POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

College of Accountancy and Finance

Operations Management and TQM

BUMA 20093

Chapter 8
LOCATION DECISIONS

Submitted by:
Mangabat, Rianna Lynn A.
Mapanoo, Roshanne Franchesca Denice N.

BSMA 2-7

Submitted to:

Prof. Elena Rodil

LOCATION DECISIONS
Being in the right location is a key ingredient in a business's success. If a company selects
the wrong location, it may have adequate access to customers, workers, transportation, materials,
and so on. Consequently, location often plays a significant role in a company's profit and overall
success. A location strategy is a plan for obtaining the optimal location for a company by
identifying company needs and objectives, and searching for locations with offerings that are
compatible with these needs and objectives. Generally, this means the firm will attempt to
maximize opportunity while minimizing costs and risks.
Deciding where to locate a business has always been important. Location plays a huge role
in attracting and retaining the best employees, many of whom keep a close eye on where they are
based in order to optimize work-life balance.

Good location decisions can significantly boost a company’s long-term performance. Poor
ones can cost millions in lost talent, productivity and capital. We frequently come across
companies whose presence of location decision-making strategies—or lack of—have longstanding
consequences. In one case, a company decided to decentralize to cut costs. Real estate expense
was indeed lowered, but the move also resulted in loss of talent and clients—costing the company
up to millions of dollars.

I. The Strategic Importance of Location

Positioning has always been an important element of setting up a business. Your success
as a business depends on how well you are positioned to be found. Positioning includes various
factors, from location to the price of your product or service to the message you use to promote
the business, online and offline.

The importance of the location of your business cannot be stressed enough, despite the rise
of technology, virtual communication and cloud businesses. A business’ address is an important
factor in the way that business is perceived.

If your business address is far away from your target audience, especially if you sell offline,
prospects may find it difficult to locate you. Conversely, if you had a city centre location or one,
which is well regarded as a business centre, prospects be may be more inclined to convert.

The best location can increase brand visibility. Location can also influence a business’s
ability to market itself, the competition it faces from businesses, the total cost of operation, taxes
the business owner has to pay and the regulations they must follow.
 Location also matters for marketing. The importance of location goes beyond your
business’ physical location and your website rank in Google search results. It extends to the
placement of your advertisements.

Easy access is a huge advantage. Basically, you just want to be wherever your customers
are and make it as convenient as possible to visit you. Location is of utmost importance especially
to businesses that sell goods or services directly to customers at brick-and-mortar establishments.

Some customers choose to buy from certain companies because of the perception they have
about them. A business in the commercial area of a city gives the perception that the business is
successful and can afford a good location. Your business should also consider if parking is
available for prospective customers. Many customers will choose to go somewhere else if it is too
hard to find parking.

Think about suppliers. Depending on your business, suppliers could influence your
location. Price and quality are pre-requisites in choosing a supplier, but the speed of delivery has
a huge impact on productivity.

For better and quicker businesses operations, it’s important to consider the location of your
company to make it easy for your suppliers to reach your premises on time to deliver goods and
provide the necessary service for your business to run smoothly. And the closer you are to your
suppliers, the quicker your product can be on the market.

Location will always be important especially for many businesses despite the rise of remote
work, collaboration, telecommuting and virtual offices. If your business is conveniently located at
the best place to attract customers, you can be certain of growth, an increase in sales and brand
visibility. If you’re running a traditional or physical business, your success primarily depends on
your location. Do your research and choose your location carefully.

II. Methods of Evaluating Location Alternatives

The Factor-Rating Method. A location method that instills objectivity into the process of
identifying hard to evaluate costs. Popular method because a wide variety of factors can be
included in the analysis – Qualitative and Quantitative
Six Steps. Develop a list of relevant factors called key success factors. Assign a weight to
each factor. Develop a scale for each factor. Score each location for each factor. Multiply score by
weights for each factor for each location. Recommend the location with the highest point score.
 Locational Break-Even Analysis. The use of cost-volume analysis to make an economic
comparison of location alternatives. Used to determine which location provides the lowest cost –
Can be done mathematically or graphically.
Three Steps. Determine the fixed and variable cost for each location. Plot the cost for each
location. Select location with the lowest total cost for expected production volume.

Center-of-Gravity Method. A mathematical technique used for finding the location of a

distribution center that will minimize distribution costs. Finds location of distribution center that
minimizes distribution costs. This method takes into account the: a) Location of markets, b)
Volume of goods shipped to those markets and c) Shipping Costs for distribution center.
 Steps. Place existing locations on a coordinate grid. Calculate X and Y coordinates for
‘center of gravity.

Transportation Model. The objective of the transportation model is to determine the best
pattern of shipments from several points of supply to several points of demand.

III. Service Location Strategy

A location strategy is a plan for obtaining the optimal location for a company by identifying
company needs and objectives, and searching for locations with offerings that are compatible with
these needs and objectives. Generally, this means the firm will attempt to maximize opportunity
while minimizing costs and risks.

IV. Factors that may Affect Location Decisions

 Location of the target market and proximity of the customers

 Cultural and Economic Issues
 Proximity and availability of supplies, communications and energy
 Target market desires and needs
 Site size and cost
 Environmental impact or issues
 Transportation system or Accessibility
 Proximity of competitor
V. Geographic Information System

A geographic information system (GIS) is a computer system for capturing, storing,

checking, and displaying data related to positions on Earth’s surface.

Uses of GIS in Planning

Land use planning: Land use planning will depend on the information provided
by GIS in deciding which part of the land should be subjected to what land use. It becomes
easier to know what crops will thrive on what part of the land and this helps in improving
yields.
Fire equipment response analysis: GIS can be used to evaluate how far each
portion of the street network is from a firehouse. This can be useful in evaluating the best
location for a new firehouse or in determining how well the fire services cover particular
areas for insurance ratings.
Energy use tracking and planning: GIS can also be used to track the usage of
power and other sources of energy to ascertain how much power or energy is needed to
satisfy the requirements of a given city or state.
Disaster and business community planning: GIS can also provide data about
disasters in a particular area. With this information, people can tell what areas are prone
to disasters which helps them plan effectively.

WHAT IS GIS SOFTWARE?

A Geographic Information System (GIS Software) is designed to store, retrieve, manage,
display, and analyze all types of geographic and spatial data. GIS software lets you produce maps
and other graphic displays of geographic information for analysis and presentation.

EXAMPLES OF GIS SOFTWARES

 Arc GIS
 Q GIS
 Maptitude
 GRASS GIS
 GV SIG
References:
https://www.futureofwork.jll/en/ci/portfolio-strategy/emea/seven-reasons-location-
important/
https://alltopstartups.com/2018/03/15/the-importance-of-location-in-business/
https://www.referenceforbusiness.com/management/Int-Loc/Location-
Strategy.html#google_vignette
https://studylib.net/login.html;jsessionid=7100D3096CE5960F657DAA8DEFFFF12F
https://www.referenceforbusiness.com/management/Int-Loc/Location-Strategy.html
https://www.esri.com/en-us/what-is-gis/overview
https://www.slideshare.net/mobile/JunGonzales/operations-management-location-
strategies-lecture
https://www.slideshare.net/mobile/Joanmaines/location-strategy
https://www.nationalgeographic.org/encyclopedia/geographic-information-system-gis/
https://grindgis.com/gis/importance-of-gis-in-planning
https://www.caliper.com/maptitude/gis_software/default.htm