Group 4 - Report

Objectives At the end of the report the students must be able to: 1. 2. 3. 4. 5. 6. 7. 8. 9. Understand the need for location planning Identify the importance of Strategic Location decision Identify location options Understand Global locations; pros and cons. Know the procedure in making location decisions Service and Retail location Evaluation location alternatives Analyze locational cost-profit-volume Center of gravity method

Nature of Location Decision - Location decisions for businesses are made infrequently but they tend to have significant impact to the organization.

Why is there a need for Location Decision?

Marketing Strategy Adding new location to expand the markets. Depletion of basic Inputs When resources are exhausted, organizations or businesses are forced to relocate. Shift in market/ Costs The cost of doing business at a particular location seems cheaper and feasible for more customers.

Strategic Importance of Location Decision Organizational Strategy

Low Cost

Increasing Profit

Customer Satisfaction/ Convenience

Low Cost If the strategy of the firm is to reduce cost, the location needs to where labor and material costs are low
Increasing Profit Increase in market share might result to relocating to a high traffic area or a business district. Customer Satisfaction/ Convenience Ensure locations are many where customers can transact businesses and make purchases conveniently.

Importance of Strategic Location Decisions: 1. They entail long term commitment. There is less room for mistakes because once encountered, these are hard to overcome. 2. 3. Impact on investment requirement; Poor choice of location might result in high operating cost, shortage of labor and loss of competitive advantage. For services, it may result to lack of customer and higher operating costs.

Supply Chain - Is the system of organizations, people, activities, information and resources involved in the movement of the product or services from the SUPPLIER TO THE CUSTOMER. Supply chain activities transform raw materials to finish products/ services.

Raw Materials

Factory

Distributor

Retail

Consumer

Location Options 1. Expand existing facility 2. 3. 4. Add new locations/ retain existing ones. Shut down the location and move to another (RELOCATE) Not to move at all

Global Locations Globalization opened new markets and it has increased dispersion of manufacturing and service operations around the world. Facilitating factors: 1. Trade Agreements Barriers to international trades such as quotas and tariffs were reduced or eliminated.

2.

Technology Technological advances in communication and information sharing have been very helpful and useful.

Benefits: 1. Markets 2. Cost Savings 3. Legal and Regulatory 4. Financial 5. Others Disadvantages:

1. Transportation Costs 2. Security Costs 3. Unskilled labor 4. Import restrictions 5. Criticisms

Risks: 1. 2. 3. 4. 5. 6. Political Terrorism Economic Legal Ethical Cultural

General procedures for Making Location Decisions

1. Decide on the criteria to use for evaluating location alternatives. 2. Identify Important factors. 3. Develop location alternatives A. Identify a country or countries for location B. Identify the general region for the location C. Identify a small number of community alternatives D. Identify site alternatives over the community alternatives 4. Evaluate the alternatives and make the decision.

Regional

Community

Site

Factors: Regional Location of raw materials or supplies, Location of markets, Labor. Community Quality of life, Services, Attitudes, Taxes, Environmental Regulations, Utilities, Development Support. Site Land, Transportation, Environmental and Legal

Multiple Plant Manufacturing Strategies 1. Product Plan Strategy - In this strategy, entire products or product lines are produced in separate plants. Each plant usually supplies the whole domestic markets.

2. Market Area Plant Strategy - In this strategy, plants are designed to serve a particular geographic segment or markets.
3. Process Plant Strategy - In this strategy, different plants concentrate on different aspects of a process. 4. General Purpose Plant Strategy - This strategy, Plants are flexible and capable of handling a range of products. This allows for quick response to product or market changes.

Service and Retail Locations - This is governed by different considerations than manufacturing type of business in terms of location decision. Factors: 1. 2. 3. 4. 5. 6. Profit/ Revenue Demographics Customer Access / Convenience High Population Densities Customer Safety/ security Competitors location

Manufacturing/ Distribution

Service/ Retail

Cost Focus

Revenue Focus

Evaluating Location Alternatives 1. Location Cost Volume Analysis - Economic comparison of location alternatives which can be done numerically or graphically.
Steps: 1. Determine the fixed and variable costs associated with each location alternatives. 2. Plot the total cost line for all location alternatives on the same graph. 3. Determine which location will have the lowest total cost for the expected level of output. Alternatively, determine which location will have the highest profit.

Assumption: 1. Fixed cost 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. Total Cost = FC + v x Q
Where FC = Fixed Cost v = Variable cost per unit Q = Quantity or volume of output

Example:
Location Location A Location B Location C Location D Fixed cost per year 250,000 PHP 100,000 PHP 150,000 PHP 200, 000 PHP Variable cost per unit 11.00 PHP 30.00 PHP 20.00 PHP 35.00 PHP

Volume output per year = 10, 000 units Computation: Location A A = 250,000 + 11(10,000) A = 360,000 PHP Location C C = 150,000 + 20(10,000) C = 350,000 Location B B = 100,000 + 30(10,000) B = 400,000PHP Location D D = 200,000 + 35(10,000) D = 550,000

The location with the lowest TOTAL COST for the estimated output is LOCATION C.