Location Planning and Analysis

Need for location decisions

· Companies view location as part of marketing strategy and they look for locations that will help them to expand their markets (Addition of new locations to an existing system)

· Location decision through depletion of basic inputs, example – Relocation of Fishing and logging operations due to temporary exhaustion of fish or forests at a given location

· Shift in market causing companies to relocate/ cost of doing business at a particular location

Strategic importance of location decisions

· Low cost producer – Location near cheap labor, materials or market to reduce transportation costs

· Increasing profit by increasing market share

· Convenience for customer

· Long term commitment

· They have impact on investment requirements, operating costs and revenues and operations

Location options

1. Expand an existing facility (if there is adequate room for expansion)

2. Add new locations (while retaining existing ones)

3. Shut down at one location and move to another

4. Doing nothing

Factors affecting location decision

· For manufacturing organizations

o Availability of abundant energy & water supply

o Proximity of raw materials

o Availability of large amount of electricity (like in Al)

o Transportation costs

· For Service organizations

o Traffic patterns

o Convenience

o Competitor’s location

o Proximity to the market

o Human factor (To avoid culture shock when transferred to new place)

Regional factors

1. Location of raw materials

a. Why nearness of raw material is required

i. Necessity – Example – Mining operations, farming, forestry, and fishing

ii. Perishability – Example – Canning or freezing of fresh fruit and vegetables, processing of dairy products, baking

iii. Transportation costs – Location near geographic center of the sources. Example – Regional warehouses are used by supermarkets and other retail operations to supply multiple outlets and are located in the geographic center

2. Location of Markets –

a. Profit oriented firms frequently locate near the markets they intend to serve as part of their competitive strategy, whereas non-profit organizations choose locations relative to the needs of the users of their services.

b. Retail and services are usually found near the center of the markets they serve. Example – Fast-food restaurants, service stations, dry cleaners and supermarkets. These business seek locations with high population densities or high traffic area

c. Competitive pressures – It could be desirable to locate near competition. Example – Large department stores often locate near each other, and small stores like to locate in shopping centers that have large department stores as anchors. The large stores attract large number of shoppers who become potential customers in the smaller stores or in the other large stores

d. Perishability of the products – Example – Bakeries, Flower shop, fresh seafood stores

e. Distribution costs – Example – Sand and gravel dealers usually serve a limited area because of the high distribution costs associated with the product

f. Close customer contact – Tend to locate near the area they tend to serve. Example – Tailor shops, Home repair services, lawn and garden services

g. Other factor – Location of many government services like post offices are near the markets they serve

3. Labor Factors

a. Cost and availability of labors – (like labor intensive industry – textile industry)

b. Wage rates in an area

c. Labor productivity and attitude towards work - Workers attitude towards turnover and absenteeism is important factor under consideration. Some companies offer relocation of families if current employee moves to a new location.

d. Unions role

e. Skill of potential employees – Some companies prefer to train new employees rather than depending on previous experience

4. Climate and Taxes

a. Firms move to a new location in unfavorable climate (extreme cold) to avoid delayed deliveries and work disruptions

b. Sometimes, business and personal income taxes in some places reduce their attractiveness to companies seeking new locations

5. Community considerations

a. Community resistance to airport expansion, construction of nuclear power plants and highways because of possible noise pollution, traffic and pollution in-turn reducing the quality of life in the community

b. Desirability of a community location – Presence of facilities for education, shopping, recreation, transportation, religious worship and entertainment; the quality of Police, fire and medical services.

c. Other factors –

i. Cost and availability of utilities

ii. Environmental regulations

iii. Taxes (State and Local, direct and indirect)

iv. Government facilities – Bond issues, tax rebates, low cost loans, grants & worker training

6. Site Related Factors

a. Land – Soil conditions, load factors and drainage rates

b. Transportation – For firms with executives who travel frequently, the size and proximity of the airport or train station as well as travel connection can be important

c. Zoning – Industrial parks may be worthy alternatives for firms involved in light manufacturing or assembly, warehouse operations and customer service facilities

d. Other factors – Rom for future expansion, current utility and sewer capacities, sufficient parking space for employees and customers

Service and Retail locations

1. Customer Access – It is a prime consideration for banks, supermarkets (but not consideration for cal centers, catalog sales and online services

2. Traffic volume and convenience – Retailers prefer locations that are near other retailers (although not necessarily competitors) because of high traffic volumes and convenience to customers. Example – Automobile dealers locate near each-other, restaurants and specialty stores locate in and around malls, Medical services are often located near hospitals for convenience of patients

3. Good transportation and/or parking facilities – Example – Malls Vs Local shops, where Malls provide ample space to park, parking near shops may pose a problem

4. Customer safety and security – Example – Customers travelling to call-centers

Global Locations

Facilitating Factors

· Trade Agreements

o NAFTA – North American Free Trade Agreement

o GATT – General Agreement on Tariffs and Trade

o US-China Trade relations

o European union dropping many trade barriers within euro-zone

· Technology

o These include faxing capability, e-mail, cell phones, teleconferencing and Internet

Benefits of Globalization

Markets – For expansion and better servicing existing customers

Cost Savings – Areas of potential cost saving are transportation costs, labor costs, materials costs and taxes. Setting up production facilities in lower-cost countries like Siemens(Britain), Bayer(Texas) and Mercedes (US) locating in Germany.

Legal and Regulatory – There may be more favorable liability and labor laws, and less restrictive environment and other regulations

Financial – Impact of currency changes when a company produces and sells goods in different countries. Also, a variety of incentives may be offered by national, regional or local governments to attract businesses that will create jobs and boost the local economy

Other – New sources of ideas for products and services, and new perspectives on operations, and on solutions to problems

Disadvantages

Transportation Costs – It may be due to poor infrastructure or long shipping distances

Security Costs – Security at international borders can slow shipments to other countries

Unskilled Labor – Difference in work ethics may pose a problem. Also, employee training may be required

Import Restrictions – Some countries place restrictions on the importation of manufactured goods, so having local suppliers avoids those issues

Criticisms – According to critics, cost saving is done by paying poor wages and giving poor working conditions (using child labor)

Risks

Political – Political stability and political unrest creates risk for personnel safety and safety of assets (Threat of private assets being nationalized)

Terrorism – Threatens workers to work and travel in certain areas

Economic – Economic instability might create inflation or deflation

Legal – Changes in laws may reduce or eliminate key benefits

Cultural – Customers may view low cost with low quality (like Japan, where Wal-mart products were viewed as inferior due to low cost)