Chapter 8 Location Planning and Analysis

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Chapter 8 Location Planning and Analysis. Location decisions arise for a variety of reasons: Addition of new facilities As part of a marketing strategy to expand markets Growth in demand that cannot be satisfied by expanding existing facilities Depletion of basic inputs requires relocation

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## Chapter 8 Location Planning and Analysis

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Presentation Transcript
Chapter 8 Location Planning and Analysis

Location decisions arise for a variety of reasons:

Addition of new facilities

As part of a marketing strategy to expand markets

Growth in demand that cannot be satisfied by expanding existing facilities

Depletion of basic inputs requires relocation

Shift in markets

Cost of doing business at a particular location makes relocation attractive

Location Decisions: Strategically Important

Location decisions:

Are closely tied to an organization’s strategies

Low-cost

Convenience to attract market share

Effect capacity and flexibility

Represent a long-term commitment of resources

Effect investment requirements, operating costs, revenues, and operations

Importance to supply chains

Evaluating Location Alternatives

Common techniques:

Locational cost-volume-profit analysis

Factor rating

Center of gravity method

Transportation model

Locational Cost-Profit-Volume Analysis

For a cost analysis, compute the total cost for each alternative location:

Example: Cost-Profit-Volume Analysis

Fixed and variable costs for four potential plant locations are shown below:

Formula: TC=FC+v*Q

e.g. Location A: TC = 250,000 + 11*Q

Example: Cost-Profit-Volume Analysis

B Superior

C Superior

A Superior

Cross of Line B and C

• In between Q = 0 and Q = 5000, B is the location with lowest cost

In between Q = 5000 and Q = 11,111.11, B is the location with lowest TC

Above Q = 11,111.11, A is the location with lowest TC

Factor Rating

Factor Rating

General approach to evaluating locations that includes quantitative and qualitative inputs

Example: Factor Rating

A photo-processing company intends to open a new branch store. The following table contains information on two potential locations. Which is better?

Example: Factor Rating

A photo-processing company intends to open a new branch store. The following table contains information on two potential locations. Which is better?

Example: Factor Rating

A photo-processing company intends to open a new branch store. The following table contains information on two potential locations. Which is better?

Example: Factor Rating

A photo-processing company intends to open a new branch store. The following table contains information on two potential locations. Which is better?

Example: Factor Rating

A photo-processing company intends to open a new branch store. The following table contains information on two potential locations. Which is better?

Example: Factor Rating

A photo-processing company intends to open a new branch store. The following table contains information on two potential locations. Which is better?

Weighted score:

- Location 1: 70.6

- Location 2: 82.7

Which location is better now?

Factor Rating

Procedure:

Determine which factors are relevant

Assign a weight to each factor that indicates its relative importance compared with all other factors.

Weights typically sum to 1.00

Decide on a common scale for all factors, and set a minimum acceptable score if necessary

Score each location alternative

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

Choose the alternative that has the highest composite score, unless it fails to meet the minimum acceptable score

Example: Center of Gravity

Suppose the shipments for the problem depicted in Figure 8.1a are not all equal. Determine the center of gravity based on the following information.

The coordinates for the center of gravity are (3.05, 3.7). You may round the x-coordinate down to 3.0, so the coordinates for the center of gravity are (3.0, 3.7). This south of destination D2 (3, 5).

Hwk:

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