Lecture 5: Location Strategy Flashcards
What are Location strategies?
→ strategic decision
-you cant change the location after 6 months, because of the financial impacts it has
- based on low cost require careful decisions
- one in place, location related costs are fixed and hard to reduce (plants, mashines, facilities)
→ optimal facility location is a good investment
What are the Location strategic “roles”
+ objectives
-
Offshore factory
- low cost investment & labour costs -
Source factory
- plant management involed in supplier selection & production planning (good connection to reach suppliers, close to raw materials) -
Serve factory
- firm uses government incentives & low exchange risk & tariff barriers to reduce taxes and logistics costs (country gives money to help whole growth -
Contributor factory
- firm involved in product development, production planning, procurrement decisions & developing suppliers (develop product → need for know how + supply chain infos) -
Outpost factory
- embedded network of suppliers, competitors, research facilities for matierial, components & products (Silicon valley) -
Lead factory
- source of PD & PC innovation
- competitive adavantige of the entire organization (compared to other factories)
What are Business Clusters?
+ reasons for success
+ example
-geographic concentrations of interconnected companies & institutions
→ clusters encompass an array of linked ID & other entities important to competition
-research parks & special economic/ID zones serves as magnets for business cluster
Reasons for success:
- close coopertation, coordination & trust among clustered companies
- fierce competition among rival companies
- companis recriut from local pool of skilled workers
→ Silican Valley as prime example
What the the two location strategies and what their focusses
- ID Location strategies
→ Cost focus
- revenues varies little between locations (production costs are everywhere similar GOAL)
→ Location seen as a major cost factor:
- affects shipping & production costs (e.g labour, materials)
- costs vary greatly between locations
- Service Location Stragies
→ Revenues focus
-costs vary little between market areas
Location is a major revenue factor
- affects amount of customer contact
- affects volume of business (amount of products you can sell)
What are location decisions?
- long term decision
- made infrequently
- greatly affects both fixed and variable cost
→Once committed to a location, many resource and cost issues are difficult to change
What are the levels of Location Decisions?
- Country
- Region/Community
- Site
What are key succes factors on country level?
- political risks, government rules, attitudes, incentives (no war, rule stable?)
- Cultural and economic issues
- Location of markets
- Labor talent, attitudes, productivity, costs
- Availability of supplies, communications, energy
- Echanges rates and currency risks (stable or not)
What are key succes factors on Region/Community Level?
- Corporate desires
- Attractiveness of region
- Labor availability and costs
- Costs and availability of utilities
- Environmental regulations
- Government incentives and fiscal policies
- Proximity to raw materials and customers
- Land/construction costs
What are the Key Succes Facotors on Site Level?
- Site size and cost
- Air, rail, highway and waterway systems
- Zoning restrictions
- Proximity of services/supplies needed
- Environmental impact issues
What Facotrs affect Location Decision? (1-4)
-
Labor productivity
-wage rates are not the only cost
-lower productivity may increase total cost
Cost per unit = (Labor cost per day)/(Productivity (unit per day)) -
Exchange rates and currency risks
-can have impact on costs
-rates change over time -
Costs
-tangible: easily measured cost (utilities, labor, materials and taxes)
-intangible: hard to quantify (education, public transportation, community, quality-of-life) - Political risk, values and culture
- national state , local governments attitude towards private and interultural property
- workers attitude towards turnover …
- globally cultures have different attitudes towards punctuality. legal and ethnical issues
What Factors affect Location Decision? (4-7)
- Political risk, values, and culture
- Proximity to markets
- Proximiy to suppliers
- Proximity to competitors
What is the Factor-Rating Method and what are the steps?
→ popular, because a wide variety of factors can be includes in the analysis
Steps:
- Develop a list of relevant factors called key success factors
- Assing a weight to each factor
- Develop a scale for each factor
- Score each location for each factor
- Multiply score by weights for each factor for each location
- Recommend the location with the hightes point score
What is the location break even analysis and what are the steps ?
= method of cost-volume analysis used for industrial locations
- three steps in the methos :
- determine fixed and variable costs for each location
- plot the cost for each location
- select location with lowest total cost for expected production volume
What is the Center-of-Gravity Method and what should be considerd?
= method which finds location of distributioncenter that minimizes distribution costs
- pleces existing locations on a coordinate grid ( grid origin and scale is arbitary, maintains relative distances)
- calculate X and Y coordinates for ‘center of gravity’ (assumes that cost is directly proportianal to distance and volume shipped)
- consider :
- location of markets
- volume of goods shipped to those markets
- shipping cost or distance
How can you calculate the X and Y coordinate of the ‘Center of Gravity Method’
Example for Center of Gravity
What is the Geografic Information System ?
- new tool to help in location analysis
- enables more complex demographic analysis
- available data baese include
- detailed census data
- detailed maps
- utilities
- geographic features
- locations of major services
