Plant Location Need for Location Decisions

 Need for location decisions  Marketing Strategy

 Nature of location decisions
 Cost of Doing Business
 Types of facilities

 Procedure for making location decisions  Growth

 Location factors  Depletion of Resources
 Various plant location methods

Nature of Location Decisions Simple Product Supply Chain

 Strategic Importance
 Long term commitment/costs Suppliers’ Direct Distributor Final
 Impact on investments, revenues, and operations Suppliers Suppliers Producer Consumer
 Supply chains
 Objectives
 Profit potential
 No single location may be better than others Supply Chain: A sequence of activities
 Identify several locations from which to choose And organizations involved in producing
 Locations Options And delivering a good or service
 Expand existing facilities
 Add new facilities
 Move
 A Supply Chain for Bread Types Of Facilities

Stage of Production Value Value of

Added Product  Heavy manufacturing
Farmer produces and harvests wheat $0.15 $0.15
Auto plants, steel mills, chemical plants
Wheat transported to mill $0.08 $0.23
Mill produces flour $0.15 $0.38  Light industry
Flour transported to baker $0.08 $0.46 Small components mfg, assembly
Baker produces bread $0.54 $1.00
 Warehouse & distribution centers
Bread transported to grocery store $0.08 $1.08
Grocery store displays and sells bread $0.21 $1.29
 Retail & service
Total Value-Added $1.29

Factors in Heavy Manufacturing

Location Factors in Light Industry Location

 Construction costs
 Land costs  Construction costs
 Raw material and finished goods  Land costs
shipment modes
 Easily accessible
 Proximity to raw materials
geographic region
 Utilities
 Labor availability  Education & training capabilities
 Proximity to customers
 Environmental issues
 Factors in Warehouse Location Factors in Retail Location

 Proximity to
 Transportation costs customers
 Proximity to markets  Location is
everything

Making Location Decisions Location Decision Factors

 Decide on the criteria – revenues, service Regional Factors

 Identify the important factors

 Develop location alternatives

 Identify a general region for location Community
 Identify a small number of community alternatives Considerations
 Identify site alternatives among the community alternatives
Site-related
 Evaluate the alternatives Factors
 Make selection
Globalization and Geographic Dispersion
 Improved transportation
and communication
technologies
 Loosened regulations on
financial institutions
 Increased demand for
imported services and
goods
 Reduced import quotas
and other international
trade barriers
Managing Global Operations
 Other Languages
 Different Norms and
Customs
 Workforce Management
 Unfamiliar Laws and
Regulations
 Unexpected Cost Mix

Location Decisions - Manufacturing Location Decisions - Services

 Favorable Labor Climate  Proximity to

 Proximity to Markets Customers
 Quality of Life  Transportation Costs
and Proximity to
 Proximity to Suppliers Markets
 Proximity to Parent Company  Location of
 Utilities, Taxes, and Real Competitors
Estate Costs  Site-Specific Factors
 Comparison of Service and Global Location Factors
Manufacturing Considerations
 Government stability  Raw material availability
Manufacturing/Distribution Service/Retail  Government regulations  Number and proximity of
suppliers
 Political and economic
Cost Focus Revenue focus  Transportation and
systems
distribution system
Transportation modes/costs Demographics: age,income,etc  Economic stability and  Labor cost and education
growth
Energy availability, costs Population/drawing area  Available technology
 Exchange rates  Commercial travel
Labor cost/availability/skills Competition  Culture  Technical expertise
 Climate  Cross-border trade
Building/leasing costs Traffic volume/patterns
 Export import regulations, regulations
Customer access/parking duties and tariffs  Group trade agreements

Location Incentives Regional Factors

 Location of raw materials

 Tax credits  Location of markets
 Relaxed government  Labor factors
regulation
 Climate and taxes
 Job training
 Infrastructure
improvement
 Money
 Community Considerations Site Related Factors

 Quality of life  Land

 Services  Transportation
 Attitudes  Environmental
 Taxes  Legal
 Environmental regulations

 Utilities

 Developer support

Trends in Locations

 Foreign producers locating in U.S. Foreign a. Policies on foreign ownership of production facilities
Government Local Content
 “Made in USA” Import restrictions
 Currency fluctuations Currency restrictions
Environmental regulations
 Just-in-time manufacturing techniques Local product standards
b. Stability issues
 Microfactories Cultural
Differences
Living circumstances for foreign workers / dependents
Religious holidays/traditions
 Information Technology
Customer Possible buy locally sentiment
Preferences

Labor Level of training and education of workers

Work practices
Possible regulations limiting number of foreign employees
Language differences
Resources Availability and quality of raw materials, energy,
transportation
 Evaluating Locations Location Cost-Volume Analysis

 Cost-Profit-Volume Analysis  Assumptions

 Determine fixed and variable costs  Fixed costs are constant
 Plot total costs  Variable costs are linear
 Output can be closely estimated
 Determine lowest total costs
 Only one product involved

Cost-Volume Analysis Example 1: Solution

Fixed and variable costs for

four potential locations Fixed Variable Total
Costs Costs Costs
L o c a tio n F ix e d V a r ia b le
C ost C ost A $250,000 $11(10,000) $360,000
A $ 2 5 0 ,0 0 0 $11
B 1 0 0 ,0 0 0 30 B 100,000 30(10,000) 400,000
C 1 5 0 ,0 0 0 20 C 150,000 20(10,000) 350,000
D 2 0 0 ,0 0 0 35
D 200,000 35(10,000) 550,000
 Example 1: Solution Evaluating Locations

$(000)  Transportation Model

800 D  Decision based on movement costs of raw
700
B materials or finished goods
600
500 C  Factor Rating
400 A
300
 Decision based on quantitative and qualitative
A Superior
200 C Superior
inputs
100 B Superior
 Center of Gravity Method
0
0 2 4 6 8 10 12 14 16  Decision based on minimum distribution costs
Annual Output (000)