Professional Documents
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8-1
Outline
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Learning Objectives
When you complete this chapter you
should be able to:
1. Identify and explain seven major factors
that effect location decisions
2. Compute labor productivity
3. Apply the factor-rating method
4. Complete a locational break-even analysis
graphically and mathematically
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Learning Objectives
When you complete this chapter you
should be able to:
5. Use the center-of-gravity method
6. Understand the differences between
service- and industrial-sector location
analysis
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Long-term decisions
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Location Decisions
Country Decision
Figure 8.1
2014 Pearson Education, Inc.
Location Decisions
Region/
Community
Decision
MN
WI
MI
IL
IN
Figure 8.1
5. Environmental regulations
OH
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Location Decisions
Site Decision
Figure 8.1
2014 Pearson Education, Inc.
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TABLE 8.1
Global
Competitiveness
Index of
Countries
2011-2012
RANKING
Switzerland
Singapore
Sweden
Finland
USA
Japan
UK
10
Canada
12
Israel
22
China
26
Mexico
58
Vietnam
65
Russia
66
Haiti
141
Chad
142
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Labor productivity
South Carolina
$70
= $1.17 per unit
60 units
2014 Pearson Education, Inc.
Mexico
$25
= $1.25 per unit
20 units
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Costs
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Location decisions
Costs
based on costs
Tangible - easily measured costs such as
alone can create
utilities, labor, materials, taxes
difficult
ethical
Intangible - less easy to quantify and include
situations
education, public transportation,
community,
quality-of-life
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Ranking Corruption
Rank
Country
2012 CPI Score (out of 100)
1
Demark, Finland, New Zealand
90
Least
4
Sweden
88
Corrupt
5
Singapore
87
6
Switzerland
86
7
Australia, Norway
85
9
Canada, Netherlands
84
13 Germany
79
14 Hong Kong
77
17 Japan, UK
74
19 USA
73
37 Taiwan
61
39 Israel
60
45 South Korea
56
Most
80 China
39
Corrupt
123 Vietnam
31
133 Russia
28
2014 Pearson Education, Inc.
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Proximity to markets
Proximity to suppliers
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Clustering of Companies
TABLE 8.3
Clustering of Companies
REASON FOR
CLUSTERING
INDUSTRY
LOCATIONS
Wine making
Software firms
Silicon Valley,
Boston, Bangalore
(India)
Clean energy
Colorado
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Clustering of Companies
TABLE 8.3
Clustering of Companies
REASON FOR
CLUSTERING
INDUSTRY
LOCATIONS
Theme parks
(Disney World,
Universal Studios,
and Sea World)
Orlando, Florida
Electronics firms
Northern Mexico
High technological
penetration rate and per
capita GDP,
skilled/educated workforce
with large pool of engineers
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Clustering of Companies
TABLE 8.3
Clustering of Companies
INDUSTRY
LOCATIONS
REASON FOR
CLUSTERING
General aviation
aircraft (Cessna,
Learjet, Boeing,
Raytheon)
Wichita, Kansas
Athletic footwear,
outdoor wear
Portland, Oregon
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Factor-Rating Method
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Factor-Rating Example
TABLE 8.4
KSF
WEIGHT
FRANC
E
DENMARK
WEIGHTED SCORES
FRANCE
DENMARK
Labor availability
and attitude
.25
70
60
(.25)(70) = 17.5
(.25)(60) = 15.0
People-to-car ratio
.05
50
60
(.05)(50) = 2.5
(.05)(60) = 3.0
.10
85
80
(.10)(85) = 8.5
(.10)(80) = 8.0
Tax structure
.39
75
70
(.39)(75) = 29.3
(.39)(70) = 27.3
Education and
health
.21
60
70
(.21)(60) = 12.6
(.21)(70) = 14.7
70.4
68.0
Totals
1.00
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Locational
Cost-Volume Analysis
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Locational Cost-Volume
Analysis Example
Three locations:
Selling price = $120
Expected volume = 2,000 units
City
Athens
Brussels
Lisbon
Fixed
Cost
$30,000
$60,000
$110,000
Variable
Total
Cost
Cost
$75
$180,000
$45
$150,000
$25
$160,000
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Locational Cost-Volume
Analysis Example
Crossover point Athens/Brussels
30,000 + 75(x) = 60,000 + 45(x)
30(x) = 30,000
(x) = 1,000
Crossover point Brussels/Lisbon
60,000 + 45(x) = 110,000 + 25(x)
20(x) = 50,000
(x) = 2,500
2014 Pearson Education, Inc.
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Annual cost
Figure 8.2
Locational Cost-Volume
Analysis Example
$180,000
$160,000
$150,000
urve
c
t
s
o
$130,000
on c
b
s
i
L
$110,000
ls
se rve
s
Bru t cu
s
$80,000
co
ns e
$60,000 the urv
A st c
co
Athens
$30,000
lowest
cost
$10,000
|
|
|
0
500
1,000
Lisbon
lowest
cost
Brussels
lowest cost
|
1,500
2,000
2,500
3,000
Volume
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Center-of-Gravity Method
Considers
Location of markets
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Center-of-Gravity Method
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Center-of-Gravity Method
d Q
x-coordinate of the
center of gravity
Q
ix
d Q
y-coordinate of the
center of gravity
Q
iy
where
dix =
x-coordinate of location i
diy =
y-coordinate of location i
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Center-of-Gravity Method
TABLE 8.5
STORE LOCATION
NUMBER OF CONTAINERS
SHIPPED PER MONTH
Chicago
2,000
Pittsburgh
1,000
New York
1,000
Atlanta
2,000
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Center-of-Gravity Method
Figure 8.3
North-South
d1x = 30
d1y = 120
Q1 = 2,000
30
30
60
90
120
150
East-West
Arbitrary
origin
2014 Pearson Education, Inc.
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Center-of-Gravity Method
(30)(2000) + (90)(1000) + (130)(1000) + (60)(2000)
x-coordinate =
2000 + 1000 + 1000 + 2000
= 66.7
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Center-of-Gravity Method
Figure 8.3
North-South
90
60
30
30
60
90
120
150
East-West
Arbitrary
origin
2014 Pearson Education, Inc.
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Transportation Model
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Worldwide Distribution of
Volkswagens and Parts
Figure 8.4
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Location Strategies
TABLE 8.6
SERVICE/RETAIL/PROFESSIONAL
GOODS-PRODUCING
REVENUE FOCUS
COST FOCUS
Volume/revenue
Drawing area; purchasing power
Competition; advertising/pricing
Physical quality
Parking/access; security/lighting;
appearance/ image
Cost determinants
Rent
Management caliber
Operation policies (hours, wage
rates)
Tangible costs
Transportation cost of raw material
Shipment cost of finished goods
Energy and utility cost; labor; raw
material; taxes, and so on
Intangible and future costs
Attitude toward union
Quality of life
Education expenditures by state
Quality of state and local
government
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Location Strategies
TABLE 8.6
SERVICE/RETAIL/PROFESSIONAL
GOODS-PRODUCING
TECHNIQUES
TECHNIQUES
Transportation method
Factor-rating method
Locational costvolume analysis
Crossover charts
ASSUMPTIONS
Location is a major determinant of cost
Most major costs can be identified
explicitly for each site
Low customer contact allows focus on
the identifiable costs
Intangible costs can be evaluated
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r2 = .51
51% of the
profitability is
predicted by
just these
four variables!
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Geographic Information
Systems (GIS)
Detailed maps
Utilities
Geographic features
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Geographic Information
Systems (GIS)
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transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or
otherwise, without the prior written permission of the publisher.
Printed in the United States of America.
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