Location Strategy Flashcards
- Enables service to more locations
- Reduces mishandling and delays in transit
Central Hub Concept
- Significant impact on fixed and variable costs
- Decisions made relatively infrequently
Strategic Importance of Location
- Once committed to a location
- Many resource and cost issues are difficult to change
Strategic Importance of Location
The objective of the location strategy is
- Maximize the benefit of location to the firm
- Expanding existing facilities
- Maintain existing and add sites
- Closing existing and relocating
Based on low cost require careful consideration
Location Decisions
Once in place, __________ costs are fixed in place and difficult to reduce
Location-Related
Determining optimal facility location is a bad investment. (T or F)
False, good investment
Factors That Affect Location Decisions
Market economics
Communication
Rapid, reliable transportation
Ease of capital flow
Differing labor costs
Country Decisions Key Success Factors
- Political risks, government rules, attitudes, incentives
- Cultural and economic issues
- Location of markets
- Labor talent, attitudes, productivity, costs
- Availability of supplies, communications, energy
- Exchange rates and currency risks
Region/Community Decisions Key Success Factors
- 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
Site Decisions Key Success Factors
- Site size and cost
- Air, rail, highway, and waterway systems
- Zoning restrictions
- Proximity of services/ supplies needed
- Environmental impact issues
Labor Productivity
- Lower productivity may increase total cost
- Labor Cost Per Day / Productivity (Unit Per Day) = Cost per Unit
Rates change over time
Can have significant impact on costs
Exchange Rates and Currency Risks
Costs easily measured costs such as utilities, labor, materials, and taxes.
Tangible Costs
Costs less easy to quantify and include education, public transportation, community, and quality-of-life.
Intangible Costs
- Very important to services
- JIT systems or high transportation costs may make it important to manufacturers
Proximity to Markets
Perishable goods, high transportation costs, bulky products
Proximity to Suppliers
- Often driven by resources such as natural, information, capital, talent
- Found in both manufacturing and service industries
Proximity to Competitors or also called Clustering
Factor-Rating Method
- Develop a list of relevant factors called key success factors
- Assign 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
- Make a recommendation based on the highest point score
Popular because a wide variety of factors can be included in the analysis
Factor-Rating Method
Factor-Rating Formula
Summation of
= [(Weight) x (Score)]
An economic comparison of location alternatives
Locational Cost-Volume Analysis
Locational Cost-Volume Analysis Steps
- Determine fixed and variable costs for each location
- Plot the cost for each location
- Select location with lowest total cost for expected production volume
Locational Cost-Volume Analysis Formula
Total Cost = Fixed Cost + (Variable Cost x Volume)
Finds location of distribution center that minimizes distribution costs that considers:
- Location of markets
- Volume of goods shipped to those markets
- Shipping cost (or distance)
Center-of-Gravity Method
Finds amount to be shipped from several points of supply to several points of demand
Transportation Model
- Solution will minimize total production and shipping costs
- A special class of linear programming problems
Transportation Model
- Purchasing power of customer-drawing area
- Service and image compatibility with demographics of the customer-drawing area
Service Location Strategy
- Competition in the area
- Quality of the competition
- Uniqueness of the firm’s and competitors’ locations
Service Location Strategy
- Physical qualities of facilities and neighboring businesses
- Operating policies of the firm
- Quality of management
Service Location Strategy
- Important tool to help in location analysis
- Enables more complex demographic analysis
Geographic Information Systems (GIS)
