Term
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Definition
is the process of determining geographic sites for a firm’s operations.
Location decisions affect processes throughout the organization.
Marketing must assess how the location will appeal to customers; possibly opening new markets.
Human Resources must be attuned to the firm’s hiring and training needs.
Accounting and Finance must evaluate costing.
Operations needs to be able to meet current customer demand and provide the right amount of customer contact. |
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Term
| Factors Affecting Location Decisions |
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Definition
Managers must weigh many factors when assessing the desirability of particular locations.
The factor must be sensitive to location.
The factor must have a high impact on the company’s ability to meet its goals. |
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Term
| Dominant Factors in Manufacturing |
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Definition
Favorable labor climate. May be most important factor in labor-intensive industries
Proximity to markets. Important when outbound transportation rates are high.
Quality of life. Good schools, recreational facilities, cultural events and attractive lifestyle.
Proximity to suppliers and resources. Important when inbound transportation costs are high.
Proximity to the parent company’s facilities. Important when coordination and communication is critical.
Utilities, taxes, and real estate costs. |
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Term
| Dominant Factors in Services |
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Definition
Proximity to customers. How conveniently customers can carry on business with a firm.
Transportation costs and proximity to markets.
Especially for warehousing and distribution operations.
Location of Competitors. Estimating the sales potential and impact of competition.
Critical mass is a situation whereby several competing firms clustered in one location attract more customers than the total number who would shop at the same stores at scattered locations.
Site-Specific Factors. Including residential density, traffic flow, and site visibility. |
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Term
| Geographical information system (GIS) |
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Definition
is a system of computer software, hardware, and data that the firm’s personnel can use to manipulate, analyze, and present information relevant to a location decision. It can be used to:
Store databases
Display maps
Create models that can take information from existing datasets, apply analytic functions, and write results into new derived datasets.
Together, these three functionalities of data storage, map displays, and modeling are critical parts of an intelligent GIS, used to a varying extent in all GIS applications. |
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Term
| Onsite Expansion, New Location, or Relocation |
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Definition
Managers must first decide whether to expand onsite, build another facility, or relocate to another site.
Onsite expansion has the advantage of keeping people together, reducing construction time and costs, and avoiding splitting up operations.
However, as a firm expands a facility, at some point diseconomies of scale set in.
A new plant allows it to hire more employees, install newer, more-productive machinery and better technology, and reduce transportation costs.
Most firms that choose to relocate are small (comprised of less than 10 employees).
More than 80 percent of all relocations are made within 20 miles of companies’ original locations, which enables the firms to retain their current employees. |
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Term
| Locating a Single Facility |
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Definition
When the facility is part of a firm’s larger network of facilities, we assume that there is no interdependence.
The process of selecting a new facility location involves a series of steps.
Identify the important location factors and categorize them as dominant or secondary.
Consider alternative regions; then narrow the choices to alternative communities and finally to specific sites.
Collect data on the alternatives.
Analyze the data collected, beginning with the quantitative factors.
Bring the qualitative factors into the evaluation. The site with the highest weighted score is best. |
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Term
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Definition
A mathematical model used to evaluate locations based on proximity factors.
A load may be shipments from suppliers, shipments between plants or to customers, or it may be customers or employees traveling to or from the facility.
The firm seeks to minimize its load–distance (ld) score, generally by choosing a location, so that large loads go short distances.
To calculate ld score for any potential location, we use the actual distance between any two points using a GIS system, and simply multiply the loads flowing to and from the facility by the distances traveled. |
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Term
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Definition
A good starting point to evaluate locations in the target area using the load-distance model.
Determine the x and y coordinates of different locations either in the form of the longitude and latitude of the locations, or by creating an (x, y) grid.
The center of gravity’s x-coordinate, denoted x*, is found by multiplying each point’s x-coordinate (either the longitude of the location or the x coordinate on a grid), by its load (li), summing these products (Σ lixi), and then dividing by the sum of the loads (Σ li). The y-coordinate, denoted y*, is found the same way. |
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Term
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Definition
can help a manager compare location alternatives on the basis of quantitative factors that can be expressed in terms of total cost.
Determine the variable costs and fixed costs for each site.
Plot the total cost lines—the sum of variable and fixed costs—for all the sites on a single graph
Identify the approximate ranges for which each location has the lowest cost.
Solve algebraically for the break-even points over the relevant ranges. |
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Term
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Definition
is a quantitative approach that can help solve multiple-facility location problems.
The transportation method does not solve all facets of the multiple-facility location problem.
It utilizes linear programming to minimize the cost of shipping products from two or more plants, or sources of supply, to two or more warehouses, or destinations. |
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Term
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Definition
| Solution guidelines, or rules of thumb, that find feasible–but not necessarily the best–solutions to problems. |
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Term
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Definition
| A modeling technique that reproduces the behavior of a system. |
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Term
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Definition
| A procedure used to determine the “best” solution; generally utilizes simplified and less realistic views of a problem. |
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