Location Planning and Analysis PDF

Location Planning and Analysis  IDENTIFY SOME OF THE MAIN REASONS ORGANIZATIONS NEED TO MAKE LOCATION DECISIONS  Overview Location selections play a major role in almost every organization's strategic planning process. In this, we will examine location analysis. We wi...

Location Planning and Analysis  IDENTIFY SOME OF THE MAIN REASONS ORGANIZATIONS NEED TO MAKE LOCATION DECISIONS  Overview Location selections play a major role in almost every organization's strategic planning process. In this, we will examine location analysis. We will begin at the overview of the reason why it is important to make location decisions, the nature of it, and a general procedure for developing and evaluating location alternatives.  The Need For Location Decision Locations are also marketing strategy When an organization grows Depletion of inputs Ex: Fast food chains and other business that will start Expansion putting up- additional branch Mining  Nature of Location Decisions Has a significant effect on the business. Strategic Importance of Location Decisions Low-cost Convenience Capacity and Flexibility Investment requirement Operating Cost Revenues Operations Supply Chains  Objectives of Location Decision Choose the best one not the available or just acceptable one. Supply Chain Considerations Determining number of suppliers, product facilities and warehouses and distribution centers. Centralized distribution yields scale economies as well as tighter control. Decentralized tends to be more responsive to local needs.  Location Options Choose the best one not the available or just acceptable one. Expand an Existing Facility Add new location while retaining existing ones Shutdown at one location to move another Do nothing  GLOBAL LOCATIONS FACILITATING FACTORS Trade Agreements. Barriers to international trade such as tariffs and quotas can have a detrimental effect on trade, while trade agreements that are fair to all sides can help trade to flourish. Technology. Technological advances in communication and information sharing have been very helpful. These include texting, e-mail, cell phones, teleconferencing, and the internet.  BENEFITS Markets. Companies often seek opportunities for expanding markets for their goods and services as well as better serving existing customers by being more attuned to local needs and having a quicker response time when problems occur. Cost savings. Among the areas for potential cost savings are transportation costs labor costs, raw material costs and taxes. Legal and regulatory. There may be more favorable liability and labor laws and less. restrictive environmental and other regulations. Financial. Companies can avoid the impact of currency changes and tariffs that can occur when goods are produced in one country and sold in other countries. Also a variety of incentives may be offered by national, regional or local governments to attract businesses that will create jobs and boost the local economy. Other. Globalization may provide new sources of ideas for products and services new perspectives on operations, and solutions to problems.  DISADVANTAGES Transportation costs. High transportation costs can occur due to poor infrastructure or having to ship over great distances and the resulting costs can offset savings in labor and materials costs Security costs. Increased security risks and theft can increase costs. Also, security at international borders can slow shipments to other countries. Unskilled labor. Low labor skills may negatively impact quality and productivity and the work ethic may differ from that in the home country. Addicional employee training may be required. Import restrictions. Some countries place restrictions on the importation of manufactured goods thus having local suppliers avoids those issues. Criticisms. Critics may argue that cost savings are being generated through unfair practices such as using sweatshops, in which employees are paid low wages and made to work in poor conditions, using child labor, and operating in countries that have less stringent environmental requirements. Productivity. Low labor productivity may offset low labor costs or other advantages.  RISKS Risks with global operations can be substantial. Among the most troublesome are the following: Protecting intellectual property rights. Companies that outsource production to foreign countries need to have assurance that intellectual property rights will be preserved. Political. Political instability and political unrest can create risks for personnel safety and the safety of assets. Moreover, a government might decide to nationalize facilities, taking them over. Terrorism. Terrorism continues to be a threat in many parts of the world. putting personnel and assets at risk and decreasing the willingness of domestic personnel to travel to or work in certain areas. Economic. Economic instability might create inflation or deflation, either of which can negatively impact profitability.  RISKS Legal. Laws and regulations may change, reducing or eliminating what may have been key benefits. Ethical. Corruption and bribery, common in some countries, may be illegal in a company's home country. This poses a number of issues. One is how to maintain operations without resorting to bribery. Another is how to prevent employees from doing this, especially when they may be of local origin and used to transacting business in this way. Cultural. Cultural differences may be more real than apparent. Walmart discovered that fact when it opened stores in Japan. Although Walmart has thrived in many countries on its reputation for low-cost items, Japanese consumers associated low cost with low quality, so Walmart had to rethink its strategy for the Japanese market. Quality. Lax quality controls can lead to recalls and liability issues.  The way an organization approaches location decisions GENERAL often depends on its size and the nature or scope of its operations. PROCEDURE New or small organizations tend to adopt a rather informal approach to location decisions. FOR MAKING New firms typically locate in a certain area simply because the owner lives there. LOCATION 1 firms often want to keep Similarly, managers of small operations in their backyard, so they tend to focus almost DECISIONS exclusively on local alternatives. Large established companies, particularly those that already operate in more than one location, tend to take a more formal approach. Moreover, they usually consider a wider range of geographic locations.  The general procedure for making location decisions usually consists of the following steps: Decide on the criteria to use for evaluating location 1 alternatives, such as increased revenues, decreased cost, or community service. Identify important factors, such as the location of markets or 2 raw materials. The factors will differ depending on the type of facility. Develop location alternatives: a. Identify a country or countries for a location. 3 b. Identify the general region for a location. c. Identify a small number of community alternatives. d. Identify site alternatives among the community alternatives. 4 Evaluate the alternatives and make a selection.  IDENTIFYING A COUNTRY, REGION, AND COMMUNITY  Factors that influence location decisions Basic factors that can affect business in choosing locations: Availability of energy and water Traffic patterns Proximity to raw materials Proximity to markets Transportation cost Location of competitors Once important factors have been determined an organization will narrow down alternatives to a specific geographic region. These factors that influence location selection are often different. depending on whether the firm is a manufacturing or service firm. When deciding on a location, mangers must take into account the cuture shock employees might face after a location move. Culture shock can have a big impact on employees which might affect workers productivity, so it is important that managers look at this. One of the examples why they strategically use other country as location is to use transfer pricing rules where they record profits oversea so that the income they would earn will be recorded in the foreign subsidiary  IDENTIFYING A COUNTRY a. Policies on foreign ownership of production facilities Local content requirements Import restrictions Government Currency restrictions Environmental regulations Liability laws Local product standards A decision maker must b. Stability issues understand the benefits Living circumstances for foreign workers and their Cultural dependents differences Ways of doing business and risks as well as the Religious holidays/traditions probabilities of them Customer preferences Possible "buy locally" sentiment occurring so that they Level of training and education of workers Wage rates can make an informed Labor productivity Labor Work ethic judgement on whether Possible regulations limiting number of foreign employees Language differences locating in a country is Resources Availability and quality of raw materials, energy, desirable. transportation infrastructure Financial Financial incentives, tax rates, inflation rates, interest rates Technological Rate of technological change, rate of innovations Market Market potential, competition Safety Crime, terrorism threat IDENTIFYING A REGION The primary regional factors involve raw materials, markets, and labor consideration. IDENTIFYING A COMMUNITY There are many important factors for deciding upon the community in which to move a business. They include facilities for education, shopping , recreation and transportation among many others. From a business standpoint these factors include utilities, raxes, and environmental regulation. Microfactory small factory with a narrow product focus, located near major markets. Ethical issues it may arise during location search so companies and government should have policies before it happen IDENTIFYING A SITE The main considerations in choosing a sire are land, transportation, zoning and many others. When identifying a site it is important to consider to see if the company plans on growing at this location. If so the firm must consider whether or not location is suitable for expansion. There are many decisions that go into choosing exactly where a firm will establish its operations. Location of Raw Materials: The three most important reasons for a firm to locate in a particular region includes raw materials, perishability, and transportation cost. This often depends on what business the firm is in. Location of Markets: Profit maximizing firms locate near markets that they want to serve as part of their competitive strategy. A Geographic information system (GIS) is a computer based tools for collecting, storing, retrieving, and displaying demographic data on maps. Labor Factors: Primary considerations include labor availability, wage rates, productivity, attitudes towards work, and the impact unions may have. Other: Climate is sometimes a consideration because bad weather can disrupt operations. Taxes are also an important factor due to the fact that taxes affect the bottom line in some financial statements.  When companies have several manufacturing facilities there are several different ways for a company to organize their operations. These ways include: assigning different product lines to different plants, assigning different market areas to Multiple Plant different plants, or assigning different processes to different plants. These strategies carry their own cost and managerial Manufacturing implications, but they also carry a certain competitive advantage. There are four different types of plant strategies: Strategies Product Plant Strategy 1 Market area plant strategy Process Plant Strategy General-Purpose Plant Strategy  Product Plant Strategy Products or product lines are produced in separate plants, and each plant is usually responsible for supplying the entire domestic market. It is a decentralized approach as each plant focuses on a narrow set of requirements that includes specialization of labor, materials, and equipment along product lines. Specialization involved in this strategy usually results in economies of scale and, compared to multipurpose plants, lower operating costs. The plant locations may either be widely scattered or placed relatively close to one another. Market area plant strategy Here, plants are designed to serve a particular geographic segment of a market. the individual plants can produce either most, or all of the company's products and supply a limited geographical area. The operating costs of this strategy are often times higher than those of product plants, but savings on shipping costs for comparable products can be made. This strategy is useful when shipping costs are high due to volume, weight, or other factors. It can also bring the added benefits of faster delivery and response times to local needs. It requires a centralized coordination of decisions to add or delete plants, or to expand or downsize current plants because of changing market conditions.  Process Plant Strategy Here, different plants concentrate on different aspects of a process. This strategy is most useful when products have numerous components; separating the production of components results in less confusion than if all the production were done in the same location. A major issue with this strategy is the coordination of production throughout the system, and it requires a highly informed, centralized administration in order to be an effective operation. It can bring about additional shipping costs, but a key benefit is that individual plants are highly specialized and generate volumes that brings economies of scale. General-Purpose Plant Strategy It is a business model that focuses on a plant's ability to adapt to changing product needs. Companies that use this strategy value flexibility over specific plant charters. Defense contractors are a common example of companies that use this strategy. Geographic The following are some ways businesses use geographic information systems: Information Logistics companies use GIS data to plan fleet activities such as routes and schedules based on the locations of their customers. Publishers of magazines and newspapers use a GIS to analyze circulation Systems and attract advertisers. Real estate companies rely heavily on a GIS to make maps available online to prospective home and business buyers. Banks use a GIS to help decide where to locate branch banks and to A geographic information system understand the composition and needs of different market segments. Insurance companies use a GIS to determine premiums based on (GIS) is a computer based tool population distribution, crime figures and the likelihood of natural for collecting, storing, retrieving. 1 locations, and to manage risk. disasters such as flooding in various and displaying demographic data Retailers are able to link information about sales customers, and on maps. A GIS relies on an demographics to geo-graphic locations in planning locations. They also use a GIS to develop marketing strategies and for customer mapping site integrated systems of computer selection sales projections promotions, and other store portfolio hardware, software data, and management applications. trained personnel to make Utility companies use a GIS to balance supply and demand and identify available a wide range of problem areas. Emergency services use a GIS to allocate resources to locations to provide adequate coverage where they are needed geographically referenced Emergency services use a GIS to allocate resources to locations to provide information. adequate coverage where they are needed.  Service and Retail Location Service and retail are typically governed by somewhat different considerations than manufacturing organizations in making location decisions. Service and retail businesses tend to be profit or revenue focused, concerned with demographics such as age, income, and education, population/drawing area, competition, traffic volume/patterns, and customer access/parking. Retail sales and services are usually found near the center of the markets they serve. Retail and service organizations typically place traffic volume and convenience high on the list of important factors. Specific types of retail or service businesses may pay more attention to certain factors due to the nature of their business or their customers. When businesses locate near similar businesses, it is referred to as clustering. Example: Medical services are often located near hospitals for the convenience of patients. Good transportation and/or parking facilities can be vital to retail establishments.  1. Locational Cost-Profit-Volume Analysis Locational cost-profit-volume analysis is a method of determining the volume of production where a Evaluating company breaks even with costs and profits. Location Alternatives  2. The Transportation Model The transportation model addresses the concept of moving a thing from one place to another without change. It assumes that any damage in route has negative consequences, and so it's used to analyze transportation systems and find the most efficient route for resource allocation. The model requires only a few data elements: Origin of supply Destination Unit cost of shipping (per-unit cost) 3. The Center of Gravity Method The center of gravity method is a method to determine the location of a facility that will minimize shipping costs or travel time to various destinations. The method treats distribution cost as a linear function of the distance and the quantity shipped. The quantity to be shipped to each destination is assumed to be fixed (ie, will not change over time).  4. Factor Rating Factor rating is a technique that can be applied to a wide range of decisions ranging from personal (buying a car, deciding where to live) to professional (choosing a career, choosing among job offers). THANK YOU