location strategy, operation management
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The document discusses the strategic importance of location in business, emphasizing that the right location can significantly impact operating costs and overall success. Key factors affecting location strategy include labor productivity, costs, political risk, and proximity to markets and suppliers. Various methods for evaluating location alternatives, such as factor rating and cost-volume analysis, are also outlined, along with the use of Geographic Information Systems (GIS) for effective location analysis.
location strategy, operation management
- 2. Strategic Importance of Location Location Strategy: a plan for obtaining optimal location for a company and identifies company needs and objectives. Location may determine up to 50% of operating expanse. Right location is a key ingredient in a business's success.
- 3. Strategic Importance of Location: Location has a major impact on overall risk and profit of the company Objective of location strategy is to maximize profit benefit.
- 4. Factors that Affect on location strategy Labor productivity Exchange rates and currency risk Costs Political risk, values, and culture Proximity to Supplier Proximity to Markets Proximity to competitors
- 5. Labor productivity Labor productivity measures the hourly productive output for a country's economy during a period of time. Management tempted by an area’s low wages rates. The formula for labor productivity is: Labor Productivity = labor cost per day/unit produce per day
- 6. Exchange rates and currency risk Unfavorable exchange rate may negate any saving. Firm can take advantage of a particular favorable exchange rate by locating to foreign country. Operational hedging defines the situation where the firm have excess capacity in multiple countries.
- 7. Political Risk, values ,and culture Current situation of democracy in the country. Products that are inhibited by the culture. Government policies Culture variation in different areas.
- 8. Proximity to markets Locates near to customer Specially service organization like restaurants, post offices, barbers find demographic. Prime objective is proximity to market. Manufacturing firms find it useful to close to customer when transporting finished goods.
- 9. costs Tangible cost: readily identifiable and precisely measured (utilities, labor, material, taxes, depreciation, and etc.) Intangible costs: Quality of education, public transportation facility, community attitudes towards company and industry.
- 10. Proximity to supplier Locate near raw material For following reasons: Perishability: bakeries, dairy, plants, and frozen seafood processor. Transportation costs, Steel product and heavy machinery
- 11. Proximity to competitors Locate near somewhat surprisingly competitors. Clustering: the location of competing companies near each other, often because of a critical mass of information, talent, venture capital, or natural resources.
- 13. 1.Factor rating Method. 2.cost volume Analysis. 3.Centre of Gravity Method. 4.Transportation Method.
- 14. Factor rating Develop a list of relevant FACTORS Assigning WEIGHT to each factor (0-1) Develop SCALE for each factor i.e. (1-10), (1-100) Management score for each location for each factor using scale Multiply the score by its weightage and total the score for each location Select the location with maximum total score.
- 15. Cost volume analysis Determine the fixed and variable cost for each location. Find breakeven point. Plot cost for each location. Select the location with lowest total cost for expected production volume. Must Be above Break even.
- 17. Transportation model Determine the best pattern of shipment from several points of supply (sources) to several points of demand (destination). So, as to minimize the total production and transportation cost. Atlanta Chicago St. Louis Lond on
- 18. Service Location strategies Focus on Revenue and volume of business, which are determined by: Purchasing power and demographics of customer drawing area. Competition in the area (amount and quality). Relative attractiveness of the firm’s and competitor’s locations.
- 19. Service Location strategies Uniqueness of location and offerings. Physical qualities of facilities and neighboring businesses. Operating policies and quality of management.
- 20. Geographic Information Systems - GIS New tool to help in location analysis. Combines spatial (location) data and attribute data (for example, demographics). Uses spatial analyses to identify best or satisfactory locations. Allows intuitive graphical display using maps.
- 21. Thank You Group Members • Rahat Himmat Ali (k16-2757) • Muhammad Bilal (k16-2736) • Asad Bajwa (k16-2711) • Taimoor Naseem _k16-2709)