1
Semester 2 Module 2
2
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
Organisation’s objectives, goals, priorities and strategies
location of facilities long term commitment very few qualitative and quantitative changes possible
3
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
?
Location Choice for the first time Location choice for an already established organisation with one or more facilities existing
4
?
?
Global Location
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
-
Cost economies Marketing Technology Internal Organisational Strengths & Weaknesses Availability of raw material Business Environment ( Govt. Policy Availability of Power / Transport Facilities Suitability of Climate Geographical Environment ( Nearness to the market)
5
AM ITY GLOBAL BUSINESS SCHOOL
? ? ? ? ? ? ? ? ? ?
Bangalore
Civic amenities for workers Existence of complementary and competing industries Finance and research Facilities Availability of water and Fire Fighting Facilities Momentum of an Early Start Personal Factors Receptivity of Community Scenic location Soil, Size and Topography Disposal of waste
6
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
? ? ? ?
Market Presence in the country of customers Virtual Factory (BPO’s) Tax Advantages Cost of manufacturing is low - lower labor costs - lower raw material costs - better infrastructural inputs (power, water, ores, metals)
7
AM ITY GLOBAL BUSINESS SCHOOL
?
Bangalore
?
Customer Related - customers feel more secure - personal touch of firm - Better customer feedback - Discover potential customers Organisational Learning Related - learn advanced technology - learn from new competitors - Learn from Suppliers abroad
8
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
? ? ? ? ? ? ?
?
Gain “local boy” psychological advantage Deterrent for competitors Avoid “political risk” Build alternative sources of supply Human Capital. Hire “best of best” Lowers market risk Exposure to different systems makes it easier to cope with change Build “BRAND” internationally
9
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
?
? ? ?
Plants manufacturing distinct product lines covers entire market area new technology / old watch mfg / machine tools textile unit / chemical plant Each plant supplying to a specific market area Plants divided on the basis of the processes or stages in Manufacturing Plants Emphasizing Flexibility in adapting to constantly changing Needs
10
AM ITY GLOBAL BUSINESS SCHOOL
?
Bangalore
Methods - Dimensional Analysis - Factor Rating Method - Point Rating Method - Break Even Analysis - Qualitative Factor Analysis - Brown and Gibson Model for Site Location
11
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
?
Cost-Profit-Volume Analysis
? ? ?
Determine fixed and variable costs Plot total costs Determine lowest total costs
12
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
? ? ?
? ? ?
List the most relevant factors in the location decisions Rate each from 1(very low) to 5 (very high) Rate each location ( 1 to 10 ) according to its merits on each factor Compute the product of ratings Add each Choose the location with the highest points
13
AM ITY GLOBAL BUSINESS SCHOOL
Factor Factor Rating Location Rating Location A Tax 4 Advantage Suitability of 3 labor skill Proximity to 3 customers Proximiy to 5 suppliers Adequacy of 1 Water Receptivity of 5 Community 8 2 6 2 3 4 Location B 6 3 5 4 3 3 Product Rating A 32 6 18 10 3 20 B 24 9 15 20 3 15
Bangalore
14
AM ITY GLOBAL BUSINESS SCHOOL
Quality of Educational System 4 1 10 7 6 2 8 9 4 4 30 14 12 149 8
Bangalore
Access to rail 3 and air transportation Suitability of 2 Climate Availability 2 of Power
24 18 8 144
Total Score
15
AM ITY GLOBAL BUSINESS SCHOOL
Break Even Analysis
?
Bangalore
A calculation of the sales volume (in units) required to just cover costs. A lower sales volume would be unprofitable and a higher volume would be profitable. Break-even analysis focuses on the relationship between fixed cost, variable cost (or cost per unit), and selling price (or selling price per unit). Fixed Costs
?
Cost that do not change when production or sales levels do change, such as rent, property tax, insurance, or interest expense. The fixed costs are summarized for a specific time period (generally one month)..
16
AM ITY GLOBAL BUSINESS SCHOOL
? ?
Bangalore
Variable Cost (Per Unit Cost) Variable costs are costs directly related to production units. Typical variable costs include direct labor and direct materials. The variable cost times the number of units sold will equal the Total Variable Cost. Total Variable costs plus Fixed costs make up the total cost of production
17
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
?
Assumptions ? Fixed costs are constant ? Variable costs are linear ? Output can be closely estimated ? Only one product involved
18
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
?
?
?
When comparing locations on an economic basis (tangible factors) Consider only those revenues and costs which differ from site to site Identify fixed costs and variable costs
19
AM ITY GLOBAL BUSINESS SCHOOL
? ?
Bangalore
?
Determine all relevant costs that vary with location Categorize into - Annual Fixed Costs - Variable cost per unit - Total Cost = AC + VC Select the location with the lowest Annual cost at the expected production volume per annum.
20
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
Q
Potential locations A,B and C have the cost structures shown for producing a product expected to sell at Rs.100 per unit. Find the most economical location for an expected volume of 2000 units/year . If the volume of prodn is increased which is the best location ?
21
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
Location A B C
Fixed Cost/year (Rs.) 25,000 50,000 80,000
Variable Cost per unit (Rs.) 50 25 15
22
AM ITY GLOBAL BUSINESS SCHOOL
?
Bangalore
Total Cost =( Fixed cost
per annum)
+ (Variable cost per annum)
X
(Quantity produced)
Total cost at location A, TCA = (FCA)+(VCA) X Q TCA = 25,000+ 50 X 2,000 25,000+1,00,000=Rs.1,25,000 Similarly, Total cost at location B, TCB = 50,000+25 X 2,000 50,000+50,000=Rs.1,00,000 Total cost at location C, TCC = 80,000+ 15 X 2,000 80,000+ 30,000=Rs.1,10,000
23
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
To determine the range of annual volumes of production at which each of the three locations would become most economical, it is necessary to determine the break even volumes. Calculate the costs when Q = 1500, 2500 & 3000. Show graphically. Which is the best location now ?
24
AM ITY GLOBAL BUSINESS SCHOOL
180,000 160,000 140,000 annual total cost 120,000 100,000 80,000 60,000 40,000 20,000 0 500 1000 1500 2000 2500 3000 annual volume
Bangalore
25
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
A company has to select one location out of the five alternatives considered for a new plant. The annual operating costs and other intangible factors are given on the following slide. 1. On the basis of annual operating factors, which site would you choose ? 2. Devise a method of quantifying the intangible factors and integrate them with the cost data into the overall evaluation. Which is best now ?
26
factors
AM ITY GLOBAL BUSINESS SCHOOL
Location A B 120000 10000 17000 21000 16000 v.good Good Fair
acceptable
Bangalore
C 160000 7000 25000 25000 12000 Good Fair
outstanding
D 85000 12000 19000 18000 16000 Fair
outstanding acceptable Very good
E 75000 14000 17000 23000 18000 v good
Acceptable
Economic (Rs.) Labour Transportation Local Power Others Intangible Community attitude Labor Availability
Quality of Transport
110000 8000 20000 29000 11000 Fair V good
acceptable
Fair
outstanding
27
Quality of life
Fair
Good
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
A
B
C
D
E
Total 184000 178000 229000 150000 147000 operating costs Rank 4 3 5 2 1
28
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
Grade Outstanding Very Good Good Fair Acceptable
Point 5 4 3 2 1
29
AM ITY GLOBAL BUSINESS SCHOOL
Ratings for Intangible Factors A Community attitude Labor Availability Quality of Transport Quality of life Total rating Rank B C D E
Bangalore
4 3 2 1 10 3
2 4 1 2 9 4
3 2 5 3 13 1
2 5 1 4 12 2
4 1 2 5 12 2
30
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
?
Which location is the best ?
31
doc_287468776.ppt
Semester 2 Module 2
2
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
Organisation’s objectives, goals, priorities and strategies
location of facilities long term commitment very few qualitative and quantitative changes possible
3
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
?
Location Choice for the first time Location choice for an already established organisation with one or more facilities existing
4
?
?
Global Location
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
-
Cost economies Marketing Technology Internal Organisational Strengths & Weaknesses Availability of raw material Business Environment ( Govt. Policy Availability of Power / Transport Facilities Suitability of Climate Geographical Environment ( Nearness to the market)
5
AM ITY GLOBAL BUSINESS SCHOOL
? ? ? ? ? ? ? ? ? ?
Bangalore
Civic amenities for workers Existence of complementary and competing industries Finance and research Facilities Availability of water and Fire Fighting Facilities Momentum of an Early Start Personal Factors Receptivity of Community Scenic location Soil, Size and Topography Disposal of waste
6
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
? ? ? ?
Market Presence in the country of customers Virtual Factory (BPO’s) Tax Advantages Cost of manufacturing is low - lower labor costs - lower raw material costs - better infrastructural inputs (power, water, ores, metals)
7
AM ITY GLOBAL BUSINESS SCHOOL
?
Bangalore
?
Customer Related - customers feel more secure - personal touch of firm - Better customer feedback - Discover potential customers Organisational Learning Related - learn advanced technology - learn from new competitors - Learn from Suppliers abroad
8
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
? ? ? ? ? ? ?
?
Gain “local boy” psychological advantage Deterrent for competitors Avoid “political risk” Build alternative sources of supply Human Capital. Hire “best of best” Lowers market risk Exposure to different systems makes it easier to cope with change Build “BRAND” internationally
9
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
?
? ? ?
Plants manufacturing distinct product lines covers entire market area new technology / old watch mfg / machine tools textile unit / chemical plant Each plant supplying to a specific market area Plants divided on the basis of the processes or stages in Manufacturing Plants Emphasizing Flexibility in adapting to constantly changing Needs
10
AM ITY GLOBAL BUSINESS SCHOOL
?
Bangalore
Methods - Dimensional Analysis - Factor Rating Method - Point Rating Method - Break Even Analysis - Qualitative Factor Analysis - Brown and Gibson Model for Site Location
11
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
?
Cost-Profit-Volume Analysis
? ? ?
Determine fixed and variable costs Plot total costs Determine lowest total costs
12
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
? ? ?
? ? ?
List the most relevant factors in the location decisions Rate each from 1(very low) to 5 (very high) Rate each location ( 1 to 10 ) according to its merits on each factor Compute the product of ratings Add each Choose the location with the highest points
13
AM ITY GLOBAL BUSINESS SCHOOL
Factor Factor Rating Location Rating Location A Tax 4 Advantage Suitability of 3 labor skill Proximity to 3 customers Proximiy to 5 suppliers Adequacy of 1 Water Receptivity of 5 Community 8 2 6 2 3 4 Location B 6 3 5 4 3 3 Product Rating A 32 6 18 10 3 20 B 24 9 15 20 3 15
Bangalore
14
AM ITY GLOBAL BUSINESS SCHOOL
Quality of Educational System 4 1 10 7 6 2 8 9 4 4 30 14 12 149 8
Bangalore
Access to rail 3 and air transportation Suitability of 2 Climate Availability 2 of Power
24 18 8 144
Total Score
15
AM ITY GLOBAL BUSINESS SCHOOL
Break Even Analysis
?
Bangalore
A calculation of the sales volume (in units) required to just cover costs. A lower sales volume would be unprofitable and a higher volume would be profitable. Break-even analysis focuses on the relationship between fixed cost, variable cost (or cost per unit), and selling price (or selling price per unit). Fixed Costs
?
Cost that do not change when production or sales levels do change, such as rent, property tax, insurance, or interest expense. The fixed costs are summarized for a specific time period (generally one month)..
16
AM ITY GLOBAL BUSINESS SCHOOL
? ?
Bangalore
Variable Cost (Per Unit Cost) Variable costs are costs directly related to production units. Typical variable costs include direct labor and direct materials. The variable cost times the number of units sold will equal the Total Variable Cost. Total Variable costs plus Fixed costs make up the total cost of production
17
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
?
Assumptions ? Fixed costs are constant ? Variable costs are linear ? Output can be closely estimated ? Only one product involved
18
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
?
?
?
When comparing locations on an economic basis (tangible factors) Consider only those revenues and costs which differ from site to site Identify fixed costs and variable costs
19
AM ITY GLOBAL BUSINESS SCHOOL
? ?
Bangalore
?
Determine all relevant costs that vary with location Categorize into - Annual Fixed Costs - Variable cost per unit - Total Cost = AC + VC Select the location with the lowest Annual cost at the expected production volume per annum.
20
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
Q
Potential locations A,B and C have the cost structures shown for producing a product expected to sell at Rs.100 per unit. Find the most economical location for an expected volume of 2000 units/year . If the volume of prodn is increased which is the best location ?
21
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
Location A B C
Fixed Cost/year (Rs.) 25,000 50,000 80,000
Variable Cost per unit (Rs.) 50 25 15
22
AM ITY GLOBAL BUSINESS SCHOOL
?
Bangalore
Total Cost =( Fixed cost
per annum)
+ (Variable cost per annum)
X
(Quantity produced)
Total cost at location A, TCA = (FCA)+(VCA) X Q TCA = 25,000+ 50 X 2,000 25,000+1,00,000=Rs.1,25,000 Similarly, Total cost at location B, TCB = 50,000+25 X 2,000 50,000+50,000=Rs.1,00,000 Total cost at location C, TCC = 80,000+ 15 X 2,000 80,000+ 30,000=Rs.1,10,000
23
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
To determine the range of annual volumes of production at which each of the three locations would become most economical, it is necessary to determine the break even volumes. Calculate the costs when Q = 1500, 2500 & 3000. Show graphically. Which is the best location now ?
24
AM ITY GLOBAL BUSINESS SCHOOL
180,000 160,000 140,000 annual total cost 120,000 100,000 80,000 60,000 40,000 20,000 0 500 1000 1500 2000 2500 3000 annual volume
Bangalore
25
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
A company has to select one location out of the five alternatives considered for a new plant. The annual operating costs and other intangible factors are given on the following slide. 1. On the basis of annual operating factors, which site would you choose ? 2. Devise a method of quantifying the intangible factors and integrate them with the cost data into the overall evaluation. Which is best now ?
26
factors
AM ITY GLOBAL BUSINESS SCHOOL
Location A B 120000 10000 17000 21000 16000 v.good Good Fair
acceptable
Bangalore
C 160000 7000 25000 25000 12000 Good Fair
outstanding
D 85000 12000 19000 18000 16000 Fair
outstanding acceptable Very good
E 75000 14000 17000 23000 18000 v good
Acceptable
Economic (Rs.) Labour Transportation Local Power Others Intangible Community attitude Labor Availability
Quality of Transport
110000 8000 20000 29000 11000 Fair V good
acceptable
Fair
outstanding
27
Quality of life
Fair
Good
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
A
B
C
D
E
Total 184000 178000 229000 150000 147000 operating costs Rank 4 3 5 2 1
28
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
Grade Outstanding Very Good Good Fair Acceptable
Point 5 4 3 2 1
29
AM ITY GLOBAL BUSINESS SCHOOL
Ratings for Intangible Factors A Community attitude Labor Availability Quality of Transport Quality of life Total rating Rank B C D E
Bangalore
4 3 2 1 10 3
2 4 1 2 9 4
3 2 5 3 13 1
2 5 1 4 12 2
4 1 2 5 12 2
30
AM ITY GLOBAL BUSINESS SCHOOL
Bangalore
?
Which location is the best ?
31
doc_287468776.ppt