Kathleen G.

Apilado

Existing organizations may need to make location decisions for variety of reasons:
They look for locations that will help them to expand their markets Addition of new locations to an existing system When an organization experiences a growth in demand for its products and services that cannot be satisfied by expansion at an existing location. Addition of a new location to complement an existing system.

` ` `

Depletion of basic inputs (e.g. fishing, logging, mining and petroleum operations) Shift in markets Costs of doing business at a particular location. Other locations begin to look more attractive.

` The

following are some of the options made by the usual objective managers on making location choices.

Location decisions are closely tied to organizations strategies.

A strategy of being a low-cost producer might result in locating where labor costs are low, or locating near markets or raw materials to reduce transportation costs. A strategy of increasing profits by increasing market share might result in locating in high-traffic areas. A strategy that emphasizes convenience for the customer might result in having many locations where customers can transact their business or make purchases (e.g. branch banks, ATMs, service stations, fast-food chains)

` `

It entails a long-term commitment Often have an impact on investment requirements, operating costs and revenues, and operations

` ` ` ` `

Excessive transportation costs A shortage of qualified labor Loss of competitive advantage Inadequate supplies of raw materials Some similar conditions that is detrimental to operations.

Could result in lack of customers and/or high operating costs.

Will have a significant impact on competitive advantage Strategic importance to supply chains

Non-profit organizations and profit-oriented organizations have different location decisions, however, both organizations tends to find out the best location available. No single location may be significantly better than the others. Most organizations do not set out with the intention of identifying the one best location; rather, they hope to find a number of acceptable locations from which to choose.

Location criteria can depend on where a business is in the supply chain.

Site selection tends to focus more on accessibility, consumer demographics (population density, age distribution, average buyer income), traffic patterns and local customs.
`

Businesses at the beginning of a supply chain (if they are involved in supplying raw materials) they are often located near the source of the raw materials Businesses in the middle of the chain may locate near suppliers or near their markets, depending on a variety of circumstances.

(e.g. businesses involved in storing and distributing goods often choose a central location to minimize distribution costs.) * Web-based retail businesses are much less dependent on location decisions; they can exist anywhere.

There are four options which Managers generally consider: 1. To expand existing facility.
`

There are four options which Managers generally consider: 1. To expand existing facility. - can be attractive if theres a room for expansion. - if location has desirable features that arenot readily available elsewhere. - expansion costs are often less than the other alternatives
`

There are four options which Managers generally consider: 1. To expand existing facility. 2. To add new locations while retaining existing ones.
`

2. To add new locations while retaining existing ones. - done in many operations - essential to take into account what the impact will be on the total system. (e.g. opening a new store may draw customers who already patronize an existing store, rather than expand the market) - can be a defensive strategy designed to maintain a market share. - prevent competitors from entering a market.

There are four options which Managers generally consider: 1. To expand existing facility. 2. To add new locations while retaining existing ones. 3. Shut down one location and move to another.
`

3. Shut down one location and move to another. - must weigh the costs of a move and the resulting benefits against the costs and benefits of remaining existing location. - a shift in markets - exhaustion of raw materials - cost of operations

There are four options which Managers generally consider: 1. To expand existing facility. 2. To add new locations while retaining existing ones. 3. Shut down one location and move to another. 4. Organizations have the option of doing NOTHING.
`

4. Organizations have the option of doing NOTHING. - if detailed analysis of potential locations fails to uncover benefits that make one of the three previous alternatives attractive. - maintain the status quo.

` ` `

` `

Often depends on its size and the nature or scope of its operations Informal approach: firms located usually from where the owner lives. Informal approach: small firm managers tends to keep their operations nearby only to focus exclusively on local alternatives. Formal Approach: Large established companies who operates from one location or more location. Formal Approach: consider a wider range of geographic locations.

1.

2. 3.

Decide on the criteria to use for evaluating location alternatives (e.g. increase revenues or community service) Identify important factors (e.g. location of markets or raw materials) Develop location alternatives:
1. 2. 3. Identify the general region for a location Identify a small number of community alternatives Identify site alternatives among the community alternatives.

4. Evaluate the alternatives and make a selection

The primary regional factors involve raw materials, markets, and labor considerations. 1.1 Location of raw materials
- Firms locate near or at the source of raw materials for three primary reasons: NECESSITY, PERISHABILITY, TRANSPORTATION COSTS - Necessity (operations which must be located close to their raw materials) : Mining Operations, Farming, Forestry & fishing. - Perishability: firms involved canning or freezing of fresh fruit and vegetables, processing of dairy products, baking. - Transportation: where processing eliminates much of the bulk connected with the raw material, making it much less expensive to transport the product or material after processing
- Some firms choose to locate near the geographic centre of the sources

1.2 Location of Markets - Profit-oriented firms frequently locate near the markets they intend t serve (as part of their competitive strategy) - Nonprofit Organizations choose locations relative to the needs of the users of their services. - Distribution costs / perishability of a finished product.

- Retail sales and services are usually found near the center of the markets they serve (e.g. fastfood restaurants, service stations, dry cleaners, supermarkets) their products and those of their competitors are so similar that they rely on convenience to attract customers.
This type of businesses seek information with high population densities or high traffic.

Competition / Convenience Factor

Typically serve clients who reside within the limited area. Businesses/firms such as hotels, motels, auto repair shops, drugstores, newspaper, kiosks and shopping centers Doctors, dentists, lawyers, barbers and beauticians.

Competitive pressures for retail operations

a market served by a particular location may be too small to justify two or more competitors A search for potential locations tends to concentrate on locations without competitors.
x e.g. large department stores often locate near each other, small stores like to locate in shopping centers that have large department stores as anchors (the large stores attract large numbers of shoppers who become potential customers in the smaller stores.

Some firms must locate close to their markets because of the perishability of their products.
E.g. bakeries, flower shops, fresh seafood stores.
`

Other types of firms, distribution costs are the main factor in closeness to market.
E.g. sand and gravel dealers, usually serve a limited area because of the high distribution costs associated with their products.

Other firms require close customer contact, they tend to locate within the area they expect to serve.
E.g. tailor shops, home remodelers, home repair services, cabinet makers, rug cleaners, lawn garden services.

Locations of many government services are near the markets they are designed to serve. Many foreign manufacturing companies have relocated manufacturing operations in the United States it is a major market for their products.
E.g. Japanese automobile manufacturers

 Software can be helpful in location analysis A geographical information system (GIS) is a computerbased tool for collecting, storing, retrieving and displaying demographic data on maps. The data might involve age, incomes, type of employment, type of housing. The maps maybe global, national, regional, state or province, country, city or town.

1.3. LABOR FACTORS - Primary labor considerations are the cost and availability of labor, wage rates in the area, labor productivity and attitudes toward work, and whether unions are a serious potential problem. - labor cost are very important for laborintensive organizations. - skills of potential employees may be a factor - worker attitudes toward turnover, absenteeism, and similar factors may differ among potential locations - some companies offer their current employees jobs f they move to a new location.

1.4. climate and Taxes - sometimes play a role in location decisions. * can cause problems on deliveries * work disruptions used by inability of employees to get to work have been frequent. - many companies have been attracted to relocate on low-cost energy or labor, climate, and tax considerations. - tax and monetary incentives are major factors in attracting or keeping professional sports franchises.

` `

Communities try to attract new businesses They are viewed as potential source of future tax revenues and new job opportunities Disadvantage:
some firms create pollution problems and lessen the quality of life in the community. Increased level of noise Traffic

ADVANTAGES (for company)

Desirability of a community to work Place for workers and managers Facilities includes: education, shopping, recreation, transportation, religious worship, entertainment, the quality of police, fire, medical services.
`

Other community related factor...

Cost and availability of utilities Environmental regulations Taxes

Evaluation of potential sites may require consulting with engineers or architects. (for heavy manufacturing/erection of large buildings or facilities with special requirements) soil conditions, load factors and drainage Land costs, future expansion, current utility and sewer capacities, sufficient parking space for employees and customers.

When companies have multiple manufacturing facilities, they can organize operations in several ways: 1. PRODUCT PLANT STRATEGY - the entire products are produced in separate plants, each plant usually supplies the entire domestic market. - decentralized approach - each plant focusing on a narrow set of requirements that entails specialization of labor, materials, equipment along product lines. - specialization often results in economies of scale and compared with multipurpose plants, lower operating costs. - plant locations may be widely scattered or clustered relatively close to one another.
`

2. Market Area Plant Strategy - plants are designed to serve a particular geographic segment of a market (e.g. west coast, northeast) - operating costs tend to be higher than those of product plants, significant savings on shipping costs for comparable products can be made. - particularly desirable when shipping costs are high due to volume, weight, or other factors. - have a benefit of rapid delivery and response to local needs. - requires centralized coordination of decisions to add or delete plants, expand or downsize current plants due to changing market conditions.

3. Process Plant Strategy - different plants concentrate on different aspects of a process. - automobile manufacturers often use this approach. - is best suited to products that have numerous components. - coordination of production throughout the system becomes a major issue and requires a highly informed, centralized administration to achieve effective operation. Benefits: - increase in learning opportunities that occurs when similar operations are being done in different plants.

` ` `

Are somewhat different than manufacturing organizations in making location decisions. Customer access is a prime consideration. Manufacturers tends to be cost-focused, concerned with labor, energy, material costs, availability and distribution costs. Tends to be revenue focused, concerned with demographics such as age, income, and education, population/drawing area, competition, traffic volume/patterns, customer access/parking.

Retail businesses prefer locations that are near other retailers, because of the higher traffic volumes and convenience to customers.
(e.g. automobile dealership often tend to locate near each other, and restaurants and specifically stores often locate in and around malls, benefiting from the high traffic)

Medical services are often located near hospitals for convenience of patients.
(e.g. doctors offices may be located near hospitals, centralized areas with other doctors offices, public transportation is often a consideration)

Good transportation and/or parking facilities can be vital to retail establishments Customer safety and security can be key factors

` `

Recent trends in locating facilities: Foreign producers (automotive firms) locate plants to United States. U.S. represents a tremendous market for cars, trucks, recreational vehicles. Can shorten delivery time and reduce delivery costs Can avoid future tariffs or quotas that might be applied to imports.

A development that affects location decisions was the passage of GATT in 1994, one of its provisions was the reduction and elimination of various tariffs. Consequently, location within the borders of a country to escape tariffs is now much less of an issue. An ethical issue has been the use of sweatshops, which employ workers at low wages in poor working conditions, consumer protests have caused a number of companies to cease this practice.

` `

Another trend is just-in-time manufacturing techniques, which encourage suppliers to locate near their customers to reduce supplier lead times, some U.S. firms are reconsidering decisions to locate offshore. Light manufacturing (e.g. electronics), low-cost labor is becoming less important than nearness to markets Users of electronic components want suppliers that are close to their manufacturing facilities. The possibility of a trend in smaller factories located near markets.

` `

(in some industries) small, automated microfactories with narrow product focuses will be located near major markets to reduce response time. Advances in information technology will enhance the ability of manufacturing firms to gather, track, and distribute information that links purchasing, marketing, and distribution with design, engineering, and manufacturing. This will reduce the need for these functions to be located close together. Permitting a strategy of locating production facilities near major markets.

To counter negative sentiments such as not made in this country

E.g. Japanese factories in the U.S. produce cars made by U.S. workers
`

Currency fluctuations and devaluations

Can have a significant impact on demand and on profits. Changes in currency value alter the price of foreign goods, but not the price of goods produced within a country.

Trend toward globalization for some organizations has meant having, facilities, personnel, and operations around the world
Challenges for managing scattered and distant operations, on going social unrest, political instability, terrorist attacks that have caused many organizations to be very cautious about locating in, or even traveling to other countries.
`

Benefits of globalization, coupled with advanced communications capabilities and other technologies.