub for small package delivery, the idea has proven extremely successful
 Starting with one central location in Memphis, $45 billion firm
has added a European hub in Paris, an Asian Hub in
Guangzhou, a Latin American hub in Miami, and a Canadian
hub in Toronto
 FedEx fleet of 677 planes files into 375 airports worldwide
then delivers to the door with more than 80.000 vans and
trucks
 At FedEx hub in Memphis approximately 100 FedEx aircraft
converge each night around midnight with more than 5 million
documents and packages
 At the preliminary sorting area, packages and documents are
sorted and sent to a secondary sorting area
 The Facility covers 1,5 million square feet, it is big enough to
hold 33 football fields. Packages are sorted and exchanged
until 4 a.m
 After check city, state, zip code. They are then placed containers that are loaded into aircraft for
delivery to their final destination in 236 countries
 FedEx fleet of 667 planes makes in the largest airline in the world, more than 80.000 trucks complete
the delivery process
 The $150 million hub opened in Guangzhou in 2009 Lies in the heart of one of China’s fastest growing
manufacturing districs. FedEX controls 39% of the China to US air express market
Why was Memphis picked as FedEx central
Location?
 It is Located in the middle of the US
 It has very few hours of bad weather closures, perhaps contributing to the firm’s excellent flight
safety record
 It provided Fed Ex with Generous Tax incentives
 Central hub permits services to far greater number of points with fewer aircraft than the traditional
City A to City B system
 It also allows FedEx to match aircraft flights with package loads each night and to reduce flights with
package loads each night and to re route flights when load volume requires it, a major cost saving
 Central hub system helps reduce mishandling and delay in transit because there is total control over
the packages from pickup point through delivery
 Location Strategy

Location decision affects both fixed and variable costs

Transportation cost, taxes, wages, raw material costs, and
rents
The
Strategic Location decision affects providing services fast, low cost
transportation of goods and people
Importance
Location option include:
of Location 1. Expanding an existing facility instead of moving
2. Maintaining current sites while adding another facility
elsewhere
3. Closing the extending facility and moving to another
location
Factors that Affect Location Decisions
Identify 7 Major factors that affect location Decision

Cost :
Labor Productivity Tangible : Labor, Utilities, material, taxes, depreciation,
Exchange Rates transportation
& Intangible cost :quality of education, public transportation,
Labor Cost /day Currency Risk
Labor Cost/Unit community attitudes toward the industry and company,
attitude of prospective employee, quality of life

Political Risk
Value Proximity to Competitor
Proximity to Markets Proximity to Supplier
Culture
Methods of Evaluating Location Alternatives
 The Factor- Rating Method

1. Develop a list of relevant factors called key success factors

2. Assign a weight to each factor to reflect its relative importance in the
company’s objectives.
3. Develop a scale for each factor (for example, 1 to 10 or 1 to 100 points).
4. Have management score each location for each factor, using the scale in
Step 3.
5. Multiply the score by the weights for each factor and total the score for
each location.
6. Make a recommendation based on the maximum point score, considering
the results of other quantitative approaches as well.
Example:
Locational Cost-Volume Analysis

a technique for making an economic comparison of location alternatives. By

identifying fixed and variable costs and graphing them for each location, we can
determine which one provides the lowest cost. Locational cost–volume analysis
can be done mathematically or graphically. The graphic approach has the
advantage of providing the range of volume over which each location is
preferable.

The three steps to locational cost–volume analysis are:

1. Determine the fixed and variable cost for each location.
2. Plot the costs for each location, with costs on the vertical axis of the graph
and annual volume on the horizontal axis.
3. Select the location that has the lowest total cost for the expected production
volume.
Example: Location Decision by
Cost
Center of Gravity Method
Transportation Model
The objective of the transportation model is to determine the best pattern of
shipments from several points of supply (sources) to several points of demand
(destinations) so as to minimize total production and transportation costs. Every
firm with a network of supply-and-demand points faces such a problem.

Using
Linear
Programmin
g
Service Location Strategy

Purchasing Power Service and Image

of the customer compatibility with Competition in the Quality of the
drawing area demographics of the area competition
customer drawing
area

Uniqueness of the Physical qualities of Operating policies of Quality of

firm’s and facilities and the firm Management
competitors’ neighboring
location business
Geographic Information System
GIS is used to analyze factors
that influence the location deci-
sions by addressing five
elements for each city:
(1) residential areas,
(2) retail shops,
(3) cultural and entertainment
centers,
(4) crime incidence, and
(5) transportation options.