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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 3 of 20
The real wordsTheory

Why the question comes up at all

Two families of reason, and the class numbers them.

1. Addition of new facilities. As part of a marketing strategy to expand markets, or because growth in demand cannot be satisfied by expanding the existing facilities.

2. Relocation. Depletion of the basic inputs, a shift in markets, or the cost of doing business at a particular location making a move attractive.

Growth pushes you to add. Depletion, market shift and cost push you to move.

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