Chapter 11- Global Location Decisions

Quality of life Issues

- Education - Economy - Natural Environment - Social Environment - Culture/recreation - Healthcare - Government/politics - Mobility - Public Safety

Environmental Issues

- Global warming, air pollution, & acid rain are debated as the price of industrialization. - Trade liberalization creates need for environmental cooperation.

Managing Supply Chain Risk

- Increase safety stocks also known as stockpiling and forward buying - Identify backup suppliers & logistics services which may emergency sourcing & multiple sourcing - Diversify the supply base - Utilize a supply chain IT system - Develop a formal risk management program -Reducing the risk of intentionally created disruptions in supply chain operations - A supply chain is only as secure as its weakest link - Security management collaboration should include, for example, contractual requirements for secure systems.

Labor Issues

- Labor availability, productivity, & skill. - Unemployment & underemployment rates. - Wage rates; turnover rates; labor force competitors.

Critical Location Factors

- Regional Trade Agreements and WTO - Competitiveness of nations - gov taxes and incentives - current stability - access and proximity to markets - environmental issues -labor issues - right to work laws - access to suppliers and cost - utility availability and cost - quality of life issues - land avail and costs

Utility Availability & Cost

- Supply of electricity has not kept pace with the high speed of development. - In heavy industries the availability & cost of energy are critical considerations. - Telecommunication costs have dropped dramatically. Many organizations now have back office operations & call centers internationally to serve the U.S. market.

6 location types

-offshore factory - source factory - server factory - contributor factory - outpost factory - lead factory

Land Availability & Costs

As land & construction costs in big cities continue to escalate, the trend is to locate in the suburbs & rural areas.

The Weighted-Factor Rating Model

Compares the attractiveness of several locations along a number of quantitative & qualitative dimensions.

outpost factory

Embedded network of suppliers, competitors, research facilities for materials, components & products.

contributor factory

Firm involved in product development, production planning, procurement decisions, & developing suppliers.

lead factory

Firm is source of innovation & competitive advantage of the organization.

server factory

Firm uses government incentives & low exchange risk & tariff barriers to reduce taxes & logistics costs.

Current Stability

Impacts business costs & consequently location decisions.

Access to Suppliers & Cost

Supplier proximity influences the delivery of materials & effectiveness of the supply chain.

Right-to-Work Laws

The right of employees to decide whether or not to join or support a union.

Access & Proximity to Markets

The trend in manufacturing is to be within delivery proximity of your customers. Logistics timelines & costs are the concerns, so that reinforces a clustering effect of suppliers & producers to places that offer lower cost labor & real estate."

Break-even model

Useful location analysis technique when fixed & variable costs can be determined. - Identify the locations to be considered. - Determine the fixed cost of land, property taxes, insurance, equipment, & buildings. - Determine the unit variable cost, materials, utilities, & transportation costs. - Construct the total cost lines. - Determine the break-even points on the graph. - Identify the range over which each location has the lower cost.

Competitiveness of Nations

degree to which a country produces goods and services for international markets, while maintaining or expanding personal real income over time.

offshore factory

low cost investment & labor costs.

source factory

plant mgmt involved in supplier selection & production planning.

World Trade Organization (WTO)

successor to the General Agreement on Tariffs/Trade (GATT) - International organization that looks over all trades, agreements, negotiations, etc.

Government Taxes & Incentives

taxes and incentives vary through all locations

Foreign trade zones (FTZ)

where materials are imported duty-free as inputs to production