Location Planning & Analysis

Dr. T. T. Kachwala

Need for Location Decisions

1.

Firms such as banks, fast-food chains, supermarkets, and retail stores look for locations that will help them to expand their markets by the addition of new locations to an existing system.

2.

Similarly, when an organization experiences a growth in demand for its products or services that cannot be satisfied by expansion at an existing location, the addition of a new location to complement an existing system is often a realistic alternative.

3.

For some firms, the costs of doing business at a particular location

reach a point where other locations begin to look more attractive.
Slide 2

Location Options
1.

Expand an existing facility. This option can be attractive if there is adequate room for expansion, especially if the location has desired features that are not readily available elsewhere. Expansion costs are often less than those of other alternatives. Add new locations while retaining existing ones, as is done in many retail operations. Adding locations can be a defensive strategy designed to maintain a market share or to prevent competitors from entering a market. Shut down at one location and move to another. A shift in markets, exhaustion of raw materials, and the cost of operations often cause firms to consider this option seriously.

2.

3.

If a detailed analysis of potential locations fails to uncover benefits that make one of the previous three alternatives attractive, a firm may decide to maintain the status quo, at least for the time being.
Slide 3

Objectives of Location Decisions

1.

All organizations attempt to identify the best location available. In many instances, no single location may be significantly better than the others. There may be numerous

acceptable locations from which to choose.

2.

Location criteria can depend on where a business is in the supply chain. Businesses at the beginning of a supply chain are often located near the source of

the raw materials. Businesses in the middle of the chain may locate near suppliers
or near their markets, depending on a variety of circumstances. Business at the retail end of a chain, site selection tends to focus more on accessibility, consumer

demographics (population density, age distribution, average buyer income), traffic

patterns, and local customs.

Slide 4

Factors that affect Plant Location

1. 2. 3. 4. 5. 6.

Availability of Land Availability of Infrastructure Availability of skilled Labour Availability of Transport Availability of Raw Material Proximity to Market

7.
8. 9. 10. 11. 12.

Climatic Conditions
Statutes Government Subsidies

Tax Concessions
Safety Overall Cost
Slide 5

Factors that affect Plant Location

There is no clear cut best location but rather there are several good locations, each with its strengths and weakness & location decision becomes a trade-off decision. You can gain one type of benefit only by giving

up another.

In a practical situation, depending on the needs of the product & the manufacturing process, one or more factors are considered while deciding the location of a new factory site.
Slide 6

Relative importance of location factors in the Type of facilities

1.

Heavy manufacturing / capital intensive facilities: (1) near raw material sources, (2) inexpensive land & construction costs, (3) ease of waste disposal, (4) availability of an abundant supply of utilities and (5) proximity of rail road service

2.

Light manufacturing facilities: Availability and cost of labour is important. The trend could be towards more

dispersed, decentralized production systems with

many small plants that utilize flexible automation.
Slide 7

Relative importance of location factors in the Type of facilities

3.

Warehouses facilities: The dominant factors are those affecting incoming and outgoing transportation costs although it is desirable and indeed frequently necessary to be near enough to markets

4.

Retailing facilities: are located near concentrations of

target customers

5.

Hospital and emergency: The minimizing of property loss and loss of life is the overriding consideration in these locations.
Slide 8

Factors relating to Foreign locations

1.

Foreign Government: The dominant factors are Government Policies, Import Restrictions, Currency Restrictions, Environment Regulations

2.

Cultural differences: Living circumstances for foreign

workers, Religion & Traditions

3.

Labour & Other Resources: Level of education of workers, language differences, availability of quality raw material, infrastructure availability etc.

Slide 9

Methods of Evaluating Location Alternatives

Four major methods are used for solving location problems:
1.

Factor rating method:

1.

2.

3.

4. 5.

6.

Develop a list of relevant factors called critical success factors Assign a weight to each factor to reflect its relative importance in the companys objective Develop a scale for each factor (for example 1 to 5, 1 to 100) Score each location for each factor using scale in step 3, Multiply the score by the weights for each factor and total the score for each location Make a recommendation based on the maximum point score
Slide 10

Methods of Evaluating Location Alternatives

Four major methods are used for solving location problems:
2.
1.

Location break even analysis:

Determine the fixed and variable cost for each location, Plot the cost for each location, with cost on the vertical axis of graph and annual volume on the horizontal axis, Select the location that has the lowest total cost for the expected production volume.

2.

3.

Slide 11

Methods of Evaluating Location Alternatives

Four major methods are used for solving location problems:
3.

Center-of-gravity method: The first step in the center-of-gravity method is to place the locations on a coordinate system. The relative distances are correctly represented by placing a grid over an ordinary map. The center of gravity is determined using appropriate formulas. The Method assumes that cost is directly proportional to both distance and volume shipped. The ideal location is that which minimizes the weighted distance between the warehouse & its retail outlets
Slide 12

Methods of Evaluating Location Alternatives

Four major methods are used for solving location problems:
4.

Transportation Model: The objectives of the transportation Model is to determine the best pattern of shipments from several sources to several destinations so as to minimize total production & transportation cost. Although the Linear programming technique can be used to solve this type of problem, more efficient, special purpose algorithms have been developed for the transportation application. The transportation model finds an initial feasible solution and then makes step-by-step improvement until an optimum solution is reached.
Slide 13

Thanks and Good Luck

Have a nice Day
Dr. T. T. Kachwala