LOCATION

PLANNING
AND
ANALYSIS
Anos, Rochelle Mae
Gutierrez, Jean Earl Karl
Llaneta, Denise Katrina
Mendoza, Hariette Jasher
Rose, Anna Marie
Villon, John Michael

Location Decisions

represent a key part of the strategic

planning process of virtually every bit as
important as it for a house, although for
different reasons
One-time problems pertaining to new
organizations, existing organizations
often have a bigger stake in these kinds
of decisions than new organizations.

Need for Location Decisions

existing organizations
organization experiencing
growth demand
depletion of basic inputs
shift in markets

Need for Location Decisions

Existing Organizations

firms such as banks, fast-food chains,

supermarkets and retail stores

Organization Experiencing Growth Demand

its products or services that cannot be

satisfied by expansion at an existing
location.

Need for Location Decisions

Depletion of Basic Inputs

Example:

fishing and logging operations are forced to

relocate due to the temporary exhaustion of fish or
forests at given location

Shift in Markets

The costs of doing business at a particular location

reach a point where other locations begin to look
more attractive

Nature for Location Decisions

Strategic Importance of Location
Decisions

Location decisions are closely

tied to an organizations
strategies
- strategy of being a low-cost
- strategy of increasing profits

Nature for Location Decisions

Strategic Importance of Location
Decisions

Location decisions are

strategically important for
other reasons
- long-term commitment
- supply chains

Nature for Location Decisions

Objectives of Location Decisions

to identify the best location

available
to find a number of acceptable
locations from which to choose
to focus more on accessibility,
consumer demographics, traffic
patterns and local customs

Nature for Location Decisions

Location Options

expand an existing facility

add new locations while retaining
existing ones
shut down at one location and move
another
organizations have the option of doing
nothing

General Procedure for Making

Location Decision
Decide on the criteria to use of evaluating location
alternatives, such as increased revenues or
community service
2.Identify important factors, such as location of markets
or raw materials
3.Develop location alternatives:
a) general region for a location
b) small number of community alternatives
c)site alternatives among the community alternatives
4. Evaluate the alternatives and make a selection
1.

Factors that Affect Location

Decisions

Regional Factors
Community Considerations
Site-Related Factors
Multiple Plant Manufacturing
Strategies

Factors that Affect Location

Decisions

Regional Factors
location of raw materials
location of markets
labor factors

Factors that Affect Location

Decisions

Location of Raw Materials

Necessity
Perishability
Transportation Costs

Factors that Affect Location

Decisions

Necessity
ex. mining operations, farming, forestry

Perishability
ex. canning or freezing of fresh fruits, baking

Transportation Costs

- are important in industries where processing

eliminates much of the bulk connected in a raw
material, making it much less expensive to
transport the product or material after processing.

Factors that Affect Location

Decisions

Community Considerations
quality of life
services
attitudes
taxes
evironmental regulations
utilities
development support

Factors that Affect Location

Decisions

Site-Related
land
transportation
environmental/legal

Factors that Affect Location

Decisions

Multiple Plant Manufacturing

Strategies
Product Plant Strategy
Market Area Plant Strategy
Process Area Plant Strategy

Factors that Affect Location

Decisions

Product Plant Strategy

entire products or product
lines are produced in
separate plants, and each
plant usually supplies the
entire domestic market.

Factors that Affect Location

Decisions

Market Area Plant Strategy

plants are designed to serve
a particular geographic
segment of a market

Factors that Affect Location

Decisions

Process Plant Strategy

different plants concentrate
on different aspect of a
process.

Service and Retail Locations

customer access is sometimes

a prime consideration.
manufacturers tend to be cost
focused, concerned with
labor, energy, and materials
costs and availability as well
as distribution costs.

Service and Retail Locations

service and retail business

tend to be profit or revenue
focused, concerned with
demographics.

Global Locations
Facilitating Factors

Trade agreements
Technology

Global Locations
Benefits

Markets
Cost saving
Legal and regulatory
Financial
Others

Global Locations
Disadvantage

Transportation cost
Security Cost
Unskilled labor
Import restrictions
Criticism

Global Locations
Risk

Political
Terrorism
Economics
Legal
Cultural

Global Locations
Managing Global Operations

create new issues for

management to deal with

Evaluating Location Alternatives

Locational Cost-Profit-Volume
Analysis
Transportation Model
Factor Rating
Center of Gravity Method

Evaluating Location Alternatives

Locational Cost-Profit-Volume
Analysis
technique for evaluating
location choices in economic
terms
the analysis can be done
numerically or graphically

Evaluating Location Alternatives

PROCEDURE FOR LOCATIONAL COST-VOLUMEANALYSIS
1.Determine the fixed and variable costs associated
with each location alternative.
2.Plot the total-cost lines for all location alternatives
on the same graph.
3.Determine which location will have the lowest cost
for expected level of output. Alternatively,
determine which location will have the highest
profit.

Evaluating Location Alternatives

For COST ANALYSIS,

each location:

compute the total cost for

TOTAL COST= FC + v x Q
Where:
FC = Fixed cost
v = Variable cost per unit
Q = Quantity or volume of output

Example:
Location

Fixed Cost
per year

Variable Cost
per unit

$ 250, 000

$ 11

100, 000

30

150, 000

20

200, 000

35

Find the total-cost for these locations which the

output is approximately equal to 10, 000 units per
unit.

Solution:
Fixed
Cost

+ Variable Cost =

Total
Cost

$ 250,
000

$ 11(10, 000)

$ 360,
000

100,
000

30(10, 000)

400,
000

150,
000

20(10, 000)

350,
000

200,
000

35(10, 000) =

550,
000

Evaluating Location Alternatives

Transportation Model

these can stem from the movement of

either raw materials or finished goods. If a
facility will be the SOLE SOURCE or
DESTINATION OF SHIPMENTS, the company
can include transportation cost per unit
being shipped into the variable cost per
unit.

Evaluating Location Alternatives

Factor Rating
general approach to
evaluating locations that
includes quantitative and
qualitative inputs

Evaluating Location Alternatives

PROCEDURE FOR FACTOR RATING
1.

Determine which factors are relevant.

Assign a weight to each factor that indicates its relative

importance compared with all other factors. Typically, weights sum
to 1.00
2.

Decide on a common scale for all factors (e.g. 0 to 100) and set a
minimum acceptable score if necessary.
3.

4.

Score each location alternative.

Multiply the factor weight by the score for each factor and sum the
results for each location alternative
5.

Choose the alternative that has the highest composite score,

unless it fails to meet the minimum acceptable score
6.

Example:
Factor
Proximity to
existing
store

SCORES
(OUT OF
100)
Weigh Alt.
t
1

Alt.
2

WEIGHTED SCORES
Alternativ
e1

Alternativ
e2

.10

100

60

.10(100)
=10.0

.10(60) =
6.0

Traffic
volume

.05

80

80

.05 (80) =
4.0

.05 (80) =
4.0

Rental costs

.40

70

90

.40(70)
=28.0

.40(90)
=36.0

Size

.10

86

92

.10(86) =
8.6

.10(92) =
9.2

Layout

.20

40

70

.20(40) =
8.0

.20(70)
=14.0

Operating
costs

.15

80

90

.15(80)
=12.0

.15(90)
=13.5

70.6

82.7

1.00

Solution:
Alternative 2

is better because it has the

higher composite high score.

Evaluating Location Alternatives

Center of Gravity Method

method for locating a
distribution center that
minimizes distribution cost