Chapter 8.docx

5 Pages
Unlock Document

University of Guelph
Food Agricultural and Resource Economics
FARE 3310
Jamie Gruman

Chapter 8– Location Strategies Factors Affecting Location Decisions Dominant Factors in Manufacturing Dominant factors in services 1. Labour productivity 1. Proximity to customers 2. Exchange rates and currency risks 2. Transportation costs and proximity to markers 3. Tangible (utilities, taxes, real estate costs) and 3. Proximity to suppliers and resources intangible (quality of life) costs 4. Location of competitors 4. Political risk, values, and culture 5. Proximity to markets 6. Proximity to suppliers 7. Proximity to competitors Key site-specific success factors Key success factors is country location decisions 1. Site size and cost 1. Political risks, government rules, attitudes, 2. Air, rail, highway, and waterway systems incentives 2. Cultural and economic issues 3. Zoning restrictions 4. Proximity of services/supplies needed 3. Location of markets 5. Environmental impact issues 4. Labour talent, attitudes, productivity, costs 5. Availability of supplies, communication, energy 6. Exchange rates and currency risks Labour Productivity and Labour Content -when deciding on a location, wage rates are not the only cost -management must also consider productivity -lower productivity may increase total cost -labour cost per unit is sometimes called the labour content of the product Example- In Colombia, 6 workers, each with a wage rate of $3 per day, can produce 40 units per day. In China, 10 workers, each with a wage rate $2 per day, can make 45 units. In Montana, two workers, each with a wage rate of $60 per day, can make 100 units per day. Based on productivity only, which location would be preferred? What is the labour content of the product in each location? Based on labour cost (per unit) only, which location would be the most economical to produce the item? Factor Rating Method -systematic selection process begins after there is a perception or evidence that opening a retail outlet, warehouse, office, or plant in a new location will increase profits -factor rating is a procedure that can be used to evaluate multiple alternative locations based on a number of selected factors -factor rating method is popular because a wide variety of factors can be included in the analysis The process of selecting a new facility location involves six steps in the factor method: 1. develop a list of relevant factors called key success factors 2. assign a weight to each factor 3. develop a scale for each factor 4. score each location for each factor 5. multiply score by weights for each factor for each location 6. recommend the location with the highest point score Example- a new animal medical facility is to be located in Guelph. The search has been narrowed to two locations, both acceptable in terms of dominant factors. The following table shows the location factors, weights, and scores (1=poor, 5=excellent) for the two potential sites. The weights in this case add up to 100%. What is the weighted score for each site? Location Factors Weight (%) Scores: Site 1 Scores: Site 2 total patient kilometers per month 25 4 5 facility utilization 20 3 4 average time per emergency trip 20 3 5 expressway accessibility 15 4 2 land and construction costs 10 1 4 employee preferences 10 5 3 Location Break-Even Analysis -break even analysis is a technique used to compute the amount of goods that must be sold to cover costs -basic steps in break-even analysis for location selection are: 1. determine fixed and variable costs for each location 2. plot the cost for each location on one graph 3. select location with lowest total cost for expected production volume Example- The operation manager has narrowed the search for the new animal medical facility to two locations. The annual fixed costs (land, property, taxes, insurance, equipment, building) and variable costs (labour, materials, transportation, and variable overhead) are: Location Fi
More Less

Related notes for FARE 3310

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.