ch08_ism[1] - CHAPTER Location Strategies 8 DISCUSSION...

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105 D ISCUSSION Q UESTIONS 1. FedEx’s key location concept is the central hub concept, with Memphis selected for several reasons, including its being in the middle of the country and having very few hours of bad weather closures. 2. The major reason for U.S. ±rms to locate overseas is often lower labor costs, but as this chapter and Chapter 2 suggest, there are a number of considerations. 3. The major reason foreign ±rms build in the U.S. is to satisfy the demand for foreign goods in the United States while reducing trans- portation cost and foreign exchange risk; in addition, U.S. locations allow foreign ±rms to circumvent quotas and/or tariffs. 4. Clustering is the tendency of ±rms to locate near competitors. 5. Different weights can be given to different factors. Personal preferences are included. 6. The qualitative approach usually considers many more factors, but its results are less exact. 7. Clustering examples in the service sector include fast-food restaurants, shoe and jewelry stores in a shopping mall, and theme parks. 8. Factors to consider when choosing a country : n Exchange rates n Government stability (political risk) n Communications systems within the country and to the home of±ce n Wage rates n Productivity n Transportation costs n Language n Tariffs n Taxes n Attitude towards foreign investors/incentives n Legal system n Ethical standards n Cultural issues n Supplies availability n Market locations 9. Factors to consider in a region/community decision: n Corporate desires n Attractiveness of region n Labor issue n Utilities n Environmental regulations n Incentives n Proximity to raw materials/customers n Land/construction costs 10. Franchise operations may add new units per year; Exxon, McDonald’s and Wal-Mart add hundreds of units per year, almost a daily location decision. For such organizations, the location de- cision becomes more structured, more routine. Perhaps by repeat- ing this process they discover what makes their strategic locations decisions successful. 11. Factors affecting location decisions: labor productivity, for- eign exchange, changing attitudes toward the industry, unions, employment, zoning, pollution, and taxes. 12. The center of gravity method assumes that cost is directly proportional to both distance and volume shipped. For service fa- cilities, revenue is assumed to be directly proportional to proxim- ity to markets. 13. Locational break-even analysis three steps: n Step 1: Determine ±xed and variable cost for each location. n Step 2: Plot the costs for each location, with costs on the vertical axis of the graph and annual volume on the hori- zontal axis. n Step 3: Select the location that has the lowest total cost for the expected production volume. 14. The issue of weight or volume gain and weight or volume loss during processing is important, and supports the manufactur- ing side of the saying (weight loss during mining and re±ning, for example, suggests shipping after processing). But JIT may be more easily accomplished when suppliers are clustered near the customer. And some services (such as Internet sales) can take
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ch08_ism[1] - CHAPTER Location Strategies 8 DISCUSSION...

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