Chapter 8 LOCATION PLANNING The Need for Location Decisions Existing organizations become involved in location decisions for

a variety of reasons. 1. Addition of new locations to an existing system. 2. Addition of new location to complement an existing system is often a realistic alternative. 3. A shift in markets causes them to consider relocation, or the costs of doing business at a particular location reach a point where other locations begin to look more attractive. The Nature of Location Decisions Location decisions for many types if businesses are made infrequently, but they tend to have a significant impact on the organization. Importance of Location Decisions There are two primary reasons that location decisions are a highly important part of production systems design. One is that they entail a long-term commitment, which makes mistakes difficult to overcome. The other is that location decisions often have an impact on investment requirements operating costs and revenues, and operations. Objectives of Location Decisions Profit-oriented organizations base their decision on profit potential, whereas nonprofit organizations strive achieve a balance between cost and the level of customer service provide. Location Options 1. To expand an existing facility. 2. To add new locations while retaining existing ones, as is done in many retail operations. 3. To shut down at one location and move to another. 4. Doing nothing. General Procedure for Making Location Decisions 1. Decide on the certain that will be used to evaluate 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. Identify the general region for a location b. Identify a small number of community alternatives. c. Identify site alternative among the community alternatives. 4. Evaluate the alternatives and make a decision. Factors That Affect Location decisions 1. Regional Factors: 1. Location of Raw Materials 2. Location of Markets 3. Labor Factors 2. Community Considerations a. Facilities b. Services c. Attitudes d. Taxes e. Environmental regulations f. Utilities g. Development support

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Site-relate Factors a. Land b. Transportation c. Environmental/Legal

Multiple Plant Manufacturing Strategies 1. To assign different product lines to different plants. (product plant strategy) 2. To assign different market areas to different plants. (market area plant strategy) 3. To assign different processes to different plants. (process plant strategy) Trends in Locations and Possible Future Strategies Microfactory. Small factory with a narrow product focus, located near major markets. Evaluating Location Alternatives 1. Locational Cost-Volume Analysis. Technique for evaluating location choices in economic terms. Steps: 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 has the lowest total cost for the expected level of output. Assumes: 1. Fixed cots are constant for the range of probable output 2. Variable costs are linear for the range of probable output 3. The required level of output can be closely estimated 4. Only one product is involved. 2. Factor rating . General approach to evaluating locations that includes quantitative and qualitative inputs. Procedure: 1. Determine which factors are relevant. 2. Assign a weight to each factor that indicates its relative importance compared with all other factors. Typically, weights sum to 1. 3. Decide on a common scale for all factors. 4. Score each location alternatives 5. Multiply the factor weight by the score for each factor, and sum the results for each location alternative 6. Choose the alternative that has the highest composite score 3. Center of gravity method. Method for locating a distribution center that minimizes distribution cost. X = xi / n y = yi / n where xi x coordinate of destination i yi y coordinate of destination i n number of destinations x = xiQi / Qi y = yiQi / Qi where Qi Quantity to be shipped to destination xi x coordinate of destination i yi y coordinate of destination i