Ch 8: Location Planning and Analysis

why location decision matter

• location decisions are long-term strategic commitments that affects:

  • capacity

  • costs

  • revenues

  • competitive advantage

why location decision matter

reasons they arise:

• new facilities

• demand growth

• market strategy

• input depletion

• market shifts

• cost pressures

why location decision matter

4 options:

1. do nothing

2. shut down and relocate

3. expand existing

4. add new locations

Location Considerations by Supply Chain Position

1. beginning of supply chain

locate near raw materias

Location Considerations by Supply Chain Position

2. middle of supply chain

locate near suppliers or markets

Location Considerations by Supply Chain Position

3. end of supply chain

locate near customers, traffic patterns, demographics, and convenience

manufacturing locations

• cost-driven

  • transportation

  • labor

  • energy

  • building costs

service/retail locations

• revenue-driven

  • demographics

  • traffic volume

  • competition

  • parking

  • convenience

global location benefits:

• access to new markets

• cost savings

• legal/regulatory advantages, financial incentives

Multiple Plant Strategies:

1. product plant strategy

each plant produces one specific product or product line for the entire market

ex) nike

Multiple Plant Strategies:

2. market area plant strategy

plants serve specific geographic regions and produce most/all products for that area

ex) mcdonalds, coca-cola

Multiple Plant Strategies:

3. process plant strategy

different plants focus on different stages of production

ex) auto engines, transmissions, body stampingMultiple Plant Strategies:

Multiple Plant Strategies:

4. general-purpose plant strategy

plants are flexible and handle a range of products

Location Evaluation Techniques:

1. locational cost-profit-volume analysis

Total Cost = Fixed Cost + (Variable Cost per unit × Quantity).

• Plot total cost lines for each location and choose the lowest cost at expected volume.

• At high volumes, locations with lower variable cost are preferred — even if fixed costs are higher.

Location Evaluation Techniques:

2. transportation model

• used when shipping goods from multiple origins to multiple destinations

  • GOAL: minimize total transportation costs across the network

Location Evaluation Techniques:

3. factor rating

• Assign weights to qualitative and quantitative factors — weights must sum to 1.00.

• Score each location alternative, multiply weight × score, then sum the results.

• Choose the alternative with the highest composite score.

Location Evaluation Techniques:

4. center-of-gravity method

• Locates a facility based on geographic coordinates of existing locations and their shipment volumes.

• Higher-demand (higher volume) locations exert greater pull on the final result.

• Key variables: distance (coordinates) and shipment volume.