Lesson 6 Location-Planning

OPERATION
MANAGEMENT
PRESENTATION
By : Allysa Mae M. Fajanilan
Aubrey Schianell L. Landicho
Location
Planning
Decision are very important for all types of
business unit. This is because it affects the cost,
selling prices, and demand of the product. It is a
none recurring heavy expenditure. Large
companies take the help of different
professionals like Lawyers, Accountants,
Environmentalist, etcs., for selecting the proper
location of plant
The Strategic Importance of Location
One of the most important decision a firm

makes
Increasingly global in nature
Significant impact on fixed and variable costs
Decisions made relatively infrequently
Long-term decisions
Once committed to a location, many resource
and cost issues are difficult to change
THE OBJECTIVE OF LOCATION
STRATEGY IS TO MAXIMIZE THE
BENEFIT OF LOCATION TO THE
FIRM
Location Options include:
Expanding existing facilities

Maintain existing and add sites
Closing existing and relocating
MAKING LOCATION DECISIONS
Decide on the criteria
Identify the important factors
Developed location alternative
Evaluate the alternatives
- Identify general region
- Idenfity a small number of community alternatives
- Identify site alternatives
Evaluate and make selection
LOCATION AND COSTS
Location decisions based on low cost
require careful consideration
Once in place, location-related costs are
fixed in place and different to reduce
Determining optimal facility location is a
good investment
READ MORE
Industrial Location Decisions
COST focused
Revenue varies little between locations
Production separate from consumption
Location is major cost factor
Cost vary greatly between locations
Shipping cost
Production costs (e.g., labor)
Service Location
Decisions
REVENUE focus
Cost vary little between

market areas
Production/service
together with
consumption
Location is major
revenue factor
Affects amount of
customer contact
Affects volume of
business
Organizations that Locate Close to
Markets/Customers
Government agencies
Police & fire departments, post offices, public libraries.
Retail sales and Services
Fast food resturants, supermarkets, gas stations
Doctors, lawyers, barbers, banks, auto repair, etc.
When transporting finished goods is more expensive
than transporting materials
Bottling plants, breweries
Electricity production.
Organizations that Locate close to Suppliers or Materials
By necessity.
Mining, fishing, farming, etc.
When transporting materials is more expensive
than transporting finished goods.
Perishable raw materials. (seafood processing.)
Heavy or bulky raw materials (steel producers)
Processing reduce bulk. (lumber ,ills, paper
production)
FACTORS THAT
INFLUENCE LOCATION
POSITIONING
Raw materials
Proximity to the
Market
Climate
Culture
READ MORE
Globalization
Facilitating Factors
Trade agreements
Technology
Benefits
Markets
Cost savings
Legal and regulatory
Financial
Globalization
Disadvantages
Transportation costs
Security
Unskilled labor
Import restrictions
Criticisms
Risks
Political
Terrorism
Legal
Cultural
MODELS FOR
EVALUATING BEST
LOCATION
Cost Profit Analysis for
Locations
The Center of Gravity
Model
Transportation Model
Factor Rating
READ MORE
Models for Evaluating
Best Location
Cost Profit Analysis
for Location
- Represented numerically or
graphically
Total cost = FC + v(Q)

Where FC = Fixed Cost, v = Variable
Cost per Unit, Q = Number of Units
This technique is Distribution costs
THE CENTER OF used in determining is seen as a linear
GRAVITY MODEL the location of a
facility which will
function of the
either reduce travel distance and
time or lower quantity shipped.
shipping costs.
the coordinate
Involves the points being
use of a visual treated as the set
map and of numerical
coordinate values when
calculating
system averages.
READ MORE
The transportation model
uses the principle of
"transplanting" something,
like taking a hole from one
place and inserting it in TRANSPORTATION
another without change. MODEL
First it assumes that to disturb or

change the idea being
transported in any way will
damage and reduce it somehow.
It also assumes that it is possible
to take an idea from one
person's mind into another
person's so that the two people
will then understand in exactly
the same way.
Factor Rating 25
Involves qualitative and

20
quantitative inputs, and 15
evaluates alternative based

on comparison after 10
establishing a composite
5
value for each alternative
0
Item 1 Item 2 Item 3 Item 4 Item 5
MAIN FACTORS AFFECTING
LOCATION DECISIONS
Community
Regional Factors
Considerations
Community
CONSIDERATIONS They must include facilities for
education, shopping, recreation
and transportation among
others. From a business
standpoint these factors include
utilities, taxes and
environmental regulation.
MAIN FACTORS AFFECTING
LOCATION DECISIONS
Site Related Factor

Product Plant
MULTIPLE Strategy
PLANT Market Area Plant
MANUFACTU Strategy
RING
STRATEGIES: Process Plant
Strategy
General Purpose
Plant Strategy
Product Plant Strategy
Product or product lines are
produced in separate plants,
and each plant is usually
reponsible for supplying the
entire domestic market.
It is a decentralized
approach as each plant
focuses on a narrow set of
requirements that includes
specialization of labor,
materials, and equipment
along product lines.
Market Area Plant Strategy
Here, plants are designed to serve a
particular geographic segment of a
market.
The individual plants can produce either
most, or all of the company's products
and supply a limited geographical area
The operating costs of this strategy are
often times higher than those of product
plants, but savings on shipping costs for
comparable products can be made.
This strategy is useful when shipping
costs are high due to volume, weight, or
other factors.
Process Plant Strategy
Here, different plants
concentrate on different
aspects of a process.
This strategy is most useful

when products have numerous
components, separating the
production of components
results in less confusion than if
all the production were done in
the same location.
General Purpose Plant Strategy
It allows for quick response to

products and market changes, but
can be less productive than more
focused approach.

A benefit to this approach is the

increase in learning opportunities
that happens when similar
operations are being done in
different plants.
THANK YOU
FOR
LISTENING!

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OPERATION

One of the most important decision a firm

Expanding existing facilities

Cost vary little between

Total cost = FC + v(Q)

First it assumes that to disturb or

Involves qualitative and

quantitative inputs, and 15

evaluates alternative based

Site Related Factor

This strategy is most useful

It allows for quick response to

A benefit to this approach is the

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