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Sem 5 Prep
← OperationsWhy location decisions matter

Formulas for this chapter

Landed cost per unit

Landed cost = Factory cost + Freight + Duty - Per-unit incentives

Screening countries or regions before any of the four evaluation methods. Check what base the duty percentage applies to.

Factory cost
Ex-works cost of making one unit
Duty
Rate x the stated base, usually factory cost or CIF value
Incentives
Only those expressed per unit; lump sums are applied to the annual total

Capacity gap

Years of headroom = (Capacity - Current demand) / Annual demand growth Decide by = Year the gap opens - Build lead time

Deciding whether a location decision is due now. Use a year-by-year table when growth is a percentage rather than a fixed increment.

Capacity
Units the existing facility can produce per year
Annual demand growth
Units per year, or apply the rate to a running base
Build lead time
Years from decision to first output
Step 1 of 20
The ideaTheory

You only get to choose once

Picking a shop is not like picking a supplier. If the supplier disappoints you, you switch next month. If the building disappoints you, you are stuck with it for twenty years.

Location is a decision you buy once and pay for every single day afterwards, in freight, in wages, in how far customers have to come.

That is why the class calls it strategic, and why a whole family of methods exists just to choose a spot on a map.

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