Every firm must use location planning techniques. There are many options for location planning. Corporations choose from expanding an existing location, shutting down one location and moving to another, adding new locations while retaining existing facilities, or doing nothing. There are a variety of methods used to decide the best location or alternatives for the corporation. Methods such as identifying the country, general region, small number of community alternatives, and site alternatives.
Several factors that influence location positioning include the location of raw materials, proximity to the market, climate, and culture. Models for evaluating whether a location is best for an organization consist of cost-profit analysis for locations, the center of gravity model, the transportation model, and factor rating.
This chapter discusses the decision to relocate a facility by considering costs and benefits. If you are planning on moving or acquiring a new facility, there are many factors to consider: the size, the geographic area, culture, transportation costs and others. After a location or locations have been chosen a cost-profit-volume analysis is done.
The main factors that affect location decisions include regional factors, community considerations, and site-related factors. Community factors consist of quality of life, services, attitudes, taxes, environmental regulations, utilities, and development support.
EVALUATING LOCATION ALTERNATIVES (Page 385)
- There are three specific analytical techniques available to aid in evaluating location alternatives:
1. Location Cost-Volume-Profit Analysis:
1. The Cost-Volume-Profit (CVP) Analysis can be represented either mathematically or graphically. It involves three steps: 1) For each location alternative, determine the fixed and variable costs, 2) For all locations, plot the total-cost lines on the same graph, and 3) Use the lines to determine which alternatives will have the highest and lowest total costs for expected levels of output. Additionally, there are four assumptions one must keep in mind when using this method: 1. Fixed costs are constant.
2. Variable costs are linear.
3. Required level of output can be closely estimated. 4. There is only one product involved.
2. Total cost = FC = v(Q)
where FC=Fixed Cost, v=Variable Cost per Unit, Q=Number of Units (Also shown below but not in the same format) 1. Factor Rating
1. This method involves qualitative and quantitative inputs, and evaluates alternatives based on comparison after establishing a composite value for each alternative. Factor Rating consists of six steps: 1. Determine relevant and important factors.
2. Assign a weight to each factor, with all weights totaling 1.00. 3. Determine common scale for all factors, usually 0 to 100. 4. Score each alternative.
5. Adjust score using weights (multiply factor weight by score factor); add up scores for each alternative. 6. The alternative with the highest score is considered the best option. 2. Minimum scores may be established to set a particular standard, though this is not necessary. 2. Center of Gravity Method:
1. This technique is used in determining the location of a facility which will either reduce travel time or lower shipping costs. Distribution cost is seen as a linear function of the distance and quantity shipped. The Center of Gravity Method involves the use of a visual map and a coordinate system; the coordinate points being treated as the set of numerical values when calculating averages. If the quantities shipped to each location are equal , the center of gravity is found by taking the averages of the x and ycoordinates; if the quantities shipped to each location are different , a weighted average must...