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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 2 of 20
The real wordsTheory

Why it is strategically important

Five reasons, straight off the first slide. Learn them as a list; a five-mark question asks for exactly this.

  1. Location decisions are closely tied to the organisation's strategy: low cost, or convenience to attract market share
  2. They affect capacity and flexibility
  3. They represent a long-term commitment of resources
  4. They impact competitive advantage
  5. They are difficult and expensive to reverse

Notice the phrase "long-term commitment of resources". That is the same phrase used to define a system design decision.

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