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Ch 8: Location Strategy

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by Libby Schott on 23 February 2014

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Transcript of Ch 8: Location Strategy

Ch 8: Location Strategy
Strategic Importance of Location
Methods of Evaluating Location Alternatives
Location and Costs
Location decisions based on low cost require careful consideration
Once in place, location-related costs are fixed in place and difficult to reduce
Determining optimal facility location is a good investment
The objective of location strategy is to maximize the benefit of location to the firm
One of the most important decisions 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
Factors
Globalization adds to complexity
Market economics
Communication
Rapid, reliable transportation
Ease of capital flow
Differing labor costs
Identify key success factors (KSFs)
Labor productivity
Wage rates are not the only cost
Lower productivity may increase total cost
Exchange rates and currency risks
Can have a significant impact on costs
Rates change over time
Costs
Tangible - easily measured costs such as utilities, labor, materials, taxes
Intangible - less easy to quantify and include education, public transportation, community, quality-of-life
Political risk, values, and culture
National, state, local governments attitudes toward private and intellectual property, zoning, pollution, employment stability may be in flux
Worker attitudes towards turnover, unions, absenteeism
Globally cultures have different attitudes towards punctuality, legal, and ethical issues
Proximity to markets
Very important to services
JIT systems or high transportation costs may make it important to manufacturers
Proximity to suppliers
Perishable goods, high transportation costs, bulky products
Proximity to competitors (clustering)
Often driven by resources such as natural, information, capital, talent
Found in both manufacturing and service industries
Popular because a wide variety of factors can be included in the analysis
An economic comparison of location alternatives
Center of Gravity Method
Factor-Rating Method
Finds location of distribution center that minimizes distribution costs
Locational Cost-Volume Analysis
Transportation Model
Finds amount to be shipped from several points of supply to several points of demand
Solution will minimize total production and shipping costs
A special class of linear programming problems
Service
Location Strategy
Geographic Information Systems
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