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Chap008 - Chapter 08 Location Planning and Analysis CHAPTER...

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Chapter 08 - Location Planning and Analysis CHAPTER 8: LOCATION PLANNING AND ANALYSIS Teaching Notes Facility Location refers to the location of a service or manufacturing facility with respect to customers, suppliers and other existing facilities such that it allows the company to gain a competitive and/or strategic edge. In making a location decision, both tangible costs such as the cost of operating the facility, cost of land (if it applies), cost of labor, taxes, utilities and the cost of inbound and outbound transportation, and intangible costs such as availability of qualified labor, and labor climate must be considered. Since the location decision usually involves making a large capital investment, it not only impacts the firm’s ability to compete but also has long-term strategic implications. Therefore in making the location decision, we should consider issues related to marketing, production, transportation and other relevant costs as well as the strategy of the organization. The importance of various factors in relation to the location decision will vary between service and manufacturing organizations but also from industry to industry as well. Reading: Not So Clear Choices: Should you Export or Manufacture Overseas 1. Advantages of exporting include the following: a. It is less risky than manufacturing and requires less investment in capital. b. The company does not have to match the skills needed to manufacture overseas with the skills and abilities of the local workforce. c. It takes less time to enter a new foreign market by exporting than by setting up shop in that country (shorter cycle time to put the product in the marketplace). d. Political problems and instability in the targeted country does not affect exporting as much as it affects overseas manufacturing. e. It is better to export than to manufacture overseas a less mature product requiring design changes because dealing with significant changes away from the main product development and engineering teams may be very difficult and costly. f. Demand does not have to be as high to break-even for exported goods in comparison to goods manufactured overseas. 2. Advantages of manufacturing overseas include the following: a. The costs of logistics, transportation, and taxes are lower. b. The lower the cost of manufacturing in comparison to the cost of distribution the more advantageous it is to manufacture overseas. c. High tariffs favor overseas manufacturing over exporting. 3. The advantages of employing local employees include: a. The locals can be eyes and ears of a foreign unknown market. b. The local employees can serve as a link between the business and the local marketplace. c. In general, local business people and government officials trust other local business people. Dealing with locals also gives most local firms and government officials a peace of mind that they are dealing with a local company.
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