LOCATION PLANNING - LOCATION PLANNING Plant or warehouse location is a long term planning issue that requires a careful analysis of several factors

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LOCATION PLANNING Plant or warehouse location is a long term planning issue that requires a careful analysis of several factors that affect location decisions. These factors are listed below. Regional Factors Raw Materials Markets Labor Taxes Climate (for some industries) Other factors Community Related Factors Service Facilities Community Attitude Community Size Utilities Environmental Regulations Taxes Others Site Related Factors Land Transportation Legal restrictions In choosing a proper location for a plant, first regional factors are analyzed and a suitable region is chosen. Then, a suitable community within the chosen region is selected; the final step is narrowing down on the specific site within that community where the plant will be built. Some of the Techniques Used in Location Planning Factor Rating Locational Break-even Analysis Grid Method Linear Integer Programming Factor Rating We talked about the various factors that affect location decisions. These factors can be weighed and scored to yield results that are helpful in choosing a proper location.
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Example: Suppose we are evaluating two locations. All the factors and conditions are the same except the factors specified below. Choose the best location if only the following factors are relevant. SCORES (OUT OF 100) WEIGHTED SCORES FACTOR WEIGHT SITE 1 SITE 2 SITE 1 SITE 2 Nearness to raw materials 0.3 100 50 30 15 Labor Cost 0.1 80 90 8 9 Electricity Cost 0.4 70 80 28 32 Land Cost 0.2 40 80 8 16 1.0 74 72 On the basis of factor rating analysis we choose Site 1 because it has the highest weighted score. Locational Break-even Analysis This technique compares the total cost curves of the potential sites and chooses the site with the minimum total cost curve. Suppose the following graph depicts the total cost (TC) curves for two potential sites. Cost Total Cost Curve for Site A Total Cost Curve for Site B 5000 Quantity According to these graphs, the two alternatives break even when the production quantity is 5,000. If the plant's production capacity is going to be less than 5,000 we choose Site A as the TC
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curve for Site A is under that of site B for quantities below 5,000. If the plant capacity is going to be more than 5,000 we choose Site B. Grid Method
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This note was uploaded on 05/21/2011 for the course ECON 123 taught by Professor Day during the Spring '11 term at Arab Open University, Amman.

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LOCATION PLANNING - LOCATION PLANNING Plant or warehouse location is a long term planning issue that requires a careful analysis of several factors

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