Prodman_c7(Part2)(Location and Planning Analysis)

7/30/2019 Prodman_c7(Part2)(Location and Planning Analysis)

1/52

LOCATION AND

PLANNING ANALYSIS

By: Freneil I. Reyes

PornpimolSupanimittrakul


2/52

Topics

A. Nature of Location Decision

B. Procedure for Making Location Decision

C. Factors Affecting Location Decision

D.Service and Retail Locations

E. Evaluating Location Alternatives


3/52

Location, Location, Location

The three most common reasons for thesuccess or failure of a food/service

concept.


4/52

New Business

Where do most

new business

start up?


5/52

Most start-ups begin life at home,but then need to find extra/different

space as the business grows


6/52

C. Factors Affecting Location Decision

Communications

Labour

Customers Transport links (for supplies/distribution)

Government assistance and local

government charges (ie business rates)

Sales techniques (phone/internet/mail order)


7/52

Factors which influence the importance

of location

The business activity

The number/location of competitors

Reliance on personal visits by customers The methods used to contact customers

Reliance on local supplies

Reliance on specialised labour skills


8/52

Factors Affecting Location

Decision Communication

This includes transportfacilities (road, rail, air) aswell as informationinfrastructure

Transport links areparticularly important if thebusiness delivers products,sells direct using a sales

force or is dependent onimport and export

Information technology is lessof an issue these days moststart-ups can quickly

establish reliable broadband


9/52

Labour

When a start-up needs tohire employees, thenaccess to a reliable pool

of staff with relevant skillsis important

Businesses that arelabour-intensive oftenlook to locate in areas oftraditionally low wages


10/52

Market Customers & Population

We know

where you

live!


11/52

Market Customers & Population

A start-up may need to belocated near particular centersof population

For example, if the product is aservice targeted at affluentolder-aged people, then it isimportant to be located wherethere is a sufficient populationof such people

Franchise businesses oftenanalyze the populationcharacteristics of a potentialnew territory before setting upin a new location


12/52

Transport links

(for supplies/distribution)

The business may bedependent on supplies of aparticular raw material, socosts will be lower if thebusiness is located near thesource of supply (e.g. wherethe raw material is grown orwhere a distributor is based)

This factor tends to be moreimportant for manufacturingbusinesses rather thanservice businesses


13/52

Government assistance and local

government charges (ie businessrates)

Local ordinances, state and federal

laws.Occupancy cost rent, taxes,

insurance, and so on.


14/52

Relocating = moving

May be necessary if key factors change, eg

New shopping centre opens and competitorsrelocate

New motorway opens and diverts trade/providesnew opportunities

Methods of contacting customers change (frompersonal visits to mail order or Internet)

New methods of production changes reliance onsuppliers

Costs increase on existing premises/alternativeswould save money


15/52

D. Service and Retail Locations


16/52

Questions

What types of locations are available to retailers?

What are the relative advantages of each location

type?

Why are some locations particularly well suited to

specific retail strategies?

Which types of locations are growing in popularity

with retailers?


17/52

What Are the

Three Most Important Things in

Retailing?

Location! Location! Location!


18/52

Why is Store Location Important for

a Retailer?

Location is typically primeconsideration in customersstore choice.

Location decisions havestrategic importance becausethey can help to developsustainable competitiveadvantage.

Location decisions are risky:invest or lease?


19/52

Types of Retail Locations

1. Free Standing Sites

2. City or Town Locations

Inner City

Main Street3. Shopping Centers

Strip Shopping Centers

Shopping Malls

4. Other LocationOpportunities


20/52

Selecting a particular location

type

Involves evaluating a series of trade-offs

between

The size of the trade area (geographic areaencompassing most of the customers who

would patronize a specific retail site)

the occupancy cost of the location

The pedestrian and vehicle customer traffic

The restrictions placed on store operations

by the property manager

The convenience of the location for


21/52

Tradeoff Between Locations

Rent

Traffic

There are relative advantages and

disadvantages to consider with each

location.


22/52

1. Freestanding Sites

Freestanding Sites location forindividual storeunconnected to

other retailer Advantages:

Convenience

High traffic and visibility

Modest occupancy cost Separation from

competition

Few restrictions

Disadvantages: No foot traffic


23/52

Freestanding Sites cont

Unplanned Retail Locations

Merchandise Kiosks small temporary selling

stations located in walkways of enclosed malls,

airports, train stations or office building lobbies.


24/52

2. City or Town Locations

Gentrification is bringing population back to the cities.

Advantage to Retailers:

Affluence returned

Young professionals

Returned empty-nesters

Incentives to move provided by

cities

Jobs!

Low occupancy costs

High pedestrian traffic


25/52

Central Business District

(CBD)

Draws people into areas during business hours

Hub for public transportation

Pedestrian traffic

Residents

High security required

Shoplifting

Parking is poor

Evenings and weekends are slow

Advantages

Disad

vantages


26/52

Main Streets vs. CBDs

Occupancy costs lower

than CBDs

They dont attract as

many people

There are not as many

stores

Smaller selections

offered

Not as much

entertainment

Some planners restrict

store operations


27/52

Inner City

Inner city retailers achieve high sales

volume, higher margins and higher profits

Unmet demand tops

25% in many inner

city markets

Inner city customer wants branded merchandise


28/52

3. Shopping Centers

Shopping Center

Management Controls:

Parking

Security

Parking lot lighting

Outdoor signageAdvertising

Special events for

customers


29/52

Types of Shopping Centers

Neighborhood and Community Centers (StripCenters)

Power Centers

Enclosed Malls

Lifestyle Centers

Fashion Specialty Centers

Outlet Centers


30/52

Neighborhood and Community

Centers

Attached row of stores

Managed as a unit

Onsite parking

TheM

cGraw-HillCompanies,Inc./Andrew

Resek,photographer

Advantages

Convenient locations

Easy parking

Low occupancy costs

Disadvantages

Limited trade area

Lack of entertainment

No protection fromweather


31/52

Power Centers

Shopping centers that consist primarily

of collections of big-box retail stores

such as discount stores (Target), off-

price stores (Marshalls), warehouse

clubs (Costco), and category specialists

(Lowes, Best Buy, Dicks)

Open air set up

Free-standing anchors

Limited small specialty stores

Many located near enclosed malls

Low occupancy costs

Convenient

Modest vehicular and pedestrian traffic

Convenient

Modest vehicular and pedestrian traffic

Large trade areas


32/52

Shopping Malls

Regional shopping

malls (less than 1

million square feet)

Super regional malls

(more than 1 million

square feet)


33/52

Advantages and

Disadvantages of Shopping

Malls

7-33

Advantages:Many different types of stores

Many different assortments available

Attracts many shoppersMain Street for todays shoppers

Never worry about the weather

Comfortable surrounding to shop

Uniform hours of operation

Disadvantages:Occupancy costs are high

Tenants may not like mall management control of operations

Competition can be intense


34/52

Lifestyle Centers

Usually located inaffluent residentialneighborhoods

Includes 50K sq. ft. ofupscale chain specialtystores

Open-air configuration

Design ambience andamenities

Upscale stores

Restaurants and often acinema or otherentertainment

Small department storeformat may be there


35/52

Fashion Specialty Centers

Upscale apparelshops

Tourist

areas/centralbusiness districts

Need not to beanchored

Dcor is elegant High occupancy

costs

Large trade area


36/52

Outlet Centers

These shopping centers containmostly manufacturers and retail outlet

stores

Courtesy of Bealls, Inc.


37/52

Theme/Festival Centers

Located in places

of historic

interests or fortourists

Anchored by

restaurants andentertainment

facilities


38/52

4. Other Location Opportunities

Airports

Resorts

Store within a StoreTemporary or pop-up stores


39/52

Alternative Locations

Airports

Airports: Why wait with nothing to do? Rents are 20% higher than malls

Sales/square ft are 3-4 times higher than

malls Best airports are ones with many

connecting flights

K

imSteele/GettyImages


40/52


Resorts

Captive audience

Well-to-do customer

Customers have time to shop


41/52


Store within a Store

Located within other, larger stores

Examples:

Grocery store with service providers(coffee bars, banks, clinics, video outlets)


42/52


Hospitals

Patients cannot leaveGifts are available


43/52

E. Evaluating Location Alternatives

Procedures for evaluation location alternativesinclude

Factor rating method

Load-distance model

Center of gravity approach

Break-even analysis

Transportation method


44/52

Factor Rating Example

A Load-Distance Model Example: Matrix Manufacturing is


45/52

p gconsidering where to locate its warehouse in order to service its fourOhio stores located in Cleveland, Cincinnati, Columbus, Dayton. Twosites are being considered; Mansfield and Springfield, Ohio. Use theload-distance model to make the decision.

Calculate the rectilinear distance:

Multiply by the number of loads between each site and the four cities

miles4515401030dAB


46/52

Calculating the Load-Distance Scorefor Springfield vs. Mansfield

The load-distance score for Mansfield is higher than forSpringfield. The warehouse should be located in Springfield.

Computing the Load-Distance Score for Springfield

City Load Distance ld

Cleveland 15 20.5 307.5

Columbus 10 4.5 45

Cincinnati 12 7.5 90

Dayton 4 3.5 14

Total Load-Distance Score(456.5)

Computing the Load-Distance Score for Mansfield

City Load Distance ld

Cleveland 15 8 120

Columbus 10 8 80

Cincinnati 12 20 240

Dayton 4 16 64Total Load-Distance Score(504)


47/52

Wiley 2007

The Center of Gravity Approach

This approach requires that the analyst find the centerof gravity of the geographic area beingconsidered

Computing the Center of Gravity for MatrixManufacturing

Is there another possible warehouse location closer to the

C.G. that should be considered?? Why?

10.641

436

l

YlY;7.9

41

325

l

XlX

i

ii

c.g.

i

ii

c.g.

Computing the Center of Gravity for Matrix ManufacturingCoordinates Load

Location (X,Y) (li) lixi liyiCleveland (11,22) 15 165 330

Columbus (10,7) 10 165 70

Cincinnati (4,1) 12 165 12

Dayton (3,6) 4 165 24

Total 41 325 436


48/52

Break-Even Analysis

Break-even analysis computes the amount of goods requiredto be sold to just cover costs

Break-even analysis includes fixed and variable costs

Break-even analysis can be used for location analysisespecially when the costs of each location are known Step 1: For each location, determine the fixed and

variable costs Step 2: Plot the total costs for each location on one graph Step 3: Identify ranges of output for which each location

has the lowest total cost Step 4: Solve algebraically for the break-even points

over the identified ranges


49/52

Break-Even Analysis

Remember the break even equations used for calculation totalcost of each location and for calculating the breakevenquantity Q.

Total cost = F + cQ Total revenue = pQ Break-even is where Total Revenue = Total Cost

Q = F/(p-c)Q = break-even quantity

p = price/unitc = variable cost/unitF = fixed cost

Example using Break-even Analysis: Clean-Clothes


50/52

Wiley 2007

Example using Break even Analysis: Clean ClothesCleaners is considering four possible sites for its newoperation. They expect to clean 10,000 garments. Thetable and graph below are used for the analysis.

Example 9.6 Using Break-Even AnalysisLocation Fixed Cost Variable Cost Total Cost

A $350,000 $ 5(10,000) $400,000B $170,000 $25(10,000) $420,000C $100,000 $40(10,000) $500,000

D $250,000 $20(10,000) $450,000

From the graph you can see that the two lowest cost intersectionsoccur between C & B (4667 units) and B & A (9000 units)

The best alternative up to 4667 units is C, between 4667 and 9000

units the best is B, and above 9000 units the best site is A


51/52

The Transportation Method

The transportation method of linear programmingcan be used to solve specific location problems

It is discussed in detail in the supplement to thistext

It could be used to evaluate the cost impact ofadding potential location sites to the network of

existing facilities It could also be used to evaluate adding multiple

new sites or completely redesigning the network


52/52

Documents

Prodman_c7(Part2)(Location and Planning Analysis)