Chapter 8

The locational cost-profit-volume analysis method assumes the following:

......Fixed costs are constant for the range of probable output, Variable costs are linear for the range of probable output, The required level of output can be closely estimated, Only one product is involved.

Software systems known as GIS help in location analysis. The initials GIS stand for _______.

......Geographic Information System

Firms locate near or at the source of raw materials for three primary reasons:

......Necessity, perishability, and transportation costs.

General Purpose Plant Strategy

......Strategy in which plants are flexible and capable of handling a range of products. This allows for quick response to product or market changes, although it can be less productive than a more focused approach. Flexible, increased learning opportunities,

Two key factors that have made globalization attractive and feasible for business organizations.

......Trade agreements and technological advances.

When businesses of the same type locate near similar businesses, that is referred to as

......clustering.

The transportation model is used to?

......determine optimal shipping/receiving routes.

Least important as a consideration for a firm at the beginning of a supply chain?

.....Access to end consumers;Firms at the beginning of the supply chain are far-removed from final consumers.

Some communities offer financial and other incentives to ______ new businesses.

.....Attract;Businesses often weigh such incentives in their location decision processes.

Centralized distribution generally yields scale economies as well as tighter control than decentralized distribution, but it sometimes incurs higher transportation costs.

.....Decentralized distribution tends to be more responsive to local needs.

The general procedure for making location decisions usually consists of the following steps:

.....Decide on the criteria to use for evaluating location alternatives, such as increased revenues or community service, Identify important factors, such as location of markets or raw materials, Evaluate the alternatives and make a selection. (Step 1 is simply a matter of managerial preference)

The first step in location planning and analysis is:

.....Determine the criteria upon which the decision will be made. Every step in the process must relate to the decision criteria.

The following procedure is used to develop a factor rating:

.....Determine which factors are relevant (e.g., location of market, water supply, parking facilities, revenue potential), Assign a weight to each factor that indicates its relative importance compared with all other factors., Decide on a common scale for all factors (e.g., 1 to 100), and set a minimum acceptable score if necessary, Score each location alternative, Multiply the factor weight by the score for each factor, and sum the results for each location alternative, Choose the alternative that has the highest composite score, unless it fails to meet the minimum acceptable score.

The tool that is provides demographic information for location analysis is

.....Geographic information system

As a result of the factor rating analysis, a manager may sometimes reject all of the alternatives under consideration when the composite scores are below the minimum threshold value.

.....If a minimum score is necessary, no alternative may be suitable.

In manufacturing, the potentially dominating factors usually include availability of an abundant energy and water supply and proximity to raw materials.

.....In service organizations, possible dominating factors are market related and include traffic patterns, convenience, and competitors' locations, as well as proximity to the market

The center of gravity method: Method for locating a distribution center that minimizes distribution cost.

.....It is a method to determine the location of a facility that will minimize shipping costs or travel time to various destinations.

Decision makers must not let the attractiveness of a few factors cloud the decision-making process. There are many factors to take into account when selecting a location.

.....It is essential to identify the key factors and their relative importance, and then to use that information to evaluate location alternatives.

The primary considerations related to sites are:

.....Land, transportation, and zoning or other restrictions

Benefits of globalization:

.....Markets, Cost savings, Legal and regulatory, Financial, Other

These are two risks that can be associated with global locations.

.....Miscommunication and cultural differences.

Most organizations face location

.....Over time.

Risks of globalization:

.....Political, Terrorism, Economic, Legal, Ethical and Cultural

Multiple Plant Manufacturing Strategies

.....Product Plant Strategy, Market Area Plant Strategy, Process Plant Strategy, General-Purpose Plant Strategy

The primary regional factors involve:

.....Raw materials, markets, and labor considerations.

As a result of the factor rating analysis, a manager may sometimes

.....Reject all of the alternatives under consideration when the composite scores are below the minimum threshold value.

In location analysis, service organizations tend to be__________ focused, whereas manufacturers tend to be _______ focused.

.....Revenue,cost

Location planning for secondary schools would most likely focus on factors of a

.....Site;Region and community are predetermined

microfactories

.....Small factory with a narrow product focus, located near major markets.

Process Plant Strategy

.....Strategy in which different plants concentrate on different aspects of a process. Each component of the product is made at a different plant. Processes in different locations, for products with lots of components, highly informed & centralized admin, highly specialized.

Product Plan Strategy

.....Strategy in which entire products or product lines are produced in separate plants, and each plant usually supplies the entire domestic market. Products in different locations, decentralized admin, specialization, economies of scale, lower operating costs.

Market Area Plant Strategy

.....Strategy in which individual plants produce most if not all of a company's products and only supply a limited geographical area. Close to customers, high operating costs, low shipping costs, centralized admin.

Locational cost-profit-volume analysis:

.....Technique for evaluating location choices in economic terms ;Determine the fixed and variable costs associated with each location alternative, Plot the total-cost lines for all location alternatives on the same graph, Determine which location will have the lowest total cost for the expected level of output. Alternatively, determine which location will have the highest profit.

The economic comparison of location alternatives is facilitated by the use of cost-profit-volume analysis.

.....The analysis can be done numerically or graphically.

The linear programming model of a transportation problem has one goal

.....The minimization of the objective function.

A breakeven point in location analysis is where

.....The output at which total costs are met.

In the factor rating system

.....The sum of all weights is 1.00.

Location decisions are strategic:

.....They can have a significant impact on the success or failure of a business.

Disadvantages of globaliztion:

.....Transportation costs,Security costs, Unskilled labor, Import restrictions, Criticisms

The center of gravity method is

.....Used to minimize travel distances.

Factor scoring determines

.....a composite score from weighted factor evaluation.

Labor costs

.....are only occasionally a primary consideration in location decisions.

When businesses locate near similar businesses it is referred to as:

.....clustering.

Multiple plant manufacturing strategies doesn't include

.....core plant

Location Options:

.....do nothing relocate from one location to another add a new location expand an existing facility All of these should or might be considered.

Which reason would not generally be cited for locating in a third world country?

.....increased output quality.; Third world countries tend to be less sophisticated in the area of quality.

A geographic information system (GIS)

.....is a computer-based tool for collecting, storing, retrieving, and displaying demographic data on maps.

Factor rating

.....is a general approach that is useful for evaluating a given alternative and comparing alternatives. General approach to evaluating locations that includes quantitative and qualitative inputs.

Regional factors can include

.....location of markets or location of raw materials.

Factor rating includes both

.....qualitative and quantitative inputs.

Factors used in location analysis for services and manufacturing are usually

.....quite different.

Climate and taxes are often key site considerations in

.....regional factors.

The center of gravity method treats

.....shipping cost as a linear function of the shipping distance.

Zoning and land costs can be key regional considerations in

.....site factors.

A microfactory is a

.....small factory that has a narrow product focus and is located near major markets.

Very often, location decisions are long term and involve substantial cost...

.....so it is important to devote an appropriate amount of effort to selecting a location.

It is important to also factor in the impact that location choices will have on the:

.....supply chain.

The top three factors in determining where to locate international manufacturing facilities are:

.....talent, labor costs, and energy costs.

Which one is not usually listed as a regional factor in location decisions?

.....taxes; Taxes are often state/community factors.

Primary labor considerations are:

.....the cost and availability of labor, wage rates in an area, labor productivity and attitudes toward work, and whether unions are a serious potential problem.

The goal for location decisions is

.....to identify a good location; with so many variables, unknowns, and choices, the ability to identify an optimal location is minimal.

The method for evaluating location alternatives which minimizes shipping costs between multiple sending and receiving locations is:

.....transportation model analysis;Transportation model analysis minimizes shipping costs between multiple sending and receiving locations.

The location of many businesses is often a function of

.....where the originator was located at the time the business was started.