Every firm must use location planning techniques. There are many options for location
planning. Corporations choose from expanding an existing location, shutting down one
location and moving to another, adding new locations while retaining existing facilities,
or doing nothing. There are a variety of methods used to decide the best location or
alternatives for the corporation. Methods such as identifying the country, general region,
small number of community alternatives, and site alternatives.
Several factors that influence location positioning include the location of raw materials, proximity to the
market, climate, and culture. Models for evaluating whether a location is best for an organization consist
of cost-profit analysis for locations, the center of gravity model, the transportation model, and factor
This chapter discusses the decision to relocate a facility by considering costs and benefits. If you are
planning on moving or acquiring a new facility, there are many factors to consider: the size, the
geographic area, culture, transportation costs and others. After a location or locations have been chosen
a cost-profit-volume analysis is done.
The main factors that affect location decisions include regional factors, community considerations, and site-related
factors. Community factors consist of quality of life, services, attitudes, taxes, environmental regulations, utilities,
and development support.
EVALUATING LOCATION ALTERNATIVES
There are three specific analytical techniques available to aid in evaluating location
Location Cost-Volume-Profit Analysis:
The Cost-Volume-Profit (CVP) Analysis can be represented either
mathematically or graphically. It involves three steps: 1) For each location
alternative, determine the fixed and variable costs, 2) For all locations, plot
the total-cost lines on the same graph, and 3) Use the lines to determine
which alternatives will have the highest and lowest total costs for expected
levels of output. Additionally, there are four assumptions one must keep in
mind when using this method:
Fixed costs are constant.
Variable costs are linear.
Required level of output can be closely estimated.
There is only one product involved.
Total cost = FC = v(Q)