LOCATION
STRATEGY
Major Topics
Strategic Importance of Location
Factors that Affect Location Decisions
Methods of Evaluating Location Alternatives
Service Location Strategy
Let us smell the roses!
METHODS OF EVALUATING LOCATION
ALTERNATIVES
Location Break Even Analysis
Center of Gravity Method
Transportation Model
Factor Rating Method
Location Break Even Analysis
Fixed Costs - remains constant regardless of the volume of the production
Variable Costs - depends on the volume of production
Fixed Costs Variable Costs
Akron 30,000 75
Bowling Green 60,000 45
Chicago 110,000 25
Expected Demand = 2,000 per year
Total Costs = Fixed Costs + Variable Costs
For Akron
Total Costs= 30,000 + 75(2,000)=180,000
For Bowling Green
Total Costs=60,000 + 45(2,000)=150,000
For Chicago
Total Costs=110,000 + 25(2,000)=160,000
Akron
200,000 Bowling Green
180,000 Chicago
B
160,000
Total Annual Costs
140,000
120,000
100,000 A
80,000
60,000
40,000
20,000
500 1,000 1,500 2,000 2,500 3,000
Units
At point A, TCBG =TCA
TCBG= 60,000 + 45 (X)
TCA=30,000 + 75 (X) z
60,000 + 45 (X) = 30,000 + 75 (X)
X = 1,000
At point B, TCBG=TCC
TCBG= 60,000 + 45 (Z)
TCC=110,000 + 25 (Z)
60,000 + 45 (Z) = 30,000 + 75 (Z)
Z = 2,500
Akron
200,000 Bowling Green
180,000 Chicago
B
160,000
Total Annual Costs
140,000
120,000
A
100,000
80,000
60,000
40,000
20,000
500 1,000 1,500 2,000 2,500 3,000
Units
At Break Even Total Costs=Total Revenue
Selling Price = 120
Q = units at break even level
For Akron
Total Costs= 30,000 + 75(Q)
Total Revenue=120Q
120 (Q) = 30,000 + 75(Q)
Q = 667
For Bowling Green
Total Costs=60,000 + 45(Q)=120Q
Total Revenue=120Q
120Q =60,000 + 45Q
Q = 800
For Chicago
Total Costs=110,000 + 25(Q)=160,000
Total Revenue=120Q
120Q=110,000 + 25(Q)
Q=1,158
Center of Gravity Method
New York - 1,000
Detroit -2,000
Pittsburgh - 1,000
Atlanta - 2,000
Center of Gravity Method
New York - 1,000
Detroit -2,000
Pittsburgh - 1,000
Atlanta - 2,000
Center of Gravity Method
sum (dix) (Qi)
dxcg =
sum (Qi)
dxcg = distance of the center of gravity from the x axis
dix = distance of location i from the x axis
(Qi) = volume of units intended for location i
Center of Gravity Method
sum (diy) (Qi)
dycg =
sum (Qi)
dycg = distance of the center of gravity from the y axis
diy = distance of location i from the y axis
(Qi) = volume of units intended for location i
Center of Gravity Method
80 New York - 1,000
70
Detroit -2,000
60
50
Pittsburgh - 1,000
40
30
20
Atlanta - 2,000
10
10 20 30 40 50 60 70 80 90 100
Center of Gravity Method
80 New York - 1,000
70
Detroit -2,000
60
50
Pittsburgh - 1,000
40
30
20
Atlanta - 2,000
10
10 20 30 40 50 60 70 80 90 100
Center of Gravity Method
1,000 x 95 + 2,000 x 20 + 1,000 x 68 + 2,000 x 35
dxcg =
1,000 + 2,000 + 1,000 + 2,000
dxcg = 45.5
1,000 x 72 + 2,000 x 62 + 1,000 x 45 + 2,000 x 20
dycg =
1,000 + 2,000 + 1,000 + 2,000
dycg = 46.8
Center of Gravity Method
80 New York - 1,000
70
Detroit -2,000
60
50 CG=45.5,46.8
Pittsburgh - 1,000
40
30
20
Atlanta - 2,000
10
10 20 30 40 50 60 70 80 90 100
Factor Rating Method
Success Factors Weight Score
Economic Development
Manpower Skills
Peace and Order
Political Maturity
Infrastructures
Communications Ability-English
Access to International Transport
Factor Rating Method
Success Factors Weight Score
Economic Development .20
Manpower Skills .15
Peace and Order .10
Political Maturity .20
Infrastructures .15
Communications Ability-English .10
Access to International Transport .10
Factor Rating Method
Thailand/Philippines
Success Factors Score-Thailand Score-RP
Economic Development 90 80
Manpower Skills 90 95
Peace and Order 95 75
Political Maturity 85 90
Infrastructures 90 90
Communications Ability-English 85 95
Access to International Transport 90 95
Factor Rating Method
Philippines
Success Factors Weight Score
Economic Development .20 80
Manpower Skills .15 95
Peace and Order .10 75
Political Maturity .20 90
Infrastructures .15 90
Communications Ability-English .10 95
Access to International Transport .10 95
Factor Rating Method
Philippines
Success Factors Weight Score Weighted Score
Economic Development .20 80 16.0
Manpower Skills .15 95 14.3
Peace and Order .10 75 7.5
Political Maturity .20 90 18.0
Infrastructures .15 90 13.5
Communications Ability- .10 95 9.5
English
Access to International .10 95 9.5
Transport
88.3
Factor Rating Method
Thailand
Success Factors Weight Score
Economic Development .20 90
Manpower Skills .15 90
Peace and Order .10 95
Political Maturity .20 85
Infrastructures .15 90
Communications Ability-English .10 85
Access to International Transport .10 90
Factor Rating Method
Thailand
Success Factors Weight Score Weighted Score
Economic Development .20 90 18.0
Manpower Skills .15 90 13.5
Peace and Order .10 95 9.5
Political Maturity .20 85 17.0
Infrastructures .15 90 13.5
Communications Ability- .10 85 8.5
English
Access to International .10 90 9.0
Transport
89.0